[House Hearing, 106 Congress]
[From the U.S. Government Printing Office]




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION


                             APRIL 22, 1999


                             Serial 106-23


         Printed for the use of the Committee on Ways and Means


                      U.S. GOVERNMENT PRINTING OFFICE
 59-614 CC                   WASHINGTON : 2000
                   For sale by the U.S. Government Printing Office
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
RON LEWIS, Kentucky

                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel


                         Subcommittee on Health

                   BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois            JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.

                            C O N T E N T S



Advisory of April 12, 1999, announcing the hearing...............     2


Health Care Financing Administration, Michael Hash, Deputy 
  Administrator; accompanied by Jeff Kang, M.D., Director, Office 
  of Clinical Standards and Quality..............................    21


American Medical Association, William G. Plested III, M.D........    90
Coleman, Terry, Fox, Bennett & Turner............................    56
Health Industry Manufacturers Association and Hill-Rom Company, 
  Walter M. Rosebrough, Jr.......................................    79
Kinney, Eleanor D., Indiana University School of Law, and Center 
  for Law and Health.............................................    46
National Senior Citizens Law Center, Vicki Gottlich..............    64
Oncotech, Incorporated, Frank J. Kiesner.........................    86

                       SUBMISSIONS FOR THE RECORD

American Academy of Audiology, McLean, VA, Angela Loavenbruck, 
  statement......................................................   106
American College of Physicians-American Society of Internal 
  Medicine, statement............................................   107
American Gastroenterological Association, Bethesda, MD, statement   111
American Occupational Therapy Association, Inc., Bethesda, MD, 
  statement......................................................   113
Home Care Association of America, Jacksonville, FL, Dwight S. 
  Cenac, statement...............................................   115
Medical Device Manufacturers Association, statement..............   118
National Association for Home Care, statement....................   120
Pharmaceutical Research and Manufacturers of America, statement..   122
Society of Critical Care Medicine, Anaheim, CA, George A. Sample, 
  M.D., statement................................................   126
SunDance Rehabilitation Corporation, Dallas, TX, David Kniess, 
  letter.........................................................   129
Transamerica Occidental Life Insurance Company, Los Angeles, CA, 
  George E. Garcia, letter.......................................   130



                        THURSDAY, APRIL 22, 1999

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:11 p.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]



                         SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE                     CONTACT: (202) 225-3943
April 12, 1999
No. HL-4

                      Thomas Announces Hearing on
                    Medicare Coverage Decisions and
                          Beneficiary Appeals

    Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of 
the Committee on Ways and Means, today announced that the Subcommittee 
will hold a hearing on how the Health Care Financing Administration 
(HCFA) makes decisions regarding Medicare covered services and what 
opportunities exist for seniors to appeal those decisions. The hearing 
will take place on Thursday, April 22, 1999, in the main committee 
hearing room, 1100 Longworth House Office Building, beginning at 1:00 
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    Coverage is an important concept in understanding Medicare 
benefits: the Social Security Act requires that all medical services be 
``reasonable and necessary'' for the treatment of an illness or injury. 
HCFA and its private-sector contractors (known as fiscal intermediaries 
and carriers) have broad discretion to make Medicare coverage 
decisions. In some cases, the agency makes sweeping National Coverage 
Determinations (NCD). Under current law, beneficiaries can appeal many 
Medicare decisions but they are largely foreclosed from appealing NCDs.
    The current Medicare appeals system can best be characterized as a 
patch-work--a large number of independent appeal processes addressing a 
multitude of diverse issues. Medicare appeals are divided into three 
distinct parts: Medicare Part A (generally hospital inpatient stays), 
Medicare Part B (generally physician services), and Medicare managed 
care. Each of these three parts is, in turn, broken into distinct sub-
parts, one for beneficiaries seeking covered services and others for 
medical providers seeking reimbursement for services. HCFA uses a 
number of levels of review, including governmental contractors (fiscal 
intermediaries and carriers), review panels (Provider Reimbursement 
Review Board, Peer Review Organizations, Departmental Appeals Board) 
and judicial officers (Administrative Law Judges and Federal U.S. 
District Courts).
    The current appeals processes stem from the Omnibus Budget 
Reconciliation Act of 1986 (OBRA86) in which Congress made several 
important reforms to the Medicare appeals system. Since then, the 
appeals process has become increasingly complex and time-consuming. An 
increase in the number and complexity of appeals calls into question 
the adequacy of the current system. Many Supreme Court and Federal 
court decisions concerning the Medicare appeals system have raised 
basic questions about its fundamental fairness to beneficiaries and 
    In announcing the hearing, Chairman Thomas stated: ``At a time when 
the Administration is seeking swifter appeals in private health plans, 
it is only fitting that we consider how various appeals are handled in 
governmental programs like Medicare. There are too many people, 
including Federal bureaucrats and governmental contractors, making 
coverage decisions without being held accountable. America's seniors 
deserve a meaningful opportunity to question these decisions.''


    This hearing will analyze the processes available for seniors and 
medical providers to appeal payment and coverage determinations under 
Parts A and B of the Medicare program.


    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect 5.1 format, with their name, address, and 
hearing date noted on a label, by the close of business, Thursday, May 
6, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Health office, room 1136 Longworth House 
Office Building, by close of business the day before the hearing.


    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
format, typed in single space and may not exceed a total of 10 pages 
including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://www.house.gov/ways__means/''.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.


    Chairman Thomas. The Subcommittee will come to order.
    As we begin this hearing on Medicare coverage, I am pleased 
to announce that the Health Care Financing Administration has 
finally been able to publish, very coincidentally today, a 
regulation which sets forth the administrative process for 
Medicare coverage. I really do not think it is mere coincidence 
that HCFA published this on the same day as this Subcommittee's 
hearing. If I had known that was the operating procedure, I 
would have scheduled this hearing a month earlier.
    One year ago this week, the Ways and Means Subcommittee on 
Health convened a hearing to examine the rights of patients to 
appeal benefit decisions in both the private and the public 
health programs. Since that time, appeals decisions have been 
monitored by Members of this Subcommittee, and we have drafted 
various pieces of legislation to improve the way patients' 
appeals are heard in both the fee-for-service and the managed 
care area.
    One legislative proposal, H.R. 4250, the Patient Protection 
Act, was passed by the House in July of last year. My 
colleagues on the other side the aisle declined to support that 
bill based in part, I believe, on arguments that they presented 
that the bill did not provide speedy enough access to judicial 
review. And yet if I have learned anything over the last year 
it is that private health insurance even under current law 
allows for quicker access to judicial review than does the 
Medicare Program.
    Today, we are going to examine the patient appeals process 
within the Medicare Program, and I will direct your attention--
you may or may not be able to see it; my assumption is that we 
have copies available to you--on the Medicare appeals process, 
and what this schematic chart basically shows you is that 
Medicare requires an individual to run a gauntlet of 
administrative appeals, first, to a government contractor, then 
to an agency advisory board, then to an administrative law 
judge, then to the Department Appeals Board, and then only 
after a ``final decision'' by the Secretary is there a limited 
court or judicial review.
    As I said a year ago at our first patient appeals hearing, 
due process means many things. To legal scholars, it is term of 
art meaning the technical process by which legal rights are 
enforced, but in a larger sense, when we use the term ``due 
process,'' it means simply the opportunity to be heard; the 
chance to air grievances objectively, get on the record so that 
you can let people see what has been happening.
    Today, we will examine the opportunity seniors have to 
challenge decisions made in the Medicare Program. I would like 
to note that the administration has had, in my opinion, 
difficulty in wrestling with this decision. The best example of 
this is the administration's handling of a Federal circuit 
decision known as the Grijalva case. The 9th circuit decided 
that the rights of seniors were not being given sufficient 
weight in Medicare HMOs. The administration, I think, to say 
the least, was split as evidenced by an article in the New York 
Times on January 22 over whether the administration should 
challenge the court's decision to improve rights for seniors. 
One internal administration memo, quoted in the paper, said, 
``The Department's position, challenging the court order, could 
be seen as inconsistent with the administration's stated policy 
of expanding consumer protections.''
    Today, we will also be examining the Medicare coverage 
process. Appeal rights within Medicare are inextricably 
intertwined with the Medicare coverage process. Coverage is an 
important concept in understanding Medicare benefits. The 
Social Security Act, section 1862 says that Medicare covers 
only medical services that are ``reasonable and necessary'' for 
the treatment of an illness or an injury, and yet the 
definition of reasonable and necessary is left largely to the 
Health Care Financing Administration and its private sector 
contractors, known as fiscal intermediaries and carriers. 
Together, they have broad discretion to make Medicare coverage 
decisions. It has been indicated to me that the vast majority 
of the decisions, upward of 90 percent, are made locally by 
contractors. In all other cases, the Health Care Financing 
Administration makes national coverage determinations usually 
involving access to very expensive high-tech medicine. Under 
current law, beneficiaries may appeal local Medicare decisions, 
but they cannot generally appeal HCFA's national coverage 
decisions, and I am interested, if at all possible today, in 
learning why that is the case.
    As many of you know, Members of this Subcommittee have 
played a leading role in prodding the Health Care Financing 
Administration to develop a more deliberative coverage process. 
In 1997, this Subcommittee learned, as a result of a 
congressional investigation, that HCFA's Technology Advisory 
Committee, or TAC, was meeting in closed-door sessions in 
violation of Federal statute. Since then, HCFA has dumped TAC 
and revamped its advisory committee process, and yet the 
current HCFA coverage decisionmaking process is still made with 
little input from seniors, physicians, medical technology 
manufacturers; in short, those directly affected by those 
    I understand that the private sector is, in many instances, 
such as pharmaceuticals, becoming much more efficient in 
Medicare in approving access to the most advanced care. While 
HCFA's proposal for a new coverage process is, in effect, a 
good system, the new proposal will still not address the local 
coverage process. Instead, the new proposal focuses exclusively 
in improving the national coverage process, and I am interested 
in learning more about this new coverage regulation which we 
just received. I tried to read briefly through it, and I did 
note that on page 10, it was reinforcement of the carrier or 
the intermediary making local decisions.
    As we prepared for this hearing, I have heard a great deal 
of frustrations from constituents about the current Medicare 
appeals and coverage process. I continue to believe that this 
is an overly muddled process. I do hope that we can look at 
fundamental reforms. Medicare commission, premium support 
model, and others would be the best way to free ourselves from 
this hopelessly muddled structure, but, until then, we will 
work to improve the current process.
    Let me end--before I hand off to my colleague from 
California, my friend, Mr. Stark--a concern that he and I share 
since we both signed the letter that was addressed to the 
Administrator on February 2, 1999 in which we were concerned 
about the fact that contractors have the authority to enforce 
coverage policy and that they are also being given the 
authority to establish the very policy that they enforce and 
that, at the very least, establishing and enforcing coverage 
policy should be separate. In a letter in answer to that 
February 2 letter, received April 20--2 days ago--the 
administrator, in responding to our letter, said ``In the long 
run, I believe the best way to administer local coverage is to 
separate the development of the coverage decisions or 
policies.'' I guess they are for agreeing with the concern that 
the Ranking Member and the Chairman showed but that I don't see 
any evidence of that reflected in the proposal or the notice 
that has been submitted, and I would also look forward to some 
indication, then, about what the Administrator may have meant, 
to the best of anyone's ability to interpret, what ``in the 
long run'' means.
    [The opening statement follows:]

Opening Statement of Hon. Bill Thomas, a Representative in Congress 
from the State of California

    As we begin this hearing on Medicare coverage, I am happy 
to announce that the Health Care Financing Administration 
(HCFA) has finally been able to publish today a regulation 
which sets forth the administrative process for Medicare 
coverage. I do not think it is mere coincidence that HCFA 
published this on the same day as this Subcommittee's hearing. 
If I had known that a hearing was all it would take to get this 
regulation published, I would have scheduled the hearing a 
month ago.
    One year ago this week, the Ways & Means Subcommittee on 
Health convened a hearing to examine the rights of patients to 
appeal benefits decisions in both private and public health 
programs. Since that time, Members of this subcommittee have 
been vigorously drafting various pieces of legislation to 
improve the ways patient appeals are heard in both fee-for-
service and managed care.
    One legislative proposal, H.R. 4250, the Patient Protection 
Act was narrowly passed by the House in July 1998. My 
colleagues on the aisle opposite declined to support that bill, 
based largely on the belief that the bill did not provide 
speedy enough access to judicial review. And yet, what I have 
learned in the past year is that private health insurance, even 
under current law, allows for quicker access to judicial review 
than does the Medicare program. Today, we are going to examine 
the patient appeals process within the Medicare program.
    I direct your attention to this enlarged schematic which 
shows the current Medical appeals processes.
    As you can see, Medicare requires an individual to run an 
entire gauntlet of administrative appeals, first to a 
government contractor, then to an agency advisory board, then 
to an Administrative Law Judge, then to the Departmental 
Appeals Board, and then--only after a ``final decision'' by the 
Secretary--is there limited judicial review.
    As I said one year ago, at our first patient appeals 
hearing, ``due process means many things.'' To legal scholars, 
it is a term of art meaning the technical process by which 
legal rights are enforced. In a larger sense, due process means 
simply the opportunity to be heard, the chance to air 
grievances, objectively and on-the-record.
    Today, we will examine the opportunities seniors have to 
challenge decisions made in the Medicare program. I would like 
to note that the Administration has had great difficulty 
wrestling with this issue.
    The best example of this is the Administration's handling 
of a Federal Circuit Court decision known as Grivalja 
(pronounced: GRA-val-ha). The Ninth Circuit decided that the 
rights of seniors were not being given sufficient weight in 
Medicare HMOs. The Administration was bitterly split--as 
evidenced by an article in the New York Times on January 22--
over whether the Administration should challenge the Court's 
decision to improve rights for seniors. One internal 
Administration memo quoted in the paper said, ``The 
Department's position [challenging the Court order] could be 
seen as inconsistent with the Administration's stated policy of 
expanding consumer protections....''
    Today, we will also be examining the Medicare coverage 
process. Appeal rights within Medicare are inextricably 
intertwined with the Medicare coverage process. Coverage is an 
important concept in understanding Medicare benefits. Social 
Security Act section 1862 says that Medicare covers only 
medical services that are ``reasonable and necessary'' for the 
treatment of an illness or injury.


    And yet, the definition of ``reasonable and necessary'' is 
left largely to the Health Care Financing Administration (HCFA) 
and its private-sector contractors (known as ``fiscal 
intermediaries'' and ``carriers''). Together, they have broad 
discretion to make Medicare coverage decisions. Most 
decisions--90%--are made locally by contractors. In all other 
cases, the Health Care Financing Administration (HCFA) makes 
``National Coverage Determinations''--usually involving access 
to high-tech medicine.
    Under current law, beneficiaries may appeal local Medicare 
decisions but they cannot generally appeal HCFA's ``National 
Coverage Decisions.'' I am interested in learning why that is 
the case.
    As many of you know, Members of this Subcommittee have 
played a leading role in prodding the Health Care Financing 
Administration (HCFA) to develop a more deliberate coverage 
process. In 1997, this Subcommittee learned, as a result of a 
congressional investigation, that HCFA's Technology Advisory 
Committee (TAC) was meeting in closed-door sessions, in 
violation of Federal statute. Since then, HCFA has revamped its 
advisory committee process.
    While HCFA's proposal for a new coverage process is an 
improvement over the current system, the new proposal--from 
what I understand from initial reports--will still not address 
the local coverage process. Instead, the new proposal focuses 
exclusively on improving the national coverage process. I am 
interested in learning more about this new coverage regulation 
published by HCFA today.
    In preparing for this hearing, I have a heard a great deal 
of frustration from constituents about the current Medicare 
appeals and coverage process. I continue to believe that a 
premium support model offers the best means of being freed from 
this hopelessly muddled situation. However, until then, we 
shall do our best to improve the current system.


    Chairman Thomas. And, with that, I would turn it over to my 
colleague from California.
    Mr. Stark. Thank you, Mr. Chairman. Thank you for holding 
this hearing. We would like to work with you to reform the 
coverage and appeals procedures. I understand they are a mess. 
My written statement, which I would like to submit in its 
    Chairman Thomas. Without objection.
    Mr. Stark. Thank you. My written statement brings up these 
problems with local coverage and national coverage. I don't 
think we should set up an appeals system that would force 
Medicare to pay whatever the providers want for a newly covered 
service; that would bankrupt us soon. Fee-for-service coverage 
and appeals are extremely confusing and should be simplified, 
but so should HMO appeals. In other words, I don't know if we 
should do fee-for-service changes without doing managed care.
    It is my understanding that national coverage policies are 
not appealable, and that they tend to deal with a particular 
service, mammography, let us say. I am not sure that we should 
appeal that. We don't allow appeals of FDA decisions. Those 
are--or I hope they are--scientific decisions that are made 
with the best scientific knowledge available as to whether or 
not a particular procedure is useful. So, local decisions, it 
seems to me, are more based on whether the service which has 
been approved nationally is used appropriately, if it is used 
too frequently or if it is not used for the proper diagnosis. 
That makes more sense, although, as you point out, it is 
terribly confusing.
    So, I am glad you are willing to enter into this 
discussion. I hate to remind you that if we move to premium 
support, you won't have to do this anymore. Under premium 
support none of the providers will ever be able to appeal 
anything. But, I don't know as I have to put any red meat out 
in front of them; somebody who is bound and determined to be 
the junkyard dog in this fight. So, with that, I will assume 
that we have not reached a conclusion quite yet in premium 
support and that this hearing today will be somewhat useful for 
at least the near future. Thank you, Mr. Chairman.
    [The opening statement and attachments follow:]

Opening Statement of Hon. Fortney Pete Stark, a Representative in 
Congress from the State of California

    Mr. Chairman:
    Today, the Committee is examining two of the functions 
performed by Medicare contractors--establishing coverage 
policies and hearing appeals. This hearing will help us to 
understand the need for broader contracting reform in Medicare 
as we consider the functions that contractors perform.


    More than 100 Medicare contractors are engaged in 
establishing Medicare coverage policies, and the result is 
inconsistency in those policies. Carriers determine local Part 
B coverage policies, PROs determine hospital coverage policies, 
and Fiscal Intermediaries determine coverage policies for SNFs 
and home health agencies. We need to restructure and simplify 
this process and reduce the number of contractors involved in 
establishing local Medicare coverage policies.
    Beginning in 1987, HCFA has tried several times to publish 
rules governing the process used in establishing national 
coverage policies, and they are now trying once again. I 
applaud their efforts and urge them on. HCFA is also moving 
toward scientific, evidenced-based Medicare coverage policy 
making, and I also agree with that change.
    We also need published guidelines governing local coverage 
policies. For example, if local coverage of a technology is 
needed to gain experience with it, then we should also ensure 
that Medicare beneficiaries are protected and that we obtain 
the valid and reliable data to evaluate the safety and 
effectiveness of the technology. We should not grant general 
authority to experiment on Medicare beneficiaries.
    HCFA plays little role in coordinating and overseeing local 
coverage policies, and does not publish them. And national 
Medicare coverage policies should be consolidated and published 
in a single Medicare coverage manual, rather than the many 
manuals in which they are now published.
    Managed care plans that contract with Medicare are required 
to comply with local coverage policies, but they find it 
difficult to learn what the local policies are. In the age of 
the internet, Medicare coverage policies should be published 
and readily available for all to see on the internet.
    Mr. Chairman, on February 2, you and I wrote to the HCFA 
Administrator asking that HCFA management of local Medicare 
coverage processes be transferred from the HCFA office that 
oversees the Medicare fraud and abuse programs to the office 
that determines national Medicare coverage policies. On 
Tuesday, we received a response to our letter. In that 
response, HCFA Administrator, Nancy-Ann Min DeParle, said, ``In 
the long run, I believe the best way to administer local 
coverage policy is to separate the development of the coverage 
decisions or policies, (which focus on whether a given service 
should be covered), from the development of local medical 
review policies, (which focus on the appropriate utilization of 
a service in that locality and program integrity issues).''
    Mr. Chairman, that is precisely the position that you and I 
took in our letter to the Administrator. We also said that 
these two functions should be separated. Coverage policy should 
be a function of quality-of-care, and medical review is a 
function of program integrity.
    The HCFA Administrator goes on to say, ``I want to move in 
this direction as Medicare program management resources 
permit.'' So the issue seems to be funding. I would ask what 
additional funding HCFA needs to separate these two functions 
now, and I would like to work with you, Mr. Chairman, to ensure 
that HCFA receives the funds needed to make this change now.

                          Coverage vs. Payment

    Mr. Chairman, let me be clear--Medicare coverage policy and 
Medicare payment policy are two distinctly different things. 
Once Medicare decides to cover a new product, it must decide 
what to pay for the product. Medicare should not simply accept 
the ``sticker price'' that manufacturers set for new products. 
Instead, Medicare should be a prudent purchaser, setting 
reasonable payment amounts for products. Then, manufacturers 
can make business decisions whether they want to sell their 
products to Medicare or not. I believe that they will want to 
sell their products for reasonable prices to Medicare.
    Indeed, last year, several local Medicare carriers 
implemented a ``least costly alternative'' payment policy 
concerning two Medicare covered prescription drugs--Lupron and 
Zoladex--used in the treatment of prostate cancer. One of these 
drugs (Lupron) was much more expensive than the other 
(Zoladex). Since medical experts concluded that these drugs 
were equally suitable alternatives, Medicare carriers decided 
to cover both drugs, but to pay only at the price of the lower-
priced drug. HCFA then found that the price of the higher-
priced drug suddenly dropped, because the company would rather 
sell its product at a more reasonable price than not sell it at 
    A similar thing happened for the drug, TPA, used in the 
treatment for heart attacks. The manufacturer originally tried 
to pressure HCFA into increasing the hospital DRG payment 
amount to reflect the ``sticker-price'' that the manufacturer 
set for the drug, but HCFA refused. Over time, hospital lengths 
of stay were reduced, and other lower-priced drugs were 
introduced of equivalent medical value; so HCFA has never had 
to increase the DRG payment for TPA. This situation taught us 
the lesson that HCFA should not be too quick to accept 
manufacturer ``sticker-prices.''
    Using comparisons of costs and effectiveness of 
technologies in determining Medicare payment amounts is one way 
to incorporate ``cost-effectiveness'' into Medicare coverage 
policy making. Rather than using ``cost-effectiveness'' in 
establishing the coverage policy, it is used in setting the 
payment amount.


    Similarly, Medicare appeals processes need updating. 
Appeals processes in traditional, fee-for-service Medicare are 
complex and confusing, and are quite different from those 
mandated for managed care. Indeed, it can be argued that 
Medicare beneficiaries have fewer rights and protections in 
traditional, fee-for-service Medicare than in managed care.
    In managed care, beneficiaries have a right to know in 
advance of any service whether the service will be covered by 
Medicare or must be paid for by the beneficiary. That right 
does not exist in traditional Medicare, where contractors 
decide whether a service is covered only after a claim is 
submitted. Often, beneficiaries are then required to pay for 
services that they thought would be covered by Medicare.
    Similarly, in managed care, beneficiaries have a right to 
an external appeal if Medicare coverage is denied; but not in 
traditional Medicare, where the Medicare contractor that 
establishes the coverage policy also hears the appeals on it. 
We also need to reduce the number of contractors involved in 
the appeals process in traditional Medicare, and consider the 
need for an external appeals process.
    In traditional Medicare, minimum dollar thresholds are 
required before appeals are permitted--for example, $100 for 
appeals of Part B services to carriers. No such minimum 
thresholds apply for managed care, and beneficiaries are 
permitted to appeal all denials of care. Denials of services, 
even for ``only'' $50 mean a lot to many Medicare 
beneficiaries. Similarly, a minimum dollar threshold of $500 
must be reached to appeal Part B claims to Administrative Law 
Judges (ALJs), but only $100 for Medicare+Choice.
    Another problem concerning traditional Medicare appeals 
processes is HCFA's lack of requirements for providers to give 
beneficiaries ``notices of noncoverage'' and ``advance 
beneficiary notices (ABNs).'' Medicare beneficiaries must be 
adequately informed both of their appeal rights and of services 
that are not covered. On January 25, I wrote to the Secretary 
asking her to ensure that beneficiaries in traditional Medicare 
are given these protections. I have not yet received a response 
to my letter.
    I do not mean to imply that Medicare managed care appeals 
processes are without problems. Last week, the GAO released two 
studies describing problems involving beneficiary information 
and appeals processes in Medicare+Choice plans. GAO found that 
beneficiaries are often given inaccurate and incomplete 
information by the plans--both about services that are covered 
and about their appeal rights--and that their ability to appeal 
is limited by the incorrect information provided to them. This 
situation is unacceptable must be corrected.
    Medicare law has never permitted appeals of national 
coverage determinations, and I question the wisdom in 
permitting such appeals now. Just as the FDA has no appeals 
mechanism for its scientific determinations, I question whether 
Medicare should have an appeals mechanism for its national 
coverage policies. A governmental entity with scientific 
expertise must be responsible for establishing policies that 
affect Medicare spending--often large increases in spending. 
Currently, that responsibility is shared by the Congress and 
HCFA. On a practical level, I question what body would be 
technically qualified to consider such appeals.
    Mr. Chairman, we all want Medicare to be well administered, 
and I would like to work with you on the improvements needed in 
administering the coverage and appeals processes in Medicare.
    Thank you, Mr. Chairman.














    Chairman Thomas. I thank the gentleman very much, and now, 
if we could, the Deputy Administrator of the Health Care 
Financing Administration, Michael Hash, is back with us again, 
and for a quick return visit, Dr. Kang, who is the Director of 
the Office of Clinical Standards and Quality. It is nice to 
have you with us, and any written statements you may have will 
be made a part of the record, and you can address us in any way 
you see fit in the time you have available.
    [The opening statement of Mr. Ramstad follows:]

Opening Statement of Hon. Jim Ramstad, a Representative in Congress 
from the State of Minnesota

    Mr. Chairman, thank you for calling this important hearing 
on the Medicare Coverage decision-making process and appeals.
    As Co-Chair of the House Medical Technology Caucus, I have 
been very closely monitoring the Health Care Financing 
Administration's (HCFA) progress on establishing a formal 
process for making important coverage decisions. The Caucus has 
held two important meetings on this topic, one in July of 1998 
to review HCFA's draft outline of its proposal and one last 
February to check on HCFA's progress on the issue.
    As we all know, while Medicare law provides for the 
coverage of various categories of benefits, it does not specify 
a list of covered technologies and services. That's where HCFA, 
and this coverage process, come in to play.
    Medical technology and innovation play an important role in 
this critical health care program for America's seniors. As new 
life-enhancing and life-saving technologies are developed, and 
more Americans learn about them, the process for making these 
coverage decisions becomes increasingly important.
    As expected, beneficiaries and manufacturers continue to 
contact Members of Congress on this topic, and a number of 
positive things have been said about Dr. Kang's efforts, under 
the leadership of Administrator Min DeParle, to improve the 
process. Some concerns, however, about specific aspects of the 
proposal have also been raised. Certainly, the issue of appeals 
is one of the most frequently discussed concerns.
    Thank you again, Mr. Chairman, for calling this important 
hearing. I look forward to hearing from today's witnesses on 
how we can further improve the decision-making and appeals 
processes in the Medicare program.


    Chairman Thomas. Michael.


    Mr. Hash. Thank you, Chairman Thomas and Congressman Stark, 
and other distinguished Members of the Health Subcommittee. We 
want to express our appreciation for the invitation to come 
here today and to discuss our revised procedures for 
establishing coverage policy and appeals processes that are 
available to beneficiaries and to providers.
    Medicare beneficiary appeal rights are among the strongest 
anywhere in this country. Providers and suppliers also have 
appeal rights under the program and can appeal on behalf of 
beneficiaries if they become the beneficiary's appointed 
    In the past year, we have increased efforts to make sure 
beneficiaries know about their appeal rights. We are working to 
improve the oversight also of the private plans that contract 
with Medicare under the Medicare+Choice Program, and we have 
worked with the Social Security Administration to improve the 
timeliness and consistency of its administrative law judge 
rulings on Medicare appeals.
    As you know, the average administrative law judge appeal 
takes over a year now. In order to improve that process, we 
have undertaken the training of 30 additional administrative 
law judges that are dedicated solely to Medicare cases, and we 
are working with our contractors in Medicare to make sure that 
the materials they provide for ALJ review are sent in a 
complete and comprehensive manner. Meanwhile, because of our 
successful crackdown on fraud, waste, and abuse in the Medicare 
Program, the total number of appeals is in fact up. To handle 
the increased workload, the President's fiscal year 2000 budget 
increases funding for Medicare appeals by $10 million, and we 
look forward to working with you and other Members of the 
Congress to secure this necessary increase in funding support 
for the appeals process.
    Also in the past year, we have revised our procedures for 
establishing national coverage policy. The revised policy is, 
in our view, more open, accountable, and explicit in every 
respect, including the right of beneficiaries and other members 
of the public to request reconsideration of coverage policy 
decisions. A notice, as you pointed out, Mr. Chairman, 
describing this new process is on display in today's Federal 
Register and will be published in the Register next Tuesday.
    The new process establishes clear procedures for how 
national coverage policy decisions are made. It allows anyone--
and I emphasize anyone--to request a decision or a 
reconsideration of existing coverage policy. Individuals need 
only submit in writing a request along with new medical and 
scientific evidence that merits consideration or an analysis of 
Medicare's decision that demonstrates that we have made a 
material misinterpretation or have misunderstood or overlooked 
credible evidence in the evaluation of the coverage decision. 
We will, of course, regularly review new medical and scientific 
information ourselves to modify national coverage policy on our 
own initiative when appropriate.
    Our revised process also institutes important timeliness 
standards, and it keeps interested public parties fully 
informed through the Internet where we will publish a list of 
coverage issues that are currently under review; the stage of 
review that they are in; the major scientific questions that 
need to be resolved, and an estimate of when the next phase of 
the process will occur. Most importantly, the new processes 
guarantee beneficiary input through a new Medicare Coverage 
Advisory Committee that will hold open meetings and include 
consumer as well as industry members. Later this year, we will 
publish, in a proposed rule, the criteria for defining under 
Medicare when a service or a supply is reasonable and 
necessary, the statutory standards for coverage under Medicare, 
and we will invite public comment on our proposed criteria 
before we finalize them.
    We very much appreciate your continuing attention to this 
important part of the Medicare Program. We look forward to 
working with you and other Members as we continue to refine our 
coverage and appeals processes, and Dr. Kang and I would be 
happy to answer, at this point, any questions that you or other 
Members of the Subcommittee may have.
    Thank you.
    [The prepared statement follows:]

Statement of Michael Hash, Deputy Administrator, Health Care Financing 

    Chairman Thomas, Congressman Stark, distinguished 
Subcommittee members, thank you for inviting us to testify 
today about our revised procedures for establishing coverage 
policy and the appeals processes available to our beneficiaries 
and medical providers of payment and coverage determinations. 
We welcome the opportunity to discuss efforts to make our 
appeals and coverage processes more effective, efficient, and 
    Beneficiaries must have prompt recourse if they feel that 
they are denied needed care. President Clinton is committed to 
ensuring effective and efficient appeal rights for all 
Americans. Medicare beneficiaries' appeals rights are among the 
strongest in the nation, and allow for appeal of virtually any 
issue regarding provision or payment of services. Providers and 
suppliers also have appeal rights, and can appeal on behalf of 
beneficiaries if they become the beneficiary's appointed 
    In the past year, we increased efforts to make sure 
beneficiaries are informed of their rights to appeal denials of 
coverage by Medicare claims processing contractors and 
Medicare+Choice plans. We are working to improve oversight of 
Medicare+Choice plan appeals. And we have worked with the 
Social Security Administration to improve the timeliness and 
consistency of its Administrative Law Judge rulings on Medicare 
    Also in the past year, we have worked to revise our process 
for establishing national coverage policy so that it is more 
open, accountable, and explicit in every respect, including the 
right of beneficiaries and other members of the public to 
request reconsideration of national coverage policy decisions. 
The new process will:
     establish clear procedures for how national 
coverage policy decisions are made;
     allow any individual to submit a formal request 
for a national coverage decision or reconsideration;
     institute timeliness standards and mechanisms for 
keeping the public informed about the status of national 
coverage issues; and
     guarantee beneficiary input through a new Medicare 
Coverage Advisory Committee that will hold open meetings and 
include consumer as well as industry members.

         Medicare's New National Coverage Determination Process

    Medicare is committed to having an open, understandable and 
predictable process for determining national policy on what 
specific services and supplies are covered. The law provides 
for coverage of ``reasonable and necessary'' medical services 
and supplies in broad categories, such as hospital, nursing 
home, and physician care. The Health and Human Services 
Secretary has legal authority to specify which services, 
procedures, and devices are covered and under what 
    Medicare claims processing contractors are given discretion 
to set local coverage policy in areas where national policy has 
not yet been set. However, when Medicare issues national 
coverage decisions, they are binding on all Medicare 
contractors, Medicare+Choice plans, peer review organizations, 
and, in some cases, Administrative Law Judges.
    In making these national coverage determinations, we must 
strike the appropriate balance between providing timely access 
to medical advances and ensuring that new technologies and 
treatments are effective and ``reasonable and necessary.'' To 
do so, we rely on medical and scientific evidence, including 
medical literature and data, discussions with medical experts, 
and technology assessments.
    We have been working diligently to improve our national 
coverage determination process.
     Last September, we held a town meeting to hear a 
broad spectrum of views on how to improve the Medicare process.
     Last December, we published the charter for a new 
Medicare Coverage Advisory Committee in accordance with the 
Federal Advisory Committee Act.
     This month, we are publishing a description of our 
new national coverage policy-making process in a Federal 
Register notice.
     And, later this year, we will publish proposed 
criteria for defining when a service or supply is ``reasonable 
and necessary'' in a Federal Register Notice of Proposed Rule 
Making. We will invite public comment on these proposed 
criteria before issuing final criteria.
    The revised national coverage policy determination process 
will help ensure that beneficiaries, providers, manufacturers, 
and other interested public parties are fully informed and can 
track the status of any determination under consideration. As 
part of this new process, we will publish on the www.hcfa.gov 
web site:
     a list of coverage issues under review;
     the stage of review each issue is in;
     the major scientific questions that need to be 
resolved prior to a coverage decision; and
     an estimate of when the next action will occur.
    We also will prepare and maintain a complete and indexed 
record of all issues that we review for each national coverage 
decision, including a list of all evidence reviewed, all the 
major steps taken in the coverage review, and the rationale for 
the decisions that were made. A summary of this record also 
will be provided on the www.hcfa.gov website.

                       Requesting Reconsideration

    The new process makes clear that any member of the public 
may request a review of a national coverage policy 
determination at any time. Individuals requesting such a review 
need only submit the request in writing, along with new medical 
and scientific evidence that merits consideration, or an 
analysis of Medicare's decision demonstrating that a material 
misinterpretation was made in the evaluation of evidence. We 
will, of course, regularly review new medical and scientific 
information ourselves to modify national coverage policy on our 
own initiative when appropriate.
    The new national coverage process generally requires us to 
issue a response to a request for a review of a national 
coverage determination within 90 days. The request can be 
referred either to:
     the new Medicare Coverage Advisory Committee; or
     an independent technology assessment body, such as 
those that contract with the Agency for Health Care Policy and 
    Otherwise, we will generally notify the requester within 
those 90 days that:
     national coverage is warranted and will be 
     national coverage is not warranted and will not be 
     national coverage is warranted, but only under 
certain limitations;
     coverage will be left to local contractor 
     the request duplicates and will therefore be 
combined with another pending request; or
     the request duplicates an earlier request for 
which a decision has already been rendered and available 
evidence does not warrant reconsideration.
    Public input into national coverage policy determinations 
and reconsiderations is also fostered through the new Medicare 
Coverage Advisory Committee and its meetings that will be open 
to the public. The committee will have 120 members and include 
nationally recognized experts in a broad range of medical, 
scientific and professional disciplines, as well as consumer 
and industry representatives. They will be divided into small 
panels focused on particular issues to review and evaluate 
medical literature, technology assessments, and other data on 
the effectiveness and appropriateness of medical items and 
services. Based on the evidence reviewed, the committee will 
advise and make recommendations to Medicare. We have already 
received more than 400 nominations for advisory committee 
members, and expect it to begin meeting later this year.

                           APPEALS PROCESSES

    Medicare beneficiaries, physicians, and suppliers have extensive 
rights to appeal individual coverage determinations made by Medicare 
fee-for-service claims processing contractors or Medicare+Choice health 
plans. Where there is no national policy, beneficiaries and providers 
may appeal local claims processing contractor and health plan policy. 
Where there is national policy, they may appeal how contractors and 
health plans apply that policy to individual cases. As mentioned above, 
we are working to make sure beneficiaries know about these rights, to 
improve oversight of Medicare+Choice plan appeals processes, and to 
improve the timeliness and consistency of Administrative Law Judge 
    Beneficiaries are notified of their appeal rights annually in the 
Medicare & You handbook, on Medicare Summary Notices and Explanations 
of Medicare Benefits, in the new standardized Summary of Benefits that 
we will require Medicare+Choice plans to issue this fall, and on every 
denial of service notice issued by a Medicare+Choice plan or claims 
processing contractor. The National Medicare Education Program we 
piloted last year also includes several ways for beneficiaries to 
obtain more detailed information about appeal rights, including a toll-
free phone line and counselors at State Health Insurance Assistance 
Programs and many other organizations.

                        Medicare+Choice Appeals

    Appeal rights are important in both managed care and fee-
for-service. However, managed care appeals are perhaps more 
critical to beneficiaries because denials generally come 
before, rather than after, care is delivered. Beneficiaries 
must be confident that managed care incentives to reduce 
unnecessary care will not be allowed to deny them appropriate 
    The Clinton Administration has made appeal rights for 
Medicare+Choice beneficiaries among the strongest for any 
managed care enrollees in the country. Since June 1998, plans 
have been required to:
     respond within 72 hours on appeals of care denials 
that could jeopardize life, health, or ability to regain 
maximum function;
     respond within 14 days for initial decisions on 
all other appeals of service denials, and within 30 days for 
reconsiderations of appeals;
     state the reasons for a denial in writing;
     use denial notice forms that describe beneficiary 
appeal rights;
     accept oral requests for expedited appeals;
     follow up verbal notifications in writing within 
two working days;
     grant automatically all physician requests for 
expedited appeals; and
     maintain logs and periodically report on requests 
for expedited appeals.
    Since the federal government is the largest purchaser of 
managed care, our expedited appeals regulation for urgent care 
cases sets a new, higher standard for the entire managed care 
    All appeals rejected by plans are automatically forwarded 
to our independent appeals contractor for independent review, 
with no monetary threshold or other barrier. This independent 
contractor, currently the Center for Health Dispute Resolution, 
is also required to act on expedited appeals within 72 hours, 
and within 14 days for all other service denials.
    Beneficiaries have up to 60 days to appeal an independent 
review contractor's decision involving at least $100 to Social 
Security Administration Administrative Law Judges. There is no 
time limit on Social Security Administration Administrative Law 
Judge actions. Beneficiaries have up to 60 days to request a 
review of Social Security Administration Administrative Law 
Judge decisions by the Health and Human Services Departmental 
Appeals Board. Finally, beneficiaries have up to 60 days after 
a Departmental Appeals Board decision to request federal 
district court review for cases involving at least $1000.
    Our beneficiary research tells us that the vast majority of 
beneficiaries are satisfied with the care Medicare+Choice plans 
provide and have never filed appeals. Until now we have not 
gathered statistics on appeals at the plan level. We do know 
now that in 1998, with more than six million beneficiaries in 
managed care plans, our independent appeals contractor reviewed 
14,745 cases. Of these, 22 percent were decided in the 
beneficiary's favor. We recognize that the appeals process will 
become more important in the future when beneficiaries, under 
the Balanced Budget Act, are no longer allowed to disenroll 
from plans on a monthly basis.
    We are now requiring plans to collect data and, as of 
January 1, 2000, report to beneficiaries upon request the 
number of appeals filed, the number decided in beneficiaries' 
favor, and the timeliness of the process. We will be collecting 
this and other appeals data ourselves, including:
     how many cases are resolved at the plan level;
     the average and maximum length of time each plan 
takes to resolve appeals;
     the percentage of plan rulings that occur within 
the mandated time frames.
    This and the other information we will collect will help 
     better monitor plan performance;
     motivate plans to improve responsiveness;
     determine whether any changes might be needed to 
improve the system;
     understand the types of services being appealed;
     ensure that beneficiaries have full access to and 
understanding of their appeal rights; and
     target specific groups who may need additional 
assistance in understanding appeal rights.
    We are surveying beneficiaries who have disenrolled from a 
Medicare+Choice plan to better understand the extent to which 
care denials and improper appeals procedures may be involved in 
decisions to disenroll from plans. We should have our first 
report of the findings by mid-2000. We also are testing a 
process whereby beneficiaries can request a disenrollment form 
via Medicare's toll-free help line, 1-800-MEDICARE (1-800-633-
4227), and this will also allow us to ask beneficiaries 
directly why they are leaving a plan at the time they are 
leaving. This should provide another helpful way to monitor 
potential problems with plan appeals information.
    We will sample denied claims for further review to ensure 
that plans are implementing their internal processes in the 
required manner. Our June 1998 Medicare+Choice regulation makes 
explicit that plans themselves are ultimately accountable for 
their appeals processes, regardless of whether they are handled 
by a subcontractor. And we are considering regulations to 
establish a standard procedure for handling grievances 
(complaints involving issues other than denials of service or 
payment) to ensure consistency among all Medicare+Choice plans. 
Other efforts to improve Medicare+Choice appeals protections 
     consumer testing model language for appeals and 
care denial forms that we will require Medicare+Choice plans to 
use once we are sure it is clear and helpful to beneficiaries; 
     revising our protocol for monitoring plans to 
specifically address whether a plan and its provider groups 
handle appeals as required.

                        Fee-for-Service Appeals

    Medicare beneficiaries enjoy strong appeal rights in the 
traditional, fee-for-service program, as well. Most fee-for-
service appeals are filed by physicians and suppliers, rather 
than beneficiaries, over denial of payment after care has been 
rendered. Physicians and other Part B suppliers have the same 
right to appeal as beneficiaries if they accept what Medicare 
pays as payment in full without billing the beneficiary for 
more than the standard 20 percent coinsurance. Other Part B 
physicians and suppliers may appeal payment denials based on 
lack of medical necessity if they are required by statute to 
make a refund to the beneficiary. Hospitals and other Part A 
providers also can appeal denials based on medical necessity.
    Beneficiaries can file an appeal within 60 days of 
receiving notice that payment for a claim is being denied. The 
law requires that our claims processing contractors complete 75 
percent of such appeals within 60 days, and 90 percent within 
90 days. The average contractor processing time in 1998 was 
52.9 days.
    Part A disputes can be appealed further to Social Security 
Administration Administrative Law Judges, where there are no 
time limits for decisions and where delays are occurring. These 
appeals must be requested within 60 days of receiving a 
contractor appeal decision, and must be for claims totaling at 
least $100. The average processing time for these requests in 
1998 was 310 days. Social Security Administration 
Administrative Law Judge decisions can be appealed within 60 
days to the Health and Human Services Departmental Appeals 
Board. The Departmental Appeals Board can turn down appeals 
requests, and it can also choose to review cases on its own 
without a beneficiary or provider request. Health and Human 
Services Appeals Council decisions involving at least $1000 can 
be appealed within 60 days in federal district court.
    Also under Part A, Medicare beneficiaries have special 
appeal rights when a hospital discharges them from an inpatient 
stay against physicians' advise. Such cases are reviewed by 
Medicare's Peer Review Organizations to make sure incentives in 
the prospective payment system for shorter hospital stays do 
not result in beneficiaries being discharged too soon.
    Part A providers can appeal reimbursement decisions based 
on cost reports to Medicare's Provider Reimbursement Review 
Board. The board's decisions can be appealed to the Health Care 
Financing Administrator, and those decisions can be appealed in 
    Beneficiaries and Part B physicians and suppliers can file 
appeals within six months of receiving notice that payment for 
a claim is being denied. The law requires that our claims 
processing contractors complete 95 percent of these initial 
reviews within 45 days. The average contractor processing time 
in 1998 was 33 days.
    Part B disputes for claims totaling at least $100 can be 
appealed further within six months to claims processing 
contractors' in-house Hearing Officers, who must complete 90 
percent of hearings within 120 days. These requests, on 
average, took 116 days in 1998. Part B disputes of at least 
$100 for home health claims and $500 for all other Part B 
claims can be appealed further within 60 days to Social 
Security Administration Administrative Law Judges, where there 
are no statutory time frames for decisions. It took these 
judges, on average 524 days to issue decisions for cases 
decided in 1998. Again, Social Security Administration 
Administrative Law Judge decisions can be appealed within 60 
days to the Health and Human Services Departmental Appeals 
Board. The Departmental Appeals Board can turn down a case or 
take one on its own, and decisions involving at least $1000 can 
be appealed within 60 days in the courts.

               Improving Administrative Law Judge Appeals

    We have been working with our colleagues at the Social 
Security Administration to improve the timeliness and 
consistency of its Administrative Law Judge reviews of Medicare 
appeals. As mentioned above, Part A Administrative Law Judge 
appeals average 301 days and Part B appeals average 524 days. 
One reason for these lengthy time frames is that the judges 
tend to be far more expert in Social Security rules than in 
Medicare regulations. In fact, only about 5 percent of their 
caseload involves Medicare disputes. Furthermore, the judges 
are not bound by Medicare claims processing contractors' local 
coverage policy or local policy manuals, though they are bound 
by Medicare law, regulations, rulings, and national policy. 
Efforts to improve the process include:
     working with the Social Security Administration to 
provide special training to 30 judges who will handle the most 
complicated Medicare Part B cases;
     working to educate judges about how Medicare local 
policy is created and the underlying reasons for the policy; 
     working with our contractors to make sure that 
case files forwarded to Social Security Administration 
Administrative Law Judges are complete and comprehensive.
    We are also performing an analysis of the Administrative 
Law Judge process and will continue discussions with the Social 
Security Administration about future steps that may be taken.

                       Fiscal 2000 Budget Request

    The Administration's highly successful efforts to crack 
down on Medicare fraud, waste, and abuse have increased the 
total number of fee-for-service payment denials, and thus 
increased the total number of payment denial appeals. Also, use 
of sophisticated statistical sampling in these efforts has lead 
to cases involving larger numbers of claims and more complex 
issues. That is why the President's fiscal 2000 budget 
increases funding for Medicare appeals by $10 million. We look 
forward to working with you to secure this necessary funding.


    We are working diligently to ensure that our national 
coverage policy determination process is open, accountable, and 
explicit. We are also working to ensure that the appeals rights 
we provide are strong and the processes fair and efficient. 
Medicare beneficiaries' and providers' appeal rights are among 
the strongest in the nation, and we are committed to ensuring 
that they understand how to exercise these rights. We are also 
actively engaged with our Social Security Administration 
colleagues to improve the timeliness and consistency of the 
Administrative Law Judge level of our appeals processes. We 
appreciate your interest in these issues, and look forward to 
working with you as we monitor and continue to refine our 
coverage and appeals processes. I'd be happy to answer any 
questions you might have.


    Chairman Thomas. Thank you very much. I am tempted to ask 
you if the scheduling of this hearing was useful for HCFA to 
get the notice out of the Office of Management and Budget, but 
that probably would not be fair to you. So, was this hearing 
useful? [Laughter.]
    Mr. Hash. I am definitely used to that kind of question, 
Mr. Chairman. As we wrote to you in January, Administrator 
DeParle indicated that we would be publishing this process, our 
administrative procedures, in early spring, and we are happy to 
have met that self-imposed deadline.
    Chairman Thomas. Then I guess--I just wish--I should have 
scheduled it in March and could have asked you the same 
    One of the questions that I need to ask you even with this 
revised model is that the current way we do this, obviously, 
under both A and B is kind of premised on the model that you 
get a service and then you seek reimbursement, and then if you 
get turned down, it is after the fact. One, the ideal model 
would be able to get an answer in advance or at least shorten 
the timeline, and in the Medicare+Choice plans you have an 
expedited appeal process, and in your rethinking of the 
coverage in appeals process, did you move the fee-for-service 
closer to the expedited process for managed care? If you did, 
is it the same? And if you didn't, what was the rationale for 
retaining do first, seek reinforcement second?
    Mr. Hash. In the context of the fee-for-service side of 
Medicare, Mr. Chairman, we process, on average, about 800 
million claims a year. So, I know you appreciate that it 
wouldn't be feasible for us in each and every claim to give an 
answer in advance of the provision of the service whether or 
not a particular service for a particular beneficiary will be 
covered. What we do, however, is provide timely notice of the 
timeframe in which we must pay our claims in accordance with 
statutory ceilings that ensure providers are paid on a timely 
basis. If we don't pay a claim, we have to give a decision that 
we are not covering it and give the provider or beneficiary an 
opportunity to appeal that.
    With respect to your specific question about have we 
adjusted any timeframes in the fee-for-service appeals process, 
those are for the most part, as I understand, Mr. Chairman, are 
prescribed in statute, and we have not adjusted them. In the 
case of Medicare+Choice, the statutory provisions on appeals 
were implemented by regulation June 26, 1998.
    Chairman Thomas. Notwithstanding their being in statute, 
there are a number of things that the administrator and 
Secretary have suggested to me that need to be changed in 
statute. Was there a consideration of presenting to this 
Subcommittee some concern about those timeliness whether they 
are in statute or not since if we are going to have be doing 
some legislative changes in a number of areas, we can do those 
just as easily; the May 1 date on the Medicare+Choice being an 
example. If we are going to have to legislate, we can legislate 
    Mr. Hash. On the first part, Mr. Chairman, the fee-for-
service side of the appeals process, what we have been 
concentrating on is increasing the timeliness of the 
administrative law judge review of the appeals. They are too 
long, and that is why we have put additional resources into the 
administrative law judge group; that we have begun dedicating 
30 of them to Medicare appeals, and we have requested 
additional money in order to speed the process of the appeals 
on that side. We would be happy to work with you with regard to 
further consideration of legislative changes on the appeals 
side, but we wanted to take the first steps in those areas in 
which we had discretion.
    Chairman Thomas. Dr. Kang, I made a statement in my opening 
statement, and I want to see if you either support it or would 
make an adjustment that would reflect the reality more closely. 
In terms of the number of the decisions made between national 
and local--and I have been given the figure of about 90 percent 
are made locally? Is that accurate or close enough?
    Dr. Kang. It is close enough.
    Chairman Thomas. Close enough for government work. Is it, 
therefore, the quality of the decisions, the scope of the 
decisions? You, obviously, in rethinking the whole appeals 
procedure--because your previous procedure was in violation of 
Federal statute--had an opportunity to review whether or not we 
wanted to involve local decisions, and my assumption is, based 
on what I have read in the note, is that you have declined to 
create a structure fundamentally different than the one that 
was there. What was the rationale?
    Dr. Kang. Mr. Chairman, the concept of the Medicare Program 
when it was created some 30-odd years ago was to recognize that 
the practice of medicine is local and that there is tremendous 
local variation about practice parameters and styles. I 
actually think that is a very important part of the program to 
preserve. So, we chose to try to improve the national process 
first and make it open, accessible, and understandable. I do 
think that you ask a very important question about what are the 
implications for the local process, and that will be something 
that we will be considering and glad to work with you on.
    Chairman Thomas. So, I guess, then, that you probably 
disagree with Jack Wennberg at Dartmouth University in terms of 
the variation in regional medical practice is almost always 
based on undesirable aspects of the practice of medicine 
instead of quality medicine delivered in different ways. My 
concern is that the statement that you just made is probably 
the single strongest reinforcement of overutilization or poor 
practice of medicine being perpetuated, because we can't move 
toward a degree of commonality. I can't believe that the 
variety of differences define ``good medicine'' automatically.
    Mr. McDermott. Mr. Chairman, could you ask the witnesses to 
give us an example of what is made at a national level and what 
is made at a local level--maybe everybody knows, but I am not 
really sure--so, we get a feeling for what 10 percent and 90 
percent really means?
    Chairman Thomas. I will do that. Would you answer my 
question, because my friend from California wants to get in on 
this one as well? So, I will go north geographically.
    Dr. Kang. I actually agree very much with what Dr. Wennberg 
has to say. It is not by accident that the coverage policies 
are in the Office of Clinical Standards and Quality. I think 
that there are places, in fact, where local variation is not 
correct, and it represents either under or overutilization. 
That is where we, quite frankly, should be nationalizing our 
policies, and that is the purpose of the process that we are 
    Chairman Thomas. Can you give us, then, an example, as in 
part answer to my friend from Washington, what it was that was 
national and local and what you have now decided to change?
    Dr. Kang. As an example, let us take prostate surgery. 
There is no doubt that prostate surgery should be covered, and 
so that would be a national decision as a matter of policy.
    Chairman Thomas. ``Should be'' means that it is not now or 
it is?
    Dr. Kang. No, I am just saying it is now----
    Chairman Thomas. OK, it is. If we are going to get 
clarification, ``should'' would be a term that wouldn't be real 
    Dr. Kang. It is covered.
    Chairman Thomas. It is covered.
    Dr. Kang. The question is----
    Chairman Thomas. Procedures.
    Dr. Kang [continuing]. The procedures. The question, then, 
would be what stage of disease would be the appropriate place 
where you should do prostate surgery versus chemotherapy versus 
whatever? To the extent that science does not agree, that is 
left up to local discretion, and there is variation. Some of 
that variation is healthy variation, because this is how 
medical technology can change and diffuse and advance.
    Chairman Thomas. But over time, usually, there develops a 
consensus position.
    Dr. Kang. And, at which point, then, we would end up with, 
for example, a noncoverage decision for prostate surgery for 
stage 4 disease, and so that would be--and that is when----
    Chairman Thomas. And that would be a national policy?
    Dr. Kang. And that would be a national policy.
    Chairman Thomas. And that is not appealable?
    Dr. Kang. And that would be not appealable, because the 
variation would not be acceptable, because the medical science 
has agreed that that should not be.
    Chairman Thomas. Well, and that will lead us to another 
direction in terms of the nonappealability of that national 
decision, because if you are going to lay your evidence out, 
there are ways that you need to lay it. That is not enough of 
an example for you in terms of national versus local? Give us 
an example today of another area if you will; jump to some area 
in which there is local decision--the 90/10. Give us a 
representative example of the 90-, and a representative example 
of the 10-percent decisionmaking structure.
    Dr. Kang. I am not sure I understand the question.
    Chairman Thomas. If 90 percent are made local, give me 
three examples of the most often made local decisions which 
would, therefore, be appealable?
    Dr. Kang. Many of the local decisions regard the uses of 
devices and durable medical equipment as such, and this is 
particularly important because there is actually very little 
evidence that supports the reasonable and necessary criteria 
for national decisions.
    Chairman Thomas. But could you wind up with that local 
decision being yes in one area and no in another.
    Dr. Kang. That is true, and then when presumably when it is 
yes in one area at some point evidence is being gathered that 
this actually is a very good thing to be covering which then 
allows us to move toward a national coverage.
    Chairman Thomas. And let us say someone appeals and then 
when they go all the way up through the structure and the 
administrative law judge says ``No, you are right,'' and they 
go back to the local level and they still can't get approval, 
which will be a testimony coming up on a later panel. How do 
you get the carrier to follow the appeals process decision if 
it is different than the decision that they made? What do you 
do? The carrier choose not to follow it.
    Mr. Hash. The carrier, I believe, would be, Mr. Chairman, 
required to comply if an administrative law judge made a 
decision on a case that was adjudicated before it. The decision 
of that case would be binding on the carrier.
    Chairman Thomas. OK. So, legally, you believe it is 
binding. OK.
    Mr. Hash. Now, I might say, Mr. Chairman, if I may, you 
indicated that if we made a national coverage decision, it 
would not be appealable. I just want to underscore the fact 
that the process that is on display today at the  Federal 
Register is a process that accounts for an opportunity for 
reconsideration of any national coverage decision by any party 
who wants to move it on the basis of new evidence or a material 
misinterpretation of the evidence on which the coverage 
decision was made.
    Chairman Thomas. And if it was a decision on the Medicare 
Coverage Advisory Commission, MCAC--what are you going to be 
calling this?
    Dr. Kang. Medicare Coverage Advisory Committee.
    Chairman Thomas. Well, you are going to shorten at some 
point so no one will know what you are talking about unless 
they know the jargon. What is it going to be?
    Mr. Hash. We are interested in clarifying our 
communications, and I think in this case, it doesn't lend 
itself to an acronym.
    Chairman Thomas. Good, because I heard some earlier ones, 
and it just wasn't attractive. Can you appeal from the decision 
    Mr. Hash. That is an advisory body. It does not make final 
decisions; it recommends to the Health Care Financing 
Administration based on the evidence and judgment that expert 
clinicians bring to bear and consumer input.
    Chairman Thomas. And if the decision is disagreed by, say, 
consumers and or practitioners?
    Mr. Hash. Then if we make a decision that is contrary to 
the advice of the advisory committee, then someone could move 
to reconsider----
    Chairman Thomas. What happens if someone disagrees with the 
advice of the advisory committee?
    Mr. Hash. I am saying we can make a decision that does not 
agree with the recommendation of the advisory committee, 
because it is advisory. The advisory committee does not make 
Medicare coverage policy.
    Chairman Thomas. And what happens if you accept that 
    Mr. Hash. If we accept this----
    Chairman Thomas [continuing]. And people want to----
    Mr. Hash [continuing]. And people want to disagree with it 
and ask us to reconsider it, there is a procedure for doing 
    Chairman Thomas. And they have been there once already, and 
you have decided to make your decision. I guess it is not real 
comforting to say that you get to run it back through the 
process again. There used to be a joke about apple juice and 
people would look at it and say it needs to be run through 
again. I am just wondering if that isn't similar in terms of--
    Mr. Hash. No, I think what we are trying to make here, Mr. 
Chairman, is a very good faith effort that says that if there 
is new evidence that we have not considered; if there was a 
mistake and an omission in our review of the existing evidence, 
then we are bound to review it and reconsider it.
    Chairman Thomas. Yes, I will let my friend get in on this, 
but I will tell you one of the more frustrating things is that 
in a number of areas, what I find is that people believe that 
the data, the information, the resources that you utilize to 
make a decision are either incomplete, both in terms of a full 
picture, or the methodology for collecting the data was flawed, 
and I have now seen enough reversals in enough areas that I am 
beginning to believe that there are some real problems there, 
and I am just not as comfortable--although I have been through 
it only once; I am going to go through it a couple of more 
times--that we have resolved that problem with the structure 
that you have offered. Do you want to get into this, Mr. Stark?
    Mr. Stark. I am concerned by a couple of things that have 
been said. Dr. Kang suggested we have to preserve local 
autonomy or differences. My sense is, Doctor, that we would be 
better off the sooner we can collect enough outcomes research 
to know with some scientific measure. Do you agree with that?
    Mr. Hash. I do, we do.
    Mr. Stark. OK, so then you would like to--then local 
traditions and customs could go the way--OK. Second, you guys 
have got 30 or 40 people to do all of these coverage policy 
decisions, and the FDA maybe has 4,000. Why not let FDA decide 
these things?
    Mr. Hash. Mr. Chairman--I mean, Mr. Stark, that is----
    Mr. Stark. Say that again, I like to hear that. [Laughter.]
    Mr. Hash [continuing]. That is an excellent question----
    Chairman Thomas. I don't mind how often you say it. 
    Mr. Hash [continuing]. That is an excellent question. I 
think it is important to draw a distinction between what the 
role of the FDA is and what the role of a payer or an insurer 
like Medicare is. In the case of the former, the FDA, they are 
making decisions about safety and efficacy of products or 
procedures as to whether they can be available at all in the 
American marketplace. That is a very different set of 
responsibilities than what we have. Once something has been 
determined to be safe and efficacious by the FDA, then it is a 
question for us to determine that it is reasonable and 
necessary for a given Medicare patient that such a device or 
such a service should be covered.
    Mr. Stark. But--stop right there.
    Mr. Hash. Yes.
    Mr. Stark. But I presume that function has two facets: one, 
will it make them feel better or get well, and, two, at some 
kind of cost that we can afford.
    Mr. Hash. The first question----
    Mr. Stark. Is that correct?
    Mr. Hash. Yes, it would be.
    Mr. Stark. Then it seems to me that the staff or the 
structure of the FDA is eminently qualified to make that first 
decision. They have already decided that it is safe or that it 
ain't going to kill you or make you grow a third thumb. One 
would suppose that the same people with the scientific and 
medical training to make that decision would be able to take 
the next step and say ``We know it is safe, and, further, we 
know from our tests that--at least in the short run unless the 
tests have been very long--that it improves the quality of 
life, or it improves recovery, or whatever it improves. Why 
HCFA should have to reinvent that or rehash that escapes me, 
and such cooperation simplifies the process. Then you get down 
to the question of cost which is a much simpler determination. 
That is made by CPAs and MBAs, and you let those people who 
have the skills and the training in the medical side do it.
    I am not trying to just build a case for the FDA, but it 
seems that we may be reinventing the wheel here. I am going to 
go up and testify in a little while--and I think I may be the 
only one there at appropriations asking to get some more money 
for HCFA--but I don't think you are going to get any. I have 
been advised that by some of my distinguished colleagues from 
the other side of the aisle. So, I am going to go up and go 
through the motions, but don't bet the farm on how much money I 
am going to bring back for you.
    Mr. Hash. We wish you well, Mr. Stark.
    Mr. Stark. Yes, thanks. I am concerned that you may be 
building an unnecessary bureaucracy here in making medical 
decisions when really I look at Medicare as a bill-paying 
operation and not as a determinant factor in what kind of 
medical procedures are useful. That is my worry. We could do it 
faster, and, besides which, you don't have the people to do it 
anyway, it seems to me.
    Dr. Kang. If I may, first of all, I just want to say at the 
outset, we are not interested in duplicating what FDA does and 
to the extent that information is generated in their processes 
that help us make our coverage decisions, we will use every 
single piece of information. There is an important difference, 
though, in terms from a medical science standpoint of what FDA 
does versus what we need to do as an insurer. FDA looks at the 
safety, we do care about that. If they judge it safe, we will 
say it is safe. They care also about what is called efficacy, 
which means does the product or device do what it says it does? 
What we care about as a payer, though, is whether it is going 
to improve the ultimate outcome for the beneficiary, that is 
one issue. The second is does it do a better job than what we 
are currently covering? As a steward of the Medicare Program, 
if it does not do a better job of things than what we are 
currently covering, I think I would be back here next year 
explaining why. That is an issue that the FDA, in its trials, 
does not really look at. It only looks at the device or 
technology from its individual perspective.
    Mr. Stark. All right, but, on a marginal cost basis, 
Doctor, isn't it easier for FDA to expand their tests? They 
have already got the personnel with the scientific and 
technical training to make that next step. Why not ask them, 
contract out to them--you guys contract out 90 percent of what 
you do anyway--why not contract out to FDA and say, ``Hey, next 
time you do this, go the next step, and give us a comparison,'' 
which is often done by the New England Journal of Medicine? I 
suppose you could take them, but they are not a governmental 
agency. Or, you could even choose the specialty groups. I have 
no quarrel with that, if the American college of whatever they 
are decide that they, in their wisdom, make this decision, 
maybe HCFA could take that.
    I am just saying that I don't think you have got nearly the 
personnel to do it, and I don't think there is much realistic 
chance that we are going to give you the money to do it. 
Therefore, how about using resources that might be available?
    Mr. Hash. Well, let me just respond quickly, Mr. Stark, by 
saying I think we would be open to discussing ways of getting 
the job done. I do want to go back to a point that you made 
which was you kind of look at us as a bill-paying organization. 
We actually see ourselves as having a much broader role. In 
addition to our fiduciary responsibilities, we are responsible, 
under the statute, for many standards of quality in the health 
care delivery system on behalf of our beneficiaries. So, our 
responsibilities encompass much more than just paying 
correctly. It is making sure that we are paying providers who 
meet appropriate standards; that, in fact, we are meeting our 
responsibilities as a quality purchaser as well as a----
    Mr. Stark. Well, now wait a minute. Mike, you mean, deeming 
JCAHO is discharging a responsibility? To let Columbia Hospital 
who is on the JCAHO Board decide whether Columbia Hospital is 
providing quality care. You are going to look at me with a 
straight face and say you are doing anything to protect the 
health of the beneficiaries? You subcontract that out to very 
suspect people, I might add, in many cases. So----
    Mr. Hash. Under the statute, as you know, Mr. Stark, we are 
required to utilize the services of those agencies. But where 
we have discretion, we have been imposing our standards 
    Chairman Thomas. Thank the gentleman; that was from a 
friend. [Laughter.]
    Does the gentlewoman from Connecticut, also a friend, wish 
to inquire?
    Mrs. Johnson of Connecticut. Breathtaking. [Laughter.]
    Breathtaking hypocrisy. I am simply--I am also speechless 
but not quite. [Laughter.]
    I don't know whether to cry in frustration or demonstrate 
in rage, but I can tell you if I were a senior citizen in this 
country, I would be out there demonstrating, and I don't know 
why people aren't. The Department of Labor just issued a 
proposed regulation: all private plans, fee-for-service or 
managed care, 15-days appeals process.
    The administration, with much fanfare, much fanfare--I 
mean, that is probably what galls me here is the hypocrisy--
much fanfare announced that the recommendation of their Quality 
Commission had been implemented in every Federal program, and 
the Congresswomens' Caucus held a hearing, and I was one of the 
Chairs, and we heard testimony from everybody saying, ``Oh, 
yes, we have implemented all those appeals processes.'' And 
then in preparation for this hearing, to learn that under part 
A administrative law judge appeals average 301 days; part B 
appeals average 425 days. This is not justice; it doesn't 
reflect what has been said, I know not by you guys, and it is 
hard, because I know you are out there trying to fix things, 
and you are slugging through the details.
    What do you think the private sector is doing? Don't you 
think the private sector is struggling with how to improve 
outcomes? Whether something should be covered because it is 
quality or not quality? Of course they are. They are struggling 
with costs and quality too, but the shear, breathtaking 
hypocrisy of what this administration has said in the last few 
years about the appeals process and they are providing under 
Medicare and then what we learn in preparation for this hearing 
blows my mind. And I hope everybody here hears it, because, by 
gum, Medicare has got to change.
    But my question to you goes to the overturn rate. Now, one 
of the big discussions we had in the patient bill of rights and 
one of the things I accomplished in the Republican proposal was 
that the overturn rate of appeals ought to be right out there 
on the first page--big, bold--any plan ought to be accountable 
for its overturn rate.
    Last year, the administrative law judge reversed 50 percent 
of the part B decisions and 72 percent of the part A decisions, 
the fiscal intermediary decisions. I mean, that is appalling; 
that is really appalling. Any private plan out there would be 
so blasted, they wouldn't have anyone sign up for 100 years. I 
really think, with all due respect, and I understand that you 
are working on this, and I am glad you are making progress, but 
I think everybody on the other side of the government who has 
gotten out there and pretended that Medicare recipients are 
well protected; that they have any voice at all, actually, in 
challenging whether a care decision is fair or not fair or 
appropriate or not appropriate--I will tell you, preparing for 
this hearing has blown away any belief I ever had that seniors 
had any voice or any protection when they think that they have 
been disadvantaged.
    So, I would just like you to direct your attention--you 
can't satisfy all my outrage, because it goes back to 
statements made by the President, by the Secretary of Health 
and Human Services, by other leading people taking 
responsibility for accomplishing things they clearly did not 
accomplish and castigating people like me for not being tough 
enough. I thought 60 days wasn't tough enough, and you guys are 
up there in the hundreds and hundreds and hundreds of days. So, 
I want you to address yourself not to my rage about the fact 
that there has been no system there and that seniors have had 
no voice but to how you explain the overturn rate and what you 
are going to do about it?
    Mr. Hash. I would be happy to, Mrs. Johnson. The overturn 
rate, I think, is largely a function--it goes back to what we 
were talking about earlier--of local medical review policies 
being about 90 percent of coverage and 10 percent national 
coverage policy under Medicare. The administrative law judges--
and this is not well understood--are not bound by local medical 
review policies. So, they may, in effect, establish Medicare 
policy, not make a judgment about whether existing policy has 
been applied appropriately. That means they have the discretion 
that other reviewers do not have who are bound by local and 
national Medicare coverage policies. The decisions that are 
made by our contractors before cases go to administrative law 
judges are limited to the local review policies. When they get 
to the administrative law judge level, there is no such 
    And, last, in terms of the backlog, which is outrageous--
and I share your concern about it, and it does not give people 
timely results in the appeals process; no argument about that--
that is why in our testimony today we have been talking about 
the steps we have been taking with the Social Security 
Administration to make sure that we have an adequate cadre of 
administrative law judges which are at SSA and that they have 
been trained in the Medicare Program and understand our 
policies, and we have asked for additional money in order to 
support a larger ALJ process. That it is, I think----
    Mrs. Johnson of Connecticut. I will just say, given the 
statistics, I don't think your recommendations are adequate. 
This is a system that doesn't communicate with itself, and, 
therefore, cannot deliver on timely or fair decisions and makes 
decisions that are apparently being made at the local level 
look like fraud. So, there was a lot of analogies throughout 
this system, but either your policies are real or they aren't, 
and they either have standing or they don't. So, I think you 
have to go a lot further if you are going to end up with some 
statistics that are decent, that are respectful, and that give 
our seniors confidence in the system. Thank you. Thank you, Mr. 
    Chairman Thomas. Thank the gentlewoman. Does the gentleman 
from Washington wish to inquire?
    Mr. McDermott. Mr. Chairman, I sometimes have been critical 
of the process here, but I really think your having this 
hearing on one of the toughest issues--is really very 
important, and I think that----
    Chairman Thomas. Well, just let me tell the gentleman that 
I am pleased that at least the notice came out the same day of 
the hearing so that we have in front of us what HCFA proposes 
instead of speculation on what it is. So, in that sense, it 
might be even more useful than I had anticipated, because I was 
trying--so at least we have real product, and that will be 
    Mr. McDermott. I think that, with all due respect to some 
of the criticism here, I was a claims examiner for three or 
four health and welfare trusts for a labor union, so I have sat 
and struggled with the problems, so I have a little bit more 
hands on experience, perhaps, than some, and I think that 
before we get too hard on the people sitting out here, I think 
we have to look at the budget which freezes HCFA's 
administrative budget for the next 10 years. I think if we are 
going to deal with these, we have to at least put that in the 
    But let me just give you an example, because I would like 
to hear how you deal with this. I had a colleague who retired 
from the Foreign Service and went into the Blue Cross Blue 
Shield of Washington, DC. His wife had uterine cancer and, long 
story short, a stem cell transplant was recommended, and they 
denied it. So, he called me and he was an oncologist and so 
knew what was what. I made calls, got put on hold, finally had 
to use my congressional title to get to somebody who would tell 
me that there was a committee, that they couldn't tell me when 
it met, of professionals from all over the country who made 
this kind of decision. I discovered that when he left 
Washington, DC, if he had transferred to Blue Cross Blue Shield 
of Washington in Alaska, the treatment would have been covered. 
So, even in the BlueCross system there are these problems.
    So, what I would like to understand is when one of these 
issues comes, how does it get dealt with so that you don't 
have--I mean, maybe the local issues are always going to be 
there--but how does the national policy get set? How do you 
take--I don't know what it is, stem cell transplant, because it 
is sort of cutting edge with bone marrow transplant these days; 
you are getting it everywhere. You had a big case in 
California, and these cases are all over the place. How does 
that get dealt with inside?
    Dr. Kang. I think that and this takes us back to the 
regional premise of the Medicare Program--many new technologies 
develop locally. So, for example, with stem cell transplant, 
there may be a great center in California.
    Mr. McDermott. Or in Seattle.
    Dr. Kang. Or in Seattle. So, the local carriers, based on 
the local practice of medicine, decide to cover it there. That 
then allows some clinical information to be derived which then, 
at some point, could lead to a national coverage decision for 
the entire country. And this is the balancing act that we are 
trying to preserve. That there are places where we do need 
national decisions; where the variation is unacceptable, either 
under or overutilization. There are places where we want local 
flexibility for technologies to be created, developed, and 
    Mr. McDermott. Does the problem, then, develop because 
there is a report in the press or something about the use of a 
particular treatment that then gets somebody to come in another 
area of the country saying, ``Why aren't you doing this?'' And 
then it is brought and it is denied, because it is not in local 
practice? Is that what----
    Dr. Kang. If it comes to our attention and the evidence 
exists, we will then cover it at the national level.
    Mr. McDermott. But the first denial will occur at the local 
level. There will be a whole bunch of denials in some areas if 
they are not doing that.
    Dr. Kang. The one other thing I should note is that the 
beneficiary is covered in the area that the service is 
delivered not where the beneficiary lives. So, I should say 
that there is some relief here to the extent that if some 
beneficiary in New York is really interested, they could go 
over to Seattle to get it. That is in the Medicare Program.
    Mr. McDermott. And the denials at the local level are of 
things that have not filtered--is there a process by which you 
say ``We have had enough complaints on this issue; we received 
5,000 complaints on X. Let us take it to the national level and 
make a decision?'' How do you sort through that at the local 
level? It seems to me you could sort through a lot of those 
local decisions by having a trigger that would suddenly send it 
up to the top where you said ``This is what we are going to 
    Dr. Kang. And we are looking into that. That is an issue in 
our relationship to the administrative law judges, and I think 
there should be a trigger. We are pursuing a kind of a warning 
signal where we really need to revisit this at the national 
    Mr. McDermott. It seems to me you can weed out a lot of 
those whatever how many thousand complaints there were that 
Mrs. Johnson is worried about, which I worry about. If you have 
something pressing and you have got a pain or an ache or 
whatever and it takes 301 days to find out whether you can have 
the treatment of not, it sounds like the British system of 
waiting in line to me.
    Mr. Hash. If I may, Mr. McDermott----
    Chairman Thomas. Sounds like national health care to me.
    Mr. Hash. If I may----
    Mr. McDermott. That happens in insurance companies, though, 
so let us not throw rocks at each other. Go ahead.
    Chairman Thomas. That wasn't a rock.
    Mr. Hash. In many cases, in the traditional fee-for-service 
Medicare Program, as we have been talking about here, a service 
will be, in fact, provided, and then the issue about whether it 
is going to be paid for is adjudicated through this process 
that may involve an ALJ. But the important issue is that in 
many cases the service has already been rendered.
    Mr. McDermott. And then who gets stuck with--is it the 
provider who gets stuck or the beneficiary who gets stuck?
    Mr. Hash. It depends, because in the statute there is a 
provision called the limitation on liability and it sets forth 
the rules for determining whether or not a provider or a 
beneficiary should be held liable for something that turns out 
not to be covered. If the provider and the beneficiary did not 
have reason to know that something would not be covered, they 
are not held liable financially for that. In the case of the 
provider, they can be paid, and in the case of the beneficiary, 
if they have already paid, they are due a refund.
    Mr. McDermott. So, if they have--but if it is denied at--
what happens to the denial? The denial is just wiped out by the 
fact they had no reason to know? Or there would be no denial, I 
    Mr. Hash. The service has--in the case I was giving you--
already been provided. If there is a denial of payment for it, 
there is a limitation on the liability under those 
circumstances. That is also the vehicle through which people 
are put on notice that a given procedure or service is not 
covered, because now there has been notice given that it isn't, 
and that is the reason for the limitation on liability 
provisions in the statute.
    Mr. McDermott. Thank you, Mr. Chairman, for giving me that 
extra time.
    Chairman Thomas. Thank you. The gentleman from Washington, 
as part of our aside, said that ``Well, those kinds of delays 
and so on occur in insurance companies as well.'' If an 
insurance company--just pick one--say, AETNA consults with the 
Advisory Commission, and they come to the conclusion that 
something shouldn't be covered, can that decision of 
noncoverage be contested in court?
    Mr. Hash. I would assume it could be pursued under State 
    Chairman Thomas. Well, they just got hit with a $120 
million judgment because they didn't cover a procedure, and yet 
seniors aren't able to appeal or sue HCFA if they disagree with 
a national coverage decision. So, I find it somewhat 
interesting that someone can wind up going to court, being sued 
and lose if they deny a coverage but that process that you are 
advocating that we adopt does not even allow a senior to 
disagree with a national coverage decision and have a remedy in 
terms of going to court.
    Mr. Hash. It would, actually, Mr. Chairman. The procedure 
that outlined in today's notice does, in fact, provide that any 
party, including a beneficiary, would have the opportunity to 
ask for reconsideration of the national coverage policy.
    Chairman Thomas. I believe I said go to court. Can they go 
to court, ultimately?
    Mr. Hash. A Medicare beneficiary?
    Chairman Thomas. On a decision of the Medicare Advisory 
    Mr. Hash. The Medicare Advisory Commission, Mr. Chairman, 
is not a decisionmaking body.
    Chairman Thomas. Right, and if HCFA denies it--and if HCFA 
denies it?
    Mr. Hash. They can request a reconsideration. If that 
reconsideration is denied, they also can appeal any denied 
claims through the appeals process. The last step in that 
process is judicial review.
    Chairman Thomas. Does the gentleman from Louisiana wish to 
    Mr. McCrery. Yes. In fact, I want to follow up on the 
Chairman's questioning. It is true that if a beneficiary 
appeals a decision by a fiscal intermediary and the PRO and so 
forth, but then he goes to the ALJ and still doesn't like it, 
he can appeal it to HHS, and then if he still doesn't like it, 
he can go to district court.
    Mr. Hash. Correct.
    Mr. McCrery. The U.S. District Court. And what is his 
remedy if he wins in district court?
    Mr. Hash. Well, the remedy, presumably, would be to restore 
the coverage that they had sought and would be awarded to them 
as a result of the court order, the court decision.
    Mr. McCrery. So, his remedy, if he wins in district court, 
after expending all this time and energy going through the 
appeals process, is that he gets the benefit. That is the 
extent of his remedy?
    Mr. Hash. The remedy would be--of course, presumably, the 
individual would have already gotten the service--that any 
liability they might have would be satisfied by the court 
    Mr. McCrery. What do you mean by a liability?
    Mr. Hash. The cost of the care that they sought and 
    Mr. McCrery. So, the extent of a liability in district 
court is the cost of covering the benefit?
    Mr. Hash. I understand your question, and I am not really 
sure I have the correct answer. I would be happy to answer it 
for the record. I am not an attorney and I am not sufficiently 
familiar with what the scope of remedies that the U.S. District 
Court might----
    Mr. McCrery. Well, let me ask it another way. If the 
beneficiary prevails in the U.S. District Court, can he receive 
in a judgment collateral damages--pain and suffering, mental 
anguish, general damages--associated with denial of the 
    Mr. Hash. I would like to answer for the record; I just do 
not know, Mr. McCrery.
    Mr. McCrery. Is there anyone here from HCFA that knows the 
answer to that?
    Mr. Hash. I don't think so. I would like to consult with 
our general counsel, and I would be happy to provide an answer 
for the record.
    [The following was subsequently received:]

    A beneficiary or a provider is only entitled to payment for 
the item or service in question if they receive a favorable 
decision at the U.S. District Court level. There is no 
statutory provision that authorizes payment for pain and 
suffering, general damages, or interest on the amount in 
question. In certain circumstances, a beneficiary may be 
entitled to reimbursement for certain legal fees under the 
Equal Access to Justice Act. The beneficiary would have to meet 
the requirements of that statute to qualify.


    Chairman Thomas. Will the gentleman yield?
    Mr. McCrery. Well, being a lawyer, I can give you my 
opinion. My opinion is that you cannot in district court 
recover anything other than the cost of the benefit that was 
denied which is the current law also for ERISA plans that are 
the subject of so-called patient protection bills floating 
through the Congress and endorsed by the administration. So, 
since the administration seems to want to impose on the private 
sector the ability to be sued in not only the U.S. District 
Court but in State courts and receive judgments that would 
provide damages other than the cost of the benefit. Is the 
administration endorsing a change in public policy to allow 
Medicare beneficiaries to sue in State or U.S. district courts 
for damages as well?
    Mr. Hash. Mr. McCrery, the administration's recommendations 
are, in so far as I know, consistent with what is in the 
statute now for the remedies that Medicare beneficiaries. We 
have not proposed a change in remedies for Medicare 
beneficiaries that are currently either in regulation or in the 
    Mr. McCrery. OK.
    Chairman Thomas. On that point, would the gentleman, 
without any penalty on his time, yield to me?
    Mr. McCrery. Sure.
    Chairman Thomas. I am looking at a section of the law which 
was put in in OBRA 1986, the Omnibus Budget and Reconciliation 
Act of 1986. Mr. Hash, were you up on the Hill in 1986?
    Mr. Hash. I was not, Mr. Chairman.
    Chairman Thomas. You were not. What I am looking at is a 
statement of review of any national coverage determination 
under section 1862(a)(1) respecting whether or not a particular 
type or class of item or services is covered under this title 
shall be subjected to the following limitations: a, such a 
determination shall not be reviewed by the administrative law 
judge, right?
    Mr. Hash. That is a noncovered service, excluded service?
    Chairman Thomas. Yes.
    Mr. Hash. Right.
    Chairman Thomas. Such a determination shall not be held 
unlawful or set aside on the grounds that a requirement in 
section 553 of title V of the U.S. Code to section 1871 be 
relating to publication in the Federal Register notification, 
and sort of thing or, c, in any case in which a court 
determines that the record is incomplete or otherwise lacks 
adequate information to support the validity of the 
determination, it shall remand the matter to the Secretary for 
additional proceedings to supplement the record, and the court 
may not determine that an item or service is covered except 
upon the review of the supplemented record.
    Do you have any indication of how many cases the court 
determines that the record is incomplete or otherwise lacks 
adequate information? My assumption is that may even be the 
majority of them. Is it rare?
    Dr. Kang. I am aware of only one.
    Chairman Thomas. Of only one.
    Dr. Kang. And we are actively reconsidering it on the basis 
of scientific information.
    Chairman Thomas. And what year are you into the 
reconsideration? This is the second or the third year?
    Dr. Kang. This would be--I think we are in the first year. 
I can get back a more specific time for the record, but I am 
only aware of one.
    [The following was subsequently received:]

    Approximately 2 years ago, a district court remanded a case 
involving electrical stimulation for wound care for further 
development of the record. We are examining additional 
materials and will supplement the record with our findings.


    Chairman Thomas. OK. The gentleman from Louisiana.
    Mr. McCrery. Thank you, Mr. Chairman. I only have one other 
observation to make and that the gentleman from Washington 
pointed out that because of budget constraints, HCFA may not be 
able to do as much as they would like to in the area of appeals 
and expediting those appeals, and it is good to know the 
gentleman recognizes that such processes cost money, and when 
we impose those processes on the private sector, we should 
recognize that we are passing on a cost to those private sector 
entities that they must then pass through to beneficiaries, 
their policyholders. So, I thought that was also a good point.
    Mrs. Johnson of Connecticut. May I?
    Chairman Thomas. It is your option. Your Mr. Nice Guy 
record would be at stake, though. The gentlewoman from 
Connecticut--I am holding for the gentlewoman from Florida, and 
she said she was going to come right back, so----
    Mr. McDermott. Mr. Chairman, if I could respond, because I 
think this is an issue where we have--this is a public policy 
issue that is a very tough one, how you give patients the right 
to look at and appeal what has been decided, whether it be by 
the Federal Government or by the private industry. And I think 
that it is probably equally confusing on both sides and costly 
on both sides, but I think that maybe we would do the country a 
service if we decided on a universal policy on how you could 
appeal applying both to the Federal Government and to the 
private sector. I mean, a patient whether they are covered by a 
private sector HMO ought to have the same rights as the person 
who is covered by the fee-for-service under HCFA, in my view.
    Chairman Thomas. Tell the gentleman that was part of my 
opening statement in which I found it ironic that you folks 
were criticizing our H.R. 4250 in terms of the failure to move 
judiciously to the judicial review, and when I began looking at 
HCFA, I found out that the morass there was far worse and that 
this may be an area that you and I can agree on; I will 
reexamine it carefully. [Laughter.]
    Mr. McDermott. If I agree with you, you know you must have 
missed something.
    Chairman Thomas. In which--no, no, because I do not 
understand the logic, and, frankly, I apply it to the payment 
of bills, late fees, and everything else how government gets to 
follow rules that the private sector doesn't get to follow when 
it is the individuals desire to make a change. I think if, in 
fact, based upon the statement that the gentlewoman from 
Connecticut indicated, if we want to impose a 15-day review 
process on HCFA, I am all for that, but I don't think that is 
what the gentleman meant.
    Mr. McDermott. I think the problem or at least what I heard 
when you were asking before about the FDA, it is like around 
Congress where we have the authorizers who authorize stuff and 
then the appropriator has got to find the money to do it. We 
authorize a whole bunch of stuff around here that we never do, 
and these guys, in my view, are like the appropriators in the 
sense that the FDA can authorize something which may have only 
minimal value or whatever, but then HCFA has to decide where do 
we get the money to pay for it? And that is where we control 
how much they can do of all that.
    Chairman Thomas. I will tell the gentleman from Washington, 
I am even now more concerned, because, as I recall, it was my 
colleague from California, Mr. Stark, who was making the FDA 
inquiries rather than this gentleman from California.
    Mr. McDermott. I am sorry. We would never do that.
    Chairman Thomas. Any additional comments? The gentlewoman 
from Connecticut.
    Mrs. Johnson of Connecticut. Yes, thank you, and I would 
like nothing more than to have a consistent, comprehensive 
policy for public and private patients. I think the source of 
my absolute outrage and my passion of anger is the injustice of 
the current system and the shear hypocrisy with which the 
political process is dealing with it, and I think we have got 
to get beyond that and be honest. There are good reasons why we 
don't want to allow your national decisions to be appealed, but 
those might be the same good reasons why private sector plans 
who also struggle with cost and delivery of service want some 
similar protections. We just have to be honest and consistent, 
and we aren't, and the politics around Medicare have really 
driven the debate to where it is hardly recognizable as related 
to reality, and I think this claims process hearing that we are 
having now demonstrates that.
    But, I just want to ask you one thing: Do your new 
regulations make it absolutely clear that HCFA is bound by 
administrative law judge decisions?
    Mr. Hash. No, ma'am, they do not, because administrative 
law judge decisions actually apply to the case that they have 
decided and reviewed. They are not applicable to the program at 
large. That would be like establishing coverage policy 
decisionmaking by administrative law judges.
    Mrs. Johnson of Connecticut. Wait a minute, wait a minute 
now. We are an agency that took a whole year, but, finally, 
they got an administrative law judge decision that HCFA should 
allow them to resubmit complaints. We have not been able to get 
compliance with that decision. When you go at an agency at 
their own expense, goes all that way and time. This is an 
agency, as home health agencies are, sinking in the mud of 
bankruptcy. We finally get a decision from the administrative 
law judge, and there is no requirement in the law for them to 
comply by it or else that is the way they act. Now, in your 
regulations, does it make it clear that if a HCFA decision is 
appealed to an administrative law judge in accordance with your 
regulation, that just as the contractor has to comply, HCFA has 
to comply?
    Mr. Hash. I believe that if a case is decided, a specific 
case, when it is decided in favor of the plaintiff by an 
administrative law judge, for that plaintiff the decision is 
    Mrs. Johnson of Connecticut. Well, we need to have that 
very clear in the regulations, because that isn't what is 
happening in real life.
    Mr. Hash. We need to--I would like to talk to you----
    Mrs. Johnson of Connecticut. And I will give you this case, 
so that you will see it, because we cannot have citizens going 
through this lengthy, costly process and then agencies simply 
saying ``No, we are not going to do it,'' and that is what they 
    Mr. Hash. We need to--I need to look into it. I would be 
happy to----
    Mrs. Johnson of Connecticut. Thank you. We will contact 
you, Mr. Hash. I appreciate that you are trying to reform the 
system, thank you.
    Mr. Hash. Thank you.
    Chairman Thomas. I want to thank you folks very much. I do 
appreciate the effort that you have made to correct the fact 
you weren't in compliance with the law, and we will review your 
offering. Obviously, a number of people will begin reading the 
notice, and we will get back to you; I appreciate it. Thank you 
very much.
    Mr. Hash. Thank you, Mr. Chairman.
    [The following questions were submitted by Mr. Ramstad. The 
responses of Mr. Hash and Dr. Kang follow:]

1. I greatly appreciate your recognition for the need for 
timeframes by including them in the recently published Notice. 
Can you tell me, however, what you consider the starting points 
for these time frames and approximately how often you expect to 
meet them?

    A formal request for a national coverage decision must be 
in writing and include supporting documentation as spelled out 
in the April 27, 1999 Federal Register notice. Acceptance of a 
formal request will begin a 90 calendar day clock for us to 
respond to the requestor in writing. Our response will also be 
posted to the Health Care Financing Administration's (HCFA) 
home page on the world wide web. Our written response to a 
formal request will include, at a minimum, one of the 
     A request for supporting documentation if 
additional information is needed. We will identify, in writing, 
the information that we require to enable us to review the 
request. A resubmission of the revised formal request triggers 
a new 90 day calendar response clock.
     A decision that the request duplicates another 
pending request and we will combine the requests and respond 
with a single decision.
     A decision that the request duplicates an earlier 
request for which we have already made a national coverage 
decisions (and that there is insufficient new evidence to being 
the process again).
     A referral for a technology assessment. We will 
make every effort to assure that we obtain timely assessments.
     A referral to the Medicare Coverage Advisory 
Committee for consideration. We will make every effort to 
assure that we obtain timely consideration.
     A national noncoverage decision (which precludes 
contractors from making Medicare payment).
     No national coverage decision (which allows for 
local contractor discretion).
     A national coverage decision with limitations on 
     A national coverage decision without limitations 
on coverage.
    In general, we expect to meet our self-imposed timeframes. 
However, certain circumstances may prevent us from meeting the 
timeframes such as the submission of additional information by 
the requestor or materially significant information submitted 
by others. Any related changes will be formally communicated to 
the requestor in writing and posted to the HCFA home page on 
the world wide web.

2. Minnesota's Medical Alley has talked to you a great deal 
about early collaborative meetings between industry and HCFA at 
which a written, mutual agreement may be reached on the 
specific information HCFA requires to make a coverage 
determination. I noticed they are not included in the Notice, 
and I must tell you I am disappointed about the absence of this 
reasonable and sensible request.
Currently, stakeholders act upon advice given to them in the 
informal early meetings, but HCFA often dismisses the studies 
later as falling short of providing the necessary data. For 
some coverage decisions, this has led to a continuous circle of 
studies and ``not yet'' decisions. I know of a few Minnesota 
companies that have experienced this ``run around'' for years. 
Is there any assurance this will not continue under the new 

    We do not believe this will occur. The April 27, 1999 
Federal Register notice makes our coverage determination 
process open, understandable and predictable. The notice is 
explicit on the types of information that must be included in a 
formal request for coverage determination. Later this year, we 
will complete this process by publishing a proposed rule for 
comment on the criteria we use to evaluate whether an item or 
service meets the statutory requirement that items or services 
be ``reasonable'' and ``necessary.''
    Individuals and organizations, however, may still contact 
us informally. Informal discussions can include assistance to 
the requestor to clarify the amount and kind of information 
necessary for a coverage determination. We are drawing a 
distinction between the formal and informal requests and, while 
we will be as helpful as possible through informal discussions, 
only formal requests will generate an official response in the 
timeframes established in the April notice.

I have been told that someone at HCFA said the Agency ``doesn't 
have the expertise to design the studies.'' If HCFA doesn't 
have the expertise to say what studies could or couldn't 
provide enough information and to make the final decision, then 
does HCFA make the final coverage decisions?

    In making national coverage decisions, HCFA decides whether 
items and services are reasonable and necessary for the 
diagnosis and treatment of illness or injury or to improve the 
functioning of a malformed body member. These decisions are 
usually based on medical and scientific research and data that 
demonstrate whether the item or service is useful for a 
particular condition. Currently, many companies hire 
consultants who design these scientific studies and HCFA is 
often provided a copy of the results of the study. We would be 
concerned about any proposal that would give HCFA a role in 
designing a scientific study that would appear to guarantee a 
particular coverage result without considering intervening 
changes in health care science and technology. Further, 
participation in a study's design does not guarantee that the 
study results will adequately demonstrate that a treatment is 
reasonable and necessary.
    We do, however, utilize biostaticians and clinical experts 
on an as needed basis to help us review medical and clinical 
information that is submitted to us to determine whether it 
demonstrates that a therapy is reasonable and necessary. In 
addition, we will refer formal requests, as needed, to the 
Medicare Coverage Advisory Committee to make recommendations to 
us about whether services can be considered reasonable and 
necessary. The members of the advisory committee will be 
selected from among authorities in clinical and administrative 
medicine; biologic and physical sciences; public health 
administration; health care data and information, management, 
and analysis; health care economics; medical ethics; and other 
related professions.

The only sensible reason I can understand for your opposition 
would be that it is an issue of resources. If it is an issue of 
resources, please tell me exactly how it is a resource problem 
given the 15-20 national decisions made each year. If you give 
me specifics on how many people you need and what particular 
jobs the would do, I can try to help.

    We anticipate that there will be an increased workload for 
HCFA staff who work in the coverage area and we have dedicated 
additional resources. We have hired new personnel including a 
former FDA executive secretariat who was responsible for 
running an advisory committee panel there. If the formal 
requests we receive are complete, the staff that we currently 
have or are in the process of hiring should be able to handle 
the requests according to the timelines outlined in the 
coverage notice. However, if a significant percentage of the 
formal requests are incomplete, we will face resource 
constraints. Incomplete and informal requests place the burden 
on the agency to outline what is necessary for the request to 
be accepted. We believe, though, that the requirements for the 
formal requests established in the notice are clear and should 
minimize the number of incomplete requests.

3. Can you explain the legal and practical distinctions between 
publication of the coverage process policy as a rule versus 
publication as a notice? Is the agency legally bound by the 
provisions in the notice?

    The Administrative Procedure Act enables (APA) an agency to 
issue ``rules of agency organization, procedure, or practice'' 
without completing notice and comment rulemaking (5 U.S.C. 
Sec. 553(b)(3)(A)). The legal effect of these rules, however, 
is not identical to legislative rules adopted through notice 
and comment rulemaking.
    In contrast to legislative rules, rules of agency 
organization, procedure, or practice may not impose new 
substantive legal requirements. The primary purpose of the 
procedural rules exemption in the APA is to ensure that 
agencies retain latitude in organizing their internal 
operations. Procedural rules express the agency's intended 
course of action, but do not conclusively affect the rights of 
private parties.
    While the agency is expected to follow the procedural rules 
it has put in place in order to make decisions--and we 
certainly intend to follow the procedures that we have 
developed for issuing national coverage decisions--the agency 
may amend those procedures without completing the notice and 
comment procedures. In addition, the agency is not required to 
provide a 30 day delayed effective date as is normally required 
for a legislative rule. HCFA will, however, provide advance 
public notice before making any changes to the procedures 
announced in the April 27, 1999 notice. This practice is 
consistent with 5 U.S.C. Sec. 552(a)(1)(C).

4. How will you consider, respond to, and incorporate public 
comment on that notice? Do you intend to meet further on the 
notice with stakeholders and modify the notice to reflect 
relevant information learned in comments from such meetings?

    We welcome comments from the public on the processes 
spelled out in the notice. Comments may be submitted to us in 
writing or via the HCFA homepage. The appropriate addresses are 
included in the April 27, 1999 notice. We will consider these 
comments, respond if necessary, and incorporate as appropriate.

5. How does the current local decision-making process increase 
patient access to medical technology?

    Where no national policy exists, our local contractors 
develop policy as they identify a need. This may in some cases 
provide access to new technologies before national policy is 
established. Our goal, however, is to provide more timely and 
consistent national policy to improve access to new 
technologies as quickly as is warranted by medical and 
scientific evidence for all beneficiaries regardless of where 
they live.


    Chairman Thomas. Could I then ask the second panel to come 
    Mr. McDermott. Mr. Chairman. I would like to apologize. I 
really would like to stay for this, but NATO has made the 
airports crazed, and so some of us have to get going to get 
planes to go home. So, I am sorry I can't stay.
    Chairman Thomas. Well, I am sorry, too, and that is OK, 
because this really is a panel of folks who are highly regarded 
especially in terms of representing the interests of 
beneficiaries. The first witness is Professor Eleanor Kinney of 
Indiana University, and she is a former official at the 
Department of Health and Human Services, serving in both 
Democratic and Republican administrations; probably the leading 
national scholar on the issue.
    Terry Coleman, who has been Deputy Administrator of HCFA, 
Chief Counsel of HCFA, both at the Food and Drug 
Administration, and Health and Human Services.
    And, last but not least, Vicki Gottlich, who has as an 
attorney been representing the National Senior Citizens Law 
Center, and I am a little worried about testing cause and 
effect, because I believe the last time you were supposed to 
testify at this hearing an alarm went off, a fire alarm, and we 
were not able to have the rest of the hearing. So, it is with 
some trepidation I welcome you for a second try.
    And, with that, Ms. Kinney, if you would begin, and I would 
indicate that all of you who have written testimony, it would 
be made a part of the record, and you can address this in any 
way you see fit in the time that you have.
    Professor Kinney.


    Ms. Kinney. Thank you very much, Chairman Thomas. I am very 
honored to be here. I would like to offer my testimony for the 
record and just touch on a few points in my remarks that I 
think might help clarify some of the issues before you today.
    In my judgment, this is a very complicated and difficult 
issue. There are a lot of interests at stake. Specifically, 
there are four stakeholders that I think have very important 
interests that are not always consistent with one another--
first, beneficiaries, of course, being the most important; 
second, HCFA; third, the medical profession with an interest in 
practice; and, fourth, a very vibrant device in technology 
industry that is important to our economy in many respects.
    In my judgment, the current controversy is driven by four 
factors, again, that often work at cross purposes. These 
factors make it difficult to develop national coverage policy 
at the national level and also at the local level by Medicare's 
contractors. Specifically more and more services are going to 
the part B side, which puts greater financial pressure on the 
part B program. Incredible advances in medical technology are 
increasing at a great pace. There's continuing inflation in 
Medicare Program expenditures, of which I think you are acutely 
aware. Finally, the numbers of Medicare beneficiaries will be 
increasing in the future, which make even decisions on small, 
little-ticket items potentially very, very expensive for the 
Federal Government and taxpayers.
    I was pleased to see that these hearings address both 
national coverage policy, local coverage policy, and the 
beneficiary appeals process, because they are inextricably 
entwined and not in a particularly healthy way.
    Our major problem has been with the way HCFA makes coverage 
policy both at the national and local level. I have not had an 
opportunity to look at the coverage policymaking procedure that 
was proposed today. I hope they have dealt with the three major 
problems that I see with HCFA's coverage policymaking process 
in the past: a process that is closed, a process that is 
duplicative in some respects of the FDA process, and a process 
that did not permit interested parties to participate in a 
meaningful manner. I have heard good things about the new 
process that HCFA has proposed. Although I haven't studied it, 
it sounds like some important reforms have been and hopefully 
will be achieved. The opening up of the national coverage 
making process is the essential step.
    From what I have heard today and previously, I think we 
need to give greater attention to policymaking at the local 
level. At least we must make the policymaking process at the 
local level consistent with what is done at the national level. 
If HCFA has made a national coverage determination, providers 
and beneficiaries and the industry should be able to expect 
that the national policy will be enforced at the local level.
    We have talked a lot about problems with beneficiary 
appeals. The delay in these appeal procedures is unforgivable. 
Further, the multiple layers which often don't seem to have a 
readily apparent purpose, seem cumbersome. However, the real 
problem with the part B appeals process is that it is now the 
battleground where disputes over coverage policy are being 
fought, and it is an inappropriate battleground.
    There are two types of issues that come before the part B 
appeals process that need attention. The first is special 
situations in which the beneficiary might really benefit from a 
noncovered item where conventional, covered treatment 
modalities have failed. Ideally, Medicare should be able to 
tailor a treatment process for such a beneficiary in 
extraordinary circumstances and manage the use of noncovered 
items or services in such cases through case management. That 
is a little bit different than we are talking about today, but 
I think that our process doesn't really address this need of 
many beneficiaries. With the second issue, we simply have a 
process that--well, I see that the light is on telling me that 
I ought to come to close----
    Chairman Thomas. No, no, no, that is the yellow. Here in 
Washington, you have another 4 minutes to drive the 
intersection. [Laughter.]
    Ms. Kinney. Oh, OK. Out in the hinterlands, we get worried 
when we see yellow.
    At any rate, the second problem with the part B appeals 
process is that it is handling the dispute that device 
manufacturers have with HCFA's policy decisions implicit in 
national coverage determinations. The part B appeals process 
should not be handling these issues and adjudicating what is 
appropriate national coverage policy for the Medicare Program. 
The current law in Social Security Act section 1869 is correct. 
Having said this, I want to emphasize that HCFA must operate a 
policymaking process for national coverage policy where all the 
players are able to put their best medical evidence on the 
table and get a decision that they believe is credible. That 
has not been done to date.
    HCFA can't have it both ways. It is unfair to block 
considerations by the ALJ, which is appropriate in my judgment; 
and to require that courts remand national coverage policy to 
HCFA for amplification of the record before invalidating which 
is, again, probably appropriate, and then run a private 
policymaking process for making national coverage policy. HCFA 
needs to open up that policymaking process and let everybody 
come in, make their views known, and put their best evidence 
before the policy decisionmakers. In my judgment, if you 
operate the initial policy process correctly, you are more 
likely to avoid the kinds of appeals that shouldn't be before 
the part B appeals process in the first place and get better 
decisions all around for the protection of beneficiaries.
    [The prepared statement follows:]

Statement of Eleanor D. Kinney, J.D., M.P.H., Professor of Law; and 
Codirector, Center for Law and Health, Indiana University School of 
Law, Indianapolis, Indiana

    It is an honor to appear before the Subcommittee on Health 
of the House Committee on Ways and Means to provide testimony 
on Medicare Coverage Policy Decisions and Beneficiary Appeals. 
In my testimony today, I would like to present some 
observations about the processes for making and implementing 
Medicare coverage policy and also the procedures available for 
beneficiaries and their assignees to appeal the adverse claim 
denials based on both national and local Medicare coverage 


    Medicare is a federal program providing comprehensive 
health insurance for the elderly, severely disabled and people 
with End Stage Renal Disease. Medicare is the nation's largest 
health insurance program and covers 37 million Americans.
    Traditional fee-for-service Medicare is comprised of two 
programs--the Hospital Insurance program (Part A) and 
Supplementary Medical Insurance program (Part B). Part A covers 
hospital care and related home health and skilled nursing home 
care. Part B covers physician and other outpatient services. 
Under the fee-for-service program, Medicare beneficiaries 
obtain services directly from the providers they select. 
Medicare pays Part A providers directly under various payment 
methodologies. Assuming that the beneficiary assigns his or her 
claim for Part B benefits directly to the physician, supplier 
or other provider, Medicare pays the provider or supplier 
directly for the services.
    In the Balanced Budget Act of 1997, Congress enacted a new 
``Part C'' of the Medicare program--the Medicare+Choice 
program. As of January 1, 1999, Medicare beneficiaries have the 
option of enrolling in Medicare+Choice plans. Medicare 
beneficiaries must select a Medicare+Choice plan or enroll in 
the traditional Medicare fee-for-service program under Parts A 
and B described above. Medicare+Choice plans must provide the 
array of benefits in Parts A and B but may offer additional 
benefits with savings achieved in efficient delivery of 
services to Medicare Beneficiaries.


    Benefits are the specific items and services included in 
the Medicare benefit package. Coverage defines the amount, 
duration and scope of the benefits for which the Medicare 
program will pay. The Medicare statute specifies the benefits 
to which beneficiaries are entitled in very general terms. Part 
A covers hospital care and related home health and skilled 
nursing home care. Part B covers physician and other outpatient 
services, including durable medical equipment. The Medicare 
statute lists excluded services, although now Medicare+Choice 
plans can provide some of these services from savings.
    The Medicare statute contains a general coverage 
prescription that ``items or services [which] are not 
reasonable and necessary for the diagnosis and treatment of an 
illness or injury, or to improve the function of a malformed 
body member'' are not covered.\1\ Decisions on whether Medicare 
covers an item or service are made by Medicare contractors that 
administer the Medicare program on behalf of the Health Care 
Financing Administration (HCFA) and initially adjudicate all 
claims for Medicare coverage and payment for beneficiaries 
enrolled in the fee-for-service program. \2\
    \1\ 42 U.S.C. Sec. 1395y(a)(1) (1999).
    \2\ The Medicare contractors for Part A are insurance companies 
called fiscal intermediaries (FIs). For hospitals, Professional Review 
Organizations (PROs) conduct utilization and quality review of hospital 
inpatient services. The Medicare contractors for Part B are health 
insurance companies called carriers. In the Medicare+Choice program, 
the prepaid health plans contract directly with HCFA and implement 
coverage policy.
    Coverage policies and decisions fall into three categories 
depending on the type of item or service involved.
    1. First is coverage policy pertaining to the amount and 
duration of a fairly conventional service, such as inpatient 
hospital care or home health services. This type of coverage 
policy is often implemented at the contractor level. The 
contractor may rely on the use of computerized screens to 
identify situations in which services exceed expected norms 
regarding amount and duration. Coverage policy for these 
services are contained in the applicable HCFA manual for the 
Medicare contractors or providers.
    2. Second is coverage policy pertaining to items, namely 
medical devices used in the care of chronic illness or long 
term care. These items or devices are often sold as durable 
medical equipment and managed on the Part B side of the 
program. HCFA publishes coverage policy on these items chiefly 
in the list of durable medical equipment in the its Coverage 
Issues Manual.
    3. Third are new medical technologies and procedures that 
are often experimental and come before the HCFA national office 
for a national coverage determination. HCFA publishes national 
coverage determinations in the Medicare Coverage Issues Manual. 
There is some overlap between the second and third categories 
of coverage policy.
    In the early years of the Medicare program, coverage policy 
had been made chiefly by Medicare contractors at the local 
level. However, with the advances in expensive new medical 
technology, the Medicare program was faced with more issues on 
whether to cover new technologies which called for attention 
from the national office. In the early 1980s, HCFA began 
publishing national coverage determinations as coverage rulings 
in the Federal Register and contractor manuals.
    In part, this pressure and concern came from medical device 
manufacturers that, as of 1976, had to get approval from the 
Food and Drug Administration (FDA) before marketing new medical 
devices to assure ``the reasonable safety and effectiveness of 
medical devices intended for human use.'' \3\ Medical device 
manufacturers were confounded when FDA approval did not 
necessarily result in Medicare coverage and that further review 
for Medicare coverage purposes was required. Beneficiaries and 
their physicians were concerned that their access to new 
technologies were limited by Medicare coverage determinations. 
Also many were concerned about the inconsistency of Medicare 
coverage policy nationwide as carriers had the authority to 
make coverage policy on a local basis. For example, in the 
early 1980s, heart transplants were covered in California but 
not in other parts of the country.
    \3\ 42 U.S.C. Sec. 360c (1999).
    In 1987, as part of the settlement in Jameson v. Bowen,\4\ 
which contested the application of a national coverage policy, 
HCFA promulgated a notice explaining its procedures for making 
coverage decisions.\5\ In this notice, HCFA stated its 
intention to promulgate a rule for making national coverage 
determinations. In January 1989, HCFA promulgated a proposed 
rule establishing procedures and criteria but never published a 
complete final rule.\6\ The rule was to establish criteria and 
procedures for HCFA decisions as to whether and under what 
circumstances specific health care technologies could be 
considered ``reasonable'' and ``necessary'' in more open and 
streamlined procedures with increased public participation and 
expedited procedures for ``new breakthrough'' technologies. In 
1995, HCFA did publish a final rule with a comment period to 
specify conditions when Medicare would cover certain devices 
with an investigational device exemption through the FDA and 
certain services related to those devices.\7\
    \4\ [1987-1 Transfer Binder] Medicare & Medicaid Guide para. 36,033 
(E.D. Cal. Feb. 20, 1987) (Settlement Agreement and Release of Claims).
    \5\ Health Care Financing Administration, Medicare Program, 
Procedures for Medical Services Coverage Decisions; Request for 
Comments, 52 Fed. Reg. 15,560 (Apr. 29, 1987).
    \6\ Health Care Financing Administration, Medicare Program; 
Criteria and Procedures for Making Medical Service Coverage Decisions 
That Relate to Health Care Technology, 54 Fed. Reg. 4302 (Jan. 30, 
    \7\ Health Care Financing Administration, Medicare Program; 
Criteria and Procedures for Extending Coverage to Certain Devices and 
Related Services, 60 Fed. Reg. 48,417 (Sept. 19, 1995).
    Previously, when making national coverage policy, HCFA 
conducted an internal review or consulted with its Technical 
Advisory Committee (TAC).\8\ This committee was comprised of 
ten carrier medical directors, a managed care medical director, 
and representatives of other federal health agencies. The TAC 
could recommend that HCFA issue a national coverage policy, 
refer the issue for assessment by the Agency for Health Care 
Policy and Research or other qualified public or private 
assessment organization, postpone the decision pending more 
information, or make no decision. HCFA could accept or reject 
the TAC's recommendation. TAC proceedings were closed to the 
public and outside parties with an interest in the item or 
service under review had no opportunity to participate 
    \8\ Issues Relating to Medicare's Coverage Policy, Hearing before 
Subcommittee on Health, 105th Cong., 1st Sess. (1997) (Testimony Bruce 
C. Vladeck, Administrator, Health Care Financing Administration).
    Many stakeholders, particularly the medical device 
industry, have been critical of the closed character of HCFA's 
coverage decision making process. In the 1980s, the 
Administrative Conference of the United States recommended that 
HCFA establish greater regularity and openness in its coverage 
decision making processes.\9\ The American Bar Association also 
recommended similar reforms in Medicare coverage policy 
making.\10\ Concerns about regularity and openness continue as 
troublesome issues today. GAO has been a persistent critic of 
HCFA's coverage decision making processes at both the national 
and local level.\11\
    \9\ See ACUS Recommendation 87-8, National Coverage Determinations 
under the Medicare Program, 1 C.F.R. Sec. 305.87-8; ACUS Recommendation 
86-5, Medicare Appeals, 1 C.F.R. Sec. 305.86-5. See also Eleanor D. 
Kinney, National Coverage Policy Under the Medicare Program: Problems 
and Proposals for Change, 32 St. Louis U.L.J. 869 (1988); Eleanor D. 
Kinney, The Medicare Appeals System for Coverage and Payment Disputes: 
Achieving Fairness in a Time of Constraint, 1 Admin. L. J. (Am. U.) 1 
    \10\ American Bar Association, Recommendations on Medicare 
Procedures by the ABA House of Delegates (August 1988).
    \11\ See, e.g., U.S. Gen. Accounting Off., Medicare Part B: 
Regional Variation in Denial Rates for Medical Necessity (1994); U.S. 
Gen. Accounting Off., Medicare-Technology Assessment and Medical 
Coverage Decisions (1994).
    HCFA is currently redesigning its coverage decision making 
process. In September 1998, HCFA conducted a ``town hall'' on 
Medicare Coverage decision making and published a white 
paper.\12\ HCFA has appointed a Medicare Coverage Advisory 
Committee comprised of outside experts that conducts meetings 
which are open to the public and at which requesters of 
coverage for a device or service can present their case.\13\ 
HCFA plans to publish a notice shortly outlining the 
administrative process for making national coverage policy. 
HCFA also plans to develop general criteria that will guide in 
developing criteria for specific sectors of the health care 
    \12\ Health Care Financing Administration, How Coverage Review is 
Conducted: White Paper for Town Hall Meeting Held on September 25, 1998 
    \13\ Health Care Financing Administration, Medicare Program; 
Establishment of the Medicare Coverage Advisory Committee and Request 
for Nominations for Members, 63 Fed. Reg. 68,780 (Dec. 14, 1998).


    There are a multitude of appeals systems under the Medicare 
program depending on the type and status of the appellant and 
the subject matter of the dispute. In general, the two main 
types of appellants are Medicare those and Medicare providers. 
For Medicare beneficiaries, appeals procedures are different 
for beneficiaries who have enrolled in a Medicare+Choice plan 
under Part C and for those who have opted to remain in 
traditional fee-for-service Medicare under Parts A and B. For 
Medicare+Choice enrollees, there are grievance and appeal 
procedures within the managed care plan and then administrative 
and judicial review.\14\
    \14\ 42 U.S.C. Sec. 1395w-21 (1999).
    Initially, the Medicare statute only permitted appeals on 
the part of beneficiaries with disputes over Part A services in 
the conventional administrative review structure of the Social 
Security Administration (SSA) of which the Medicare program was 
a part. Beneficiaries with concerns had a right to a fair 
hearing before the carrier. In 1972, responding to increased 
hospital and nursing home disputes over Medicare reimbursement, 
Congress established the Provider Reimbursement Review Board to 
adjudicate payment disputes of institutional providers.\15\
    \15\ 42 U.S.C. Sec. 1395oo (1999).
    During the late 1970s and 1980s, there was increased 
pressure from beneficiaries and particularly providers for 
administrative and judicial review of Part B claims. In 1984, 
in Heckler v. Ringer,\16\ the Supreme Court ruled that a 
beneficiary could not challenge a national coverage 
determination prohibiting coverage for bilateral carotid artery 
resections to relieve respiratory distress without exhausting 
administrative remedies and proceeding through the Social 
Security Act's appeals process. In part, beneficiaries, 
providers and particularly suppliers and manufacturers on their 
behalf wanted to challenge national coverage decisions and 
other Medicare coverage policy upon which claim denials were 
    \16\ 466 U.S. 602 (1984).
    Much concern was expressed about the fact that 
beneficiaries with Part B appeals did not have statutory 
administrative and judicial review but only fair hearings 
before carrier officials. The Supreme Court, in Schweiker v. 
McClure,\17\ concluded that carrier Part B hearing procedures 
were sufficient and administrative review before an 
Administrative Law Judge (ALJ) and judicial review were not 
required under the procedural due process clause of the federal 
constitution. In 1985, the Subcommittee on Health of the Senate 
Finance Committee held hearings on Medicare appeals at which 
beneficiaries' complaints about the Part B appeals process was 
the central theme.\18\ Nevertheless, in the Omnibus Budget 
Reconciliation Act of 1986, Congress established administrative 
review for part B claims, but also imposed significant 
limitations on administrative and judicial review of national 
coverage determinations.\19\
    \17\ 456 U.S. 188 (1982).
    \18\ Medicare Appeals Provisions: Hearings Before the Subcomm. On 
Health of the Senate Comm. On Finance, 99th Cong., 1st Sess. (1985).
    \19\ 42 U.S.C. Sec. 1395ff (1999).
    The Part B appeals process has been problematic since its 
inception. HCFA stirred up controversy in the late 1980s when 
it determined that it would retain carrier hearings for Part B 
claims.\20\ This proposal was unsuccessfully challenged in 
Isaacs v. Bowen \21\ which upheld HCFA's authority to retain 
this step. Then HCFA sought to create an administrative law 
judge corps within HCFA to adjudicate Part B disputes but 
backed away from the concept in the face of vigorous opposition 
on many fronts.\22\ HCFA never implemented these plans. A GAO 
report found that the Part B administrative appeals process 
during these early years was quite lengthy.\23\ Many are 
concerned about the Part B appeals process,\24\ including the 
American Bar Association.\25\ Problems have continued to 
surface in judicial decisions as well.\26\ HCFA has 
acknowledged the need for reform.\27\
    \20\ Health Care Financing Administration, Medicare Carriers Manual 
Sec. 12195B (1986).
    \21\ 865 F.2d 468 (2d Cir. 1989).
    \22\ See Oversight Hearing on Adjudicatory Procedures of the Dep't 
of Health & Human Services Before the Subcomm. on Administrative Law 
and Government Relations of the House Judiciary Comm., 101st Cong., 1st 
Sess (1989).
    \23\ U.S. General Accounting Office, Statistics on the Part B 
Administrative Law Judge Hearings Process (1989).
    \24\ See, e.g., Judith G. Waxman & Alfred J. Chiplin, Jr., Medicare 
Part B Appeals--and You Thought the System was Fixed, Clearinghouse 
Rev. 384 (Special Issue, Summer 1989); Bess M. Brewer, Risky Business: 
Five Years of Navigating the Medicare Part B Appeals Process, 
Clearinghouse Rev. 537 (Sept. 1992) (raising beneficiary concerns); 
Timothy P. Blanchard, Medical Necessity Denials as a Medicare Part B 
Cost-Containment Strategy: Two Wrongs Don't Make it Right or Rational, 
34 St. Louis. U.L.J. 939 (1990) (raising provider concerns).
    \25\ American Bar Association, Recommendations on Medicare 
Procedures by the ABA House of Delegates (August 1988).
    \26\ See, e.g, Warder v. Shalala, 149 F.3d 73 (5th Cir. 1998); 
Friedrich v. Secretary of Health and Human Services, 894 F.2d 829 (6th 
Cir. 1989); Mathews v. Shalala, 1997 WL 124106 (S.D.N.Y., Mar. 18, 
1997); Cedars-Sinai Medical Center v. Shalala, 939 F.Supp. 1459 (C.D. 
Cal. 1996); Bosko v. Shalala, [Transfer Binder 1997-1] Medicare & 
Medicaid Guide para. 45, 139 (W.D. Pa. Aug. 28, 1996).
    \27\ Medicare Appeals Process: Hearings before the Subcomm. On 
Health of the House Comm. On Ways and Means, 105th Cong., 2d Sess. 
(Apr. 23, 1998) (Testimony of Michael M. Hash, Deputy Director, Health 
Care Financing Administration).

               Medicare Fee-For-Service Appeal Procedures

    Below are described the current appeal procedures for 
beneficiaries dissatisfied with determinations under Parts A 
and B of the Medicare program and who have elected the fee-for-
service Medicare option.
    Part A. Under Medicare Part A, which funds inpatient 
hospital and related post hospital services, beneficiaries may 
obtain administrative and judicial review of denied claims. For 
claims involving hospital services and utilization review 
determinations, beneficiaries must seek reconsideration before 
the Peer Review Organization (PRO). For claims over $200, 
beneficiaries may appeal adverse PRO determinations to an SSA 
ALJ and seek judicial review of adverse administrative 
decisions for claims of $2,000 or more.\28\
    \28\ 42 U.S.C. Sec. 1320c-4 (1999).
    For all other beneficiary appeals under Part A, the 
beneficiary seeks reconsideration of the FI's determination. 
For claims involving $100 or above, they may appeal to an SSA 
ALJ with judicial review for claims of $1,000 or above.\29\
    \29\ 42 U.S.C. Sec. 1395ff (1999).
    Part B. It should be emphasized that the right to appeal is 
for beneficiaries only and providers have rights to appeal only 
if they have accepted assignment of the beneficiaries claim and 
stand in the shoes of the beneficiary. The Part B appeals 
process retains the fair hearing proceeding before the 
carrier.\30\ After the carrier's final disposition, a 
beneficiary may appeal an adverse determination if the amount 
in controversy is $500 or more to an SSA ALJ.\31\ Judicial 
review is available for disputes of $1,000 or more.
    \30\ 42 U.S.C. Sec. 1395u (1999).
    \31\ 42 U.S.C. Sec. 1395ff(b)(2) (1999).
    Review of National Coverage Determinations. The Omnibus 
Budget Reconciliation Act of 1986 imposed significant 
limitations on the review of national coverage 
determinations.\32\ Specifically, review of the coverage of any 
particular type or class of items or services is subject to the 
following limitations. Specifically, an ALJ may not review a 
national coverage determination. A court shall not set aside or 
invalidate a national coverage determination on grounds that 
requirements in the Administrative Procedure Act \33\ relating 
to publication in the Federal Register or opportunity for 
public comment were not satisfied or that Medicare's rulemaking 
requirements \34\ were not followed. Further, in any case in 
which a court determines that the record is incomplete or 
otherwise lacks adequate information to support the validity of 
a national coverage determination, it shall remand the matter 
to the Secretary for additional proceedings to supplement the 
record and the court may not determine that an item or service 
is covered except upon review of the supplemented record.
    \32\ 42 U.S.C. Sec. 139ff(c) (1999).
    \33\ 5 U.S.C. Sec. Sec. 551-559 (1999).
    \34\ 42 U.S.C. Sec. 1395hh(b) (1999).

          Medicare+Choice Appeal Procedures for Beneficiaries

    Medicare+Choice plans must have ``meaningful grievance 
procedures'' with organizational determinations made by health 
plans and external review for reconsiderations.\35\ The 
Secretary shall contract with an independent, outside entity to 
review and resolve in a timely manner reconsiderations that 
affirm denial of coverage. Following external review, there is 
administrative review before an SSA ALJ with subsequent 
judicial review.
    \35\ 42 U.S.C. Sec. 1395w-21 (1999). See Jennifer E. Gladieux, 
Medicare+Choice Appeal Procedures: Reconciling Due Process Rights and 
Cost Containment, 25 Am. J. L. & Med. 61 (1999).

                        THE CURRENT CONTROVERSY

    The process for making Medicare coverage policy as well as 
adjudicating coverage in the cases of individual Medicare 
beneficiaries has been controversial. The historical 
development of the procedures for making Medicare policy and 
adjudicating appeals over its applications reflects this 
controversy. The reason for the controversy in the past and, 
especially for the future, is the collision of four forces:
     The increased provision of expensive care in 
outpatient settings and thus coming under the Part B side for 
claims administration and adjudication.
     The incredible advances in medical technology for 
the diagnosis and treatment of disease since the 1960s. 
However, this advance pales in terms of anticipated advances in 
medical technology in the future.
     The continuing inflation in Medicare program 
expenditures that threatens the solvency of the Medicare trust 
funds and puts great pressure on the federal budget of which 
Medicare constitutes a significant component.
     The increasing numbers of Medicare beneficiaries 
due to demographic changes in the elderly population as 
potential consumers of newly approved technologies.
    It is worth looking at the interaction of these forces in 
some detail. The issue of technology is especially problematic 
for the Medicare program because it potentially translates into 
increased program expenditures with resulting pressures on 
Medicare trust funds and other sources of financing. The 
stewards of the Medicare program must be cognizant of these 
developments in formulating coverage policy for the Medicare 
program as expanded coverage for any item or service 
potentially contributes to increased program expenditures 
particularly if used in the care of many beneficiaries.
    The battle over Medicare coverage policy is currently being 
fought out in the Part B appeals process. Beneficiary or, more 
likely, providers and suppliers who have accepted assignment 
from beneficiaries and are appealing on their behalf, are 
challenging the denial of Part B claims. There are two major 
types of issues in Part B appeals which need attention:
     Special situations in which the beneficiary could 
really benefit from a non-covered item or service in a cost 
effective treatment.
     Coverage policy applied to new technologies that 
inappropriately stifles development of medical innovation and 
hurts the legitimate business interests of device 
    The current Part B Appeals Process is not capable of 
adjudicating either type of issue. In neither case is the 
beneficiary or the manufacturer able to obtain the relief they 
desire. Regarding the application of coverage policy to 
beneficiaries in the first situation, at no point in the 
appeals process does a decision maker have any flexibility 
whatsoever to allow a prescribed item or service that might be 
of great benefit to a beneficiary and even save Medicare 
expenditures in the care of that beneficiary.
    Regarding the impact on the manufacturers of new 
technologies, the appeal procedures do not provide a decision-
maker at any level with authority to overturn a national 
coverage determination. Even if an appeal comes before a 
federal court, the court must remand the policy back to HCFA 
for amplification and further development of the record.
    Finally, for all Part B appeals, the appeals process is 
quite long with an internal appeal before the Medicare 
contractor and then administrative review and judicial review. 
It often takes many months--well over a year--to get through 
these layers of review.\36\ A cumbersome process with no 
possibility of relief is frustrating and counter productive to 
all parties concerned.
    \36\ Medicare Appeals Processes: Hearings Before the Subcommittee 
on Health House Committee on Ways and Means, 105th Cong., 2d Sess. 
(Apr. 23, 1998) (Testimony of Michael M. Hash, Deputy Director, Health 
Care Financing Administration).

                           IDEAS FOR REFORMS

    In contemplating reforms, it is useful to identify the 
affected stakeholders and their legitimate interests in the 
Medicare coverage decision making process. The most important 
stakeholder is the Medicare beneficiary who has a legitimate 
interest in getting the best available treatment when in need.
    The second stakeholder is HCFA, which stands in the shoes 
of Medicare beneficiaries who finance the Part B program with 
Part B premiums as well as current workers who finance Part B 
with their taxes. HCFA's interest is ensuring that it purchases 
health care services for beneficiaries in a cost effective 
manner. Such stewardship includes paying only for items or 
services that are proven to be effective in the treatment of 
illness and injury and not for items or services that are 
experimental or ineffective. HCFA has argued historically that 
the Medicare program should not finance the research and 
development of medical devices or procedures--hence its strict 
adherence to the coverage exclusion of experimental items or 
    The third stakeholder is the provider community which has 
an interest in having the ability to use and prescribe the best 
treatment available for Medicare patients without the specter 
of administrative hassles in getting paid from the Medicare 
program. Institutional providers want to be able to purchase 
medical devices and other supplies without being tied up in 
subsequent coverage disputes and payment denials.
    The fourth stakeholder is the medical device manufacturing 
industry which has an interest in bringing new products to 
market in an efficient and profitable manner. The device 
industry faces two regulatory barriers before getting a product 
to market: the device review process in the FDA \37\ and the 
Medicare coverage decision making process. This latter process 
has a great impact on their ability to make a profit on their 
product and recoup their development costs. Understandably, 
device manufacturers want predictable, non-duplicative and 
efficient regulatory approval procedures to conserve expenses 
and get to market quickly.
    \37\ 42 U.S.C. Sec. 360c (1999).
    Reform should proceed along the two major strategies: (1) 
reform of the Medicare coverage policy making process to make 
coverage policy in an open, accessible, expeditious and 
accurate manner, and (2) reform the appeals process to 
adjudicate cases in an expeditious manner. In my judgment, the 
two processes are joined at the hip. A well designed, open 
policy making process in which all interested parties can 
participate effectively and present their positions before 
responsible parties is the appropriate way to make coverage 
policy. Such a reformed process will alleviate the need for 
many to bring appeals. If the policy making process has 
sufficient credibility, disappointed requesters many not pursue 
some negative coverage decisions in the appeals process.

         Reforms for the HCFA Coverage Decision Making Process

    The HCFA coverage policy making process is the forum in 
which to determine whether a new medical procedure or device 
should be a covered Medicare benefit. The determination of this 
issue always involves the consideration of difficult 
``legislative'' facts such as the cost implications of coverage 
and the medical benefit of new technology for beneficiaries. 
The HCFA coverage making process should be designed to marshal 
the best medical and scientific evidence available in the 
scientific literature and the results of relevant clinical 
trials. The process should obtain the scientific advice 
available both inside and outside of government. HCFA's 
establishment of the Medicare Coverage Advisory Committee is an 
excellent step in moving toward a sound policy making process.
    Further, the HCFA coverage decision making process must 
allow for input from the individual or company promoting 
coverage of a medical device or procedure as well as other 
individuals or organization, such as medical specialty 
societies, other provider organizations and patient advocacy 
groups, with an interest in the coverage issue. These parties 
should have an opportunity to provide adequate written and 
possibly oral input in the coverage decision making process. 
This openness is critical to give the process credibility among 
affected parties, including the medical device industry, the 
provider community and beneficiaries.
    HCFA might also consider making ``probationary'' coverage 
determinations that allow for a device or procedure to be 
tested and evaluated on a demonstration basis before a final 
coverage determination is made. Such a probationary procedure 
would have to be carefully designed to control Medicare 
expenditures for unproven medical technologies and would 
probably be used in only a few instances.
    The following principles should guide the design of the 
coverage decision-making process from a procedural perspective:
     HCFA should provide adequate notice that its 
coverage decision making process is going to consider a 
national coverage determination or other coverage policy 
regarding a particular device or procedure. The notice should 
be provided in a manner likely to reach beneficiaries, 
providers, suppliers and device manufacturers.
     Requestors of Medicare coverage for a medical 
device or procedure, namely a medical device manufacturer, 
should have an adequate opportunity to present their case in 
oral and written form to the Medicare Coverage Advisory 
Committee and also to the officials in HCFA that will actually 
decide on the coverage policy.
     All other individuals or organizations, such as 
medical specialty societies, other provider organizations and 
patient advocacy groups, with an interest in the coverage issue 
should have an opportunity to provide adequate written and 
possibly oral input in the proceeding for making coverage 
     To the extent possible, the coverage decision 
making process should not impose requirements or otherwise 
duplicate the FDA device approval process.

             Reforms of the Medicare Part B Appeals Process

    Again, the current Part B appeals process is the battle 
ground on which the current disputes over the appropriateness 
of Medicare coverage policy regarding medical devices and 
procedures is being waged. The appeals process is not the 
proper forum for resolving issues of the validity or 
appropriateness of any given policy and, in particular, 
Medicare coverage policy. Neither ALJs nor federal judges have 
the technical expertise nor the broader perspective in the 
context of a single case to make decisions involving the 
correctness of a Medicare coverage policy.
    Nor are current appeals systems adequate to address the 
claims of beneficiaries that have unique circumstances and 
could benefit from a particular non-covered item or service. 
For example, HCFA might specify that carriers could provide 
coverage for a specified non-covered item for beneficiaries 
with particular needs and where other covered treatments have 
failed. Many insurance companies and managed care organizations 
provide non-covered services on this basis. Ideally, the 
carrier could be accorded the discretion to decide such cases 
and also to establish the requisite case management oversight 
to ensure the safety of the beneficiary and conserve Medicare 
dollars. The carrier fair hearings might appropriately be used 
to appeal such special situations when the carrier has already 
denied coverage.
    The following principles should guide reform of the Part B 
appeals process:
     The interests of beneficiaries should be paramount 
and appeals procedures should be designed to adjudicate their 
concerns effectively.
     Appeal procedures should be as streamlined as 
possible and extra layers of review should be implemented only 
if they serve a particular purpose required to facilitate the 
expeditious and fair resolution of the disputes.
     ALJs and other adjudicators should not have 
authority to consider the validity of Medicare coverage policy 
and, in particular, national coverage determinations.
    In sum, the Part B appeals process is not the forum to 
adjudicate the validity or appropriateness of HCFA coverage 
policy. It has been called to do so because the national 
coverage policy process to date has been inadequate to provide 
a forum for interested parties, including beneficiaries, 
providers and device manufacturers to raise their concerns and 
arguments regarding the coverage of a new medical device or 
procedure in the first instance.
    However, the question remains as to what appeal procedures 
and forums should be available to enable providers, device 
manufacturers and other interested parties to challenge HCFA's 
decision on the coverage of a particular medical device or 
procedure. In Chevron, U.S.A., Inc. v. National Resources 
Defense Council,\38\ the Supreme Court established the 
principle that reviewing federal courts have limited authority 
to overturn agency policies and interpretations of their 
enabling legislation. The Court's rationale for its clear 
preference for limited judicial review of agency policy is that 
the agency has ultimate responsibility to manage the 
statutorily mandated program and needs to have the authority to 
make the requisite policies and decisions to carry out their 
statutory assignments.
    \38\ 467 U.S. 837 (1984).
    In sum, Congress should think carefully about the 
implications of giving final authority over Medicare coverage 
policy to a court or other decision maker that is not 
accountable for the fiscal performance of the Medicare program 
or the safety and welfare of its beneficiaries. The better 
approach, in my judgment, is to focus on improving HCFA's 
Medicare coverage decision making process in the first instance 
to make it truly open to beneficiaries and their providers and 
the developer of new medical technologies that are so important 
in the advance of medical care.



                      Key Legislative Developments

    Social Security Amendments of 1965, Pub. L. No. 89-97 
     Establishing the Medicare program is established 
with appeal rights only for beneficiary concerns over hospital 

    Social Security Amendments of 1972, Pub. L. No. 93-603 
     Expanding Medicare eligibility to include the 
disabled on the Social Security Disability Insurance Program.

    Medical Device Amendments of 1976, Pub. L. No. 94-295 
     Establishing FDA approval of medical devices.

    Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. 
97-248 (1982).
     Establishing the Peer Review Organization Program 
with Peer Review Organizations to review hospital expenditures.

    Social Security Amendments of 1983, Pub. L. No. 98-21 
     Establishing the DRG Prospective Payment System 
for Hospitals.

    Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-
509 (1986).
     Authorizing Administrative and Judicial Review for 
Part B Claims.
     Establishing Special Rules for Appeals of National 
Coverage Determinations.

    Omnibus Budget Reconciliation Act of 1989, Pub. L. No. 101-
239 (1989).
     Establishing Resource-Based, Relative Value Scale 
for determining Medicare payment to Physicians.
     Establishing the Agency for Health Care Policy and 
Research with the authority to conduct technology assessments.

    Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-
66 (1993)
     Reforming Payment Methods for Durable Medical 

    Budget Balanced Budget Act of 1997, Pub. L. No. 105-33, 111 
Stat. 251 (1997).
     Establishing the Medicare+Choice Program (Part C) 
to replace the Medicare HMO program.

  Key Rules and Notices on Medicare Coverage Policy Making Procedures

    Health Care Financing Administration, Medicare Program, 
Procedures for Medical Services Coverage Decisions; Request for 
Comments, 52 Fed. Reg. 15,560 (Apr. 29, 1987).
    Health Care Financing Administration, Medicare Program; 
Criteria and Procedures for Making Medical Service Coverage 
Decisions That Relate to Health Care Technology, 54 Fed. Reg. 
4302 (Jan. 30, 1989).
    Health Care Financing Administration, Medicare Program; 
Criteria and Procedures for Extending Coverage to Certain 
Devices and Related Services, 60 Fed. Reg. 48,417 (Sept. 19, 
    Health Care Financing Administration, Medicare Program; 
Establishment of the Medicare Coverage Advisory Committee and 
Request for Nominations for Members, 63 Fed. Reg. 68,780 (Dec. 
14, 1998).

                Major Congressional Hearings on Appeals

    Medicare Appeals Provisions: Hearings Before the Subcomm. 
On Health of the Senate Comm. On Finance, 99th Cong., 1st Sess. 
    Oversight Hearing on Adjudicatory Procedures of the Dep't 
of Health & Human Services Before the Subcomm. on 
Administrative Law and Government Relations of the House 
Judiciary Comm., 101st Cong., 1st Sess (1989).
    Issues Relating to Medicare's Coverage Policy, Hearing 
before Subcommittee on Health of the House Comm. On Ways and 
Means, 105th Cong., 1st Sess. (April 17, 1997).
    Medicare Appeals Processes: Hearings Before the 
Subcommittee on Health House Committee on Ways and Means, 105th 
Cong., 2nd Sess. (Apr. 23, 1998).
    The Medicare Coverage Process and Beneficiary Processes: 
Hearings Before the Subcommittee on Health House Committee on 
Ways and Means, 106th Cong., 1st Sess. (Apr. 22, 1999).


    Chairman Thomas. Thank you very much, Professor Kinney.
    Mr. Coleman.


    Mr. Coleman. Thank you, Mr. Chairman. Since I have worked 
as a lawyer both at HCFA and in the private sector, I hope that 
I can provide some useful information to the Subcommittee from 
those two perspectives, and I will summarize a few issues.
    The first issue is who should make Medicare coverage 
policy? The unusual aspect of Medicare's current process for 
making coverage decisions, as we have heard, is its 
decentralized nature. The Medicare contractors independently 
interpret and apply Medicare's requirements and make most of 
the coverage decisions. I believe this deference to the 
contractors is historically based, in part, on HCFA's view that 
Congress wanted the contractors to be relatively independent 
and to make decisions based on local medical practice, and we 
heard about that earlier. The result of this decentralized 
process is that Medicare coverage varies depending on location. 
The degree of variation is not necessarily extreme, but 
conditions for coverage clearly vary from State to State, and 
items and services covered in one State will not necessarily be 
covered in other States.
    In recent years, HCFA has recognized that this is not 
entirely a desirable practice and has attempted to increase 
uniformity. But much of this effort has not taken the form of 
additional national coverage decisions but instead greater 
coordination of actions by the carriers, such as in developing 
model policies. Increasing uniformity through joint carrier 
actions rather than decisions by HCFA has serious procedural 
disadvantages, in my view. First, the carriers use a relatively 
nonpublic process in which the opportunity for input is 
limited, and, perhaps, most troubling is that coordinated 
action by the contractors amounts to the making of national 
Medicare policy by nongovernment employees who are not 
accountable through the normal process of administrative and 
congressional oversight.
    Second issue, the opportunity for public input in coverage 
policy decisions. The process for making coverage decisions is 
informal. Under the Medicare statute, national coverage 
decisions are exempt from the notice and comment rulemaking 
requirements that ordinarily apply to substantive agency 
policies. When I was at HCFA, I was involved in the 1986 
legislation that enacted this exemption. Its primary purpose 
was to permit national coverage decisions to be made more 
quickly than the 2 years or so it takes to put out a 
regulation, and if the national coverage decision process is to 
remain viable for more than occasional use, there has to be a 
process other than full rulemaking. But even though it 
shouldn't involve full rulemaking, HCFA's announcement today to 
allow for greater public input is a major improvement over the 
current relatively closed process. The objective should be to 
develop a procedure that allows the public an opportunity to 
know what HCFA is considering; to place items on HCFA's agenda; 
to submit information; to respond to any concerns that HCFA may 
have, and to receive a timely decision. To the extent that the 
contractors remain involved in coverage decisions, they, too, 
should be subject to a more open process that allows for 
broader public participation.
    The third issue is a need for a comprehensive statement in 
the regulations of the criteria that HCFA and the contractors 
are to use in making coverage decisions. At present, there is 
no clear statement of the policy on many fundamental issues, 
such as what is considered an experimental procedure? What are 
the criteria used to determine whether a particular service is 
considered medically necessary? What discretion, if any, do the 
carriers have to deny coverage of a drug for conditions 
approved by the FDA? And numerous other issues. The lack of 
clearly defined criteria creates a great deal of confusion, 
especially under the decentralized process in which the 
carriers, operating on their own, continue to play a major role 
in making Medicare policy.
    Finally, the issue of judicial appeals. Initially, the only 
appeals mechanism in the statute for part B coverage denials 
was a hearing before the Medicare carrier; no judicial review 
was allowed. In 1986, though, the Supreme Court unanimously 
held in the Michigan Academy case that judicial review of 
Medicare part B policies was available. The Court ruled that 
Congress intended to bar judicial review only when the issue 
was a specific dollar amount and that beneficiaries could 
challenge Medicare regulations and policies directly in court. 
At about the same time the Supreme Court greatly expanded 
Medicare part B judicial appeal rights in this way, however, 
Congress amended the Medicare statute to create an appeals 
system for part B that is parallel to the system for part A. 
Under this process, beneficiaries and others who want to appeal 
coverage policies must go through a series of administrative 
hearings that we have heard about on specific denied claims, 
and that process can take 2 years or more. So, ironically, the 
1986 amendment, which was seen as expanding appeal rights, had 
the effect of diminishing judicial appeal rights by forcing all 
appeals into the very lengthy ALJ process. As a practical 
matter, the Supreme Court's holding was overruled by Congress, 
perhaps unintentionally, and there is no longer an effective 
means to challenge HCFA's coverage policies. In my view, 
Congress should consider restoring the rights of beneficiaries 
and other interested parties to obtain direct judicial review 
of national coverage decisions as the Supreme Court at one time 
said existed.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Terry Coleman, J.D., Partner, Fox, Bennett & Turner


    Thank you for the opportunity to testify regarding the 
Medicare process for coverage decisions and appeals. Since I 
have worked as a lawyer for the Health Care Financing 
Administration (HCFA) and its parent Department of Health and 
Human Services, and subsequently have practiced in the private 
sector, I hope I can provide some useful information for the 
Committee based on that combined perspective. This statement 
represents my personal views and not necessarily those of my 
current or past clients.\1\
    \1\ In accordance with the Committee's rules, I state that I have 
not received any Federal government grants or contracts during the 
current or past two fiscal years, and that I am not representing any 
entities in my appearance before the Committee. I am currently a 
partner in the Washington, D.C. law firm Fox, Bennett & Turner, where I 
have practiced since 1989. Prior to that, I held various positions in 
the Department of Health and Human Services, including Deputy General 
Counsel (1981-86), Acting General Counsel (1984-85), Chief Counsel of 
HCFA (1986-88), and Deputy Administrator of HCFA (1988-89).

          Decentralized Process for Making Coverage Decisions

    A threshold question in considering the Medicare coverage 
process is who should make the policies. The unusual aspect of 
Medicare's current process for making coverage decisions is its 
decentralized nature. The Medicare claims processing 
contractors--the carriers and fiscal intermediaries--
independently interpret and apply Medicare's requirements. In 
addition, in a relatively small number of cases, HCFA's Central 
Office issues national coverage decisions that apply 
everywhere. The result of this largely decentralized process is 
that Medicare coverage varies depending on location. The degree 
of variation is not necessarily extreme, but conditions for 
coverage of certain items and services clearly vary from state 
to state, and items and services covered by Medicare in some 
states may be denied coverage in other states.
    The Medicare contractors not only interpret how Medicare 
policy applies to particular claims--which they must inevitably 
do--but they also issue broad policies. HCFA expressly 
authorizes the contractors to develop ``local medical review 
policies'' that define what each carrier considers to be a 
medically necessary use of an item or service. The contractors 
also interpret other provisions of Medicare law when there is 
no national interpretation.
    The policy of decentralization stems, I believe, from two 
factors--a long-standing interpretation about the respective 
roles of the contractors and HCFA intended by Congress, and the 
inability of the HCFA Central Office to take on a larger 
workload. The first factor derives from the fact that the 
Medicare statute, from its enactment in 1965, has required the 
program to use insurance companies to process claims and 
administer the program. This provision led to the view within 
HCFA and its predecessor agency that Congress wanted the 
contractors, rather than the federal government, to make many 
of the detailed decisions about administration of the program. 
This view was fortified by the way in which the statute was 
drafted. In particular, section 1842 of the Act, which 
describes how the carriers are to administer the Part B 
program, imposes certain responsibilities directly on the 
carriers, rather on the Secretary as statutes are ordinarily 
worded. This language led some in HCFA to believe that the 
agency was limited in the extent to which it had authority to 
control decisionmaking by the carriers. While this view has 
undoubtedly diminished in recent years, I believe the 
historical notion that HCFA should refrain from too much 
control over the contractors' policies explains much of the 
current arrangement. Also influencing deference to the 
contractors was the belief that medical practice varies 
regionally and that local carriers are in the best position to 
adjust coverage policy to reflect those regional variations.
    The other factor leading to decentralization was the 
relatively small staff at the HCFA Central Office. Since the 
staff is able to make comparatively few national coverage 
decisions, and the carrier medical directors have been 
available to fill any decisionmaking void, it has been easy to 
defer to the contractors' decisions.
    The decentralized decisionmaking process results in a lack 
of uniformity in coverage policy that is difficult to defend. 
It would seem desirable for Medicare beneficiaries to have the 
same benefits regardless of where they live. Although medical 
practice clearly varies regionally, this variation is usually 
seen as an undesirable result of differences in practice style 
rather than being scientifically based. In addition, the 
decentralized process makes it difficult for persons interested 
in Medicare coverage of a new technology to present information 
to the program. If HCFA does not issue a national coverage 
decision, individual medical directors all over the country 
separately consider the data, consult with their own experts, 
and arrive at independent conclusions.
    In recent years, HCFA has recognized the undesirable 
aspects of nonuniform coverage policies and has attempted to 
increase the degree of uniformity. Much of this effort has not 
taken the form of additional national coverage decisions, 
however, but instead greater coordination of actions by the 
carriers. For example, the four durable medical equipment 
regional carriers jointly developed their extensive coverage 
manual. Carrier medical directors often hold meetings under the 
auspices of HCFA at which they exchange views on coverage 
policy with an eye toward increasing uniformity. The carriers 
have formed workgroups which have issued ``model'' coverage 
policies intended for adoption by all carriers.
    Increasing uniformity through joint carrier action rather 
than national coverage decisions by HCFA has serious procedural 
disadvantages. The carriers use a relatively non-public process 
in which the opportunity for input is limited. In addition, if 
a national organization seeks to influence coverage policy, it 
is difficult to learn what individual carriers are doing and to 
deal with the many carriers involved. Perhaps most troubling is 
that coordinated action by the contractors amounts to the 
making of national Medicare policy by non-government employees 
who are not accountable through the normal process of 
administrative and congressional oversight.
    There is some debate in the provider community as to 
whether increased issuance of national coverage decisions by 
HCFA is desirable. Those who are reluctant to see greater 
involvement by the HCFA Central Office fear that HCFA may act 
unreasonably, and that the decentralized process, offering the 
possibility that at least some carriers will act reasonably, is 
better. My personal view is that HCFA should issue more 
national coverage decisions, provided that, as I will discuss 
later, it does so with an open process and there is a practical 
opportunity for judicial review of the decisions.
    It would be useful if Congress clarified the respective 
roles of the contractors and HCFA in establishing coverage 
policy. It is one thing for HCFA to rely on the contractors 
because its staff size is inadequate to handle all the 
questions. It is another thing altogether for HCFA to defer to 
the independent decisions of the contractors because HCFA may 
believe that Congress wants coverage decisions to reflect 
supposed regional differences in medical practice or that 
Congress prefers coverage decisions to be made by the 
contractors rather than by HCFA. If Congress believes in the 
desirability of uniform Medicare coverage policy throughout the 
country to the extent possible, it could make that direction to 
HCFA clear.
    Also, to the extent that the contractors retain authority 
to make policy, Congress may want to address whether they 
should, in effect, be permitted to make national policy without 
HCFA's involvement by developing joint policies with other 

       Opportunity for Public Input in Coverage Policy Decisions

    The process for making decisions about coverage policy is 
informal both at HCFA and at the contractors. In 1986, Congress 
revised the Part B Medicare appeal procedures and in the 
process exempted national coverage decisions from the notice 
and comment rulemaking requirements that ordinarily apply to 
substantive agency policies.
    I was involved in the 1986 legislation on behalf of HCFA 
and am familiar with the background of this exemption. Its 
purpose was twofold. First, since the legislation was 
establishing a new procedure for judicial review of Medicare 
Part B decisions, including coverage policies, there was a 
concern that the pre-existing body of coverage decisions would 
be found procedurally defective. HCFA and its predecessor 
agency had issued a large number of national coverage decisions 
since the beginning of the Medicare program. Those decisions 
were not issued after notice in the Federal Register and 
opportunity for public comment, and there was little or nothing 
otherwise in the form of an administrative record that would 
explain and support the decisions. Accordingly, without the 
exemption, there was the possibility that many completely sound 
decisions would be overturned because of a failure to comply 
with the Administrative Procedure Act.
    In addition to the concern that the existing body of 
national coverage decisions would be placed in jeopardy by the 
new appeals process, there was also concern that national 
coverage decisions should be allowed to be made without 
burdening the process with the requirements that the 
Administrative Procedure Act imposes on new regulations. HCFA's 
experience, like that of many other federal agencies, is that 
the rulemaking process--developing and publishing a proposed 
regulation, reviewing and developing a written response to the 
comments received, and publishing the final version--typically 
takes two years or more and requires extensive effort. If the 
national coverage decision procedure were to remain viable for 
more than occasional use, there had to be a process other than 
full rulemaking.
    While it remains desirable that national coverage decisions 
should be exempt from full rulemaking, HCFA's announcement 
several months ago that it will revise its procedures to allow 
for greater public input is a major improvement over the 
current relatively closed process. The objective should be to 
develop a procedure that allows the public an opportunity to 
know what HCFA is considering, to place items on HCFA's agenda, 
to submit information, to respond to any concerns that HCFA may 
have, and to receive a timely decision.
    The procedures used by the contractors to develop coverage 
policy are also informal. In the case of local medical review 
policy, the contractors are required by HCFA to present 
proposals to a Carrier Advisory Committee that consists of 
physician representatives and to circulate the proposal to 
local medical organizations for comment. The degree to which 
these comments influence the outcome appears to vary from 
contractor to contractor, but in many cases it has proved to be 
a useful process. A significant deficiency, however, is that 
proposals are distributed only to selected local physician and 
provider groups and not to beneficiary or national 
organizations that might have an interest in the matter.
    In the case of coverage decisions that are not considered 
local medical review policies, the contractors' decisionmaking 
may be an entirely closed process. Interested parties may not 
learn of the policy until it is announced. Some of the 
carriers' joint efforts I discussed earlier, such as the 
development of model policies, have also been conducted 
essentially in secret.
    It would be desirable if Congress developed an 
administrative process for HCFA's use in making coverage 
decisions that struck a balance by providing an opportunity for 
public input without burdening the process with rulemaking-type 
requirements that make it useless as a practical matter. To the 
extent that the contractors remain involved in making coverage 
decisions, they too should be subject to a more open process, 
and a process that allows for the participation of the public, 
including beneficiary and national organizations.

                         Criteria for Coverage

    There is no comprehensive statement in the Medicare 
regulations of the criteria that HCFA and the contractors are 
to use in making coverage decisions. In addition, the 
provisions in the Medicare manuals that discuss various aspects 
of coverage policy are often incomplete or ambiguous. As a 
result, there is no clear statement in any official Medicare 
publication of the policy on such fundamental issues as what is 
considered an experimental procedure, what are the criteria 
used to determine whether a particular service is considered 
medically necessary, the discretion if any that carriers have 
to deny coverage of a drug for conditions approved by the Food 
and Drug Administration, and many other common issues. The lack 
of clearly defined criteria for coverage creates much 
confusion, especially under the decentralized system in which 
carriers continue to play a major role in applying Medicare 
    HCFA attempted to remedy this situation in the 1980s by 
developing a Federal Register notice to set forth the process 
and criteria for Medicare coverage. Although this document was 
published as proposed regulations in 1989, it has never been 
finalized, and HCFA apparently plans to begin over again.
    It is essential that HCFA regulations clearly set out in 
detail the general rules and criteria for Medicare coverage. If 
the regulations were sufficiently clear and comprehensive, they 
would eliminate many of the disputes with the contractors, 
which develop their own interpretations of the Medicare statute 
and policy in the absence of any guidance from HCFA.
    The absence of comprehensive regulations means that the 
Medicare carriers differ not only on how they apply Medicare 
policy to particular services but they even differ on the 
policy they purport to apply. A recent example I am aware of is 
the policy on what type of clinical studies reported in the 
medical literature should be required to support Medicare 
coverage of an approved drug being used in a manner not 
included in the Food and Drug Administration-approved labeling. 
Some carriers insist on there being Phase III studies reported, 
while other carriers are more flexible and consider all types 
of studies. This does not seem to be a matter on which there 
should be state-by-state differences in policy. Another example 
is that carriers differ in whether they deny coverage of 
certain drugs that can be administered subcutaneously because 
they differ in their definition of what is excluded from 
coverage as a self-administered drug. Broad principles of 
Medicare coverage such as these should be decided at the 
national level by HCFA, rather than being left for independent 
decision by each Medicare contractor.
    If the HCFA Central Office lacks the resources to deal with 
issues, it should consider other ways to reach nationally 
uniform policies rather than always delegating authority to the 
contractors. For example, a topic on which HCFA could ease its 
burden is determining which ``off-label'' uses of drugs should 
be covered. Many drugs are used by physicians for purposes not 
included in the labeling as approved by the Food and Drug 
Administration. HCFA's general policy is that each carrier can 
determine whether a particular off-label use is appropriate 
and, if so, Medicare will cover the use. Because this approach 
results in non-uniform and sometimes ill-considered decisions 
by carriers, Congress in 1993 amended the Medicare statute to 
establish rules for coverage of off-label uses of drugs used in 
cancer chemotherapy. Under the statute, Medicare must cover 
such drugs if the off-label use in question in listed in one of 
the major drug-use compendia or is otherwise supported by 
clinical studies published in peer-reviewed scientific 
literature. The compendia base their monographs on a review of 
the literature and are considered scientifically sound. HCFA 
could administratively adopt the same policy for all drugs but 
for some reason has chosen not to do so. This would seem to be 
an opportunity for HCFA to establish uniform rules for Medicare 
coverage based on the scientific literature with little effort.

                     Appeals of Coverage Decisions

    The Medicare statute allows beneficiaries who have been 
denied coverage of an item or service to appeal that decision 
through a series of administrative appeals and then into 
federal district court if the increasing jurisdictional amount 
prerequisite is satisfied at each step of the appeals process. 
The process differs slightly between Medicare Part A and 
Medicare Part B, but I will focus on Part B, since disputes and 
appeals are relatively rare with respect to coverage of Part A 
    When the Medicare statute was first enacted, the only 
appeals mechanism for Part B coverage denials was a hearing 
before the Medicare carrier for disputes involving at least 
$100. No judicial review was allowed because, the legislative 
history indicates, Congress assumed that Part B disputes would 
involve small amounts of money that did not warrant burdening 
the federal courts with additional litigation.
    Subsequently, the courts added further remedies. Although 
Congress had established no administrative hearing for cases 
worth less than $100, a court held that constitutional due 
process required an oral hearing, and HCFA therefore created 
one.\2\ More important, in June 1986 the Supreme Court held in 
the Michigan Academy case that, because the availability of 
judicial review was to be presumed in the absence of clear 
congressional intent to the contrary, judicial review of 
Medicare Part B policies was available.\3\ The Court held that 
Congress intended to bar judicial review only of cases in which 
the issue was a specific dollar amount, and that beneficiaries 
and others could challenge Medicare regulations and policies.
    \2\ Gray Panthers v. Schweiker, 652 F.2d 146 (D.C. Cir. 1980), 716 
F.2d 23 (D.C. Cir. 1983).
    \3\ Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 
    At about the same time that the Supreme Court greatly 
expanded Part B judicial appeal rights, Congress was 
considering the issue of Part B appeals. In October 1986, the 
Medicare statute was amended to create an appeals mechanism for 
Part B that is parallel to the appeals system for Part A. Under 
this system, the individual appealing first requests 
reconsideration of the denial. This ``review'' step is 
frequently the first time the carrier has actually considered 
the claim, since the initial denial may have been by computer. 
If the claim is still denied after review, the appeal goes to 
an informal hearing before an employee of the carrier and, if 
the claim is denied again, to a hearing before an 
administrative law judge. Many appeals are resolved favorably 
to the appellant at the carrier hearing or administrative law 
judge stages, but the appellant can proceed to federal district 
court if he is still dissatisfied and the amount in dispute is 
at least $1000.
    The 1986 legislation that created the Part B appeals 
mechanism included some special provisions related to national 
coverage decisions. The law provides that national coverage 
decisions may not be reviewed by administrative law judges; 
that national coverage decisions may not be overturned because 
they were not issued through the Administrative Procedure Act 
process; and that if a court determines that the administrative 
record underlying a national coverage decision is inadequate, 
it must remand the matter to HCFA for additional proceedings to 
supplement the record before the court rules.
    As I discussed earlier in connection with the exemption 
from notice and comment rulemaking requirements, these 
provisions were intended to address two concerns--protecting 
the past national coverage decisions from being overturned 
because of the manner in which they were issued, and 
maintaining some informality in the process for issuing 
national coverage decisions. The compromise adopted in the 
statute subjects national coverage decisions to judicial 
review, but if the administrative record is deemed inadequate 
to support the decision, HCFA is given an opportunity to 
supplement the record before the court rules on whether the 
record, as so supplemented, supports the decision. As a 
prospective matter, this process was intended to allow HCFA to 
avoid the burden of developing an extensive administrative 
record for national coverage decisions that may not be 
controversial. In the event that a decision thought to be 
simple is challenged, HCFA can attempt to defend its decision 
by supplementing the record. If Congress revises the process 
for making coverage decisions, it should consider retaining 
this or some similar mechanism to allow HCFA to make national 
coverage decisions promptly, while still allowing for 
appropriate judicial review.
    Ironically, the 1986 amendments had the effect of 
diminishing appeal rights for challenges to broad Medicare 
policies. As I indicated earlier, just a few months prior to 
the enactment of the amendments, the Supreme Court had allowed 
direct challenges to Medicare policies as long as particular 
claims were not involved. Since the 1986 amendments forced 
appeals into the administrative law judge process, however, 
almost all courts have since ruled that direct challenges to 
agency policies are no longer available. As a result, any 
challenge to a Medicare Part B regulation or policy must now 
take the form of an appeal of particular denied claims and must 
be appealed through the entire administrative appeals 
mechanism--a process that can easily take two years or more--
even though the officials involved in the administrative appeal 
have no authority (and should have no authority) to overturn a 
national coverage decision. Only after two years or more of a 
pointless administrative process can the policy be challenged 
in court. Even then the challenge takes the form of an appeal 
of particular claims, and the decision is technically limited 
to those claims. Thus, as a practical matter, the Supreme 
Court's holding has been overruled by Congress, and there is no 
longer an effective means to challenge HCFA coverage policies.
    In my view, Congress should consider restoring the right of 
beneficiaries and other interested parties to obtain judicial 
review of Medicare regulations and other policies without first 
going through the administrative law judge process. The Supreme 
Court unanimously recognized that right in 1986, but Congress 
implicitly, and perhaps inadvertently, repealed it only a few 
months later when it enacted the existing appeals mechanism.

             Issues Related to Coverage of New Technologies

    Although the Committee's focus is on the process for making 
coverage decisions, I would like to briefly mention two related 
procedural issues that also bear as a practical matter on 
coverage of new technologies.
     Issuance of New Codes
    Every drug and medical device that is covered by Medicare, 
and for which separate payment is made, has a billing code 
under the HCFA Common Procedure Coding System. New codes are 
issued by HCFA in cooperation with insurance organizations. The 
policy of HCFA and these other organizations is that an 
application for a new code is not considered until the product 
has been on the market for six months. In addition, the cut-off 
date for consideration of new codes is relatively early in each 
year for code changes to take effect the following January 1. 
As a result, if a drug is approved by the Food and Drug 
Administration on, for example, February 1, 1999, the 
requirement for six months of marketing experience and the 
early cut-off date mean that a new code for the drug will not 
go into effect until January 1, 2001--nearly two years after 
    Until a specific code for a drug goes into effect, 
physicians administering the drug must use a non-specific, 
miscellaneous code and provide additional information about the 
drug in narrative format on the claim. This means that the 
claim cannot be processed automatically, and payment to the 
physician is delayed. Physicians may be reluctant to use new 
products if they encounter payment delays and more burdensome 
billing requirements.
    The reason that HCFA requires six months marketing 
experience is apparently the desire to determine whether a new 
product will result in a sufficient number of Medicare claims 
to warrant issuing a new code. While this may be a justifiable 
policy to apply in the case of minor medical devices, which may 
not be successful in the marketplace, it is unreasonable to 
apply this policy to new drugs and important medical devices 
that will plainly generate many thousands of Medicare claims. 
Indeed, it is unclear why there should be an application 
process at all for new drugs, in which a committee evaluates 
whether to issue a new code, since Medicare covers all new non-
self-administrable drugs. If HCFA routinely issued a new 
billing code as soon as it was informed that an injectable drug 
was being marketed, the cut-off date could be extended much 
later in each year, and the need for six months marketing 
history could be eliminated. In the unlikely event that no 
claims were ever filed for the drug, the code could be deleted 
at a future time.
     Adjusting DRGs for New Technologies
    In the case of drugs, medical devices, and surgical 
procedures furnished to hospital inpatients, a question that is 
often more important than coverage is the payment level for the 
new technology. New procedures are assigned to a diagnosis-
related group (DRG) that describes their general circumstances. 
For example, treatment of brain cancer with a new drug would 
fall into the DRG for non-surgical treatment of brain cancer, 
and a hospital using the drug would receive the existing 
payment amount for that DRG. If that payment amount is not 
appropriate for the new procedure, HCFA allows for the 
possibility that the new procedure can be transferred to a 
different DRG with a more appropriate payment level, or that a 
wholly new DRG might be created for the new procedure. The HCFA 
policy, however, is that it will evaluate whether the payment 
level is appropriate based only on Medicare claims data. 
Therefore, the new procedure must remain in the initial DRG at 
least a year or two while claims data are accumulated and 
analyzed by HCFA.
    This rigid insistence on using only Medicare claims data 
results in delays in setting appropriate payment levels. When 
payment amounts are significantly less than the costs incurred 
by hospitals, they may refrain from using the new procedures, 
to the detriment of Medicare beneficiaries. For example, when 
Medicare first decided to cover bone marrow transplants for 
certain conditions, they were assigned to DRGs for the 
underlying conditions, which had average payment levels of 
about $5,000 to $10,000. Of course, everyone understood that 
this amount was far below the actual cost of a bone marrow 
transplant, but HCFA adhered to its policy of making no changes 
until actual claims data were collected. Eventually, that data 
became available, and in 1990 HCFA created a new DRG for bone 
marrow transplants and assigned it the average payment amount 
of about $45,000.
    While it is understandable that HCFA does not want Medicare 
to overpay for new procedures, there would seem to be room for 
the agency to make a conservative estimate of costs and assign 
new technologies to DRGs that are more likely to represent 
their true costs. It seems to be poor policy to discourage 
hospitals from providing life-saving treatments such as bone 
marrow transplants for leukemia by deliberately setting a 
payment rate that is far below any fair estimate of the costs 
involved. Adjustments to refine the payment amount can be made 
in subsequent years based on actual claims data in the same 
manner that they are made now.
    A related issue is the problem of tracking the use of new 
drug therapies in hospital claims data. Although new ICD-9-CM 
codes are assigned to new surgical procedures for hospital 
billing purposes, they are not assigned to new drug therapies. 
Accordingly, even after a year or more of actual claims data 
exists, it may be difficult or impossible to identify the 
patients who received the new drug therapy. If those patients 
cannot be identified, it is impossible to determine whether the 
drug therapy is classified in the appropriate DRG or to move 
the therapy to a different DRG. It would be desirable if HCFA 
assigned ICD-9-CM codes to costly drug therapies so that use of 
the drug therapy could be followed and the DRG adjusted if 


    In summary, there are a number of issues that Congress may 
wish to consider to improve the Medicare process for coverage 
decisionmaking and appeals:
     The role of the contractors in deciding coverage 
policy should be re-examined, since their involvement leads to 
non-uniform interpretation of Medicare benefits and 
requirements. To the extent that they continue to make policy, 
the use of coordinated action by these unaccountable companies 
to promulgate national coverage policies is highly 
     There should be more openness and opportunity for 
public participation in national coverage decisions without 
imposing the Administrative Procedure Act requirements 
applicable to rulemaking.
     HCFA should issue regulations that clearly and 
comprehensively set out the criteria for Medicare coverage of 
items and services.
     Congress should consider reinstating the procedure 
for direct judicial review of Medicare Part B policies that the 
Supreme Court established but that was effectively overturned 
by Congress in the 1986 amendments.
     HCFA should consider a more flexible approach to 
dealing with issues that in reality affect the introduction of 
new technologies, such as the issuance of new codes and the 
assignment of new procedures to appropriate DRGs.
    Thank you for the opportunity to present this statement.


    Chairman Thomas. I thank the gentleman. I know that this 
particular area that we were dealing with was one in which my 
colleague from California, Mr. Waxman, was heavily involved, 
and I have a hard time believing that if something was done and 
if he was involved, it was unintentioned.
    Ms. Gottlich.

                      CITIZENS LAW CENTER

    Ms. Gottlich. Good afternoon, and I want to thank you for 
the opportunity to come talk before this Subcommittee. The 
National Senior Citizens Law Center is a nonprofit organization 
that has advocated for older people and people with 
disabilities for over 25 years. We have a large network of 
advocates with whom we converse on Medicare issues, and my 
comments today reflect a lot of the comments I have received 
from attorneys and paralegals who do the actual representation 
of beneficiaries in Medicare cases.
    We, too, are very concerned about the national coverage 
determination process. I have not had the opportunity yet to 
look at the new proposed rule, but in the fall when HCFA 
requested comments on the national coverage determination 
process, NSCLC sent in comments that sound very similar to what 
is being proposed. We had asked that there be an administrative 
process so that beneficiaries and other interested individuals 
could ask for redeterminations of NCDs or could ask for new NCD 
determinations. It was our hope that in this administrative 
process we would then be able to go to Federal court. We did 
not foresee that we would then have to go through the layers of 
reviews that we have at this time.
    We are also heartened that beneficiary representatives will 
be allowed to be included in the new Medicare Coverage Advisory 
Committee. We would like to ensure, however, that beneficiaries 
are adequately represented. We always think of seniors as 
Medicare beneficiaries, when, in fact, 5 million or more 
beneficiaries are people with disabilities. And for the younger 
disabled community, many of them are very adversely affected by 
national coverage determinations that involve new equipment or 
new devices. Many of them are very knowledgeable, and their 
interests need to be represented as well.
    The effect of the local coverage determinations can be very 
harsh on Medicare beneficiaries. While a Medicare beneficiary 
may be able to benefit from the coverage determination in the 
area where the service is received, that can be a hardship for 
individuals, and, in fact, I have worked with some attorneys 
whose clients had to disenroll from managed care plans and move 
to other portions of their States or other portions of the 
country in order to get coverage of a service that is only 
approved in a specific part of the country.
    One of the problems that we foresee and that the Chairman 
touched on a little bit is the fact that the Medicare part A 
and part B process really is a reimbursement process for 
services that have been received, and in certain instances, 
beneficiaries who cannot afford to lay out the money for the 
services are not able to even enter the appeals system. This 
happens in several situations. It is generally when you are 
trying to buy assistive devices or durable medical equipment; 
it happens if you are trying to get skilled nursing home care, 
and it can happen if you are trying to get home health care. 
The way the process works in those situations is if the home 
health agency or the SNF says to you, ``We don't think that 
this is covered. You can pay privately. We will submit a demand 
bill to the intermediary or the carrier. They will then 
determine whether or not Medicare will cover this service.'' If 
you can't pay out of pocket for this service, then you are 
foreclosed from ever getting a determination from Medicare 
whether or not that service should be covered.
    We have also found other problems with this situation. Many 
times, the providers will not submit the demand bills to the 
intermediary, and in one really egregious case that we know of 
from Cincinnati, it took 2 years for the home health agency to 
finally agree to submit the demand bill to the fiscal 
intermediary. They only did so based on pressure from HCFA, and 
in the letter from HCFA telling them they had to submit the 
demand bill, HCFA also told them how to submit the bill so that 
it would be paid because it was 2 years old and was a stale 
    One of the other things that we would like would be to have 
some kind of expedited determination process so that if you 
cannot afford to get the service, if you cannot afford to get 
the durable medical equipment, then you can get an opinion from 
the fiscal intermediary or the carrier issued on a very short 
basis, 15 days, that this item should be covered.
    Notice is a really top issue for us. Adequate notice is 
what informs people of their right to appeal. For the most 
part, people do get adequate notice of part A and part B 
coverage, but there are certain instances where notices are not 
being provided. The home health industry is one area where 
notices are not being provided, and people don't know that they 
have appeal rights. We are in the process of suing HCFA over 
this issue right now. And I know we are not focusing on HMO 
appeals, but the GAO report last week about the failure of HMOs 
to comply with the Balanced Budget Act is really helpful and 
really bears out everything that we have found.
    We have talked about delays, and we concur very heartily in 
the concern about delays; 2 years for an ALJ hearing is not 
sufficient. I do want to note, however, that there is a little 
known process that allows you to get a very, very expedited ALJ 
hearing, and it is really only if someone is terminally ill. 
So, there is actually a client that I am working with who got 
notice from his HMO on January 25 that his service would no 
longer be covered, and his ALJ hearing is tomorrow. I have 
never seen that before, and I have been doing this a long time.
    The one other issue that we would like to mention is the 
clarification of the home health appeals process. In the 
Balanced Budget Act when most of home health benefits were 
moved to part B, there was some concern about whether the part 
A or the part B appeals process would apply. The BBA provides 
that the same appeal rights for beneficiaries under parts A and 
B apply by changing the amount in controversy for home health 
claims under part B to $100. We would like to make sure that 
those claims do not have to go through the part B hearings 
before they get to the ALJ hearing.
    And I guess there is one other comment I would like to 
make. For us policymakers, we think this process is confusing 
with all the layers of review. So, if you were to ask me, I 
would say cut it all out. When I talk to advocates who actually 
represent clients, their viewpoint is very different. They say 
that carrier hearings help. They say that review at the fiscal 
intermediary stage helps and that they often get favorable 
decisions. They also point out that the part B hearings are 
very useful where the amount in controversy is under $500, 
because you then can't get an ALJ hearing. We would suggest 
that those levels of review be made optional so that you can go 
straight to the ALJ stage but use those levels of review if 
your claim is very small.
    Thank you.
    [The prepared statement follows:]

Statement of Vicki Gottlich, Attorney at Law, National Senior Citizens 
Law Center

    Good afternoon. I am Vicki Gottlich, an attorney with the 
National Senior Citizens Law Center (NSCLC) in Washington, D.C. 
NSCLC is a non-profit organization that has advocated for over 
twenty-five years on behalf of low-income older people and 
people with disabilities in a variety of areas, including 
Medicare, Medicaid, and private employer-sponsored health 
insurance. As part of our Medicare work, we convene monthly 
teleconference calls with Medicare advocates from across the 
country to discuss current issues and problems faced by 
Medicare beneficiaries. We also have a special grant from the 
National Association of Protection and Advocacy Systems (NAPAS) 
to provide technical assistance on Medicare issues to advocates 
for people with disabilities. Issues concerning what is a 
Medicare covered service and questions about appeals procedures 
frequently arise in my individual conversations with advocates 
as well as in the monthly phone calls. I therefore appreciate 
the opportunity to discuss with the Subcommittee today the 
issues Medicare advocates have identified and the experiences 
of beneficiaries.
    As the Subcommittee is aware, Medicare is divided into 
three parts. Part A generally covers hospital and other in-
patient services, Part B generally covers doctors services and 
durable medical equipment, and Part C establishes the 
Medicare+Choice program. Each part has its own initial appeals 
process which beneficiaries must exhaust before moving on to a 
hearing before an administrative law judge (ALJ), then to 
review by the Department Appeals Board, and then possibly to 
federal court. In addition, there are special appeals rules for 
hospital discharge and special notices for discharge from a 
skilled nursing facility. There are separate procedures for 
quality of care complaints.
    While the list sounds--and is--complicated, the average 
beneficiary does not experience the confusion about the process 
that one would think arises from such a convoluted system. Most 
beneficiaries are not aware of the details of appeals 
procedures until their claim for payment of a service, 
procedure or equipment is denied. When that happens, the denial 
notice sent to the beneficiary by the fiscal intermediary, if 
it is a claim under Part A, or by the carrier, if it is a claim 
under Part B, describes the appropriate appeals process for a 
claim under that part. Similarly, hospital discharge notices 
given to beneficiaries in advance of their discharge and 
``Sarrassat'' notices given in advance of discharge from a 
skilled nursing facility describe the procedures to use in 
those situations. Thus, beneficiaries are given information on 
how to file an appeal of that particular kind of claim at the 
time they need the information.
    The fact that beneficiaries should be informed of their 
rights in the fee-for-service context does not mean that the 
system is problem free. I will now address several of the main 
concerns about coverage determinations and appeals procedures 
raised by beneficiaries and their advocates.

                    National Coverage Determinations

    Beneficiary representatives give great priority to establishment of 
a mechanism to protect the rights and interests of beneficiaries in the 
National Coverage Determination (NCDs) process because, under the 
current NCD process, their clients' rights and interests are not 
protected. We have considered various remedies, including litigation, 
to redress the harm suffered by elderly clients and clients with 
disabilities who are unable to obtain critically needed medical 
procedures because of NCDs based on scanty evidence, questionable 
standards, or stale information.
    Currently, there are two ways in which the public might 
theoretically have input into the content of Medicare rules denying 
coverage of medical procedures. One is by involvement in the Health 
Care Financing Administration (HCFA) process for enacting NCDs. The 
second is by raising issues concerning the legitimacy of the NCD during 
the beneficiary appeal process I described briefly above. For different 
reasons, these two avenues for input by the consuming public are 
essentially foreclosed at this time.
    Involvement by consumers in the initial HCFA NCD enactment process 
is very rare. First, few patients know that they will need a medical 
procedure when the NCD rule making process is underway. Second, even if 
a patient has timely knowledge of an NCD process that would affect her, 
she generally lacks resources to participate effectively in the 
process. Third, as this Subcommittee is well aware, HCFA's Technology 
Advisory Committee (TAC) did not openly invite participation by 
Medicare beneficiaries or the general public. There was a lack of 
clarity about obtaining a NCD for new procedures, devices, etc. outside 
the context of an appeal.
    The appeals process also provides no recourse for beneficiaries. 
Beneficiaries have been foreclosed from questioning NCDs in the course 
of coverage appeals by 42 U.S.C. Sec. 1395ff (b) (3). That provision 
makes it nearly impossible for a beneficiary to challenge the rule upon 
which services were denied by preventing consideration of the issue at 
the administrative level. If the claim reaches federal court, a federal 
judge who determines that the record is incomplete or insufficient to 
support the validity of the NCD must, under Section 1395ff (b) (3), 
remand the case for supplementation of the record. The court may only 
determine that an item or service is covered after review of the 
supplemented record.
    Last fall, HCFA held a Medicare Coverage Town Meeting and published 
a notice in the Federal Register inviting comments on changes to the 
NCD process. NSCLC and the Consumer Coalition for Quality Health Care 
joined in comments filed by the Center for Medicare Advocacy in 
response to the Town Meeting and Federal Register notice. We suggested 
to HCFA that the agency create a meaningful opportunity for 
beneficiaries to question NCDs. The NCD process must be faster and less 
arcane. We proposed that a process be established to allow a 
beneficiary who is denied services or payment because of an NCD or who 
is seeking to establish an NCD to request prompt administrative 
reconsideration of the NCD. By filing a petition with HCFA, the 
beneficiary could initiate an administrative review of the NCD that 
focuses on whether it currently meets the criteria for enactment of 
NCDs. Such a post-enactment review is particularly necessary for NDCs 
involving new procedures because new evidence concerning efficacy 
emerges over time, with HCFA re-evaluation often lagging behind. In 
order to give legitimacy to this reconsideration process, the 
beneficiary should have the further right of appeal to federal court.
    NSCLC also responded to HCFA's Federal Register request last 
December for nominations to the new Medicare Coverage Advisory 
Committee that is being formed to replace the TAC. We nominated two 
beneficiary representatives who have had experience with the current 
process. We also encouraged other beneficiary advocates, including 
advocates who are knowledgeable about assistive devices and other 
technologies, to apply to serve on the new committee. It is crucial 
that beneficiaries be adequately represented in any new process 
developed by HCFA for making NCDs. Adequate representation means 
inclusion of advocates who represent the interests of the diverse 
Medicare beneficiary community. We often refer to ``seniors'' when 
describing Medicare beneficiaries, yet over 5 million beneficiaries are 
younger people with disabilities. Many members of this community are 
adversely impacted by HCFA's failure to include new devices and 
technologies among Medicare's covered services. Their voice needs to be 
heard in any process that reviews and re-evaluates new technologies, 
services and procedures.

Lack of appeal rights under fee-for-service Medicare where the service 
                     has not already been received.

    The current Medicare appeals process under Parts A and B is 
premised on a delivery model in which beneficiaries obtain a 
service or procedure and then seek reimbursement. This system 
adequately meets the needs of beneficiaries who are not waiting 
for a determination by Medicare before they obtain needed care. 
Problems arise, however, where the issue is prior authorization 
of services or items as opposed to reimbursement.
    For many low-income beneficiaries, the current system 
precludes their ability to obtain the equipment and services 
they need. They cannot afford first to purchase the equipment 
or receive the service, the initial step in getting Medicare to 
cover their medical need, and then submit a claim for 
reimbursement. In the context of Medicare home health services, 
if the home health agency believes Medicare will no longer 
cover the service, the beneficiary must pay for the service 
privately while the agency submits a ``demand bill'' to the 
fiscal intermediary. Again, beneficiaries who cannot afford to 
pay out of pocket have no access to the appeals process to 
determine whether Medicare will in fact pay for their care.
    We have also found that if a home health agency or a 
skilled nursing facility determines on its own that Medicare 
will not pay, the agency or facility may deny the beneficiary 
access to the service by refusing to admit the beneficiary. 
Where that determination is not correct, the agency or 
facility's unwillingness to even provide the service precludes 
the beneficiary from filing a demand bill to get a 
determination from Medicare about whether the service will be 
covered. Without such a determination from the fiscal 
intermediary in these cases, the beneficiary cannot seek an 
    Just as beneficiaries enrolled in a Medicare+Choice plan 
have the opportunity for an expedited appeal when the plan 
denies a service, beneficiaries in fee-for-service Medicare 
should have access to an expedited determination that Medicare 
will pay (or not pay) for the needed device or services. 
Beneficiaries should be able to request an intermediary or 
carrier determination, issued within 15 days of the request, 
that Medicare will cover the equipment or service in question. 
They can then present the determination to the provider or 
physician and obtain the item or service in question. If the 
request is denied, they should have the opportunity to appeal 
through an expedited appeals process. Such a process will 
enable individuals who cannot afford to pay out of pocket the 
opportunity to access the appeals process.
    NSCLC is co-counsel in a nationwide class action filed in 
the United States District Court for Connecticut called Healey 
v. Shalala. In that case, we are challenging the appeals 
process as it applies to denials, terminations, and reductions 
of Medicare home health services. Among the issues raised in 
the case are the lack of expedited review and the lack of an 
appeals process for beneficiaries who cannot afford to pay 
privately for their care. The case provides a good example of 
the dire consequences to the beneficiary from being deprived of 
both a service and a process through which to appeal that 
denial. Within the first few months after the Healey case was 
filed, two of the named plaintiffs who were denied home health 
services died.
    I mentioned earlier that, where a provider believes that 
Medicare will not pay for a service and requests the 
beneficiary to pay out-of-pocket, the beneficiary may request 
that the provider submit a ``demand'' bill to the fiscal 
intermediary (for skilled nursing facility or home health 
claims) or to the carrier to get a determination of coverage 
that can then be appealed if unfavorable. We have found, 
unfortunately, that some providers are unwilling to submit 
demand bills, thus depriving beneficiaries of the right to 
pursue their claims with Medicare. In one egregious case from 
Cincinnati, it took two years to get the provider to submit the 
demand bill for home health services.

                            Adequate notice

    Appeals processes work only when beneficiaries are informed 
of their appeal rights. In the fee for service context, as I 
noted earlier, standard notices explain what those rights are 
and how beneficiaries may access the review process.
    Unfortunately, there are situations in which Medicare 
beneficiaries are not adequately informed of their right to 
appeal or, if informed, are not given information that would 
allow them to begin the appeal process. For example, the Healey 
case arose because Medicare home health beneficiaries did not 
receive notice from their home health agencies that their home 
health services would be reduced or terminated. If they did 
receive written notice, the notices often did not explain their 
right to request a ``demand bill'' and to file an appeal if the 
demand bill was rejected. In addition to the other relief in 
that case, we are seeking that HCFA require home health 
agencies to give beneficiaries a standard notice that explains 
what services are being denied, reduced, or terminated, the 
reasons for the denial, reduction, or termination of services, 
and the procedures to follow to get a formal determination of 
Medicare eligibility from the fiscal intermediary.
    A GAO report \1\ issued last week found that, despite a 
court ruling and changes made to the Medicare managed care 
appeals process by the Balanced Budget Act of 1997, Medicare 
HMOs still are not providing beneficiaries with adequate notice 
of their appeal rights. The GAO found that notices frequently 
failed to explain appeal rights and/or did not state the reason 
for the denial. They often were given with little advance 
notice of discontinuation of a service such as skilled nursing 
care, leaving beneficiaries without time to plan how to obtain 
and pay for the service. The GAO, after reviewing cases sent to 
the Center for Health Dispute Resolution for review, also noted 
that some beneficiaries do not receive notices at all.
    \1\ Medicare Managed Care: Greater Oversight Needed to Protect 
Beneficiary Rights (GAO/HEHS 99-68, April 1999).
    The GAO's findings comport with the experiences of the 
Medicare advocates with whom I work across the country. In one 
case from South Florida, for example, the beneficiary was told 
orally by her HMO that home health services would stop the next 
day. She was given no an explanation why they were being 
terminated and given no explanation of her appeal rights. When 
the attorney called the HMO on the client's behalf to get more 
information and to ask for an expedited plan reconsideration, 
she was told by the plan representative that the client had no 
appeal rights at all.
    We therefore concur with the GAO recommendations that HCFA 
develop standard notices and increase its oversight, monitoring 
and enforcement of the Medicare+Choice appeals process. We 
would extend this recommendation to oversight, monitoring and 
enforcement of the appeals processes available under other 
Medicare appeals systems.

                     Delays in the appeals process

    From a policy perspective, the multiple levels of review in 
the appeals process appear to add confusion and to be somewhat 
unnecessary. However, in practice, the carrier review and 
intermediary reconsideration stages sometimes allow for claims 
to be resolved without the need for ALJ review. According to 
HCFA statistics, the reversal rate is 76.9% for carrier reviews 
and 42.9% for intermediary reconsiderations. In addition, 
carrier review and intermediary reconsideration provide a forum 
to resolve small disputes that do not meet the jurisdictional 
limits for ALJ hearings ($100 for Part A claims and $500 for 
Part B claims). The real problem that arises at this level of 
review is the length of time it takes to get a carrier or an 
intermediary determination. Delays can be particularly 
intolerable where a beneficiary has paid or is paying for a 
service out of pocket.
    Several small changes can address this issue. These levels 
of review could be made optional for beneficiaries with larger 
claims who want to proceed directly to an ALJ hearing. Also, 
carriers and intermediaries should be required to make 
decisions within 30 days of receipt of the claim. If decisions 
are not made within that time frame, beneficiaries should be 
allowed to proceed automatically to the ALJ level, and be 
notified of this right when they are told of their initial 
appeal rights.
    Similarly, time limitations should be established for ALJ 
hearings and decisions. We have heard from beneficiary 
representatives whose clients waiting as long as two years to 
get an ALJ hearing, and may wait almost as long to get a 
decision. Again, if time limitations are not adhered to, the 
beneficiary should be allowed to proceed directly to federal 
court. There also needs to be a provision for expedited ALJ 
hearings. The Social Security Administration already has a 
little known procedure to move a case to the top of the ALJ 
hearing waiting list in limited circumstances, generally where 
the claimant is terminally ill. This procedure may need to be 
broadened and better publicized to protect individuals who 
would meet the Medicare+Choice criteria for expedited 

            Clarification of the home health appeals process

    When the Balanced Budget Act of 1997 transferred most of 
Medicare home health benefits from Part A to Part B, Congress 
was aware that this change could result in the same beneficiary 
having some of her home health claims being processed under the 
Part A process and some of her claims being processed under the 
Part B process. Thus, the BBA provides the same appeal rights 
for beneficiaries under Parts A and B, changing the amount in 
controversy for ALJ review in Part B home health claims from 
$500 to $100. What is not clear to advocates is whether claims 
for home health benefits under Part B would be administered 
completely as if they were claims under Part A. We would like 
further clarification that all home health claims, whether paid 
under Part A or Part B, would be administered through the Part 
A system.

                      Creation of a Medicare Court

    Beneficiary advocates have questions about the creation of 
a special Medicare Court. We are not aware of any data to show 
that enough Medicare cases are filed to warrant the 
establishment of a new Article I court. According to HCFA 
reports, few intermediary reconsiderations and carrier reviews 
are requested, and the reversal rates, particularly for carrier 
reviews, are high. While we don't know the number of ALJ 
hearings requested, we know anecdotally that the number of 
appeals decreases as beneficiaries progress through the appeals 
system, and that few federal court cases are brought. 
Therefore, a first exploratory step before establishment of a 
new court might be to gather more empirical data about the 
number of appeals at the ALJ, Departmental Appeals Board, and 
federal court levels.
    We appreciate the efforts of Chairman Thomas and this 
Subcommittee to support adequate appeal rights for Medicare 
beneficiaries. We look forward to continuing to work with you 
on this important issue.


    Chairman Thomas. Thank you very much. All of you gave us 
excellent testimony. I guess if I were going to be outraged 
about anything I have heard so far is that this is not 1965; 
this is 1999; this is an administration that it is in its 
second 4-year term in which they use a lot of words about being 
on the side of the beneficiary, and what we heard today from a 
beneficiary activist, Ms. Gottlich, was that you are very 
concerned about having access to appeals governed by wealth; 
that there is a frontloaded process in which some people are 
not able to participate to get what they believe is justice. If 
this were in the legal area, that would be outrageous; it is 
just as outrageous in this area.
    But, probably, even worse than that was Dr. Kang's 
suggestion that because of the differing decisions in various 
local areas, if you are denied in your region you can go to the 
other region that offers the service, and you can get it. Well, 
now who gets to move around the regions? I mean, this is then 
the wealthy who get to select where they get it if it is 
available anywhere, and if you are unfortunate to be poor and 
have to live in an area and you have been denied, you don't get 
it. Now, that is the kind of inequity that maybe should have 
been put up with in 1965, but it is just outrageous today, 
especially when it is the consumer advocate who is complaining 
about the wealth structure, and it is the representative from 
HCFA who has given you a way around the system, and oh, by the 
way, it is only if you are wealthy enough to play the game. 
That is what I find really outrageous.
    Professor Kinney, you touched on the local versus the 
national, and, again, we heard the argument that somehow this 
diversity is healthy, and I would just like to go across the 
panel and ask you if the--have you had a chance to look at the 
notice that just came out today in terms of the change?
    Ms. Kinney. It was just--I only got it when I came into the 
hearing room this morning.
    Chairman Thomas. And that is why this is not as useful as I 
would have liked. I am pleased the administration decided to 
follow the law. I am disappointed it has taken them so long to 
give us a product that we can try to evaluate to see if, in 
fact, it does a better job. We are all anticipating that it 
does do a better job, but I guess I am a little disappointed 
based on all the arguments I heard a year ago that they have 
continued to make the decision that there won't be a process of 
rationalizing the local in any meaningful way except after what 
seems to be a very laborious process. Is it a positive on the 
whole or is probably not a positive any longer that we allow 
these hundred flowers to blossom until somehow there is this 
agreement that it ought to be done at the national level? Is 
that still a useful way to try to deliver services?
    Ms. Kinney. I am not sure it is avoidable. There are a 
large number of individual cases to be decided nationwide and 
lots of new treatments and devices being developed all the 
time. Medicare is now structured to enable decentralized 
decisionmaking on these money issues by carriers and other 
contractors. And I am not sure that we could develop as 
effective a mechanism at the national level to identify all the 
potential devices, procedures, operations, that call for a 
specific coverage decision and make appropriate decisions in an 
expeditious and consistent manner.
    On the other hand, I have always been troubled by the ``Let 
a hundred flowers bloom approach.'' Early in the eighties, for 
example, Medicare covered heart transplants in California but 
not in other parts of the country. This has been a persistent 
problem of the program since its inception. We can do a better 
job of coordinating the decisions that are made at the local 
level with what are being made at the national level. For 
example, HCFA might establish a regional or national office to 
collect, consolidate, and reconcile these policies. HCFA should 
establish better mechanisms and criteria for referring issues 
that call for a national coverage determination. So, while I 
think that regional variation is probably unavoidable, better 
coordination policy is possible.
    Chairman Thomas. Yes, at least communication and 
information transfer between different regions so there could 
be decisions made based upon fresh information.
    Mr. Coleman.
    Mr. Coleman. My experience is that the lack of uniformity 
does not stem from some sort of conclusion about the local 
medical practice. It simply results from the fact that the 
medical directors in each carrier evaluate the situation 
differently. They purport to be applying the same criteria; 
they purport to be looking at the literature or whatever to 
decide whether or not an MRI scan is useful in a particular 
procedure, but they come to different conclusions having 
nothing to do with local medical practices.
    Chairman Thomas. And could you infer from that that maybe 
this is one of the more effective cost control methods?
    Mr. Coleman. Certainly. I mean, it depends on the 
personality of the local medical director. If the local medical 
director is very conservative and wants to hold down costs, it 
is not surprising that his coverage decisions tend to be more 
strict than somewhere else.
    Chairman Thomas. Ms. Gottlich, any comments?
    Ms. Gottlich. From a cynical viewpoint, sometimes we prefer 
that the decisions be made on a local level, because then we 
know that we can appeal them through Federal court, and if they 
are made on a national level, then they are not subject to 
Federal court appeal if we don't like them. But I am concerned 
about the delays in getting the information from one local area 
to the other; it is the coordination, and then getting the 
information to HCFA. I don't understand why if the local region 
is covering something for a long period of time and meets their 
criterion, why it shouldn't be moved up and everybody get 
    Chairman Thomas. Yes, timelines, criteria, number of 
regions, some kind of a tip that gives you a direction that 
ought to be followed. And just, finally, Ms. Gottlich, I 
appreciate your tip in terms of how to expedite the review. I 
don't know how much comfort it would give me that I found out 
that I was denied before I died.
    Does the gentlewoman from Connecticut wish to inquire?
    Mrs. Johnson of Connecticut. I just want to be sure--thank 
you very much for your testimony and when you do see these 
regulations and have a chance to study them, we would certainly 
want to know what you think. But, Ms. Gottlich, did I 
understand you correctly to say that you have seen a situation 
in which under a managed care choice plan someone got an appeal 
dealt with in a brief period of time?
    Ms. Gottlich. Absolutely. I was floored. It is a person 
with AIDS, and he did the initial appeals himself. He asked for 
an expedited review. He wrote ``I am terminally ill,'' which, 
unfortunately, he is, and he went through the appeals process. 
He is now represented by an attorney; it is a case in New York.
    Mrs. Johnson of Connecticut. How long did it take him to 
get to where he is now?
    Ms. Gottlich. As I said, he got the notice on January 25 
that the service would not be covered. So, he went through the 
plan reconsideration, through CHDR, and now the ALJ hearing is 
tomorrow, which is----
    Mrs. Johnson of Connecticut. Now, is this the result of the 
policy of the managed care plan he participates in?
    Ms. Gottlich. No, I think that what happened in this 
particular managed care plan was that they actually followed 
the rules. We have had lots of situations in managed care plans 
that don't follow the rules, and, unfortunately, some Medicare 
HMOs are still saying there are no appeal rights, which is 
unconscionable. But, anyway, they followed the rules. So, 
    Mrs. Johnson of Connecticut. So, in other words, Medicare 
has actually set up good rules if we can enforce them for 
managed care choice plans.
    Ms. Gottlich. That is right.
    Mrs. Johnson of Connecticut. And, in fact, participants in 
managed care choice plans have superior appeal rights to 
Medicare participants in fee-for-service.
    Ms. Gottlich. Oh, no question.
    Mrs. Johnson of Connecticut. I am truly, absolutely 
appalled at the lack of any rights of the fee-for-service 
participants in managed care, and your comments earlier on the 
value of the local process and the more earlier levels of 
setting and educating everybody involved were very interesting 
to me. How we draw from that and have a more responsive 
relationship between the local processes and the Federal 
process so there is more uniformity is really a concern to me. 
I cannot get an adequate estimate about how much it will cost 
us to include seniors in clinical trials, because, frankly, 
some of the local groups are already including them, but they 
don't want to call it that. They sort of don't want to own up 
because then it makes them stick out. So, they are just not 
saying it is clinical trials; they are just providing whatever 
health care sees. So, we can't get estimates, because we don't 
have a policy here. So, we are literally denying seniors, many 
seniors, the right to participate in clinical trials while many 
seniors have the right to participate in clinical trials, and 
the system has absorbed that cost if, indeed, there is any. So, 
this is a very big problem, and, ironically, any managed care 
plan that is going to grow big in the private sector has to 
have an MCQA certification, and that provides a lot more 
visibility than a lot of these coverage decisions that we are 
providing now in the public programs. Thank you very much for 
your testimony.
    Chairman Thomas. Does the gentlewoman from Florida wish to 
    Mrs. Thurman. I really don't, and I am sorry I missed your 
testimony. I just like to say, Ms. Kinney, I am interested at 
some time you have made a lot of recommendations in how you 
think you might streamline. I hope that maybe sometime, Mr. 
Chairman, we will have an opportunity to better look at that; 
maybe even get more testimony from that. And the only other 
thing I would say is that it looks like this has been going on 
for a long time, not just short period of time.
    Chairman Thomas. It is, and I will tell the gentlewoman 
that it came to a head, because we finally got them to admit 
that what they were doing was against the statute, and I guess 
I am a little underwhelmed at the more than a year review of 
what would resolve it in terms of opening up the process, and I 
just thought that since a number of these areas had been looked 
at for some time, that we would see some tweaks along the line 
to improve both on a timeline and on a cleaning up of all those 
lines crossing. So, I am little more disappointed in the 
proposed work product than I wanted to be.
    Mrs. Thurman. And I don't disagree with that, and I think 
that all of the things that have been mentioned here today, 
particularly to those that are being covered by this, on the 
other side of this, I know that we have also made a lot of 
changes in the law, and, as we heard just a couple of weeks ago 
or months ago about the 300 changes that have been going on, 
that is quite a bit of a responsibility too.
    Chairman Thomas. Which leads me to my next question, and I 
would like you folks to respond to it. I don't like to spend 
money unless we have to, because it is not my money; it is 
other people's money. But, periodically, as areas have gotten 
more complex and decisions are more and more required to be 
made in a context of expert and particular knowledge, we have 
created courts under article 1 of the Constitution instead of 
the judicial branch article that are called legislative 
courts--tax court of the United States in terms of the 
complexities of the tax law. Do you believe we have reached a 
point or that it is overdue that we create, in essence, a 
Medicare court, a legislative court, rather than relying on the 
hit and miss choice in the administrative law justices from the 
Social Security Administration; that we talk about people who 
are going to render decisions in this area who are 
knowledgeable in the law who understand it, and who, through a 
collection of decisions, build a degree of what the 
constitutional courts would call state of decisis, so that you 
can maybe speed up the process by having courts dedicated to 
this decisionmaking process? Is Medicare adult enough to 
require its own court, I guess is what I am saying?
    Ms. Kinney. Well, I think the Medicare court idea is an 
intriguing idea. One of the concerns you have is whether the 
decisionmakers on the court could be ``captured,'' if you will, 
by the bureaucracy. By this I mean, over time, their thinking 
would become too aligned with the program and out of touch with 
the concerns of beneficiaries. A benefit of the general 
jurisdiction courts has been their ability to take a fresh look 
at issues. I do think it is important to make sure that the 
right issues come before the court and that policy issues like 
the national coverage determinations probably should stay with 
the agency--that is, HCFA-- which is accountable for the money 
spent by Medicare and also the safety of the beneficiaries. 
Further, I am not sure that a Medicare court would be any 
better to adjudicate the validity of those policies than the 
Federal judiciary now. But, I think it is an idea that it is 
intriguing in terms of simplification. I would also like to see 
the courts try to experiment with alternative dispute 
resolution techniques and other ways to deal with beneficiary 
    Chairman Thomas. Thank you, because I really haven't made 
up my mind, and I am trying to see where the evidence falls. 
Mr. Coleman, do you have a comment on that at all?
    Mr. Coleman. My comment, I guess, would be that the most 
complicated issues in Medicare relate to cost reimbursement, 
and those are the issues that go through the Provider 
Reimbursement Review Board and then into the courts. Cost 
reimbursement is being phased out, as you know, so that body of 
cases--which I think is the most complicated body of cases--
will eventually go away, hopefully. And to the extent that more 
and more Medicare beneficiaries move into managed care, it will 
diminish further. So, it is a kind of need which may be 
diminishing rather than increasing.
    Ms. Gottlich. I have practical considerations. Where would 
the court be located? How would clients who are homebound or in 
nursing homes get to the court? If it is in Washington, DC, how 
would legal services attorneys from Alaska and Hawaii or even 
southern Maryland or southern Virginia afford to get up here? 
So, those are my practical concerns.
    Chairman Thomas. Thank you, and, of course, if we are 
successful in implementing a premium support model, a lot of 
these particular decisions would be negotiated in a way which 
would resolve many of them faster, more expeditiously, and 
between competing interests in the marketplace. But, I am 
looking at ways to try to straighten that process out, and I 
appreciate your input in that regard.
    If there are no further questions, I want to thank you very 
much for your testimony, and, as the gentlewoman from 
Connecticut said, if you will be filing comments on this 
notice, we would very much like to get them, and if you don't 
go to the filing stage, we would like your comments anyway.
    [The following was subsequently received:]


To: Subcommittee on Health, House Committee on Ways and Means
    United States Congress

From: Eleanor D. Kinney, J.D., M.P.H.
    Samuel R. Rosen Professor of Law &
    Co-Director, The Center for Law and Health
    Indiana University School of Law--Indianapolis
    Indianapolis, IN

Subject: Supplemental Statement on Medicare Coverage Decisions and 
Beneficiary Appeals

Date: October 21, 1999

    In the April 22, 1999 hearings of the Subcommittee on Health, House 
Committee on Ways and Means, Chairman Thomas offered witnesses an 
opportunity to submit additional comments for the record on the recent 
Notice of the Health Care Financing Administration (HCFA) on Procedures 
for Making National Coverage Decisions (the Notice).\1\ Below are my 
comments on the Notice.
    \1\ Health Care Financing Administration, Notice, Medicare Program; 
Procedures for making National Coverage Decisions, 64 Fed. Reg. 22,619 
(April 27, 1999).

                         Introductory Comments

    The coverage policy making procedures described in the 
Notice are, in general, well conceived and designed to 
facilitate fair and expeditious decision making on difficult 
questions of Medicare coverage of new and existing medical 
items and services including medical technologies. The Notice 
is clearly written and describes an open process that accords 
all interested parties clear guidance on how to participate in 
the Medicare coverage decision making process.
    HCFA is also to be commended for the innovative use of the 
Internet in the publication and docketing aspects of the 
coverage decision making process. It is also useful to permit 
electronic filing of comments regarding anticipated coverage 
decisions as this opportunity facilitates the participation of 
Medicare beneficiaries and physicians in formulating Medicare 
coverage policy.
    I have three major concerns with the Notice: (1) its 
promulgation as a procedural rule and the resulting appearance 
that HCFA's commitment to the process is uncertain, (2) the 
representation of beneficiaries in the process, and (3) the 
wisdom of allowing local Medicare contractors to supplement 
national coverage decisions.

1. Promulgation as a Procedural Rule

    The most important objective HCFA should accomplish with 
this Notice is to establish a process that has the reputation 
for integrity and effectiveness among Medicare beneficiaries 
and the other parties, namely medical providers as well as 
medical device manufacturers, with a direct professional or 
business interest in specific Medicare coverage issues. 
However, the Notice seems inconsistent with this key objective 
in several respects.
    Specifically, HCFA justifies its decision to promulgate the 
Notice as a procedural rather than legislative rule \2\ in an 
unfortunate way (pp. 22,621-22). Specifically, HCFA refers to 
the coverage decision making process as an ``internal 
operation.'' It does seems odd to characterize this process, 
which has a major impact on many Medicare beneficiaries and 
their providers as well as the manufacturers of new medical 
technologies, as ``internal.'' Further, the justification for 
procedural rules, e.g., according an agency ``latitude in 
organizing its internal operations,'' does not really fit the 
coverage policy making process in which there is great public 
    \2\ 5 U.S.C. 553(b)(3)(A) (exempting ``rules of agency 
organization, procedure, or practice'' from notice-and-comment 
    Perhaps more important, HCFA does not really commit itself 
to firm deadlines or timeframes in the coverage decision making 
process. For example, in Section E, ``Additional Factors 
Affecting Our 90-Day Timeframe for Responding to Formal 
Requests,'' HCFA suggests that many factors justify extensions 
of decision making timeframes. While such extensions for the 
listed reason may be appropriate as a practical matter, such 
flexibility with timeframes gives the impression that they are 
effectively voluntary from HCFA's perspective. HCFA may want to 
consider revisiting the timeframes in the Notice and making 
them more firm once HCFA has more experience with the process 
under the Notice.
    Ultimately, the reputation of the Medicare coverage 
decision making process depends on its implementation and 
operation. Thus, HCFA should make every effort to ensure that 
the process is implemented and operated with integrity. 
Specifically, HCFA should meets deadlines and timeframes except 
in extraordinary and understandable circumstances. Further, 
HCFA should state requirements for achieving affirmative 
coverage decisions in the process clearly and explain reasons 
for negative coverage decisions adequately.
    In the future, HCFA might consider promulgating a 
legislative rule through notice-and-comment rulemaking to 
establish the elements of the Medicare coverage decision making 
process. This step would greatly enhance the reputation of the 
process for integrity, effectiveness and fairness and would 
also confirm HCFA's commitment to the process. A process with 
such a reputation would engender confidence in HCFA's decisions 
on Medicare coverage issues and, hopefully, reduce appeals 
generated by medical device manufacturers of the type that now 
occur in the Medicare beneficiary appeals process or in 
judicial challenges. Finally, a coverage policy making process 
with a strong reputation is crucial to meet the challenges 
posed by the advances in costly new medical technologies now 
and in the future.

2. Representation of Beneficiaries in the Process

    One of the strongest aspects of the Notice is HCFA's 
commitment to facilitating the input of Medicare beneficiaries 
in making coverage decisions. In its section on ``Informal 
Contacts'' (p. 22,621), HCFA will assume the responsibility of 
``gathering and preparing the information necessary to proceed 
to a formal request'' when requests are made by ``a Medicare 
beneficiary or another member of the public who we could not 
reasonably expect to have access to scientific data that may be 
necessary to support a formal request.'' This is an excellent 
strategy which shows HCFA's thoughtful regard for the barriers 
to beneficiaries in coverage policy making.
    The problem of obtaining adequate input from beneficiaries 
in the coverage policy making process is very difficult. 
Beneficiaries, as a general rule, do not have the requisite 
medical expertise or financial resources to participate in the 
policy making process in a meaningful manner. Further, unless 
individual beneficiaries have a particular need for a 
particular item or service, they are unlikely to participate 
actively in decision making with respect to specific coverage 
issues. Further organizations that customarily represent 
beneficiary interests are not generally well versed in medical 
    Ostensibly, under liberal administrative law theory, the 
agency represents the public in a regulatory process. The 
agency, as the delegate of the elected legislature, must 
execute the directives of the public's duly elected 
representatives. In that regard, HCFA should continue to 
emphasize its role as the advocate for Medicare beneficiaries 
in the coverage decision making process.
    In addition, HCFA might explore other strategies that will 
enhance effective beneficiary representation in the coverage 
decision making process. For example, HCFA might consider 
appointing physicians and others with relevant medical 
expertise to the Medicare Coverage Advisory Committee with the 
specific mandate to represent the interest of beneficiaries. 
That appointee might have the specific charge to work with 
beneficiaries and interest groups representing their interests 
in marshaling beneficiary input on specific coverage decisions. 
HCFA might visibly allocate staff to this effort as well.

3. Allowing Medicare Contractors to Supplement National 
Coverage Decisions

    Medicare contractors are authorized to make ``local medical 
review policies'' (LMRP) that govern Medicare coverage in the 
absence of other guidance from the national office. In the 
Notice, HCFA clarifies that Medicare contracts must follow 
national coverage determinations and that LMRPs must be 
consistent with these policies. However, the Notice also 
indicates that a Medicare contractor ``may, however, make an 
LMRP that supplements a national coverage decision.'' (p. 
    This later option seems unwise. If an issue were worthy of 
a national coverage decision, then HCFA has made a judgment 
that there should be consistency in coverage throughout the 
United States. However, allowing local Medicare contractors to 
augment national coverage policies dilutes their uniform and 
consistent national character. This result could be quite 
troubling for some providers as well as medical manufacturers 
that operate nationwide. In sum, where HCFA has determined that 
an issue is of national import, national consistency should be 


                             BENNETT, TURNER & COLEMAN, LLP
                                             WASHINGTON, D.C. 20006
                                                    October 7, 1999

The Honorable William M. Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
U.S. House of Representatives
Longworth House Office Building
Washington, D.C. 20515

    Dear Chairman Thomas:

    At the Health Subcommittee's April 22, 1999 hearing on Medicare 
coverage decisions and beneficiary appeals, you invited me and other 
members of the witness panels to submit comments regarding the revised 
procedures established by the Health Care Financing Administration 
(HCFA) for making national coverage decisions. Those procedures were 
published in the Federal Register of April 27, 1999.
    From my standpoint, the principal elements of the new procedures 
     Establishment of internal timeframes for the various steps 
in HCFA's process of making a national coverage decision;
     Definition of the required contents of a formal request to 
HCFA for a national coverage decision;
     A commitment to post information on the HCFA Internet site 
so that the public can determine what coverage decisions HCFA is 
considering and where HCFA stands in the process; and
     The use of a Medicare Coverage Advisory Committee to 
consider issues referred to it by HCFA.
    Although these actions are clearly improvements in HCFA's process, 
the changes are nevertheless quite modest and fall far short of 
addressing all the deficiencies of the current process. The thrust of 
the changes is to introduce greater openness into the HCFA process of 
making coverage decisions, which had been essentially secret. This is a 
welcome development. In addition, establishing a formal procedure to 
ask for a national coverage decision will undoubtedly be useful to many 
affected by the Medicare program.
    The new procedures, however, do not deal with some of the greatest 
needs relating to the coverage process, including:
     Establishing clear criteria for what Medicare considers a 
medically necessary service that will govern both HCFA and its 
     Improving the process for public input into local coverage 
decisions made by Medicare intermediaries and carriers; and
     Creating an effective appeals mechanism by which coverage 
decisions made at the national and the local levels can be challenged.
    These issues should be addressed by HCFA or the Congress.
    As to the new procedures that HCFA has adopted, in my view the main 
shortcomings relate to the deadlines for action on national coverage 
decisions, which are not very demanding. Although HCFA has stated that 
it will act on formal requests for coverage decisions within 90 days, 
the action at the end of that period may be merely a decision to ask 
for a technology assessment by an outside entity, to refer the issue to 
the Medicare Coverage Advisory Committee, or to do nothing at all and 
leave the issue to the local Medicare contractors. If an issue is 
referred to an outside entity for a technology assessment, there is no 
firm deadline for the assessment and the notice does not appear to 
establish a timeframe in which HCFA will act following receipt of the 
    If HCFA makes a decision in favor of coverage, implementation would 
not be immediate. HCFA states that generally national coverage 
decisions would be made effective within 180 days after the first day 
of the next full calendar quarter following the decision. For example, 
if HCFA makes a national coverage decision on February 1, it would go 
into effect by September 30. The notice attempts to justify this 
extraordinary delay as necessary for administrative changes such as 
adoption of billing codes and making systems changes at the 
    The potentially lengthy periods of time in which HCFA may consider 
whether to extend coverage to a new procedure or technology, and the 
subsequent delay in implementation of a decision favoring coverage, 
seem unduly prolonged. During these periods Medicare contractors may 
continue denying Medicare beneficiaries access to a new procedure or 
technology--even for months after HCFA has decided that it should be 
    Thank you for the opportunity to submit these comments.

            Sincerely yours,
                                              Terry Coleman


                        National Senior Citizens Law Center
                                               Washington, DC 20005

Chairman William Thomas
Subcommittee on Health
House Committee on Ways and Means
Longworth House Office Building
Washington, D.C. 20515

    Dear Chairman Thomas:

    You asked the witnesses at the April 22, 1999, hearing on Medicare 
appeals to submit to you our comments on the new HCFA National Coverage 
Determination (NCD) process. Please accept this letter as my response 
to your request.
    HCFA's new procedure, which was published in the Federal Register 
on April 27, 1999, accomplishes various goals. The procedure (1) 
details several situations which will initiate HCFA's review process 
for making a national coverage decision;(2) describes the process for 
requesting a new NCD or review of an existing NCD; (3) establishes time 
frames for acting on a formal request; (4) establishes a process for 
posting the status of formal requests that are under investigation on 
the HCFA web site; and (5) establishes a Medicare Coverage Advisory 
Committee to review requests and recommend to HCFA whether services are 
``reasonable and necessary.''
    The new procedure will make some improvements in the NCD system by 
creating guidelines and adding more openness and public in-put into the 
process. To assist beneficiaries who request an NCD, HCFA reserves the 
discretion to treat informal contacts from individuals or organizations 
as formal requests, and may in some cases gather and prepare the 
information necessary to proceed to a formal request. I am also pleased 
to report that Sally Hart, Esq., a consumer advocate nominated by the 
National Senior Citizens Law Center, was appointed to serve on the 
Medicare Coverage Advisory Committee.
    Nevertheless, HCFA's procedure does not address two of the major 
concerns I raised in my initial testimony. The process still involves a 
substantial amount of delay. HCFA ``intends'' to make decisions on 
formal requests within 90 days but acknowledges that this deadline may 
not be met in a number of cases. If the issue is complex and 
controversial and potentially a technology assessment, the formal 
request may be referred to the Medicare Coverage Advisory Committee, 
which meets only twice a year. Any additional information discovered or 
submitted during the consideration period will restart the tolling of 
the 90 day period. And the 90 day clock does not even begin to run 
until after a request for an NCD is designated a formal request. 
Especially where consumers ask HCFA for an NCD, the request can 
languish for an indefinite period of time in the informal stage while 
sufficient evidence is gathered to transform it into a formal request.
    HCFA also does not address our primary concern, the lack of an 
adequate appeals process when Medicare coverage is denied based on an 
out-of-date NCD or because HCFA has not yet determined whether Medicare 
will cover a new service or technology. The Notice fails to outline a 
meaningful process for beneficiaries to question NCDs. As I explained 
in my testimony before the Subcommittee, beneficiaries are left with 
virtually no recourse other than to request a formal determination by 
HCFA. The onerous NCD process makes it unlikely that many beneficiaries 
who need a particular service or technology will submit a formal 
request and that, if a request is submitted, it will be processed in a 
timely enough manner to benefit the requesting beneficiary.
    Thank you for your continuing interest in improving the Medicare 
appeals process for beneficiaries.

                                       Vicki Gottlich, Esq.


    Chairman Thomas. Thank you very much.
     And if I could now call up the third panel. On the third 
panel, this is an example rather than abstract or third party. 
These are individuals who have direct, personal experience with 
the coverage process.
    The first witness will be Walter M. Rosebrough, who is 
chief executive officer of the Hill-Rom Company in Indiana, and 
he will be representing in his official capacity the Health 
Industry Manufacturers Association; some of those individuals 
who have come up with a lot of these new, innovative medical 
    The second panel member is Frank Kiesner--if that is 
correct--chief executive officer of Oncotech Incorporated, and 
they are very cutting edge in dealing with cancer patients.
    And then our third witness will be Dr. William Plested, who 
is a thoracic and cardiovascular surgeon, and he will be 
representing the American Medical Association and will provide 
us with some of the virtues and vices of the current system 
from a physician's perspective.
    Any written testimony you may have will be made a part of 
the record, and, Mr. Rosebrough, we will begin with you, and 
then we will simply move along the panel.


    Mr. Rosebrough. Thank you, Mr. Chairman. I am testifying 
today on behalf of HIMA, the Health Industry Manufacturers 
Association, on whose board of directors I also serve. HIMA 
strongly supports efforts to improve the Medicare appeals 
process. My written testimony, which has been provided to you, 
suggests some our suggestions in detail, but in the few minutes 
today that I have, I would like to share my own company's 
difficulty in getting Medicare payments for some of our 
therapeutic products, specifically, the Clinitron bed and the 
frustrations we have had dealing with the Medicare appeals 
    The Clinitron used a technology called air-fluidized 
therapy to treat patients that have extremely compromised skin. 
Classic examples of these type of patients are burn patients or 
patients with severe ulcers. As hard as it is to believe, 
pressure ulcers or bed sores can get so bad, you can literally 
see the bones of the patients. They are life-threatening, 
chronic wounds. In effect, the Clinitron makes these patients 
float as though they were suspended in a fluid which reduces 
the pressure and friction on the skin which enhances the 
healing process. This technology is used in hospitals and 
nursing homes as well as in home care in North America, Europe, 
Japan, and throughout the world.
    In 1990, we applied for and HCFA issued a national coverage 
decision approving this technology for a specific population of 
very severe wounds in home care after extensive proof of both 
clinical and cost effectiveness. Since then, however, the 
agency's DMERCs, durable medical equipment regional carriers, 
have denied the majority of claims for reimbursement for this 
treatment. These denials are disturbing and in our opinion 
directly contrary to the national coverage decision. As a 
result, we have had to appeal these decisions to administrative 
law judges on a case-by-case basis to overturn the DMERC 
    I want to emphasize that in thousands of cases brought to 
the administrative law judges, or ALJ, over the 9-year period 
since the approved national coverage, the judges have 
overturned the DMERC rejections in over 95 percent of the 
cases; over 95 percent of the cases, ALJ has overturned those 
decisions. In fact, in most cases, the DMERCs don't even show 
up for hearings anymore.
    On the one hand, Mr. Chairman, we are very pleased by the 
overwhelming success rate at ALJ. On the other hand, we are 
deeply troubled. Despite the remarkable consistent record of 
ALJ overturning the DMERCs and despite the tremendous efforts 
we put forth to work with the DMERCs, they have done virtually 
nothing to change their policies of denying the initial claims 
for the Clinitron. In fact, for the most recent 6-month period, 
they have denied about 80 percent of the requests for 
reimbursement. From this, it is very clear to us that the 
appeals process has done absolutely nothing to resolve the 
fundamental dispute of the regional DMERC policies that we 
believe are inconsistent with the HCFA national policy.
    Our second major concern is that this system of case-by-
case adjudication just takes too long. HCFA data show that in 
fiscal 1997, on average, for part B carrier claims, it took 119 
days, about 4 months, for a beneficiary to get through the 
carrier review and fair hearing steps. When this is added to 
the other steps in the process, it takes us for our process, 
overall, an average of more than 2 years to obtain a decision 
from ALJ on coverage. My wife and I had two children in 
approximately that same time period, and that is even with an 
affirmative national coverage decision. From a manufacturers 
perspective, Mr. Chairman, I can tell you personally that the 
kind of experience we have gone through to secure our Medicare 
coverage has been discouraging. But from a patient's 
perspective and for those physicians who write the orders for 
those products, I believe it is doubly discouraging.
    How many therapies are denied to needy patients because of 
this bureaucracy? I have no idea. How confusing is it to the 
patient when they get their copay bill 2 years after they have 
received the therapy? How many providers can afford to take the 
risk and a capital cost of 2-year receivables? To have one 
level of the agency say yes and a lower level of the agency say 
no and then to wait 2 years to get a final answer, in my view, 
is simply ridiculous.
    In the short time I have left, Mr. Chairman, let me just 
list a handful of suggestions that we think are most critical 
to address these problems. First, Congress should require HCFA 
to create a clear, understandable appeals process for local 
coverage policy decisions. Currently, none exists. Only the 
claim-by-claim adjudication that is in our case may never 
resolve the real policy issue; it is only claim by claim. 
Second, Congress should confirm that manufacturers of medical 
products have standing as agreed parties in coverage decisions 
and appeals. This would let us bring forward in a single appeal 
the policy issues in question rather than requiring individual 
beneficiaries to bring, perhaps, thousands of individual claims 
which may never resolve the central issue. By the way, as an 
aside, it would be much more efficient and might require much 
less money than we have been talking about today in 
adjudicating those appeals. Third, Congress should require HCFA 
and its contractors to meet reasonable, commonsense timeframes 
for appeals. Any process or review that takes 2 years is 
inefficient and totally unacceptable.
    As I said, Mr. Chairman, my written testimony contains 
additional recommendations and details. I will be happy to 
answer any questions you or other panelists may have.
    [The prepared statement follows:]

Statement of Walter M. Rosebrough, Jr., President and Chief Executive 
Officer, Hill-Rom Company, Batesville, Indiana; and Member, Board of 
Directors, Health Industry Manufacturers Association


    My name is Walt Rosebrough. I am the President of Hill-Rom, 
Inc., a manufacturer of patient care systems, including 
hospital beds, located in Batesville, Indiana. I am testifying 
today on behalf of the Health Industry Manufacturers 
Association--known as HIMA--on whose Board of Directors I 
serve. Accompanying me is Brad Thompson, a partner in the law 
firm of Baker & Daniels and counsel to HIMA.
    In my remarks today, I want to leave you with the following 
five points:
     While the Health Care Financing Administration, or 
HCFA, is working hard to reform the process by which it makes 
coverage decisions and deserves much praise, there remain 
important issues such as the need for early collaborative 
meetings between the agency and manufacturers that continue to 
be unresolved.
     One of those unresolved issues--the need for an 
effective appeals process--is critically important to ensuring 
that the agency is accountable for the coverage decisions it 
     Our experience at Hill-Rom with the 
CLINITRON bed shows that the current appeals process 
is ineffective at resolving policy disputes at the local level, 
and moves far too slowly to meet the needs of beneficiaries.
     There are several statutory improvements that 
Congress can make to the appeals process, including creating an 
appeals mechanism for policy issues at the local level and 
adding the opportunity for administrative review of national 
coverage decisions. These steps will more efficiently and 
effectively resolve coverage disputes.
     HCFA, as a government agency that regulates the 
access to care by seniors, should not be exempt from the need 
to offer an effective appeal mechanism.
    Before I begin, Mr. Chairman, I want to say a special 
thanks to you personally and to the Subcommittee for the 
instrumental role you have played in bringing about needed 
improvements in the Medicare coverage process. There is no 
question that HCFA's efforts to modernize coverage--to make it 
more open, timely, and predictable--are due, to no small 
degree, to your continuing efforts.

   Device Industry Proposed Reforms of Medicare's Technology Policies

    To assist HCFA in its task of reforming Medicare coverage, 
HIMA in mid-1998 developed a range of recommendations for 
specific improvements to the system. They are described in 
HIMA's paper entitled ``Modernizing the Medicare Coverage 
Process: A Prescription for Fundamental Reform of Medicare's 
Technology Policies.'' Copies have been submitted to the 
    Earlier this year, HIMA also participated in the work of a 
broad group of medical device industry representatives that 
developed consensus policy positions on the procedural elements 
of Medicare coverage decision-making. That consensus paper was 
delivered to HCFA in January. The same group is now set to 
tackle the substantive criteria that HCFA should use to 
evaluate technology for possible coverage.

Recommended Coverage Process Reforms

    One of the most significant improvements to the coverage 
process that HIMA and the industry recommend is the need for 
HCFA to use a notice-and-comment type approach to collecting 
data and other useful information on proposed coverage 
policies. While we are certainly not advocating that HCFA 
follow rule-making in reaching individual coverage decisions, 
we do think it is critical that HCFA use the Internet and other 
economical avenues to reach out to a broad public audience to 
collect information on coverage issues.
    In addition, the device industry recommends that HCFA 
ensure openness in the process for initiating coverage 
decision-making and in the process for requesting a technology 
assessment. We also think HFCA should offer manufacturers and 
others the opportunity to request an early meeting with the 
agency to reach agreement on the type of information necessary 
for HCFA to make a coverage determination.
    These collaborative meetings might take place well before 
the start of the coverage process. Not only would such meetings 
improve the quality of the data presented to the agency, the 
meetings would add greater certainty to the process from the 
company's standpoint.

Procedural Reforms Should Be Codified in a Rule

    As you know, Mr. Chairman, the controversy over the 
coverage process has been alive for well over ten years. To 
achieve the necessary accountability, obtain broad public input 
on the design of the coverage process, and resolve these issues 
in an enduring fashion, we believe the agency needs to put 
these concepts in a binding rule. Unfortunately, the agency so 
far has opted instead for an informal notice of the kind it 
published in 1987. We hope it will reconsider that decision.

Agency Progress To Date

    The good news is that the agency--with your strong support 
and oversight, Mr. Chairman--is already making significant 
efforts to reform the coverage process. After talking with many 
of the stakeholders and holding a town hall meeting last 
September, HCFA has re-chartered its technology advisory 
committee to make it compliant with the Federal Advisory 
Committee Act. HCFA has also shed some light on the basis for 
its recent coverage decisions, and I believe it is working on 
some guidance in a couple of areas. In addition, HCFA appears 
willing to discuss some issues--such as timeframes--that are so 
important to ensuring timely access to care. Dr. Kang has made 
a tremendous effort to have a dialogue with stakeholders, and 
we hope the current spirit of cooperation continues on all 

  Effective Appeals Process Essential in Making Coverage Process Work

    HCFA has not embraced all of the stakeholders' suggestions. 
One area of contention is the need to reform the appeals 
process. A significant part of the industry consensus paper was 
devoted to describing improvements that are needed in the 
system of Medicare appeals. Having an effective appeals process 
for a government agency such as HCFA is absolutely essential to 
ensure the proper level of accountability.
    Appeals are necessary when an agency, for whatever reason, 
departs from a legal standard--whether that standard is the 
process the agency needs to follow or the criteria the agency 
is supposed to apply. Judicial and administrative appeals are 
not intended to allow stakeholders to overturn an agency 
decision when reasonable minds simply differ. The agency's 
decisions are entitled to deference. Even so, the mere 
existence of an effective appeals mechanism creates an 
environment in which the agency listens more closely to the 
public's concerns.

 Current Appeals System does not Resolve Coverage Disputes Effectively 
                              or Promptly

    While an effective appeals system is essential to ensuring 
appropriate coverage decisions, the current system 
unfortunately has several deficiencies. I would like to 
describe for you what we at Hill-Rom see with respect to how 
the current appeals system handles issues surrounding coverage 
of one of our products--the CLINITRON ATHOME 
Air Fluidized Therapy Unit--or more commonly known as the 

Background on the CLINITRON Bed

    The CLINITRON bed uses a technology called ``air fluidized 
therapy,'' or AFT, to treat a variety of very sick patients. 
These patients include, for example, severe burn victims and 
those with severe pressure ulcers that don't respond to other 
therapies. Very basically, AFT involves tiny silicon beads that 
are placed in motion beneath the patient by gentle air flow. 
The light air flow through the beads ``floats'' the patient 
resulting in reduced pressure on the patient's body. The 
reduction of pressure and accompanying elimination of shear and 
friction to the skin enhance healing and help prevent further 
tissue damage.
    We developed the product in the 1970s. Numerous studies 
were conducted which reinforced the clinical efficacy of AFT. 
In 1987, the Public Health Service developed consensus 
guidelines for the proper use of AFT at home, with input from 
health professional societies and patient groups. By 1990, 
enough data existed that, after extensive study, HCFA issued an 
affirmative national coverage decision delineating the patients 
who could benefit from this therapy at home. That policy can be 
found in section 60-19 of the Medicare Coverage Issues Manual. 
As you well know, HCFA deliberates carefully before issuing 
national coverage determinations, and not many technologies 
have met that standard.
    One would have thought that our story would end there. It 
did not.
    To be quite blunt, the Durable Medical Equipment Regional 
Carriers, or DMERCs, did not embrace HCFA's decision. As best 
we can determine, they simply did not agree with the HCFA 
physicians and scientists on the usefulness of the technology 
and have sought to add their own definition of medical 
necessity that is inconsistent with the national policy. As a 
result, we estimate that the DMERCs have denied close to 80 
percent of all claims for reimbursement of the CLINITRON bed 
presented to them since the national policy was published in 

Appeals of AFT Claim Denials

    While those denials have dissuaded some doctors and 
patients from seeking this treatment, many others, indeed 
thousands of beneficiaries with the severe injuries identified 
in the national policy, have sought to obtain access to AFT--
despite the opposition from the DMERCs.
    The appeals process for these denials involves five steps. 
In sequence, they are (1) a paper review by the carrier, (2) a 
``fair hearing'' by a carrier hearing officer, (3) a hearing 
before an administrative law judge, (4) an appeal to the 
departmental appeals board, and (5) if necessary, an appeal to 
a U.S. court. Because of the tremendous time, inconvenience, 
and cost of such appeals, we have helped our elderly patients 
by accepting assignment of their claims, and have kept track of 
the results.
    In the literally thousands of AFT appeals to administrative 
law judges since 1990, the beneficiaries have been successful 
in overturning the carrier decisions in more than 95 percent of 
the cases.

What the AFT Experience Tells Us About the Appeals System

    On the one hand, that success rate is the good news about 
the system. With an obviously strong case seeking the 
enforcement of a national coverage decision, the beneficiaries 
are successful in over 95 percent of the AFT cases.
    But in two very real ways, this example shows the system 
also fails. First, incredibly the initial denial of claims 
continues after nine years of the DMERCs losing thousands of 
appeals and after numerous meetings between the DMERCs and 
Hill-Rom. For the most recent 6-month period, the average 
denial rate for AFT by the four DMERCs is still over 80 
percent. The appeals process has done nothing to resolve the 
fundamental dispute over the local DMERC policies that are 
inconsistent with HCFA's national policy.
    Second, the system simply takes too long to effectively 
resolve even the claim-specific disputes. Data obtained from 
HCFA show that, in fiscal 1997, on average for a part B carrier 
claim, it took 119 days for a beneficiary to get through the 
carrier review and fair hearing. HCFA has previously testified 
before Congress that it takes 664 days, on average, to receive 
a decision from an administrative law judge, measured from the 
date the hearing is requested. Thus, combined, it takes an 
elderly patient on average 783 days, or well over two years, to 
obtain a decision from an ALJ after initiating the appeals 
process. That is simply too long to be an effective option for 
most beneficiaries. Moreover, most small medical device 
companies could not afford to take assignment of claims in 
these circumstances, and survive long enough to get paid.

   Congress Should Make Improvements in the Medicare Appeals Process

    In our experience, as well as the experience of others who 
have worked with the Medicare appeals process, there are 
several improvements that Congress can make.

Permit Appeals From Local Policy Decisions

    While the current law allows judicial appeals from national 
coverage decisions (albeit through a seriously flawed process), 
unfortunately there is no appeals process at all for local 
coverage policy decisions. Rather, we must rely on a system 
that forces each beneficiary to appeal individual claim denials 
on a claim-by-claim basis. When broad principles are in dispute 
at the local level, Congress should allow aggrieved parties to 
challenge the broad principle at issue, rather than force an 
inefficient claim-by-claim adjudication that, as in our case, 
may never resolve the real dispute.
    Medical device innovation is unique in the medical field, 
and is characterized by continuous, incremental improvements, 
based on the feedback of professionals who use these 
technologies in actual clinical settings. The local coverage 
process is especially well suited to evaluating innovative 
medical technology, and should remain essentially intact. Thus, 
while we recommend reforming the appeals process at the local 
and national levels, we start from the important premise that 
the present ratio of local to national decisions serves the 
system well. The current emphasis on local decision-making 
offers important flexibility that needs to be preserved, is 
more economical to administer, and helps to ensure that new 
technology does not diffuse until it is well-accepted.

Create Reasonable Timeframes for Appeals

    As I explained above, the appeals process simply takes too 
long to complete. While this is obviously a function of 
resources, the decision-makers in the appeals process also need 
to understand the importance of timely decisions. Statutory 
timeframes would communicate the Congressional expectation 
regarding the promptness with which these appeals should be 

Require Finality of Policy Decisions

    In many instances, HCFA and the DMERCs deliberate on 
coverage issues for years. Because there are no final decisions 
during the time of that deliberation, any appeal is effectively 
foreclosed, even at the national level.
    For an appeals mechanism to create the proper level of 
accountability, there must be some way to require HCFA and its 
local contractors to reach decisions that would then be subject 
to appeal. To be sure, these decisions do not need to be a 
``yes'' or ``no.'' They could include a decision that, as of 
the date of the decision, there does not yet exist enough data 
to make a coverage decision. Permitting appeals of this type of 
decision would create accountability in those instances where 
the agency is simply dragging its feet and adequate data do 
already exist.

Allow Administrative Appeals of National Coverage Decisions

    Under the current law, people who disagree with a national 
coverage decision are required to go directly to court, with no 
opportunity for administrative review. Given the tremendous 
medical and scientific complexity of national coverage 
decisions, we believe it would be productive to interpose a 
level of administrative review before proceeding to court.
    While the creation of a Medicare court would reduce the 
problem, federal district court judges today usually do not 
have the training to comfortably consider the types of issues 
that need to be considered as a part of a national coverage 
decision. An administrative body with the proper expertise, in 
all likelihood, would make more informed judgments to the 
benefit of everyone involved, before any judicial review.

Confirm That Manufacturers have Standing as Aggrieved Parties 
in Coverage Decisions

    The Administrative Procedure Act gives aggrieved parties 
standing to challenge broad rules imposed by an agency. To 
allow the challenges to broad policies at the local level that 
I referred to earlier, it is important for the Congress to 
clarify that manufacturers that sell products used by Medicare 
beneficiaries are aggrieved parties and have the ability to 
directly challenge policies that affect the access of 
beneficiaries to their products. This would reduce the appeals 
cost for the government because manufacturers would be able to 
address the broad issues in a single appeal, rather than 
require individual beneficiaries to bring perhaps thousand of 
individual appeals, with no guarantee that the process will 
actually resolve the real dispute.

Permit Courts To Order Corrective Action, Rather than Merely 
Remanding Back to the Agency

    The current statute sets forth certain limitations on 
appeals from national coverage decisions, such as requiring 
that a court merely remand a dispute for further development of 
the record, rather than, in appropriate instances, fashioning a 
corrective order. That limit is out of step with what the 
Administrative Procedures Act authorizes in the review of any 
other administrative action. We see no reason to treat national 
coverage decisions differently from other agency actions and 
recommend deleting that limitation.

   HCFA Unfounded in Claiming its Decisions Should not be Subject to 
                Appeal Because it is a ``Market Actor''

Medicare Holds Monopoly Position

    We have heard HCFA say, in many different forums, that the agency 
is more akin to a private insurance company or market actor than a 
regulator. HCFA's reasoning seems to suggest that, because HCFA 
reimburses for items and services in addition to regulating, it ought 
to enjoy the same freedom from the need to publicly justify its 
purchases that it perceives private insurers enjoy. We do not agree 
with the comparison, or with the premise that private insurance 
companies do not have rigorous appeal processes.
    Unlike a private insurance company, whose shareholders voluntarily 
choose to invest in that insurer, Americans have no choice but to pay 
the social security taxes that fund the Medicare trust fund. And thus 
when Americans become seniors who qualify to receive benefits under 
Medicare, at that point we still have no real choice but to participate 
in Medicare. Medicare quite simply has a monopoly position in the 
marketplace for health insurance for the more than 38 million 
beneficiaries who depend upon the program for health care coverage.

Market Forces Keep Private Insurers Accountable

    In practical terms, this means that the fee-for-service side of 
Medicare does not have the same market place forces keeping it 
accountable that private insurers have. On a daily basis, private 
insurance companies must strive to make sure that their policyholders 
are happy with the level of services the insurance company provides. 
Otherwise, their policyholders will vote with their feet.
    If a private insurer, for example, does not make appropriate 
coverage determinations, not only can individual beneficiaries complain 
to the insurance company, they and/or their employers can vote with 
their feet. They can switch to a different insurer. Indeed, because 
most private insurance is handled on a group basis, that gives the 
employers and other group representatives significant market power to 
ensure appropriate coverage decisions. That same sort of leverage does 
not exist in the individualized Medicare arena.
    Not only do private insurers have to worry about their top line, 
they have to worry about their bottom line. If insurers make poor 
coverage determinations, such as failing to cover new technology that 
would save them money, their bottom line suffers, and the owners of the 
company and the capital markets hold the company accountable. With all 
that Congress must monitor, Congressional oversight of HCFA cannot 
create the same level of accountability, nor is it efficient to ask 
aggrieved parties to seek Congressional involvement whenever a dispute 
    While there is choice within the Medicare system between fee-for-
service and managed care plans, that choice does not create 
accountability in the coverage process for devices. The decisions that 
the HCFA Office of Clinical Standards and Quality makes set the 
standard in determining which devices beneficiaries can have access to, 
regardless of what part of Medicare is involved. Moreover, the 
significant differences between what the Medicare managed care plans 
and the fee-for-service part of Medicare offer in terms of access make 
it unlikely that competition between the two would ever hold HCFA 
accountable for the device coverage decisions HCFA makes.
    For all of those reasons, the HCFA Office of Clinical Standards and 
Quality is not subjected to the same sort of marketplace pressures and 
accountability to which private insurers are subjected. The Congress 
must, therefore, look for an alternative means, such as appeals, to 
ensure that accountability.

The Medicare Fee-For-Service Appeals Process Should Be Updated

    In 1997, when Congress created the Medicare+Choice program in the 
Balanced Budget Act, it took the opportunity to enhance the appeals 
process on the managed care side of Medicare. That Act--together with 
HCFA's implementing regulations--outlines an appeals process with 
explicit time limits for the various stages of review and incorporates 
review by outside parties. These key features should be carried over to 
the fee-for-service side of Medicare.
    In fact, HCFA's reluctance to improve the Medicare appeals system 
seems out of step with the modern trend. Many private insurers (the 
same group to which HCFA likes to compare itself) appear to be 
enhancing their appeals processes in response to President Clinton's 
Consumer Bill of Rights and Responsibilities in Health Care. That Bill 
of Rights, which applies to Medicare, proclaims that ``All consumers 
should have the right to a fair and efficient process for resolving 
differences with their health plans, including a rigorous system of 
internal review and an independent system of external review.'' Yet 
HCFA seems to be resisting, for example, any effective system of 
independent external review for Medicare.


    As you can tell from my remarks, many of these issues 
require statutory amendments to resolve. We support legislation 
to rationalize and improve the Medicare appeals process for 
coverage, coding, and payment decisions. We hope this Committee 
will give serious consideration to developing such legislation.
    Thank you for this opportunity to present our views. We 
look forward to working constructively with you and the agency 
to develop appropriate solutions to these problems. I would 
happy to answer any questions you might have.


    Chairman Thomas. Thank you very much.
    Mr. Kiesner.


    Mr. Kiesner. Thank you, Chairman Thomas. I am here to talk 
about fair access and timely access to benefits for cancer 
patients. Our company provides a service which takes the living 
tumor cells from cancer patients' biopsies into our lab, and we 
expose those tumor cells to the different chemotherapy drugs 
that an oncologist is considering using. We can identify a 
condition which is referred to as extreme drug resistance, and 
when that condition exists, the possibility that if that drug 
is given to the patient, that the patient will benefit from it 
is negligible. The service has been provided for over 50,000 
cancer patients throughout the country from over 800 different 
hospitals, and if you look at the service from the viewpoint of 
the cancer patient, it eliminates the toxicity and lost time 
from ineffective therapy, and from that viewpoint and from the 
cancer patient's viewpoint, it is a humane service.
    TransAmerica, acting as the carrier for southern 
California, has denied this service based on--and this is very 
important--based on a factual determination in 1995 that the 
service we provide is proscribed by a national coverage policy 
which was enacted in 1982. Administrative law judges have 
reached the conclusion that that 1982 enactment doesn't apply 
to what we do. Dr. Bagley of HCFA has written a letter to the 
San Francisco regional office that the enactment of 1982 does 
not apply to what we do. Hearing officers within TransAmerica, 
themselves, have reached the conclusion that that enactment 
does not apply to what we do, and, finally, the law department 
from TransAmerica has written a letter to our attorney 
acknowledging that the 1982 enactment doesn't apply to what we 
do. To this day, the carrier denies extreme drug resistance 
testing based on that 1982 enactment.
    We have been through the hearing process within 
TransAmerica; we have been through an ALJ; we participated in 
negotiated rulemaking, and we appeared before the TAC 
Committee. Based on all of this experience, I would like to 
make some recommendations. First and most importantly, the 
local decision in relation to technology coverage for cancer 
patients must be done in an open, informed, and public forum 
where scrutiny can be imposed on the quality of the decision.
    Second, the appellate process has got to be removed from 
the local carrier. Our experience is they side with the 
carrier, so much so, that even when the hearing officer will 
acknowledge that the 1982 enactment does not apply, in writing 
their opinion they will impose subsequent hurdles that we had 
not had notice of and cannot respond to.
    Third, make the ALJ's technology decision binding on the 
carrier. In our case, there is one question that is, does the 
1982 enactment apply to our technology? The ALJ made the 
determination after a 2-year process that it does not. 
TransAmerica says ``We won't acquiesce in that ALJ decision, 
because it is limited to the few patients that were before the 
ALJ at the time.'' It took us 2 to 2\1/2\ years to get to the 
ALJ. They don't acquiesce, and we are in another cycle now 
where we have to go through the hearing officer, up to the ALJ, 
and that same issue is going to be decided, and I believe it is 
going to be decided the same way it was decided the first time. 
And what is the effect of this? Cancer patients don't get the 
    This Subcommittee has the power to do something very good 
for cancer patients, and that is provide an open environment 
for technology decisions to be made, and have an appellate 
process that has enough teeth in it so that when errors are 
determined to have been made, they can be reversed. In the 
absence of that, cancer research is going to be lost; 
innovation is going to be lost; companies like ours are going 
to perish before the skills and talents of our employees will 
ever reach the bedside. I don't believe this is in the best 
interest of the cancer patient. Thank you.
    [The prepared statement follows:]

Statement of Frank J. Kiesner, President and Chief Executive Officer, 
Oncotech, Incorporated, Irvine, California

    I am President and CEO of Oncotech, Inc., a pathology 
laboratory based in Irvine which provides cancer testing 
services to over 800 hospitals throughout the country. Oncotech 
has provided its Extreme Drug Resistance (``EDR'') test for 
over 50,000 cancer patients, including thousands of Medicare 
patients. The purpose of the test is to identify, before 
chemotherapy is given, if the patient's tumor is intrinsically 
resistant to a chemotherapy drug under consideration. When a 
cancer patient is found to be extremely resistant to a drug, 
the probability that the patient will respond to that drug is 
negligible. This information is used to eliminate resistant 
drugs from therapy, thereby saving the cancer patient the 
toxicity, time and cost associated with a drug to which the 
patient is resistant.
    Transamerica, the Medicare carrier for Southern California, 
continues to deny claims for EDR testing based upon a national 
non-coverage policy which has been found by ALJ's, by 
Transamerica Hearing Officers, by Transamerica's Law 
Department, and by HCFA, not to apply to Oncotech services.
    Oncotech's experience, resulting from participation in the 
TAC, and Negotiated Rulemaking, both at the national level, and 
Transamerica at the local level, has led us to request your 
assistance to change, in a positive manner, the authority and 
process by which local Medicare carrier medical directors 
address new technology. In our view, the restrictive and 
troubling nature of coverage decisions which Congress 
previously identified within HCFA's Technology Assessment 
Committee (TAC), is present within Transamerica. This situation 
is in direct opposition to the best interests of cancer 
patients, good government and providers attempting to improve 
cancer care through new technology.
    Respectfully, I believe that the following changes would be 
helpful to Medicare patients, the Medicare program and to 
Medicare suppliers and providers.

1. Make Coverage Decisions Open to Public Input and Scrutiny

    Technology coverage decisions by local carrier medical 
directors should be open to public scrutiny. For example, Blue 
Shield of California has a technology review committee which 
publicly reviews its medical director's technology decisions. 
This committee is comprised of individuals who represent the 
interests of providers, hospitals, beneficiaries and the 
community. Blue Shield's medical director prepares a position 
paper on the coverage issue in question and is required to 
present that position in a public meeting attended by the 
committee members who are empowered to vote and providers, 
technology experts and members of the press who are allowed to 
comment. Dialogue and discussion which occurs in this format, 
precedes a public vote by committee members. This open, 
democratic process is the foundation for informed coverage 
decisions and for the acceptance of those decisions within the 
community. In this environment, at the March 2, 1994 meeting of 
the Medical Policy Committee, Blue Shield of California reached 
the following conclusion:

          ``Drug resistance testing in oncology is accurate and 
        reliable. This information can affect clinical decision making 
        and lead to avoidance of ineffective and potentially harmful 
        chemotherapeutic agents. Although there are few prospective 
        clinical trials comparing standard therapy with chemotherapy 
        chosen by in vitro assay, there are sufficient data to 
        determine their safety, clinical utility and impact on clinical 
        decision making.''

    In contrast, Transamerica, in relation to Extreme Drug 
Resistance has made local coverage decisions behind closed 
doors with no notice to suppliers such as Oncotech. 
Transamerica refuses to disclose its consultants by name or to 
provide for a public critique of its rationale. Oncotech has 
been blinded to Transamerica's coverage criteria, to its 
coverage related meetings and to the rationale for its 
decisions. The following excerpts of the October 1, 1998 
Hearing Officer decision describes the coverage process 
followed by Transamerica:

          ``The Carrier's Medical Director recently requested comments, 
        in regards to the EDR assay from numerous oncologists. Their 
        responses varied, however, the majority agreed that the EDR 
        Assay and Drug Sensitivity Assay are based on the same 
        principle. In addition, most of them have not used the 
        technology. In one situation, three physicians commented that 
        they had only sent two specimens for assay testing in the last 
        seven years. Another oncologist determined that he could not 
        recommend the use of EDR since his research did not show the 
        effectiveness or usefulness of the EDR assay. Furthermore, I 
        contacted the Carrier's Oncology Advisor and per our 
        conversation with the Advisor agreed that both assays are based 
        on the same theory and concert and I concur.
          The Carrier, acting within the scope of their authority, has 
        determined that the EDR testing and Sensitivity testing are 
        similar and achieve the same results. Therefore, at the present 
        time, EDR assay falls within the guidelines of Section 50-41 of 
        the Coverage Issues Manual and is excluded from coverage under 
        the Medicare Program. Therefore, I am affirming the Carrier's 

    After reading the above description, however, Oncotech has 
no information concerning the identity of the physicians 
involved, their qualifications, the principle tying EDR to drug 
sensitivity or the extent and merit of one physician's 
research. Most importantly, Oncotech did not have an 
opportunity to respond to their concerns or add value.
    Oncotech's scientific and medical expertise is renown 
within oncology. Oncotech's Board of Directors includes Dr. 
Vincent DeVita, past Director of the National Cancer Institute, 
Dr. Frank Meyskens, Director of the UCI Comprehensive Cancer 
Center, Dr. Trevor Powles, Director of the Breast Cancer 
Program at the Royal Marsden Hospital in London. Finally, our 
Scientific Advisory Board is chaired by Dr. Marc Lippman, 
Director of the Lombardi Cancer Center at Georgetown 
University. Yet, Transamerica will not provide a forum in which 
these and other leading physicians can participate openly and 

2. The Review of a Technology Coverage Decision by 
Transamerica's Hearing Officers Should be Free of Carrier Bias 
and Written by Hearing Officers With Appropriate Technical 

    A. In our experience, Transamerica Hearing Officers 
typically side with the carrier to the extent that when the 
published reasons for the claim's denial are overcome during 
the hearing, the Hearing Officer bases his decision upon new 
and previously undiscussed hurdles. The provider is left with 
an impossible burden. Our only redress is to appeal the 
decision to an ALJ, wait two years, and hope for objectivity.
    B. Hearing Officers who are responsible to decide 
technology questions should have a background suitable for the 
issue at hand. If consultants are needed, their opinions should 
be given to the Hearing Officer at the time of the hearing when 
a provider would have an opportunity to refute or comment if 
appropriate. It is our experience that consultants to the 
Hearing Officer are isolated from and unknown to the supplier. 
There is no opportunity for dialogue between the hearing 
officer, provider and consultant.

3. Require Local Medical Directors to Integrate ALJ Technology 
Coverage Decisions into Technology Coverage Policy

    The two to three year appellate process within 
Transamerica, culminating at an Administrative Law Judge 
preceding, was our only mechanism to redress Transamerica's 
non-coverage decision. We were prohibited from going into the 
legal system until our remedies within Transamerica and the ALJ 
were exhausted. When, as occurred in this case, Transamerica 
employed a tactic of non-acquiescence to the ALJ's decision, 
the three year appellate process offered no real redress. 
Today, Transamerica's approach has left Oncotech in the 
identical position in relation to future claims that we were in 
when we began the appellate process three years ago. Favorable 
ALJ decisions are meaningless to suppliers if Transamerica's 
Medical Director refuses to integrate them into subsequent 
policy. This non-acquiescence tactic was overturned in Duggan 
v. Bowen, 1998. The judge commented,

          ``It is remarkably unfair for the fiscal intermediaries that 
        make initial coverage determinations neither to take into 
        account nor to `acquiesce' in decisions made by either an ALJ 
        or the Appeals Council. Because the agency is committed to this 
        policy of internal non-acquiescence, which guts the 
        precedential value of any individual's successful appeal, many 
        plaintiffs are hit with another denial almost immediately after 
        they have succeeded in overturning an earlier coverage denial. 
        Plaintiffs are on a merry-go-round. They have a right to get 

4. Provide a Mechanism for Independent and Immediate Review of 
Erroneous Carrier Newsletter Pronouncements

    Transamerica used minutes from HCFA's disbanded TAC 
Committee as the basis for their June 1998 newsletter which 
communicated to the practicing medical community that EDR and 
the human tumor stem cell chemosensitivity assay are one and 
the same. This newsletter undermines the very core of the EDR 
technology and has affected Oncotech's credibility among its 
clients. Transamerica's newsletter is in direct opposition to 
ALJ decisions, a letter from Transamerica's Law Department to 
Oncotech, a memo from Dr. Grant Bagley of HCFA to the San 
Francisco regional office and recent Hearing Officer decisions. 
To date, Transamerica has refused to clarify or modify this 

5. Provide a Safe Harbor for Discussion of Coding and Fraud/
Abuse Questions Relating to New Technology

    Providers of new technology need assistance from their 
local carrier in questions relating to coding and fraud and 
abuse. New technologies may not fit into established mindsets. 
It is essential that a procedure be put into place for 
providers and their local medical director to openly discuss 
questions and concerns within a safe harbor. As a result of my 
participation in the Negotiated Rulemaking process for clinical 
diagnostic testing, I have been exposed to the incredible 
sophistication of Medicare's coding system and its ambiguities. 
Even large national laboratories with extensive legal and 
reimbursement departments have difficulty. Local medical 
directors must have a vehicle to deal with companies providing 
emerging technologies, as the companies attempt in good faith 
to fulfill the regulatory requirements associated with coding 
and fraud and abuse questions.

6. Define and Make Public the Criteria for Technology Coverage

    The criteria against which new technologies are measured 
should be specific and public. Criteria such as 
``investigational'' or ``experimental'' are too general. They 
represent a nebulous standard which does not guide the 
development of new technologies. Companies attempting to 
introduce new technologies are unable to identify benchmarks 
which, when reached, will assure coverage.

7. Accelerate the Appellate Process in Oncology

    Congress has provided accelerated processes for the FDA's 
approval of cancer related pharmaceuticals. Such a process for 
cancer related testing is warranted. Companies such as Oncotech 
cannot wait three years to have a coverage issue reach an open 
hearing at the ALJ level. Our country invests hundreds of 
millions of dollars each year in cancer related research. A 
local carrier medical director, operating within a closed door 
environment and dealing with technologies in which they are 
untrained, creates institutional impediments to the translation 
of research into available clinical tools. Oncology specialists 
under contract who are able to visit providers and work with 
them on a fully informed basis would be of great assistance to 
medical directors who are reluctant to leave their 
administrative bastions.
    Finally, I feel it necessary to distinguish the procedures 
followed at the national level from those discussed above. 
Specifically, we have observed that the coverage questions 
handled by the HCFA staff in Baltimore have been done in a most 
professional and competent manner. They have been accessible, 
objective and helpful. The principles of open and informed 
decision making are being followed within the Negotiated 
Rulemaking process. We must find a way to have these principles 
imposed upon local coverage issues.
    Thank you for your interest in this matter.


    Chairman Thomas. Thank you very much, Mr. Kiesner.
    Dr. Plested.


    Dr. Plested. Thank you, Mr. Chairman. My name is Bill 
Plested. I am a thoracic and cardiovascular surgeon from Santa 
Monica, California and a member of the Board of Trustees of the 
American Medical Association. Reform of the Medicare coverage 
decision and appeal process is long overdue. We commend the 
Chairman for his efforts over the last 2 years to shed light on 
the procedures employed by HCFA to generate national coverage 
decisions. We also commend the Chairman and the Ranking Member 
for enlightening HCFA regarding the difference between coverage 
policy decisions and program integrity concerns. In fact, we 
agree that HCFA's reluctance to separate its policies on 
coverage from its policies on fraud and abuse is a major source 
of the coverage policy problem facing Medicare patients and 
their physicians. Provision of high quality medical care to 
patient, not HCFA's efforts to find fraud and abuse, must serve 
as the foundation of efforts to reform the Medicare coverage 
policy process.
    Coverage decisions should be based on evidence of clinical 
effectiveness obtained from peer-reviewed medical literature 
and consultation with practicing physicians. We have five major 
concerns with the current Medicare coverage and appeals process 
and the direction of HCFA's reform efforts to date. First, 
local coverage policies should be developed through a standard, 
open, scientific process. Once developed, the new standards of 
openness, timeliness, and evidence-based decisionmaking must be 
applied to all levels of the coverage policy process whether 
local, regional, model or national. Although the physician 
community has made these points to HCFA multiple times, HCFA's 
Office of Clinical Standards and Quality has told us that it 
has no control over the local carriers. Incredibly, the 
carriers that develop coverage policies at the local level are 
accountable to HCFA's Office of Program Integrity. It is clear 
to us that if the new national standards are not applied to 
local carriers, then carrier coverage decisions will continue 
without any real standards or oversight. The AMA is not 
suggesting that all coverage policies be established at the 
national level, but there are numerous examples of flawed 
carrier policies, and a standardized process is needed. For 
example, some carriers deny Medicare coverage for preoperative 
evaluations needed to clear patients for surgery. These are not 
screening tests; they are vital to patient safety and must be 
covered. Another example is Florida's carrier's policy that 
lipid profiles are not covered for diabetic patients. This 
directly conflicts with published guidelines from the American 
Diabetes Association.
    Second, program integrity must be treated as a separate 
issue from coverage. In HCFA's outline for a new Medicare 
coverage process, program integrity was cited as one of the 
reasons for reconsideration of Medicare coverage. We strongly 
disagree. If a service is believed to be subject to fraud or 
abuse, then HCFA should find a means to target the specific 
fraudulent or abusive practice. Mr. Chairman, we understand 
that you and Mr. Stark have already written to HCFA to state 
concerns that HCFA has divided responsibility over Medicare 
coverage decisions between the Office of Clinical Standards and 
Quality and the Medicare Integrity Program; we wholeheartedly 
agree. Innovations in medical practice and technology can only 
be made available to patients if Medicare coverage policies are 
based on clinical effectiveness, not program integrity.
    Third, entry into the standardized coverage process must be 
simple. We do not support a bureaucratic FDA-type application 
    Fourth, a fair and independent appeals process needs to be 
developed. The appeals process takes far too long; involves 
over complex regulations; costs too much, and lacks a truly 
independent adjudicator. Essentially, the current appeals 
process lacks any semblance of fairness or due process. A 
timely and independent appeals process must be established 
using an adjudicator who has expert knowledge of the Medicare 
    Finally, a means should be established for appealing 
policies, not just individual claims. No vehicle exists for 
addressing problems with local, regional or model coverage 
policies. Patients can only appeal individual denials.
    In closing, the current Medicare coverage and appeals 
process is not patient-centered. In fact, there is no process. 
We have only a confusing morass of Medicare regulations that do 
considerably more harm than good to physicians' good faith 
efforts to provide high quality care to their Medicare 
patients. Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of William G. Plested III, M.D., Member, Board of Trustees, 
American Medical Association


    Mr. Chairman, Mr. Ranking Member, and Members of the 
Committee, my name is Bill Plested, MD. I practice 
cardiovascular and thoracic surgery in Santa Monica, 
California, and am a member of the Board of Trustees of the 
American Medical Association (AMA). The AMA appreciates the 
opportunity to testify on these important Medicare issues--
coverage decisions and beneficiary appeals.
    Reform of the Medicare coverage decision process is long 
overdue, and the AMA commends the Chairman's efforts over the 
last two years to shed light on the procedures employed by the 
Health Care Financing Administration (HCFA) to generate 
national coverage decisions. The AMA also commends the efforts 
of the Chairman and Ranking Member to enlighten HCFA regarding 
the difference between coverage policy decisions and ``program 
integrity'' concerns.
    In fact, the AMA believes that HCFA's reluctance to 
separate its coverage and quality of care policies from its 
policies addressing fraud and abuse is the root of the coverage 
policy problem facing Medicare beneficiaries and their 
    There is a saying that, ``when your only tool is a hammer, 
every problem looks like a nail.'' In its management of the 
Medicare program, HCFA seems to approach virtually every issue, 
whether it involves national or local coverage policy, payment, 
coding, or quality, as an issue of waste, fraud and abuse. This 
singular focus on fraud has become even more pervasive among 
the Medicare Part B carriers than it is within the HCFA central 
office. In addition to operating in an environment that places 
a premium on recovery of so-called ``overpayments,'' the 
carriers have also intensified their pursuit of fraudulent and 
abusive practices to an excessive degree to protect their 
current functions and budgets from being shifted to the new 
Program Safeguard Contractors, who are perceived competitors. 
Accordingly, even when HCFA establishes sound national coverage 
policies, these policies are sometimes subverted by local or 
regional carriers that place unwarranted constraints on covered 
    The AMA believes that our patients who are insured by 
Medicare should have access to the same clinically effective 
innovations in medical practice and technology that we are able 
to offer our privately insured patients. These innovations will 
only be available to beneficiaries, however, if Medicare 
coverage policies--whether national or local--are based on the 
relative clinical effectiveness of the innovations, not on 
``program integrity'' concerns.

   AMA Recommendations for Reforming the Coverage and Appeals Process

    Provision of high quality medical care to patients must 
serve as the foundation of efforts to reform the Medicare 
coverage policy process. Coverage decisions should be based on 
evidence of clinical effectiveness obtained from medical 
literature and consultation with practicing physicians, 
especially the national medical specialty societies. Once 
developed, the new standards, including standards of openness, 
timeliness, and evidence-based decision making, must then be 
applied to all levels of the coverage policy process, whether 
local, regional, model, or national.
    After enactment of the Balanced Budget Act of 1997, 
representatives from the AMA and selected national medical 
specialty societies met several times with HCFA staff to 
discuss development of the national coverage policies that 
would govern implementation of Medicare's expanded preventive 
benefits. We viewed the consultative process of HCFA obtaining 
the most current clinical and scientific information on 
effective preventive approaches from medical specialty 
societies as a positive development, and an example of a good 
approach to coverage policy making. In correspondence with the 
HCFA Administrator and comments on HCFA's September 25, 1998 
Town Hall meeting, we have recommended that HCFA follow a 
similar approach.
    HCFA's Coverage and Analysis Group has been generally 
receptive to our recommendations. We were pleased that the 
Charter for the new Medicare Coverage Advisory Committee (MCAC) 
indicated that MCAC functions will involve reviewing and 
evaluating medical literature, technical assessments, and 
information on the effectiveness and appropriateness of medical 
services. We were also pleased that HCFA's solicitation of MCAC 
nominations seemed to emphasize the importance of individuals 
with expertise in medical practice. In addition, HCFA's use of 
proposed rules with opportunities provided for public comment 
has allowed for significant medical input into the regulations 
governing the new preventive benefits. Nonetheless, we continue 
to have five major concerns about Medicare coverage decision 
and beneficiary appeals processes.

1. Local coverage policies should follow standards

    When the new procedural standards for national coverage 
decisions are developed, they should apply to all levels of 
Medicare coverage decision making. Although the physician 
community has made this point to HCFA consistently over the 
last two years, the Office of Clinical Standards and Quality 
continues to state that it has no control over the actions of 
local and regional carriers because the carriers are 
accountable to the Office of Program Integrity. This means that 
the new national standards will not be applied at the local 
level. We are also not aware of any HCFA plans for oversight of 
carrier development of local policies.
    The combination of a lack of enforced standards for 
carriers and the single-minded focus on fraud and abuse are a 
serious concern, especially because the carrier policies 
frequently evolve into de facto national coverage decisions. 
This is actually the purpose of ``model'' policies, which are 
policies developed by a few Medicare carrier medical directors 
(through a process viewed uniformly as a ``black box'') that 
are disseminated to other carriers for their use. With guidance 
from HCFA's Office of Program Integrity, the durable medical 
equipment carriers are also making policies that effectively 
serve as national coverage decisions, even though they were 
established as regional carriers.
    The AMA is not suggesting that all coverage policies be 
established at the national level. While some local carriers 
obtain input on proposed policies from practicing physicians 
through consultation with their carrier advisory committees, 
local policies often are simply based on a statistical analysis 
of claims that indicates a higher frequency of a particular 
procedure code than the national average. As the following list 
illustrates, numerous examples are available of local policies 
that directly conflict with the views of practicing physicians 
about good standards of medical care:
     The April 19 Washington Post (p. 2) indicates 
that, despite Medicare coverage of preventive services, many 
beneficiaries are not getting needed preventive care. One 
example cited is the low percentage of elderly patients with 
diabetes receiving blood lipid tests. What the article fails to 
note, however, is that at least one Medicare carrier, which 
handles the state of Florida, published a local coverage policy 
for blood lipid tests in its July/August 1997 bulletin 
indicating that diabetes is not among the covered diagnoses for 
these tests. This policy is in direct conflict with published 
guidelines from the American Diabetes Association and, in 1999, 
physician claims for lipid tests are still being routinely 
denied for diabetic patients in Florida. The carrier cites as 
its rationale that the procedure codes for lipid tests ``have 
been billed substantially more in Florida than at the national 
level for multiple specialties. Further analysis of the data 
indicates that these procedure codes ... are being billed with 
diagnoses that do not support medical necessity.''
     The primary focus of the Post article is 
preventive care exams. HCFA did not accept repeated advisories 
from the AMA, however, that it was not sufficient for 
regulations on the new preventive benefits to address only 
specific screening tests, but that they needed to clarify 
Medicare coverage for visits where physicians counsel patients 
about risks and benefits of preventive care. Given HCFA's lack 
of national guidance on coverage for preventive visits and its 
overzealous pursuit of fraud, it is not surprising that many 
carrier policies are developed specifically to reduce the 
number of covered Medicare claims for physician visits. For 
example, the New York carrier, citing an Office of the 
Inspector General report that ``Medicare should not be paying 
for 30% of all physician services claims,'' is routinely 
denying claims for physician visits to skilled nursing home 
patients. Even after obtaining documentation showing that the 
visits were needed to control heart failure (potentially 
avoiding hospital admissions) or treat skin rashes, claims for 
visits are denied as not medically necessary and no more than 
one nursing home visit per month is covered.
     It is standard clinical practice in urology to 
give a man who complains of lower urinary tract symptoms a 
prostate-specific antigen test (PSA). In many localities, 
patients have no idea if the test will be covered because 
Medicare's coverage policy depends on the test result. 
Moreover, nearly half the carriers will not pay for the test if 
the diagnosis turns out to be enlarged prostate.
     Previously, Medicare covered removal of pre-
malignant skin lesions (actinic keratoses) by any method, but 
in 1996 the Florida carrier instituted a local policy 
restricting coverage only to certain lesions. Lesion removal 
was considered medically necessary only if the lesions were 
symptomatic, on certain parts of face, or if the patient had a 
particular medical history or condition. The carrier ignored 
information provided by dermatology specialty societies and 
implemented a policy totally contrary to the standard of care. 
The problem was then compounded when a carrier workgroup was 
formed and the restrictive lesion removal policy became a 
``model'' policy for use throughout the country.
     In some localities, claims for the physical 
evaluation necessary to clear patients for anesthesia and 
surgery are being denied as noncovered because ``Medicare does 
not cover screening services.''
     Monitored Anesthesia Care (MAC) is a form of 
anesthesia care that involves close monitoring of sedated 
patients who may need to either be placed under general 
anesthesia or revived, and it is intended to be covered just 
like general or regional anesthesia. A large number of carriers 
adopted a policy limiting MAC coverage to certain diagnoses. 
Coverage was denied for a number of important services for 
which anesthesia is clearly a requirement, such as breast 
biopsies and pacemaker insertions. Although some carriers have 
subsequently abandoned the policy due to concerted 
informational campaigns by anesthesiologists, uneven coverage 
across localities is likely to persist.
     As part of the randomized clinical trial of Lung 
Volume Reduction Surgery, HCFA decided that all patients, 
including those chosen for surgery and those receiving only 
non-surgical care, must receive pulmonary rehabilitation 
services. For those Medicare beneficiaries who are not in the 
clinical trial; however, coverage of pulmonary rehabilitation 
varies widely across localities. If HCFA believes that 
pulmonary rehabilitation is effective, then it should be a 
covered service for the other patients that would benefit from 
     In many localities, carriers establish arbitrary 
limits on psychotherapy services, even though the Congress has 
not limited the number of Medicare-covered psychotherapy 
services for psychiatric patients.

2. Program Integrity should be treated as a separate issue from 

    In HCFA's outline for a new Medicare coverage process, 
which was provided prior to September's Town Hall meeting for 
public review and comment, ``program integrity'' was cited as 
one of the reasons for reviewing Medicare coverage policies. A 
comment letter submitted by the AMA and more than 30 national 
medical specialty societies stated that program integrity 
concerns should not be a reason to discontinue or reconsider 
Medicare coverage for a beneficial patient service. If a 
service is believed to be subject to fraud or abuse, then HCFA 
should find a means to target the specific fraudulent or 
abusive practice.
    We also stated objections to the HCFA suggestion that 
coverage policies be reviewed or reconsidered for services that 
represent a significant expense to the Medicare program, even 
if the medical effectiveness of the services was not 
demonstrated prior to Medicare coverage. In fact, if a service 
is being frequently provided, the most likely explanation for 
its high utilization rate is that physicians consider the 
service to be very beneficial for their patients. Too often, as 
noted in some of the above examples, local carriers decide to 
limit Medicare coverage for services solely because the 
frequency of service provision differs from average, 
``normal,'' or ``expected'' utilization. While HCFA may 
continue monitoring information about clinical effectiveness as 
it becomes available and, based on new evidence or research, 
decide to revisit previous coverage decisions, frequency of use 
alone is not an appropriate reason to limit or withdraw 

3. There should be no application process

    HCFA should engage in an ongoing effort to stay abreast of 
new developments in medical practice and technology, working to 
ensure that Medicare's coverage policies provide patients with 
access to all reasonable and necessary diagnostic, therapeutic, 
and preventive medical services. Instead, HCFA seems inclined 
to have the first step in its coverage policy process be the 
submission of an ``application'' for coverage, similar to the 
Food and Drug Administration procedure. The AMA believes that 
such a process would likely preclude small groups of 
beneficiaries and physicians, or any entity with limited 
resources and experience in the coverage process, from bringing 
forward promising innovations for Medicare review. Even if 
those with fewer resources manage to complete the application 
process, HCFA is more likely to devote necessary resources to 
reviewing applications from large corporate entities than, for 
example, a new diagnostic or surgical procedure developed by a 
small medical group.

4. A fair and independent appeals process should be developed

    The process of appealing denied or downcoded claims takes 
far too long, is not geared to address the voluminous and 
complex regulations governing the Medicare program, can be far 
more expensive to pursue than the amount that is actually in 
dispute, and, even if a beneficiary or physician pursues an 
appeal to the highest level, there is no ability to get an 
independent judgment. Timelines should be established and 
enforced. Judges and others involved in the appeals process 
should be required to have expertise in Medicare, not Social 
Security, which is the topic with which the current 
administrative law judges hearing Medicare appeals are most 
familiar. So-called ``fair hearings'' are not really fair 
because the hearing officers are employed by the same carriers 
that deny the initial claims. Many physicians fear even 
requesting a fair hearing, out of concern that carriers may 
view physicians who appeal as ``troublemakers'' and, therefore, 
that carriers may begin scrutinizing their claims even more 
closely. Also, the final level in the decision process should 
not be the Department of Health and Human Services. As with 
other legal questions that are resolved in U.S. courts, there 
should be a means for obtaining a judgment on appeal that is 
independent of the agency involved in the initial claim denial.
    Often physicians also have no meaningful opportunity to 
appeal claims that have been downcoded or denied based on a 
carrier audit. When claims are subjected to postpayment audits, 
for example, physicians are given three options for responding 
to the carrier. In order to accept two of the three options, 
physicians must waive their appeal rights. The third option 
preserves the right to appeal, but physicians choosing this 
option must subject their practices to a carrier audit of a 
Statistically Valid Random Sample (SVRS) of claims. An SVRS can 
cause monumental upheaval and disruption for a practice, even 
bringing office operations to a complete halt, as well as 
leading to expensive legal bills.
    Essentially, the current appeals process lacks any 
semblance of fairness and due process.

5. A means should be established for appealing policies, not 
just individual claims

    The coverage policy notices that HCFA has published over 
the past 18 months provide good avenues for requesting 
reconsideration of proposed national coverage policies, 
although the AMA does not believe that it is necessary for HCFA 
to go through notice and comment rulemaking for every national 
coverage decision. We anticipate that HCFA will continue to 
provide vehicles for commenting on and seeking revisions in 
national coverage policy decisions, and this process should 
become even more effective with the formation of the MCAC.
    No similar vehicles exist, however, for addressing problems 
with local, regional, or model coverage policies. Under the 
current system, if a carrier establishes a bad coverage policy, 
beneficiaries have no vehicle for appealing the policy 
decision, they can only appeal individual denials. Moreover, 
the outcome of any given appeal sets no precedent for other 
appeals, so the potential exists for a perpetual cycle of the 
same issue being questioned on the same basis over and over 
again. In fact, HCFA does not even consider the policies 
developed by local and regional carriers as Medicare coverage 
decisions, but instead HCFA views them as program integrity 
policies. This conflict between coverage and ``program 
integrity'' must be resolved if patients and physicians are to 
have confidence in the overall integrity of the Medicare 
    Beneficiaries and their physicians should be able to offer 
input into and appeal all coverage policy decisions, not just 
national decisions.


    The current Medicare coverage and appeals process is not 
patient-centered, but instead is part of the confusing morass 
of Medicare regulations that do considerably more harm than 
good to physicians' efforts to provide high quality medical 
care to their elderly and disabled patients. The AMA applauds 
the Committee's interest in reforming this process. On behalf 
of the AMA, I offer you our services in working further with 
the Committee and the Congress to effectively address these 
important matters. Thank you again for the opportunity to 
testify today.


    Chairman Thomas. Thank you very much, Dr. Plested.
    This is a little off the mark, but since it was volunteered 
by my colleague from California, if you have a reaction, I 
would like some response to it or if you are familiar with it 
or especially if any of your organizations have a position on 
the idea, that a number of folks wonder why we have to go 
through FDA and then to a certain extent duplicate the process 
in going through HCFA, although there was an attempt to explain 
that they really are different. Some of the explanation, to me, 
wound up as a distinction without a difference or a very easily 
contracted extension of FDA reviewing it and not two separate 
processes in both the question of whether or not if is safe, 
and, two, is it efficacious? Do you think that the idea that it 
might be combined in one step makes sense? I mean, anytime I 
can eliminate the bureaucratic steps--if you haven't thought 
about it, if it is new to you or you are focusing primarily on 
HCFA and its appeals process rather than the larger question, 
it just seems to be especially in the areas of medical devices 
in which we are moving relatively rapidly in change, that this 
might be something that would be useful. Anyone wish to 
    Mr. Rosebrough. Just one quick comment. I don't think HIMA 
has a stated policy at this point, so for HIMA I don't think 
there is any, but the concern that I am sure that both they and 
I would express is the local coverage policy issue is one that 
we endorse. We think the diffusion of technology is enhanced by 
having the ability for local coverage decisions, and if you 
move that to the FDA, I am sure we would--I am not sure it 
makes much difference which of the two agencies attack that as 
long as they are funded appropriately and can get at that 
issue, but if you move it to the FDA, we would want to make 
sure that there was some local coverage capability in addition 
to the national coverage decisions.
    Mr. Kiesner. I have a little different perspective. I think 
if you look at it from the point of view of timeliness, there 
are a number of new therapies that are now being developed that 
are targeted toward specific genetic and other molecular 
conditions within the cancer patient. If you take the time to 
have the FDA approve those therapies and then add another 2 or 
3 years on top of that, it makes no sense, and the scientific 
data, the clinical studies, and so forth, that are used to 
validate the approval by the FDA are directly related to what 
medical conditions Medicare should pay for.
    Chairman Thomas. I believe I am correct on that point that 
if FDA approves pharmaceuticals, they will be reimbursed by 
HCFA, but I am just thinking that more and more it is a 
combination of the drugs, as you say, therapies, which are a 
combination of a number of items not just the drugs themselves, 
so that that would be a potential--timeliness was a theme 
through all of your arguments within the structure.
    The gentlewoman from Connecticut indicated that the 
Department of Labor said 15 days was appropriate. We are 
sitting here trying to get the government to respond in 60 days 
or 30 days, but it just seems to me that somewhere between 400 
days and 30 days, there is a number that is appropriate both 
for a timely review process and for an expeditious decision, 
and I won't pin you down for the number of days, but my guess 
is in the decisions that you folks have to make, they are more 
often on the 30-, 60-, 90-day timeframe and not the 400-day 
timeframe. Is that a reasonable assumption?
    Mr. Rosebrough. That is a very reasonable assumption.
    Chairman Thomas. I thank the gentleman. Does the 
gentlewoman from Florida have any questions?
    Mrs. Thurman. Mr. Chairman, or maybe one of the panelists 
can explain this to me. Generally, I found in government that a 
lot of the times we implement things because we think there is 
a problem out there, and then we stretch it a little and then 
these kinds of things result from this. I wasn't here in 1982, 
and it sounds like some of you have had some experience with 
this, and maybe Mr. Chairman or somebody--what do you think 
created these steps in the first place? How did we get here 
today? Somehow, I am missing something, I mean, especially with 
the fraud and abuse going there. I mean, I don't know, and if 
somebody could help me with that, I would be very appreciative.
    Dr. Plested. I will be happy to take a stab at that.
    Mrs. Thurman. And I would appreciate it, and if you can't, 
we will try to find somebody that can, but it just seems 
alarming to me that I am missing something, because we don't go 
out looking for trouble, generally.
    Dr. Plested. I am sure the Chairman can tell you, there are 
basic, fundamental flaws in the Medicare Program, and the 
tendency is to kind of not bite the hard bullet and look at the 
basic, fundamental flaws and to look at something simple like 
the Fraud and Abuse Program that bludgeons physicians and 
hospitals, and this is added to by the fact that during this 
period of time we have had two phenomenal explosions. One is 
the size of our Medicare population, and the other is the 
technology that you hear about, and if you put these all 
together, we are looking at the fact that we have got to get 
the basic, fundamental reform. In the meantime, we have to 
protect today's beneficiary, and that is what we are all 
talking about; how do we best do that today while we, 
hopefully, get back to the question of fundamental reform?
    Mrs. Thurman. Do you think there is something in here that 
could create a problem that seems to be the reason there is so 
much resistance to change? I mean, maybe I should have asked 
HCFA that, but I am just--maybe you all can help me with it--
but I am just curious as to why they seem so adamant or trying 
to change but still have some concerns?
    Mr. Rosebrough. I think none of us by nature look for 
external review of our work, and, you know, whether you are in 
the private sector of public sector, getting an external review 
is always a painful experience.
    Mrs. Thurman. Yes, it was.
    Mr. Rosebrough. It is my experience that getting--in our 
position, the marketplace gives us our second opinion pretty 
quickly, and we have to react to it. That is a painful 
experience, but it is fruitful for all the parties involved. I 
believe not having an appeals process with some external 
pressure to it creates a situation where that if I were 
probably a member of HCFA, I would not be looking for external 
help either, but I think it is often an appropriate situation.
    Mr. Kiesner. You know, I think that the answer to what you 
ask may be related to really, what do you believe? And if you 
believe that the Medicare Program is on a road to financial 
debacle; if you believe that the way to save the program is 
through denying your claims; if you believe that the providers 
are basically out to exploit the system, you are going to have 
one logic, one structure. On the other hand, if you believe 
that Medicare has a duty to the patients; if you believe that 
the role of the carrier is to determine ineffective from 
effective therapy, and if you believe that basically physicians 
and other providers are people of integrity and they just want 
to exercise their best judgment, then you are going to have a 
totally separate system.
    Mrs. Thurman. From a standpoint of the carriers--and one of 
you talked about how the system--you know, we ought to get the 
carrier to have to stay with whatever the decision is, but, at 
the same time, one of you said that generally when you go 
through this--I guess it was on the----
    Mr. Rosebrough. The administrative law judge?
    Mrs. Thurman. That they actually were kind of going with a 
carrier when they made the decision. Is there a bottom line 
money issue? I mean, probably what you asked me or said about 
what your philosophy is, but on the other side of it, I mean, 
is there--particularly as our health care changes and how we 
get our moneys into the pockets and those kinds of things--is 
there a part of that going on because of the cost of new 
initiatives that you think maybe some of this is being stopped 
at least from those local folks?
    Mr. Rosebrough. Well, of course, there is both money and 
clinical practice decisions being made at all the places in the 
system, and people are trying to, I believe, in general, do the 
best job they can in doing that. What we need to have is some 
certainty that we lay out a set of rules; we work by the set of 
rules; we live by the set of rules; get good comments on that 
set of rules, so when making those decisions in an open forum--
because everyone is trying--in my opinion, 90 percent of the 
people doing this work are trying to do the best thing for what 
they see as good for the Nation and patient, and the issue is 
getting a nice, clean set of rules that works rapidly; gets 
good public comments, so we can make those decisions in an 
appropriate forum.
    Mrs. Thurman. OK, thank you.
    Chairman Thomas. The gentlewoman from Connecticut wish to 
    Mrs. Johnson of Connecticut. HCFA has acknowledged that 
national coverage determinations are not generally appealable 
so that if you aren't satisfied with a national coverage 
decision, you can appeal it to the Medicare Coverage Advisory 
Commission. Is that satisfactory? I don't want a long answer; I 
want a short answer, just in your view, because I have other 
    Mr. Rosebrough. We don't believe so, no.
    Mrs. Johnson of Connecticut. OK. Anyone think it is? Now, I 
don't think it is either, clearly.
    When you look at FDA and HCFA, are there any 
recommendations you would make to bridge that gap?
    Dr. Plested. Mrs. Johnson, currently, that changes FDA's 
mission, and the thing that we would keep coming back to is 
that we must have a standardized process. The process being 
scientific and open, and so forth, is what is really important. 
The players in the process could change, and there certainly 
could be a place for FDA in this, but what we need from them 
doesn't fit their current mission, and----
    Mrs. Johnson of Connecticut. Having dealt with both FDA and 
HCFA, are there any reasons why we should automatically cover 
whatever FDA has certified?
    Dr. Plested. Absolutely not.
    Mrs. Johnson of Connecticut. What about the national 
guidelines? More and more of the big companies, the managed 
care companies, are using specialty-developed guidelines for 
asthma management, cardiac management, diabetes, and these are 
pretty well out there. Should we be looking at when the 
majority of private sector companies have adopted certain 
guidelines that Medicare would automatically adopt those? Would 
that help?
    Dr. Plested. Possibly, but, again, you would need to have a 
process, and that process could certainly include other 
entities who have gone through a similar process and reached 
the conclusion. As long as your process says that you need to 
have a thorough review of the science and open input and 
everything else, someone who brings you a work product 
developed by a similar process could certainly be accepted, 
    Mrs. Johnson of Connecticut. And that is the thing, just 
like they did in JCAHO and things like that. Should we 
repeating the process if it has been gone through and it has 
been solid enough so that a majority of actors in the health 
care service sector are providing it? I mean, how do we define 
that group of decisions that the government should not be 
    Mr. Kiesner. I think our experience is that that is very 
difficult, because there is wide diversity within the 
commercial sector between guidelines that their institutions 
would adopt, whether it is a cancer center or whether it is a 
payer, and there still has to be some way to integrate all 
those into a final decision that is meaningful.
    Mrs. Johnson of Connecticut. Should there be a shorter 
timeframe for decisions in which there has been a lot of 
national activity?
    Mr. Kiesner. I think there should be, and I think the real 
question is how do you select those subjects that are raised to 
the national level? And I think that the people in Baltimore 
are working hard to get the process defined and in place in 
order to deal with those things more quickly.
    Mrs. Johnson of Connecticut. In your experience, is there a 
way we could keep an overview of the local decisions that are 
made and when there is a critical mass of decisions in a 
certain area, pop that up to the national level, so there would 
be greater uniformity?
    Mr. Kiesner. I think that that is a little difficult today, 
because there is so many cows that are out of the barn, so to 
speak. On the other hand, if we are looking at new technology 
that is as complex and sophisticated as found in the field of 
oncology, it makes a great deal of sense to have it go to a 
national policy decisionmaking body, and do it much earlier 
before you get the diversity.
    Mrs. Johnson of Connecticut. Well, particularly in these 
illnesses in which we are really doing a lot of research and 
the techniques of diagnosis and treatment are changing rapidly, 
do we really want to put ourselves in the position of the 
Federal Government going through a panel and science all over 
again or if the oncologists have decided that this has promise 
and it is available to the working people of America under 65, 
is there a point at which, particularly in these cutting edge 
things, that we ought not to say--I mean, that has been the 
problem with clinical trials. If that is your only option and 
you are going to die, why should you at 65 or 68 or 75 or 85 
not have the same option of getting to that care as somebody 
covered in one of our employer programs, many of which provide 
coverage of clinical trials? So, I think we need to think of 
how we can radically simplify this process.
    One of the things that has destroyed Medicare in my 
estimation--and I think it is a system in systemic collapse--is 
the explosion of medical actions that can be taken. They cannot 
price them; they cannot follow them; we can't do this. So, we 
have to find a way to make this whole process of coverage 
decisions far more state-of-the-art and timely, and I 
appreciate your good testimony today; it was really impressive.
    Dr. Plested. Mrs. Johnson, could I comment on one further 
thing about that, because I certainly do agree with you, and it 
comes back, again, to the point of having a standardized, 
uniformed process by which the decision is made. We certainly 
can't overwhelm HCFA with making all the decisions, but we have 
to know that the local carriers follow a process that is 
reasonable, so that then that can go on up.
    Mr. Rosebrough. And that process is committed to and 
followed as opposed to just being published.
    Mr. Kiesner. And that there is an appeal oversight aspect 
to the procedures that have teeth.
    Chairman Thomas. And I still can't--and, as I said, we got 
this today, finally, and I am pleased we announced the hearing 
so we could get it. I believe it was a coincidence that it was 
released today; keep forgetting that. [Laughter.]
    I just do not understand--and we are going to continue to 
push--there is no reason it isn't transparent. There is no 
reason why we can't use, heavily, third-party input early in 
the process so that they can't say they didn't know. We have 
got to break this argument that all expertise resides in-house, 
and that, ultimately, they are the ones who control.
    Because what bothers me the most about this process, when 
you begin to look at it, is that this whole business of local 
review looks a whole lot more like the IRS procedure used to 
than I want it to; that it looks a lot like cost control, and 
it isn't really in the interest of the beneficiary, but too 
many people knee-jerk in terms of the government structure 
thinking that our review process is better than theirs, that 
is, government versus the private sector, and I am absolutely 
convinced it is not; it is the beneficiary who is suffering. 
They are suffering because there is inconsistency of the best 
medical practice applied. There are people who are trying to 
provide services who are being shorted funds, because it is not 
just weeks or months before you wind up getting a decision to 
be paid; it is months and years, and that is just simply wrong.
    So, I appreciate your willingness to come forward. I do 
wish you will take a look at this process. There is no question 
it is better than the old one. The question is, is it good 
enough the way it has been presented? And if we are going to 
have a chance to review it and make some changes, let us do it 
as good as we can, so I would appreciate it if you would get 
back to us, especially if you are going to respond to the 
notice. I would like to have a copy of what you have sent, and, 
if you are not, as I told the other panel, I would love to have 
your ideas as well, because if it is good, we are going to move 
it; if it isn't, we are going to try to change it. And I 
appreciate very much your testimony.
    [The following was subsequently received:]
              Health Industry Manufacturers Association    
                                       Washington, DC 20005
                                                      July 19, 1999

Jeffrey Kang, MD
Office of Clinical Standards and Quality
Health Care Financing Administration
Baltimore, MD 21244

RE: Federal Register Notice; Procedures for Making National Coverage 

    Dear Dr. Kang:

    On behalf of our more than 800 members, I would like to thank you 
for your efforts in preparing the recent Notice, which sheds light on 
the process the Health Care Financing Administration (HCFA) will use to 
make national coverage decisions for the Medicare program (64 Federal 
Register, No. 80, pages 22619-22625, April 27, 1999).
    The Health Industry Manufacturers Association (HIMA) is a 
Washington, D.C.-based trade association and the largest medical 
technology association in the world. HIMA represents more than 800 
manufacturers of medical devices, diagnostic products, and medical 
information systems. HIMA's members account for nearly 90 percent of 
the $62 billion of health care technology products purchased annually 
in the United States, and more than 50 percent of the $147 billion 
purchased annually around the world. We at HIMA know that you share our 
view of the importance of the Medicare coverage process. Medicare 
coverage means patient access to state-of-the-art medical care for our 
most vulnerable citizens. If the coverage process is not clear, if it 
results in unnecessary delays, if it is not sensitive to the medical 
innovation process, beneficiaries will pay the price--appropriate care 
will be denied or unduly delayed, and medical progress will be 
inhibited. We are pleased to see that this Notice contains a number of 
specific steps to make the national decision making process more open 
and understandable to the public, that it explains the way the new 
Medicare Coverage Advisory Committee will assist in this process, and 
that it makes an attempt to give the public a sense of how long the 
various elements of this process will take.
    We at HIMA appreciate the frank and open dialogue we have had with 
you for the past year concerning the need to modernize the Medicare 
coverage decision making process. HCFA has clearly made progress in 
initiating reforms in this area, and we submit these comments in the 
hopes that you will further refine and formalize these first coverage 
process reforms, and that you will consider putting in place certain 
steps not contained in the April 27 Notice.
    Our comments reflect two key concerns. First, we are concerned that 
the national decision making process is too long. Indeed, the review 
process set forward for at least many technologies in the Notice 
exceeds their product life cycles. We have a number of suggestions on 
how to speed the time it takes to review new technology and make it 
available to Medicare beneficiaries. Second, we have suggestions on 
additional elements to include in the national coverage process that we 
believe will strengthen it. In addition, we have noted a few suggested 
clarifications or refinements to the items contained in the April 27 
    HIMA has the following recommendations for accelerating the time 
frames associated with the national coverage review process:
     In modernizing the Medicare coverage process, HCFA should 
focus on the time it takes to fully integrate a new medical technology 
into the Medicare program, not merely on discrete steps in the process. 
HCFA should measure (and report on) its performance by measuring the 
total time it takes to complete the coverage, coding, and payment 
processes, as well as the various components of these processes. In 
addition, HCFA should, within one year of implementation of the April 
27 Notice, set forth specific time frames for completing these 
coverage, coding, and payment processes. Despite the time frames 
specified in the Notice for certain elements of the national coverage 
process, the task of bringing a new technology into the Medicare 
program +and making it available to beneficiaries is too lengthy. The 
Notice sets forth time frames that will take close to a year for the 
most non-controversial reviews, and at least two (and perhaps three or 
more) years for more controversial matters. Patients deserve prompt 
access to needed medical treatments. It is unrealistic to expect this 
process to consume this much time after a technology has been approved 
or cleared for marketing by the U.S. Food and Drug Administration. 
Measuring performance (and making the findings available to the public) 
should serve as a management tool to help ensure that the coverage, 
coding, and payment processes are coordinated and proceed in a timely 
way. Further, we believe that, once HCFA has had experience with 
implementing the new coverage process, it will be able to set specific 
time frames for the coverage, coding, and payment processes.
     HCFA should specify a 45-day period during which it will 
determine whether to accept a formal request for a national coverage 
decision. The Notice currently specifies that the national coverage 
review process does not begin until a formal request has been filed by 
a requestor and accepted by the agency. Acceptance by the agency starts 
a series of time frames. The Notice states that: ``If we determine the 
request is adequately supported, we will accept the request and begin 
our review process.'' The Notice provides no certainty concerning how 
long it will take the agency to review a formal request and determine 
whether or not it is in order. We suggest that the formal submission of 
the request should trigger the beginning of the review process and the 
time frames set forth in the Notice. Further, we suggest that the 
agency specify a period-up to 45 days, one-half the current 90-day 
period set forth in the Notice-to determine whether the request is in 
order. If the request is accepted, all time frames specified in the 
Notice should be initiated from the date the request was received by 
the agency. If the request is not accepted during the 45-day period, 
the review process time frames are not begun. This is the current 
practice used by the Food and Drug Administration in considering 
whether to accept medical device Pre-Market Applications for filing.
     HCFA should take steps to ensure that any referrals it 
makes for MCAC review or for technology assessments are completed 
within time targets specified by the agency. While the Notice provides 
certain elements of the review process with time frames, none are 
specified for the time an MCAC review will take. (The Notice states 
only that HCFA expects the review will proceed ``as expeditiously as 
possible.'') In addition, the Notice informs the public that technology 
assessments may take anywhere from 90 days to a year, and perhaps 
longer. When HCFA makes a referral, it should specify a time frame 
within which it expects a response.
     HCFA should clarify the situations under which MCAC may 
request a technology assessment. The Notice indicates that both HCFA 
and MCAC have the prerogative of requesting a technology assessment. We 
are concerned that situations might arise where both HCFA and MCAC 
might request assessments, or disagree with respect to the need for an 
assessment. Our reading of the Notice is that MCAC might well request a 
technology assessment during the course of its review of a technology, 
and then resume review once a technology assessment has been completed. 
Given the time that might be associated with such assessments, and 
their impact on the time it might take to complete the coverage review 
process, we request more clarity on the circumstances under which 
referrals for technology assessments will take place.
     HCFA should streamline the coding and payment processes 
associated with the review of new technologies by assigning temporary 
procedure codes (where no codes exist). For example, HCFA could assign 
a code when a request for a national coverage decision is made and 
accepted by the agency. HCFA's coverage, coding, and payment processes 
are not coordinated, and their current operations slow the integration 
of new medical technologies into the Medicare program. Assigning 
temporary procedure codes (where none exist) at the start of the 
national decision making process would eliminate one hurdle to speedy 
implementation of coverage decisions. The Notice provides 180 days to 
put in place systems to carry out coding and payment determinations 
with respect to the newly-covered technology-effectively delaying 
beneficiary access after a national coverage decision has been made. We 
also have concerns that the separate processes by which HCFA makes 
decisions on which procedure code is appropriate for a given 
technology, and which payment level is adequate, are in need of 
modernizing as well.
     HFA should avoid unnecessary delay in making covered 
technologies available to beneficiaries by eliminating the 180 day 
period the Notice provides to implement national coverage decisions. 
Coding and payment matters can be handled more expeditiously than 
provided for in the Notice. There is no need to delay patient access to 
a new medical technology for a period that will take more than six 
months (and more likely eight or nine months) after the agency has 
determined that it is ``reasonable and necessary'' and should be 
covered. HCFA's coverage, coding, and payment regimes should be 
streamlined, operate concurrently, and provide more timely beneficiary 
access to covered services. Instead of delaying beneficiary access to 
newly-covered technologies for 180 days to allow for new payment 
systems to be put in place, HCFA has tools available to make the 
covered items available as soon as the coverage determination has been 
made. For example, HCFA could take action that would permit contractors 
to hold claims for newly covered items and bill later when new payment 
systems have been established. It could also make use of new methods 
for determining interim payment amounts to reimburse providers (in 
place of current inadequate methods which include gap fill and 
arbitrary assignment into existing payment categories, like DRGs) until 
final payment levels have been set. Further, it could require 
contractors to accept temporary codes and process them manually until 
new systems become available.
    In addition, HIMA recommends that the coverage process described in 
the April 27 Notice be amended to address the following:
     HCFA should recognize that the descriptions set forth in 
the April 27 Notice serve as a starting point for modernizing the 
coverage process, and that revisions need to be made that make more 
firm commitments to the public. The Notice contains a general 
description of the coverage process, but does not really define it. The 
Notice's descriptions of the coverage review process and its component 
parts repeatedly use terms like ``generally,'' ``usually,'' or 
``ordinarily'' to explain operational procedures. Firm commitments are 
not made. We believe that the process should be made more certain and 
predictable, and that the lack of commitment that characterizes the 
April 27 Notice should be replaced with more certain processes as the 
agency responds to comments, such as these, and as it gains experience.
     HCFA should permit those requesting national coverage 
decisions to meet early in the product development process to reach 
collaborative agreements with the agency as a means to expedite 
decision making. We believe that HCFA should build into the national 
coverage process the opportunity for a product sponsor to meet with 
coverage policy staff for the purpose of reaching agreement on the 
requirements needed to secure Medicare coverage approval (e.g., 
requirements regarding the type of evidence the product sponsor may 
develop, as well as protocol design). This meeting should be available 
early in the product development process-prior to FDA approval or 
clearance-in order to lay out the agency's requirements for securing 
approval in the coverage review process. We recognize that these 
meetings will require the agency to commit its resources, but we 
believe those resources will produce savings down the road as the 
agency reviews the information produced by the requestor.
     Reforms in the coverage decision making process should be 
made applicable to local medical review policies developed by local and 
regional contractors (i.e., carriers, intermediaries, DMERCS, and 
Medicare Integrity Program contractors). Medical device innovation is 
characterized by continuous, incremental improvements, based on the 
feedback of medical professionals who use these technologies in actual 
clinical settings. The local coverage process is especially well suited 
to evaluating innovative medical technology. While we recommend that 
reforms be made at the local level, we need to emphasize that the 
current ratio of local to national decisions serves the system well. 
This emphasis on local decision making offers important flexibility to 
the system that needs to be preserved. Further, local decision making 
is in some ways more economical to administer and helps to ensure that 
new technology does not diffuse until it is well accepted. We believe 
that HCFA should require that reforms at the national level that are 
designed to make the decision making process more open and 
understandable to the public be implemented at the local and regional 
levels as well. For example, the public should be able to make 
suggestions for local coverage determinations, time frames for review 
should be put forth, the review process should permit public 
participation, and the rationale for decisions should be made available 
(with contractors responsible for responding to public comments 
received). In addition, meetings of local carrier advisory committees 
should be opened to the public (including providing advance notice of 
meeting dates and agendas). Further, in situations where some or all of 
the contractor medical directors jointly create working groups, their 
discussions should be open to the public. Any working groups should be 
specifically identified on the agency's web site, and meeting agendas 
for the groups should be posted as well. Proposed policies developed by 
joint working groups should be taken through the local policy 
development process. HCFA should require these openness, transparency, 
and public participation objectives for the local and regional coverage 
process as it negotiates and finalizes contracts with carriers, 
intermediaries, and DMERCs each year. We would expect that contractors 
would seek to achieve these objectives in equally effective--yet 
diverse--ways, tailored to local conditions. We also believe that HCFA 
should provide access to these contractors (and their procedures) on 
its web site.
     HIMA requests the following actions to clarify our 
understanding of the Medicare coverage process:
     HCFA should specify a time period-no longer than 60 days-
during which it will make a coverage decision after receiving a 
technology assessment. The Notice specifies that HCFA will make a 
decision within 60 days of receiving advice from MCAC; no comparable 
time period is set out for decision making should HCFA request and 
receive a technology assessment directly. We believe that this was an 
oversight, and we suggest that HCFA clarify the time frame for making 
coverage decisions after receiving a technology assessment.
     HCFA should make it clear to its contractors that their 
authority for making local and regional coverage decisions are not pre-
empted by the initiation at the national level of the coverage decision 
making process. Most coverage decisions are made at the local and 
regional levels. Current policy is that Medicare's local and regional 
contractors have authority to make coverage decisions absent an extant 
national policy. In order to avoid confusion and to guarantee that 
contractors carry out their responsibilities in a timely way, HCFA 
should make this policy clear to its contractors. Given the long times 
associated with national decision making, it is important to ensure 
that the local and regional processes remain responsive to requests for 
coverage decisions.
     HCFA should provide additional time for the public to 
prepare evidence for MCAC. The Notice specifies that all evidentiary 
presentations before MCAC must be submitted in writing at least 20 days 
prior to MCAC meetings. MCAC meetings themselves are announced in the 
Federal Register 30 days prior to meetings. This leaves only 10 days 
for an interested party, who may be a product sponsor, to prepare and 
submit material for MCAC consideration. We believe that this short time 
period was unintended, and we urge HCFA to provide a more reasonable 
time period in its place.
     HCFA should provide further guidance to the public on how 
to participate in the coverage process. In particular, HCFA should 
consider expanding the Notice in the following areas:
     Notice of a request for technology assessment. When HCFA 
seeks a technology assessment, posting a notice on its web site would 
allow interested parties to comment on the scope and direction of the 
request, submit information that may be useful in the assessment, or 
even conduct studies or investigations that will prove useful in 
parallel to the assessment.
     Notice of issues on which HCFA would like input. When HCFA 
initiates its review of a service or item for coverage, it should do 
more than acknowledge that it has received a request. Through a posting 
on its web site, the agency should let the public know what data it 
has, and where it has questions that it would like answered. By doing 
so, interested persons will be able to help by supplying information 
that addresses the agency's concerns.
     The use of interactive techniques for collecting public 
input. HCFA should describe its plans for using town hall meetings and 
other techniques for encouraging interactive dialogue on the complex 
issues that surround coverage decision making.
     A commitment to respond to comments. Replies to comments 
accomplish two objectives-they educate the public regarding how the 
agency resolves the issues, and they encourage public participation by 
showing that the agency is listening.
     A description of the process HCFA plans to use to develop 
guidance documents. While the agency may be planning to address the 
process for developing guidance documents in another vehicle, we did 
not want to miss the opportunity to observe just how important it will 
be for the agency to spell out the public process it will use to 
develop these documents. FDA has a good model, which it has published 
(see 62 Federal Register 8961, February 27, 1997).
     National Non-Coverage Decisions should be issued only 
where clear evidence exists to support this action. HCFA should 
understand that early in the life of a new technology, the quantity and 
quality of information that is available regarding the technology may 
be in short supply, and not sufficient to support a favorable national 
coverage decision. HCFA should refrain from making a National Non-
Coverage Decision in these instances, because such a decision will 
prevent local and regional contractors from covering the technology and 
developing useful information concerning its impact on patient well 
being. HCFA should only issue National Non-Coverage Decisions where it 
has an adequate information base to support this course of action. 
Thank you for considering these suggestions. We hope to see a revised 
Notice published soon that reflects the comments you have received on 
this important matter. In addition, we believe that HCFA should pursue 
formal rulemaking on this matter, after a period of time-we suggest a 
two-year period beginning with the date of publication of this Notice-
during which it gains experience managing this new national coverage 

            Sincerely yours,
                                              Ted R. Mannen
                                           Executive Vice President
                                                Health Care Systems


                                 Oncotech, Incorporated    
                                         Irvine, California
                                                   October 14, 1999

Chairman Bill Thomas
House Ways & Means Subcommittee on Health
Longworth House Office Building
Washington, D.C. 20515

    Dear Chairman Thomas,

    As you recall, I was privileged to provide testimony at the hearing 
which was conducted by the Ways & Means Committee on Health on April 
22, 1999. Following the hearing, the Committee drafted and introduced 
legislation, specifically HR 2356, to redress the issues raised during 
the hearing. I have had an opportunity to review HR 2356 in detail and 
wish to submit the following observations.
    One of several issues addressed by the legislation relates to the 
length of time required for a carrier denial to be reviewed by an 
administrative law judge. Currently, an average of 564 days is 
required. The legislation reduces this period to 90 days. 
Substantively, this is a dramatic improvement in the timeliness of 
decisions. Medicare patients should not be exposed to an inappropriate 
denial of benefits simply by the length of time it takes to proceed 
through the appellate process.
    A second issue addressed by the legislation relates to the internal 
bias found within the carrier in favor of the local medical director's 
decision. Our experience, which has been shared by numerous other 
companies, has found that the early phases of the appellate process 
which are administered and implemented by carrier employees, are not 
objective. This phenomenon is not substantially different from that 
found within HMOs and other commercial carriers. As you know, within 
the last 120 days, both the Senate and the House of Representatives 
have passed legislation to provide independent, objective appellate 
review of claims denials. HR 2356 provides Medicare patients with the 
same access to independent review that the legislation mentioned above 
provides to patients who are commercially covered. It does this by 
allowing providers and beneficiaries to bypass the internally 
controlled carrier appellate steps and go directly to an administrative 
law judge. In our judgement, the ability to move an issue directly to 
an administrative law judge ensures that patient care issues will be 
determined in a fair and unbiased environment.
    A third issue addressed by the legislation requires that a policy 
decision made by a local medical director be subject to oversight, 
review and change by an administrative law judge. Currently, local 
medical directors are not required to acquiesce in the decision of an 
administrative law judge vis-a-vis their local medical policy. Local 
medical directors claim that an administrative law judge decision is 
limited exclusively to the patient or patients upon which the ALJ is 
reaching his conclusion, thereby placing their local medical policy 
above appellate review. This practice leaves local medical directors in 
a position of absolute power. HR 2356 vitiates this practice, removes 
the absolute power exercised by local medical directors under the 
current legal structure and prevents the burdensome and timely re-
litigation of inappropriate local medical policies.
    For the reasons stated above, it is essential that HR 2356 be 
enacted. Medicare beneficiaries have a right to independent review that 
is characterized by objectivity, power to change errors and timeliness. 
This bill clearly establishes these rights on a clear, legal 

            Personal regards,
                                     Frank J. Kiesner, J.D.
                                                    President & CEO


Statement of American Medical Association

    The AMA and national medical specialty societies have 
repeatedly advocated to HCFA that standards of openness, 
accountability, timeliness, and evidence-based decisionmaking 
be imposed on the local coverage policy development process to 
ensure that local policies reflect the best available clinical 
and scientific evidence.
    The physician community has also repeatedly advocated to 
HCFA that at both the local and national levels its coverage 
policy process be separated from its fraud and abuse and 
program integrity activities.
    Also, we have advocated that the new process for making 
national Medicare coverage decisions using the Medicare 
Coverage Advisory Committee (MCAC) be set up to meet the needs 
of practicing physicians and patients for clear guidance on 
covered benefits, instead of being driven by the marketing 
strategies of manufacturers and suppliers.
    The HCFA Notice of April 27 announcing its new coverage 
policy process falls short of these objectives in several 
     The Notice gives no attention to the problems with 
local policies established by the Medicare carriers. HCFA 
continues to promulgate a view that if it sets up an open, 
accountable, timely, and evidence-based national coverage 
process, then this will somehow ``trickle down'' to the local 
     The MCAC process meets the objectives of openness, 
timeliness, accountability, and evidence-based decisions in a 
number of respects. The Notice strongly emphasizes the use of a 
``formal reques'' process for getting topics before the MCAC, 
however. The AMA has grave concerns that such a process, which 
seems to be modeled after the Food and Drug Administration 
(FDA) process, will ensure that large entities with significant 
resources and FDA experience will dominate the Medicare 
coverage agenda. Physician organizations and beneficiaries with 
concerns about Medicare coverage of nursing home visits, mental 
health care, lab tests, and palliative and end-of-life care, 
for example, may have a difficult time getting HCFA's 
     The only avenue for physicians and patients to 
pursue besides the new MCAC is the current Medicare appeals 
process. Local determinations must be addressed through this 
process one claim at a time, with no remedy for poorly 
constructed local policies that are aimed more at preventing 
fraud than ensuring delivery of necessary medical care. This 
process is also outrageously lengthy and unfair to physicians 
and patients.


    Mr. Rosebrough. Thank you.
    Dr. Plested. Thank you.
    Mr. Kiesner. Thank you.
    Chairman Thomas. Thank you, and the Subcommittee stands 
    [Whereupon, at 3:36 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of Angela Loavenbruck, American Academy of Audiology, McLean, 

    Mr. Chairman and Members of the Subcommittee, thank you for 
the opportunity to submit the testimony of the American Academy 
of Audiology for inclusion in the printed record of the Hearing 
on Medicare Coverage Decisions and Beneficiary Appeals. I am 
Angela Loavenbruck, D.Ed., Chair of the Government 
Reimbursement Committee of the American Academy of Audiology 
(AAA). With 7,000 members, the AAA is the major national 
professional association representing audiologists in the 
United States. We wish to submit this statement on behalf of 
the 13,000 practicing audiologists and the 28 million Americans 
who suffer from hearing disabilities.
    The AAA would like to add its voice to the chorus of those 
who believe that glaring inconsistencies in coverage decisions 
between different regional and local carriers is a serious and 
growing problem. The Health Care Financing Administration's 
(HCFA) apparent acceptance of these inconsistencies is bad 
policy and unfair to both Medicare beneficiaries and Medicare 
    The particular problem that audiologists face is the 
refusal of some carriers to cover audiometric diagnostic tests 
that result in identification of hearing loss for which there 
is currently no medical or surgical treatment possible. 
Medicare Part B covers diagnostic testing to determine the 
cause of a hearing loss, but it does not cover ``hearing aids 
and examinations therefor.'' 42 U.S.C. Sec. 1395y(a)(7); 42 
C.F.R. Sec. 411.15(d). Thus, HCFA has determined that 
diagnostic testing should be covered where it is needed to 
determine whether medical or surgical intervention is called 
for; it should not be covered where testing is performed solely 
for the purpose of fitting a hearing aid. According to the 
Medicare Carriers Manual, coverage should be denied where 
``diagnostic services are performed only to determine the need 
for or the appropriate type of a hearing aid'' and where ``the 
medical factors required to determine the appropriate medical 
or surgical treatment are already known by the physician or are 
not under consideration.'' Medicare Carriers Manual Sec. 2070.3 
(emphasis added).
    Contrary to HCFA's announced policy, some carriers 
routinely and automatically deny reimbursement for any 
diagnostic testing that identifies hearing loss which can only 
be treated with the fitting of an amplification device. 
Coverage is denied even though the nature, extent and cause of 
hearing loss is unknown prior to the tests. Just as some 
carriers deny coverage of a prostate-specific antigen test (PSA 
test) if the resulting diagnosis is an enlarged prostate rather 
than cancer (See testimony of Dr. William G. Plested, III on 
behalf of the American Medical Association), some carriers deny 
coverage of audiometric diagnostic tests if the resulting 
diagnosis cannot be treated with medical or surgical 
    When a patient complains of hearing loss, the only way to 
determine the nature, extent and cause of the hearing loss is 
for a qualified audiologist to perform a battery of audiometric 
diagnostic tests. Any reputable medical textbook will say that 
there is simply no other way to make a sound diagnosis. This is 
the standard of care for diagnosis of hearing loss. That 
Medicare will cover a service that represents the standard of 
care for some kinds of hearing loss but not for others seems 
discriminatory. To reimburse for any medical test depending 
upon the outcome also may create an incentive to skew the 
results of that test. For audiologists, a carrier policy that 
denies coverage of diagnostic tests if the tests do not 
discover a medically or surgically treatable condition can have 
a serious impact on their practice.
    The AAA also agrees with other witnesses that Medicare 
beneficiaries should be able to appeal carrier coverage 
policies, not just individual denials of claims. The AAA 
believes that HCFA must exercise some oversight over the policy 
decisions of carriers. It is inconceivable to us that the 
beneficiaries of one of the federal government's largest 
programs should have no recourse to appeal policy decisions 
made by private companies administering the program. In 
addition, we believe that Medicare providers should also be 
given the right to appeal carrier policy decisions.
    Thank you for this opportunity to share our views. The 
American Academy of Audiology would be pleased to answer any 
questions you may have. We would also be glad to work with the 
Subcommittee and with HCFA to develop a solution to the 
specific problem of inconsistent carrier policies regarding 
audiology diagnostic testing, as well as solutions to the 
larger issues raised at the hearing.


Statement of American College of Physicians-American Society of 
Internal Medicine

    The American College of Physicians-American Society of 
Internal Medicine (ACP-ASIM), representing over 115,000 
physicians and medical students, appreciates the opportunity to 
submit a statement for the record to the Committee on Ways and 
Means Subcommittee on Health on how the Health Care Financing 
Administration (HCFA) makes decisions regarding Medicare-
covered services and what opportunities exist for beneficiaries 
and physicians to appeal those decisions. ACP-ASIM applauds the 
Subcommittee for holding a hearing to analyze the processes 
available to seniors and physicians to appeal coverage 
decisions under Medicare, particularly those made by Medicare 
    ACP-ASIM has reviewed the national coverage process 
developed by HCFA and published as a notice in the April 27, 
1999 Federal Register. ACP-ASIM will be glad to share any 
comments it has regarding HCFA's national coverage process with 
the Subcommittee.
    However, HCFA's coverage process fails to address local 
coverage decisions. This is especially noteworthy since HCFA 
recently confirmed that approximately 90 percent of all 
coverage decisions are made at the local Medicare carrier 
level. HCFA currently allows its carriers broad latitude in 
making local coverage decisions. While HCFA touts its national 
coverage process as more ``open, understandable, and 
predictable,'' the current process for making local coverage 
decisions continues to be somewhat closed, ambiguous, and 
unpredictable. ACP-ASIM believes that the process by which 
Medicare carriers make local coverage decisions needs to be 

                        Local Coverage Decisions

    Local coverage decisions take the form of local medical 
review policies (LMRPs). HCFA requires that LMRPs be developed 
in consultation with a local carrier advisory committee (CAC). 
Each state maintains a CAC that is comprised of one physician 
representative per each major medical specialty. A Medicare 
carrier medical director (CMD) must distribute a proposed LMRP 
to the CAC before implementing it as carrier policy. CAC 
representatives have a minimum of 45 days to gather comments 
from their respective specialties. The CMD has full discretion 
in determining how to incorporate comments received from the 
CAC during the comment period. The LMRP takes effect 30 days 
after being published by the carrier.
    Section 7501.2 of the Medicare Carriers Manual (MCM) 
clearly states that it is the responsibility of the CMD to 
determine when an LMRP is needed. The CMD is instructed, but 
not limited to using the following sources:
     Carrier data, such as reports identifying a 
significant utilization of an item/service in the past year;
     National claims history;
     Information obtained from State medical and 
specialty societies or individual physicians;
     Recommended model policy developed by national or 
regional medical director workgroups;
     LMRPs established by other carriers in reaction to 
abusive or aberrant practices, in order to proactively address 
the potential migration of these practices;
     Complaints from beneficiaries; and
     Recommendations from other sources, such as Office 
of Inspector General reports, fraud unit, etc.
    The focus of LMPRs varies. A CMD can use an LMRP to 
determine whether an item/service is a covered benefit by the 
Medicare program. Further, an LMRP can determine the clinical 
conditions under which a covered service will be paid for by 
the Medicare program.

                     Problems with the LMRP Process

    In reality, it is extremely difficult for physicians to 
keep track of LMRPs. Requirements are communicated to 
physicians in a disjointed and ineffective way. CMDs update 
LMRPs that determine the conditions under which a covered 
service is paid for by periodically publishing additions and 
deletions to the list of acceptable clinical conditions, 
usually in the form of diagnosis codes. Typically, only the 
changes are listed. The original policy is rarely updated and 
published in its entirety. The result is that individual 
practices have to update the original policies in their files 
to maintain accurate information, which makes it virtually 
impossible for physicians to learn LMRPs. Even the most well-
informed physicians have difficulty keeping apprised of 
changing LMRPs.
    ACP-ASIM is not arguing that all coverage decisions and 
policies should be national. The College supports local 
physician input into LMRPs. CMDs, in conjunction with CACs, 
play a key role in ensuring that local Medicare policies are 
fundamentally related to what the local medical community views 
as appropriate standards of medical practice. The LMRP process 
should be reformed, however. This could be accomplished through 
structural improvements to the CAC process and by identifying 
``best practices'' of the existing State CACs.


1. HCFA Should Separate Local Coverage Decisions From Program 
Integrity functions. HCFA's Office of Clinical Standards and 
Quality should oversee carrier LMRP issues.

    Section 7501.2 of the MCM states that ``LMRP(s) is 
primarily a program integrity tool'' and that ``it is generally 
developed to specify criteria that describes whether the item/
service is covered and under what clinical circumstances it is 
considered to be reasonable, necessary, and appropriate.'' 
Further confirmation that LMRPs focus on program integrity is 
that Section 7503 of the MCM, which pertains to CACs, instructs 
the CAC co-chair to send copies of CAC meeting minutes to 
HCFA's Program Integrity Group/Contractor Management Group with 
the Office of Financial Management at the agency's central 
    It is inappropriate for coverage decisions to be made based 
on whether they save money. Denying a item/service as a covered 
benefit or restricting it's a coverage to a limited number of 
clinical conditions because of cost considerations and/or 
because of perceived or potential overutilization is unfair to 
beneficiaries. It is problematic that CMDs are primarily 
accountable to the Program Integrity Group within HCFA's Office 
of Financial Management when making coverage decisions. 
Beneficiaries' interests would be best serviced if the office 
within HCFA that focuses on quality of care was the one that 
decides which items/services are reasonable, necessary, and 

2. Carriers should provide a 60-day public comment period for 
all proposed policy changes instead of the current 45-day 
comment period.

    The current comment period is too short for medical 
societies to make informed judgments and comments on policy 
changes. This is a problem particularly in rural states where 
the size of the medical society staff may be limited.

3. At the conclusion of the comment period, the carrier should 
state, in writing, its reasons for accepting or rejecting the 
comments in framing the final policy.

    All CAC members should receive the carriers rationale for 
adopting policy changes, and the public should receive this 
information on request. Just as the Administrative Procedures 
Act requires HCFA and other federal agencies to respond to 
comments made on its proposed rules, so too should carriers 
have to provide an explanation of why they have adopted a 
particular policy. In this way, the medical and patient 
community will know why the carrier is pursuing a particular 
course of action. In addition, educating physicians and their 
staffs about the policy change would further the goal of 
adopting correct policy and relieve carriers of administrative 
burdens that result from physicians misunderstanding policy 

4. HCFA should provide ``best practices'' guidelines to CMDs so 
they can incorporate them into their CAC process.

    ACP-ASIM is encouraged that HCFA has contracted with the 
consulting firm of PricewaterhouseCoopers (PwC) to make 
recommendations to improve the effectiveness and the efficiency 
of the LMRP development process. As a part of its contract, PwC 
is to identify ``best practices'' that could be used to improve 
local policy development as HCFA attempts to standardize the 
process nationwide.
    ACP-ASIM informally polled its members involved in State 
CACs to and came up with the following examples of effective 
CAC processes:
     The Wisconsin carrier continues to work with the 
CAC member representing the specialty or specialties most 
affected by a proposed LMRP after the conclusion of the 45-day 
comment period and before implementing it by publishing it in 
its Medicare Bulletin. This additional step in the decision-
making process enables the carrier to improve the proposed LMRP 
by allowing further input from relevant specialties, without 
occupying the time of the entire CAC. This type of increased 
interaction results in more thoughtful LMRPs and is consistent 
with the intent of the CAC process. Further, the carrier-
physician relationship is enhanced by carrier efforts to work 
collaboratively with the physician community.
     The CMD that co-chairs the California CAC extended 
the comment period for 45 to 60 days.
     The Rhode Island CMD sends draft LMRPs to CAC 
members before the meeting but begins the 45-day comment period 
on the meeting date (HCFA requires CACs to provide a 45-day 
comment period that begins when the draft LMRPs are sent out to 
CAC members).
    At a minimum, each of these practices should be adopted 

5. There needs to be a process for fine tuning LMRPs after they 
are implemented. The lack of an established process to modify 
existing LMRPs forces physicians to seek changes in a 
disjointed manner.

    There is no standard way for physicians to appeal LMRP 
coverage decisions, both those that determine whether an item/
service is covered and those that indicate the clinical 
circumstances in which an item/service is considered reasonable 
and medical necessary. There needs to be a way to correct 
misguided LMRPs that are hurried through a process that is not 
conducive to broad input.
    There should be a formal mechanism that allows physicians 
(for themselves and on behalf of their patients) to recommend 
changes to LMRPs--whether appealing a coverage decision or 
altering an LMRP that restricts the conditions in which a 
covered service will be paid. Recommended changes should go 
back to the CAC. If the LMRP is further disputed, HCFA's Office 
of Clinical Standards and Quality should intervene to ensure 
that beneficiaries are not being denied medically necessary 
services or being inappropriately forced to pay for them out-
of-pocket because of an incorrect LMRP.
    Beneficiaries are often saddled with additional out-of-
pocket costs for items/services that are not covered and when 
coverage is inappropriately restricted to a limited number of 
clinical conditions. In cases were the item/service is covered 
for only a specific conditions, the physician must find a 
condition, indicated by a diagnosis code(s), that fits the 
patient and will be covered. Physicians can currently ask the 
CMD to expand the list of conditions that merit coverage. 
Acceptance or rejection of these recommended policy changes is 
left solely to the discretion of the CMD. The HCFA central 
office generally stays out of this area. However, the Program 
Integrity Group within the Office of Financial Management, and 
not the physicians on the Office of Clinical Standards and 
Quality staff, would intervene if HCFA got involved. Clearly, 
the latter would be a more appropriate arbiter of these issues.

6. Carriers need to assess the financial/cost-benefit impact of 
the LMRPs that they choose to implement in a systemic way.

    Although LMRPs are generally implemented to restrict the 
situations in which covered services are paid, carriers should 
be able to determine the overall financial impact of an LMRP. A 
carrier should collect data on the number of claims pertaining 
to a denied service covered by an LMRP that are appealed and 
how often denials are overturned on appeal. It is wasteful to 
implement a restrictive LMRP that is to save money when the 
cost of manually reviewing appealed claims outweighs any 
savings generated by initial denials.
    For example, Transamerica Occidental Life Insurance Co., 
the Medicare carrier for Southern California, maintains LMRPs 
that limit coverage of laboratory tests such as blood counts, 
blood glucose, and serum magnesium to a specific list of 
conditions, indicated by diagnosis codes. Limiting coverage of 
tests whose use is widely indicated and clinically accepted for 
the purpose of program integrity is disruptive for physicians 
and their patients. Adjudicating claims that are appealed after 
originally being denied because of restrictive LMRPs is likely 
to actually increase costs if a significant number of denials 
are overturned on appeal.

7. HCFA has a responsibility to inform beneficiaries that LMRPs 
that deny coverage of an item/service or restrict coverage to 
specific patient conditions will cause their out-of-pocket 
medical expenses to increase.

    LMRPs with a program integrity bent have financial 
implications for beneficiaries. Physicians are forced to strike 
a balance between ensuring that their patients receive all 
items/services that are medically necessary and minimizing 
their patients' out-of-pocket costs.
    The simple presence of a LMRP limiting coverage increases 
the likelihood that patients will refuse items/services. 
Physicians must ask patients to sign an advanced beneficiary 
notification form (ABN), in which the patient agrees to pay for 
the item/service if Medicare denies payment, if they are 
uncertain as to whether Medicare will pay for the item/service 
under the circumstances. Difficult-to-learn LMRPs frequently 
prevent physicians from knowing when Medicare will cover an 
item/service. Patients are further disadvantaged as those who 
cannot afford to pay for an item/service out of pocket may 
forgo the treatment.

                              Model LMRPs

    Ideas for LMRPs are sometimes derived from ``model'' LMRPs 
that are developed by working groups of CMDs. CMDs from around 
the country periodically develop a policy template on an 
issue(s) that a CMD(s) thinks needs to be addressed. HCFA only 
reviews these model policies to make sure that they do not 
contradict national Medicare policy. Individual CMDs can then 
run the model or a variation of the model through its State CAC 
for implementation. Currently, national medical specialty 
societies and other interested parties are generally unable to 
have input into the development of ``model'' LMRPs.


National medical societies should have input into ``model'' LMRPs 
developed by ``working groups'' of CMDs for the purpose of being 
implemented through local CACs.

    A working group of CMDs should involve relevant medical societies 
when formulating a model policy. This type of collaboration will result 
in more suitable LMRPs and better prepare national medical societies to 
target educational efforts toward members.
    It is a disservice to beneficiaries and providers to allow model 
LMRPs developed by a regional or national workgroup of CMDs to become 
de facto regional or national policies. Model LMRPs have the potential 
to become national policies if they are implemented throughout the 
country, with the only difference being changes made by the State CAC. 
It is inappropriate for HCFA to permit model LMRPs that are initiated 
by a few CMDs whose focus is program integrity become the equivalent of 
a national policy.
    For example, a workgroup(s) of CMDs has drafted at least 15 model 
LMRPs for clinical laboratory tests. Many of these models were 
implemented by CMDs through their CACs because of perceived 
overutilization or because of potential overutilization. As a result, 
it is likely that a model(s), or a variation of that model(s), has been 
implemented in many States. We cannot definitively say that every 
carrier has an LMRP in place for a specific laboratory test or even 
identify how closely the existing LMRPs track with the model because 
HCFA currently fails to keep track of the LMRPs maintained by each 
    The Balanced Budget Act of 1997 directed HCFA to convene a 
negotiated rulemaking committee to develop uniform coverage and 
administrative policies for clinical laboratory tests. HCFA's approach 
to this committee provides some insight into agency's view of the model 
LMRPs for laboratory tests. After the negotiated rulemaking committee 
selected the laboratory tests for which it would develop national 
coverage policies (now being called ``coverage determinations'' as they 
were not derived from the national coverage process that HCFA published 
in the April 27, 1999 Federal Register), some committee members 
suggested using existing model LMRPs as a starting point. HCFA, a 
member of the negotiated rulemaking committee, rejected that suggestion 
stating that national coverage policies (determinations) needed to be 
held to a higher standard of scientific evidence. If HCFA is not fully 
comfortable with using CMD workgroup-developed model LMRPs as a 
template for national policy, it is certainly inappropriate to allow 
model policies to in effect become national, with only minor tinkering 
by State CACs.


    ACP-ASIM believes that adoption of the recommendations 
included in this statement, and recapped below, will ensure 
that beneficiaries receive all medically necessary services 
that are provided under appropriate clinical conditions
    1. HCFA Should Separate Local Coverage Decisions From 
Program Integrity functions. HCFA's Office of Clinical 
Standards and Quality should oversee carrier LMRP issues.
    2. Carriers should provide a 60-day public comment period 
for all proposed policy changes instead of the current 45-day 
    3. At the conclusion of the comment period, the carrier 
should state in writing, its reasons for accepting or rejecting 
the comments in framing the final policy.
    4. HCFA should provide ``best practices'' guidelines to 
CMDs so they can incorporate them into their CAC process.
    5. There needs to be a process for fine tuning LMRPs after 
they are implemented. The lack of an established process to 
modify existing LMRPs forces physicians to seek changes in a 
disjointed manner.
    6. Carriers need to assess the financial/cost-benefit 
impact of the LMRPs that they choose to implement in a systemic 
    7. HCFA has a responsibility to inform beneficiaries that 
LMRPs that deny coverage of an item/service or restrict 
coverage to specific patient conditions will cause their out-
of-pocket medical expenses to increase.
    8. National medical societies should have input into 
``model'' LMRPs developed by ``working groups'' of CMDs for the 
purpose of being implemented through local CACs.
    Thank you for the opportunity to submit this statement for 
the record. We look forward to working with the Subcommittee to 
ensure that HCFA addresses the deficiencies in the way local 
coverage decisions are made by Medicare carriers.


Statement of American Gastroenterological Association, Bethesda, 

                             I. BACKGROUND

    The American Gastroenterological Association (``AGA'') is an 
organization of more than 10,000 physician clinicians, researchers and 
educators who specialize in the treatment of digestive disorders. The 
AGA serves its physician and scientist members and their patients 
through advocacy; supporting members' practice and scientific needs; 
and by promoting the discovery, dissemination and application of new 
knowledge, leading to the prevention, treatment and cure of digestive 
    The AGA appreciates this opportunity to offer the following 
Statement to the House Ways and Means Subcommittee on Health, for 
consideration at its April 22, 1999 Hearing on Problems with Medicare 
Coverage Policy Decisions. The AGA Statement focuses on the following 
two areas: ineffective Medicare coverage for colorectal cancer 
screening; and inappropriate Medicare carrier interpretation of what 
constitutes a physician ``consultation.''

                         II. SPECIFIC COMMENTS

A. Ineffective Medicare Coverage For Colorectal Cancer Screening

    Colorectal cancer, or cancer of the colon or rectum, is the second 
leading cause of cancer-related death in the United States--some 56,600 
Americans will die of colorectal cancer in 1999. When skin cancer is 
excluded, colorectal cancer is the third most commonly diagnosed cancer 
for both men and women in the United States. Approximately 129,400 new 
cases will be diagnosed during 1999. For men, colorectal cancer follows 
prostate and lung cancers in frequency; for women, it follows breast 
and lung cancers.
    The risk of developing colorectal cancer generally increases with 
advancing age. African Americans are more likely than whites to be 
diagnosed with this disease and are more likely to die of it. Other 
major risk factors include having inflammatory bowel disease, a family 
history of colorectal cancer or colorectal polyps, and certain 
hereditary syndromes. Additional conditions contributing to increased 
risk for colorectal cancer include a personal history of colorectal 
cancer or polyps or of ovarian, endometrial or breast cancers.
    Currently, screening for colorectal cancer lags far behind 
screening for other cancers, perhaps because the effectiveness of 
colorectal cancer screening has only recently been documented. In a 
1997 survey sponsored by the Centers for Disease Control, only 41% of 
adults aged 50 and older had ever had a sigmoidoscopy or proctoscopy 
(an earlier and now less frequently used procedure) for screening or 
diagnostic purposes, and only 29% of respondents reported having had 
one within the past 5 years. Of the survey respondents, 39% of adults 
aged 50 and older reported ever having a fecal occult blood test using 
a home kit, and only 19% reported having this test in the preceding 
    Survival is greatly enhanced when colorectal cancer is detected 
early and appropriate treatment provided. Despite the availability of 
effective screening tests, colorectal cancer screening is underused. 
Studies show that only 37% of colorectal cancers are diagnosed at a 
localized stage. When colorectal cancer is diagnosed at a localized 
stage, death rates are low: only about 9% of these patients will die 
within 5 years. Once the disease has progressed to a regional stage, 
about 34% of patients will die within 5 years. When the disease is 
diagnosed at an advanced stage (has spread to distant sites), death 
rates are high: about 92% of patients will die within 5 years. For 
African Americans, 5-year survival rates are lower than those for 
whites, and a smaller proportion of cases are diagnosed at an early 
stage. Precancerous polyps may be present in the colon for years before 
invasive cancer develops. Colorectal cancer can actually be prevented 
by removing precancerous polyps. Reducing the number of deaths from 
colorectal cancer depends on detecting and removing precancerous 
colorectal polyps, as well as detecting and treating cancer in its 
earliest stages.
    AGA is greatly concerned that, because Medicare program carriers 
are given enormous discretion in implementing the national coverage 
policy on colorectal cancer screening, each individual who is at high 
risk for developing this deadly disease, either because of family 
history of familial adenomatous polyposis, hereditary non-polyposis 
colorectal cancer and inflammatory bowel disease, may not be provided 
the opportunity for adequate screening. AGA has received reports from a 
number of its physicians indicating that coverage for colorectal 
screenings is being denied by local carriers. Given the above, Congress 
should urge the Department of Health and Human Services (``HHS'') and 
the Health Care Financing Administration (``HCFA'') to monitor more 
effectively the local carriers' implementation of the national coverage 
policy for screening of colorectal cancer for high-risk individuals.

B. Inappropriate Medicare Carrier Interpretation Of What Constitutes A 
Physician ``Consultation''

    As part of the Medicare physicians' fee payment schedule, HCFA 
established guidelines in the Medicare Carriers Manual (``MCM'') 
regarding how local carriers should pay for ``consultations'' and ``new 
patient visits.'' HCFA notes in the MCM that, for a consult, carriers 
should pay for the initial consultation if the referring physician does 
not transfer the responsibility for the patient's care to the receiving 
physician until after the consultation is completed. However, the 
appointment should be billed as a visit when the referring physician, 
in the original written or verbal referral, transfers the 
responsibility for treatment to the receiving physician via a request 
to ``evaluate and treat.''
    HCFA also states in the MCM that: ``a consultation is distinguished 
from a visit because it is done at the request of a referring physician 
(unless it's a patient-generated confirmatory consultation) and the 
consultant prepares a report of his/her findings which is provided to 
the referring physician for (his/her) use in treatment of the patient. 
A consultant may initiate diagnostic and/or therapeutic services. 
However, when the referring physician orally or in writing transfers 
responsibility of treatment at the time of the request for consultation 
or referral, the receiving physician may not bill a consult.'' 
(Emphasis added).
    Several local Medicare carriers recently have tried to redefine 
HCFA's definition of ``consult'' by restricting payment for the consult 
fee if the receiving physician provided any treatment whatsoever to the 
patient. In contrast, the carriers would pay for a consult only if the 
specialist determined that no treatment was needed. One carrier 
incorrectly tried to assume that, if the receiving physician follows 
the patient after the initial encounter, it implies that he/she is 
assuming part of the patient's ongoing care. These efforts thus far 
have failed to succeed, largely due to input and pressure by physician 
members of state American Medical Association (``AMA'') affiliates.
    AGA believes that the local carriers' interpretations of what 
constitutes a physician consult are faulty and contrary to the above-
noted HCFA definitions, as well as AMA's CPT-4 guidelines, which state 
that ``a physician consultant may initiate diagnostic and/or 
therapeutic services.'' AGA is greatly concerned that, because Medicare 
program carriers are given enormous discretion in implementing health 
care coverage policy, local carriers will continue to deviate from 
accepted nationally established definitions that apply to physician 
practice issues, such as what constitutes a consultation. Therefore, 
Congress should urge HCFA to monitor more effectively how the local 
Medicare carriers are implementing HCFA's definition of physician 
``consultation,'' in order to ensure that any interpretation contrary 
to the MCM is not permitted.
    Finally, AGA members ardently wish to maintain their stellar record 
of providing high quality services to their patients. They fear that, 
taken together, over-burdensome paperwork requirements, fear of 
unwarranted government intrusion into their practices, and ever-
decreasing reimbursements may combine to force AGA members to 
reevaluate their ability to continue practicing at current levels of 
care. Medicare beneficiaries should not be put at risk because of 
excessive government intrusion into the practice of medicine in this 
way. We urge Congress to impress upon HHS and HCFA that the unintended 
consequences of their actions, as described above, could indeed achieve 
this undesirable result.

For further information, please contact Michael Roberts, AGA Vice 
President, Public Policy & Government Affairs, at 301-654-2055.


Statement of American Occupational Therapy Association, Inc., Bethesda, 

    The American Occupational Therapy Association represents 
60,000 occupational therapists, occupational therapy 
assistants, and students of occupational therapy. AOTA's 
mission includes promoting the interests of the profession and 
its patients in access to quality services which meet social 
and individual needs. AOTA submits this statement for the 
record of the hearing on Medicare Coverage Appeals held April 
22, 1999.
    Occupational therapy is covered under Medicare Part A and 
under Medicare Part B as an outpatient service. Under both Part 
A and Part B, occupational therapy is provided based on 
coverage criteria which allow for the provision of therapy 
which is ``medically prescribed treatment concerned with 
improving or restoring functions which have been impaired by 
illness or injury or, where function has been permanently lost 
or reduced by illness or injury, to improve the individual's 
ability to perform those tasks required for independent 
functioning.'' (Carriers Manual, Sec 2217, Intermediary Manual 
(Sec. 3101.9) Further, occupational therapy is considered 
reasonable and necessary only where an expectation exists that 
the therapy will result in a significant practical improvement 
in the individual'' level of functioning within a reasonable 
period of time. Where an individual's improvement potential is 
insignificant in relation to the extent and duration of 
occupational therapy services required to achieve improvement, 
such services would not be considered reasonable and necessary 
and would thus be excluded from coverage by Sec. 1862(a)(1) of 
the Social Security Act. (Ibid.)
    While this of coverage criteria is established by the 
Health Care Financing Administration (HCFA), their contractors 
(e.g., fiscal intermediaries and carriers) have authority from 
HCFA to develop more explicit local medical review policies 
    AOTA would like to concentrate this testimony for the 
record on issues of coverage determinations, denials and 
allowances based on the use of LMRPs. Created by HCFA 
contractors with inadequate oversight and little public input 
from the agency, LMRPs have caused considerable problems for 
occupational therapy practitioners and their patients. 
Variations in coverage, which result from the multiple 
issuances of fiscal intermediaries, are unfair and unnecessary. 
HCFA could oversee and regulate the activities of its 
contractors in the medical review area far more than is 
currently the practice.
    AOTA's experience with the variability of these policies 
and with the more important problem of the limited public 
scrutiny of the development of these policies requires that we 
urge the Subcommittee to consider requiring that HCFA provide 
national coverage guidance which prevents the establishment and 
use of LMRPs which unreasonably restrict or make unequal 
beneficiaries' access to their rightful and appropriate 
Medicare services.
    In particular, HCFA should narrow the fiscal 
intermediaries' latitude in cases where LMRPs contain 
significant and unsupported deviations from the national 
medical review guidelines contained in the Medicare 
Intermediary Manual.
    As witnesses before the Subcommittee on April 22 noted, the 
Medicare contractors have considerable authority to interpret 
and apply Medicare's requirements. Testimony before the 
Subcommittee attributed the conveyance of this authority to 
historical limitations in HCFA staffing and a view in HCFA that 
there are regional differences in medical care that should not 
be overruled by national coverage policy.
    Based on AOTA's experience, this bow to regional difference 
has not resulted in better care but rather has hindered 
appropriate application of the laws, regulations and 
professional standards which should guide authorization and 
denial of care.
    HCFA should be required to enforce the national standards 
for these LMRPs to prevent their development and use in ways 
that arbitrarily impede the ability of occupational therapists 
to furnish skilled occupational therapy services based on an 
evaluation of individual need and rehabilitation potential 
within the reasonable and necessary guidance of the Social 
Security Act.
    AOTA has long been working to achieve consistency in the 
many and varied LMRPs as well as to assure that the LMRPs are 
based on standards of best practice and developed in 
consultation with experts and authorities on the particular 
benefit in question. HCFA has not, in our view, exercised 
sufficient oversight and regulation of the activities of its 
contractors in the medical review area. AOTA believes that the 
authority and latitude of the fiscal intermediaries or other 
contractors should be constrained. As AOTA has seen cases in 
which the LMRPs contain significant and unsupported deviations 
from the national medical review guidelines contained in the 
Medicare Intermediary Manual. We believe the LMRPs should be 
replaced with a broad and open public process to establish more 
detailed national coverage criteria.
    Such national coverage criteria would assure Medicare 
beneficiaries equal access to services across the nation. 
National coverage criteria would replace the current situation 
wherein a ``national'' policy is sometimes developed by default 
when contractors ``adopt'' other contractors' policies, even if 
those policies conflict with overall Medicare requirements. 
Thus, an erroneous and improper ``national'' policy can become 
established merely by the spread of LMRPs from one contractor 
to another, by entities that are not publicly accountable, with 
limited public review and without sufficient intervention or 
oversight by HCFA. While the Medicare Intermediary Manual does 
provide LMRP development guidelines, which should include 
stakeholder participation, AOTA's experience is that these are 
not always followed.
    Furthermore, while AOTA may be able to intervene in some of 
these, many beneficiaries and beneficiary advocates find that 
the existence of multiple LMRPs and standards hinder 
appropriate access to services. We have also found that many 
LMRPs, especially in the amount, frequency and duration 
parameters, are so prescriptive as to impinge upon the ability 
of professionals to provide care that addresses the medical 
condition, functional level and rehabilitation possibilities of 
individual beneficiaries.
    A national solution is needed to address this national 
    AOTA understands that the fiscal intermediaries and other 
contractors have the authority to develop LMRPs to describe 
when and under what circumstances an item or service(s) will be 
covered and to clarify or provide guidance on national coverage 
guidelines. Conferring this discretion upon fiscal 
intermediaries does not, we believe, vest them with the 
authority to supplant pertinent statutory provisions, 
regulations, and national coverage policies (which include 
manual issuances) with informal presumptions. Yet HCFA's 
oversight and willingness to overrule or moderate LMRPs of 
fiscal intermediaries is limited. AOTA has had many discussions 
and meetings with HCFA and its intermediaries over LMRPs to try 
to assure that the process and resulting products adhere to the 
overarching principles laid out in Medicare law for benefits 
and coverage criteria. These interactions have met with limited 
    Beneficiaries and providers deserve consistency in the 
benefits and providers deserve fair guidance in all areas of 
the country. The reasonableness and necessity of services 
should not vary significantly from one region to another
    At a minimum, HCFA should be required to oversee the 
development and implementation of LMRPs to assure that coverage 
policies are:
     Based on practice standards validated by research;
     Constructed and implemented without impinging upon 
the professional judgement of therapists (or other 
professionals) in the formulation of care plans tailored to 
meet the unique needs of individual beneficiaries.
     Lend constructive guidance and provide appropriate 
information to beneficiaries and providers.
    AOTA must also reference the payment limitation of $1500 
annually for occupational therapy services imposed by the 
Balanced Budget Act as another unreasonable and inappropriate 
limitation on access to reasonable and necessary services by 
Medicare beneficiaries. While this issue is not directly 
related to the April 22 hearing agenda, it is another example 
of policy developed and implemented by HCFA without adequate 
consideration of current best practice and appropriate medical 
    AOTA is supportive of any efforts made by HCFA to address 
coverage consistency. AOTA has nominated an individual to be a 
member of the new Medicare Coverage Advisory Committee to 
represent interests of the rehabilitation community in this 
important area. We look forward to participating in the work of 
this Committee, when it is constituted and working with HCFA as 
they publish new guidelines on policy-making and the definition 
of ``reasonable and necessary.''
    But we urge the Subcommittee to consider the impact on 
beneficiaries and on the Medicare program's integrity that 
result from the failure of HCFA to constrain and oversee the 
activity of contractors in this area. AOTA would urge 
consideration of moving to national coverage criteria with all 
due dispatch. LMRPs do not serve their purpose of providing for 
local differences in medical care and approach. They create 
multiple problems rather than multiple solutions.
    AOTA urges Congress to require moving away from the 
outdated approach of defining necessity in the current 
haphazard, patchwork manner.
    We would be pleased to work with the Subcommittee to 
further address these issues.


Statement of Dwight S. Cenac, Chairman of the Board, Home Care 
Association of America, Jacksonville, Florida

                        Section I--Introduction

    Mr. Chairman and Members of the Committee,
    Thank you for the opportunity to offer written testimony on 
the critical subject of Medicare Coverage Decisions and 
Beneficiary Appeals. My name is Dwight Cenac and I am the 
Chairman of the Board of Home Care Association of America 
(HCAA). HCAA represents several hundred freestanding home 
health agencies across the United States.
    Mr. Chairman, before I offer my written testimony about 
coverage decisions and beneficiary appeals, let me urge you to 
schedule hearings (in the next few weeks) on the issue of the 
Interim Payment System for home health care. At last count, 
over 2000 home health agencies have been forced out of 
business, causing the patients of those agencies to be forced 
into more costly nursing homes, more costly emergency rooms, or 
worse, left at home without receiving necessary patient care.
    While the GAO, MEDPAC and others are conducting studies 
pertaining to access to home health services, this committee 
must address the fact that the BBA of 1997 has placed an 
unfunded mandate on the states. By the federal government 
placing a per-beneficiary cap on home health care, agencies 
across the U.S. are filing for bankruptcy and discharging their 
patients. Clearly this was not the intent of Congress. Mr. 
Chairman, you were recently quoted as saying that you were the 
``Guarantor of small business.'' Mr. Chairman, the majority of 
home health agencies being forced into bankruptcy are small 
businesses. I encourage you to invite several home health 
agency owners to testify before your committee in the near 
future regarding the Interim Payment System.
    In addition, due to recent press reports regarding privacy 
issues pertaining to the OASIS data collection effort, it seems 
possible that HCFA will not be able to comply with implementing 
PPS for home health care as mandated on October 1, 2000. It is 
imperative that you ask HCFA Administrator Nancy Ann Min-
DeParle if indeed HCFA will be able to implement PPS for home 
health care on October 1, 2000. It would also be beneficial to 
ask Administrator Min-DeParle how the implementation of PPS for 
skilled nursing is progressing.
    Mr. Chairman, I understand that your primary concern is 
adequate access for doctor-certified Medicare beneficiaries, 
however, it is important to understand that the most recent CBO 
numbers show that home health care has been cut $48 billion 
dollars over 5 years. This is far greater of a cut than 
Congress intended. I believe you were recently quoted as saying 
that Congress missed the mark regarding the cuts to home health 
care. Mr. Chairman, statements are one thing, actions are 
    On behalf of the members of HCAA, I urge you hold hearings 
in the very near future on home health issues including the 
viability of a co-pay on home health (which seems to be 
included in the Breaux-Thomas legislation), the impact of the 
IPS on home health agencies, and the recent data from the CBO 
that $48 billion has been cut from the home health benefit.


Example #1

    In California, one of the first states targeted by Operation 
Restore Trust, one home health agency attempted to stand up to HCFA, 
and has apparently lost its battle to serve its patients. CSM Home 
Health Services, Inc., is a 10-year-old Los Angeles agency, which has 
spent more than $100,000 on legal and consulting services to fight its 
improper Medicare decertification after an ORT survey.

History of the CSM Case

    On March 1, 1996, HCFA and the California State survey agency 
conducted a compliance survey of CSM. Based on that survey, CSM was 
found not to be complying with eight conditions of participation. HCFA 
and the California State survey agency conducted a second survey of CSM 
which was completed on May 30, 1996. On June 26, 1996, HCFA notified 
CSM that, based on the second survey, HCFA had determined that CSM was 
not complying with four conditions of participation. On July 25, 1996, 
HCFA terminated CSMs participation in Medicare.
    The first judge in the CSM case, the Honorable John G. Davies (Case 
No. CV 96-4651-JGD),United States District Court--Central District of 
California, could find no legal grounds to grant CSM relief, although 
he definitely wanted to. Judge Davies said of the ORT process, ``I 
think the surveyors--I think CSM Home Services has a case. The evidence 
that is before me that I have perused, read, considered, leads me to 
those conclusions. The Surveyors, I had the Impression, were not 
reticent to wear their power on their cuff and to manifest it and 
exercise it in ways that are undesirable in today's society. The 
bureaucracy overreacted once again. That is my view of this case. But, 
what relief can I give you?''
    After Judge Davies was unable to give relief to CSM, the case was 
referred to Administrative Law Judge Steven T. Kessel. Judge Kessel 
reviewed the case in which HCFA decertified CSM. In Judge Kessel's 
October 11, 1996 ruling he stated, ``I decide that the Health Care 
Financing Administration (HCFA) incorrectly determined to terminate the 
participation in the Medicare program of Petitioner, CSM Home Health 
Services, Inc. In this case, HCFA asserted that Petitioner failed to 
comply with four conditions of participation in Medicare. I find that 
the preponderance of the evidence is that Petitioner complied with all 
of these conditions.'' In addition, Judge Kessel states, ``In many 
instances, HCFA rests its allegations on characterization of facts 
which are not supported by the evidence. In some instances, HCFA 
asserts that nurses employed by Petitioner failed to discharge specific 
directives in patients' plan of care when, in fact, the record proves 
that they did precisely what they were ordered to do. HCFA asserts also 
that Petitioner failed to conduct a required program evaluation despite 
overwhelming evidence that Petitioner performed the evaluation.''
    What follows is a portion of the sworn testimony of one of CSM's 
key employees. It is given this Subcommittee as a reference point of 
the type of agency being abused by the unbridled ORT process, as it 
currently operates.  ``I, Jean R. Murphy, R.N., have been a registered 
nurse for over twenty years, a portion of which was served as an 
officer and flight nurse in the United State Air Force. I have 
approximately thirteen years of experience in home health care as an 
administrator and/or consultant. I am currently administrator of CSM 
Home Health Services, Inc. I have held this position for four years. 
CSM has been serving Los Angeles' underserved minority communities 
since 1985. These communities include the Rampart District, South 
Central Los Angeles, Koreatown and other primarily minority 
communities. CSM's clerical and field staff are also primarily 
minority. CSM staff continued to serve their clients during the 1992 
riots under security guards. During the Northridge earthquake, my staff 
forsook their families to rush to the aid of their patients. One black 
certified home health aide was present in a board and care facility 
during the earthquake; and placed several residents under mattresses to 
protect them as she, herself, braced and quieted their fears.
    The CSM Director of Nurses stood in water without power using her 
cellular phone to try to reach staff and patients to ensure their 
safety, despite the fact that she, herself, was in peril because the 
gas supply in her apartment had not been turned off and had been 
evacuated for fear of explosion. One of CSM's clinical supervisors was 
carjacked and robbed at gunpoint while she sat in her car solving a 
patient crisis on her mobile phone.
    Another registered nurse, whose husband had driven her to a 
patient's home after the riots, was shot as they sped away to avoid 
being carjacked or killed. CSM has undergone Medicare recertification 
surveys annually since its founding. These surveys have been conducted 
by the surveyors from the Department of Health Services, who have found 
only minor deficiencies with CSM's compliance with Medicare Conditions 
of Participation. CSM responded to these deficiencies with corrective 
action plans; and there have never been any termination actions 
initiated against CSM as a result of these minor deficiencies.''
    HCAA asks this question: When two judges rule in favor of a home 
health agency, should HCFA appeal the decisions?
    HCFA has chosen to appeal Judge Kessel's October 11, 1996 decision. 
Here is a letter dated January 31, 1997 to HCAA Chairman Dwight Cenac 
from CSM owner Marianno Velez which states his thought about his 
    ``These past few months have been terrible for me, and I fear the 
burden has gotten the best of me, causing the worst case of depression 
that I have encountered, so much so that I felt a deep sense of 
fatigue, a loss of energy, as well as spirit, to continue living from 
day to day. I share this with you because what happened to me should 
not happen to anyone else. ... As you probably know already, HCFA has 
filed their appeal to reverse the ALJ (Judge Kessel's) ruling on CSMs 
case. And because of our outstanding debt to our lawyers, we have not 
been able to reply to HCFAs appeal. I am afraid all is lost--for the 
industry as well--if the ruling is reversed.''

Example #2

    A recent issue of USA Today detailed the story of Home Health and 
Hospice Care (HHHC) located in North Carolina. USA Today reported that 
dozens of state and federal agencies were in on the bust at the eight 
offices of HHHC on a January morning in 1995. USA Today reported that, 
suspecting the North Carolina company of billing Medicare and Medicaid 
services it wasn't providing, the agents seized everything, hauling off 
5 million records in trucks borrowed from the local Post Office.
    USA Today also reported in this article that fifteen months after 
the raid, a federal magistrate killed the HHHC case, ruling that the 
government misrepresented evidence to obtain it's warrants. Three 
times, the government appealed, but each ruling mirrored the 
magistrate's ruling: The government had pursued it's case with 
``reckless disregard for the truth.''
    Deputy Attorney General Eric Holder has been quoted as saying, ``I 
recognize that at times our approach has been perceived to be heavy-
handed.'' This clearly is an understatement. HCAA suggests that you ask 
Beverly Withrow, President of HHHC to testify before your committee 
about this abuse of power.
    These are but two examples of the failure of the current appeals 
system. It is also troubling to me that when an Administrative Law 
Judge (ALJ) rules in favor of the home health provider, the 
Administrator of HCFA is given the power to overturn an ALJ ruling 
(also at the PRRB level). It is imperative that the HCFA Administrator 
honor the rulings of ALJ's. It is important to note that HCFA believes 
that ALJ's are not trained or educated on Medicare policy. I urge this 
committee to ask the HCFA Administrator is she thinks ALJ's are able to 
render just decisions pertaining to home health care issues. YOU WILL 
BE SURPRISED AT HER RESPONSE. ALJ's are legal professionals and they 
clearly understand the issues brought before them. For HCFA to believe 
that ALJ's are ignorant is just another glaring example of the 
arrogance of HCFA.

  Section III--One Positive Development regarding the Appeals Process

    Currently, due to the Provider Reimbursement Review Board's 
backlog of cases, it takes approximately three years for a case 
to be scheduled for a hearing. Taking advantage of that fact, 
some fiscal intermediaries make audit adjustments (some times 
erroneously) to providers cost which result in recoupment of 
Medicare dollars with the expectation that the provider will 
not have the financial staying power to survive while the PRRB 
case is pending. Subsequently, when the adjustment is reversed 
by the PRRB, the provider has been forced to operate without 
the capital of an otherwise reimbursable expense for at least 
three years.
    However, the Office of Hearings (in the Department of HHS) 
in conjunction with the PRRB established an alternative dispute 
resolution process for early resolution of pending cases. 
Office of Hearings staff members were trained as mediators 
through the HHS Departmental Appeals Board Shared Neutrals 
program. The initial results of this project were promising, 
and the mediation pilot will be expanded during f.y. 1999. HCAA 
applauds HCFA for this cutting edge approach and we request 
that HCFA invite HCAA to work closely together in the future on 
this effort.

                         Section IV--Conclusion

    On the issue of HMO's it is amazing to me that when HMO 
profits are at stake, Senator Roth of the Senate Finance 
Committee wrote a letter to Administrator Min-DeParle last year 
regarding his concern; but with home health care, which is a 
cost-based system, little is being said by the Chairman of the 
Senate Finance Committee about the IPS for home health care 
being an unfunded mandate on the states, forcing patients into 
more costly nursing settings, or worse, patients being left at 
home without receiving necessary care. I hope that Senator 
Roth, in concert with Chairman Archer, passes meaningful 
legislation this year to restore proper funding to the Medicare 
home health benefit.
    I am also concerned that the concept of ``reasonableness'' 
has evaporated from HCFA and the fiscal intermediaries. The 
Provider Reimbursement Manual, Part I Section 2600 states, 
``For cost reporting periods beginning after December 31, 1973, 
reimbursement to providers for services to Medicare 
beneficiaries will be based upon the lower of the reasonable 
cost of providing those services or the customary charges for 
the same services.''
    Home health agencies across the U.S. have been under an 
unrelenting attack by the fiscal intermediaries regarding 
costs, but these same fiscal intermediaries are not using the 
concept of reasonableness when auditing these home health 
    HCFA must reinstate the ``waiver of liability'' to home 
health agencies who are complying with laws and regulations. 
Home health agencies are paid on a ``cost-based'' system. Their 
is no profit in home health care. The ``us versus them'' 
mentality (at HCFA the intermediaries and the surveyors) must 
be replaced by the concept of reasonableness between surveyors, 
fiscal intermediaries, HCFA and home health providers when 
dealing with audit and compliance issues.
    In conclusion, I would appreciate the opportunity to 
personally testify before this committee on home health issues 
in the future. I look forward to that opportunity.


Statement of Medical Device Manufacturers Association

    The Medical Device Manufacturers Association (MDMA) 
appreciates this opportunity to submit comments for the record 
of the subcommittee's April 22 hearing on Medicare coverage and 
beneficiary appeals. MDMA is a national trade association based 
in Washington, D.C. that represents nearly 130 independent 
manufacturers of medical devices, diagnostic products and 
health care information systems. As the national voice for the 
innovators and entrepreneurs in the medical device industry, 
MDMA seeks to improve the quality of patient care by 
encouraging the development of new medical technology and 
fostering the availability of beneficial innovative products.
    Without question, decisions on what services will be 
covered under the Medicare program are crucial to the health of 
Medicare beneficiaries and to continued innovations in medical 
technology. Medicare is the largest payer in the American 
healthcare system, and private insurers often consider 
Medicare's decisions as they make their own determinations 
about covered services. For Medicare patients to benefit from 
advances in medical technology, the Medicare program must have 
processes and systems that allow for the adoption of these 
advances in a timely manner.
    MDMA applauds the Health Care Financing Administration 
(HCFA) for publishing a notice that outlines, for the first 
time, how HCFA makes national coverage determinations. Although 
we believe the process set forth in the notice needs further 
refinement, MDMA believes that the act of publishing this 
notice is an important first step toward bringing much-needed 
clarity and openness to the Medicare coverage process. We also 
commend HCFA for considering the views of industry as HCFA 
developed this notice.
    MDMA hopes, however, that HCFA will entertain constructive 
suggestions to improve the notice, even though HCFA has not 
created a formal route for comments thereon. MDMA also looks 
forward to working with HCFA to fulfill HCFA's promises to 
develop specific criteria upon which coverage determinations 
will be made, and to bring transparency and openness to the 
local coverage policy process as well.
    MDMA welcomes this subcommittee's attention to the Medicare 
appeals process. Medicare should have an adequate and 
streamlined mechanism to address the claims of beneficiaries 
with unique circumstances that may necessitate the revisiting 
of a Medicare coverage determination. Manufacturers should also 
have a process through which they can challenge the actions of 
HCFA and local Medicare contractors in cases in which HCFA 
regulations, procedures, and policies were not followed 
properly or in which HCFA and its local contractors fail to 
consider or seriously misinterpret relevant data.
    Since we are filing this statement following the hearing, 
MDMA would like to focus particular attention on two of the 
issues discussed during the session.

                 Local vs. National Coverage Decisions

    First, with regard to the appropriateness of a role for 
regional and local HCFA contractors in determining coverage 
policy, MDMA firmly supports the decentralized nature of the 
Medicare coverage process. As the subcommittee knows, most 
coverage decisions are not made at national HCFA headquarters, 
but by the regional and local carriers with which HCFA has 
contracted to pay Medicare claims. Although this may seem (and 
sometimes is) unwieldy, this decentralization has contributed 
to the development and eventual nationwide adoption of advances 
in medical technology.
    For procedures or technologies upon which HCFA has not 
issued a national coverage or non-coverage determination, 
regional and local carriers may exercise discretion in the 
payment of Medicare claims. HCFA authorizes these carriers to 
develop ``local medical review policies'' that define what each 
carrier considers to be a reasonable and necessary service. 
These local medical review policies, by their nature, vary from 
state to state.
    Because the process is decentralized, medical device 
manufacturers, in conjunction with health professionals and 
patients, have opportunities to demonstrate the value of their 
technology to local carrier medical directors. With initial 
coverage in a number of states, manufacturers can then draw 
upon the data developed during initial coverage to demonstrate 
the value of their technology to HCFA. Since HCFA often wants 
to see data on the clinical value of a technology in the 
Medicare program before making a national coverage 
determination, this decentralized process allows manufacturers 
to work with amenable local carriers to develop this data in 
``real-world'' medical settings. Without such decentralization, 
and without general HCFA willingness to reimburse providers 
broadly for studies aimed at demonstrating the clinical value 
of a technology to the Medicare program and its beneficiaries, 
manufacturers would be hard-pressed to develop a case for broad 
coverage of their technology.
    For these reasons, MDMA urges the subcommittee to maintain 
a reasonable balance between local and national coverage 
decision-making in the Medicare program. By creating a system 
through which companies can petition HCFA for a national 
coverage determination after amassing data at the local levels, 
as HCFA has done in its coverage process notice, MDMA believes 
that HCFA will now be able to make national decisions more 
quickly with data developed locally.

               FDA's Role in Medicare Coverage Decisions

    As the subcommittee knows, the Food and Drug Administration 
(FDA) currently plays no formal role in the Medicare coverage 
determination process. HCFA recognizes FDA clearance or 
approval of a medical device as evidence of the device's safety 
and effectiveness. HCFA then focuses on determining whether 
Medicare coverage of a service or a device is ``reasonable and 
    MDMA believes that ``reasonable and necessary'' should be 
further defined by rule and through HCFA guidance to health 
professionals, beneficiaries, and manufacturers. The phrase 
``reasonable and necessary,'' set forth in Medicare law, is too 
vague to provide manufacturers with any sense of how to develop 
and demonstrate the value of a technology to the Medicare 
program. HCFA has pledged to address this issue this year, 
however, and MDMA looks forward to vigorous public debate on 
the subject.
    Over the years, some observers have suggested that HCFA 
should not play a role in determining whether a technology 
should be covered under the Medicare program. These observers 
suggest that FDA clearance or approval of the technology should 
translate into automatic Medicare coverage, with HCFA's role 
limited to determining an appropriate level of payment for 
services and devices. While this may seem on the surface to be 
a common-sense solution to a difficult situation, the proposed 
cure may in fact worsen the problem.
    For years, the medical device industry has worked to ensure 
that the FDA, in reviewing devices, adheres to its statutory 
mission of providing the public with a ``reasonable assurance 
of the safety and effectiveness of devices intended for human 
use.'' 21 U.S.C. 393(b)(2)(C). MDMA and other groups have 
challenged FDA attempts to extend the agency's authority to 
reviewing the clinical utility, cost-effectiveness, or other 
aspects of medical devices. These decisions, we have argued, 
were expressly left by Congress to be decided by health 
professionals and the marketplace.
    This Congress would be making a grave mistake if it were to 
give the FDA blanket authority to determine whether Medicare 
should cover a device. First, this would implicitly force the 
FDA to consider the cost of a device to the Medicare program 
when considering whether a medical device should be cleared or 
approved for marketing. Since the FDA's decisions apply beyond 
Medicare, the FDA's denial of a marketing application could 
prevent health professionals from using the technology in 
question to benefit any American, whether covered by Medicare, 
Medicaid, a private insurer, or his or her own personal funds.
    To give the FDA the authority to determine what procedures 
are available to Medicare beneficiaries would be to consolidate 
far too much power in one set of hands. MDMA believes that 
Congress acted appropriately when it determined that the FDA 
should limit its reviews to safety and effectiveness 
considerations, and leave the determination of a technology's 
clinical utility and overall value to health professionals and 
the marketplace. MDMA hopes that this subcommittee will not 
seek to terminate this separation of power.
    Thank you for your attention to Medicare's policies on 
coverage of medical services and technology, and thank you for 
the opportunity to share our viewpoint with the subcommittee.


Statement of National Association for Home Care

    The National Association for Home Health Care (NAHC), the 
largest trade association representing the interests of 
thousands of Medicare participating home health agencies across 
the nation, offer these comments in support of the efforts on 
the Ways and Means Health Subcommittee to examine the Medicare 
coverage and appeals process. Since its inception in 1983, NAHC 
has strenuously worked with the Congress and the Health Care 
Financing Administration (HCFA) to secure accurate and 
consistent coverage determinations along with an efficient and 
reliable appeals process. For the Committee's consideration, we 
offer the following recommendations:

1. Medicare contractors should be prohibited from promulgating coverage 

    Over the years, HCFA has authorized its claims processing 
contractors to develop local coverage policy in order to 
administer prevailing community standards of practice. However, 
the contractors, specifically the Regional Home Health 
Intermediaries (RHHIs) have increasingly acted beyond the scope 
of this authority in promulgating coverage policy in matters 
unrelated to local professional practice standards. Often the 
development of this policy has occurred without the knowledge 
of HCFA.
    A prime example of this unauthorized policymaking is the 
home health benefit coverage standard which requires that a 
patient must be ``confined to his home'' in order to establish 
eligibility. The so-called homebound requirement has long been 
a controversial aspect of the benefit. Most recently, Congress, 
in the Balanced Budget Act of 1997, mandated that the Secretary 
of Health and Human Services engage in a study of the homebound 
requirement and issue a report with recommendations to Congress 
by October 1,1998. This mandate was chosen as an alternative to 
the Administration's proposal to set inflexible frequency and 
duration limits on home absences into Medicare law.
    Under the guise of local coverage policy authority, two of 
the RHHIs, without HCFA's input or direction, embarked on an 
effort to establish the inflexible limits with their 
administration of Medicare claims review while the mandated 
study and report was still in progress. These standards in no 
way reflected local community standards of medical care. 
Instead, these standards governed a technical coverage 
requirement which should be implemented and administered 
consistently throughout the Medicare program.
    NAHC recommends that local coverage policy be limited to 
those few circumstances where it is necessary to address 
variations in professional standards of practice from one area 
of the country to another. Medicare contractors should be 
otherwise prohibited from establishing coverage policy. That 
function is more properly the role of this Congress and HCFA.

2. The Medicare appeals system should guarantee determinations within a 
                            reasonable time.

    A significant portion of Medicare appeals relate to home 
health and hospice benefit determinations. While the reversal 
rates have been consistently high (reconsideration reversals at 
30%-40%, administrative law judge (ALJ) hearing reversals in 
excess of 80%), the time for completion of the appeals 
continues to grow. When combined, the coverage length of time 
for processing these administrative appeals is approximately 
one year.
    Both beneficiaries and providers of services are ill served 
by a process which unnecessarily takes so long. For 
beneficiaries, extended time with out of pocket expenditures 
for health care services seriously jeopardizes continued access 
to care. For home health agencies, the long delays increase the 
cost of care, disrupt the fragile cash flow of the organization 
and jeopardize its existence as the continued cost based 
reimbursement provides no opportunity for financial reserves to 
safeguard the provider during the appeal period.
    NAHC does not support the Administration's consideration of 
a specialized ALJ corps in the manner it has been historically 
proposed. Over the years, HCFA has responded to concerns 
regarding the high rate of appeal reversals and the extended 
time for processing appeals by proposing to centralize hearings 
and appeals within HCFA. At one point, HCFA proposed to create 
a telephone based hearing system with the ALJs based at HCFA in 
Baltimore. This effort was exposed as an attempt to control the 
judge's decisions rather than to institute administrative 
    It is essential that any changes in the appeals process 
continue to guarantee the use of independent adjudicators who 
bring no bias or prejudice into their deliberations.

 3. Providers of service should be afforded their own rights of appeal.

    A Medicare beneficiary has a right of appeal with any 
adverse determination issued by Medicare and its contractors 
(42 USC Sec. 1395ff). However, providers of services are 
limited in their independent rights of appeal to only some of 
the circumstances where the determinations have an adverse 
effect on the entity (42 USC Sec. 1395 pp). For those instances 
where the provider is adversely affected without a right of 
appeal, the recourse for the provider is to pursue the matter 
as the authorized representative of the beneficiary (42 USC 
Sec. 1395 ff). This approach is an unnecessary intrusion on the 
    Under 42 USC Sec. 1395 pp, a provider of services directly 
can pursue an appeal where liability for the provision of non-
covered care rests with the provider. The non-covered care 
circumstances are limited to those where the claim is denied on 
the basis of lack of medical necessity, homebound status, 
intermittent care or the conclusion that the care provided was 
``custodial.'' However, there are numerous other bases for 
claims denials which, while the liability rests with the 
provider, are only subject to appeal by the beneficiary.
    The most noteworthy example of such claim denials are those 
based on technical conditions for payment such as requirements 
for physician certification of medical necessity and timeliness 
of Medicare billings. Where these conditions are allegedly 
unmet, HCFA denies the claim, prohibits the provider from 
charging the beneficiary, and yet allows for appeals only by 
the beneficiary.
    NAHC recommends that the Subcommittee consider revising 42 
USC Sec. 1395 ff and 1395 pp to allow providers of services to 
have an independent right of appeal in all circumstances where 
the Medicare determination adversely affects its interests.

 4. The HCFA Administrator should not have unilateral power to reject 
                         appeal determinations.

    The Medicare appeals system generally does not allow HCFA 
to improperly interfere with the adjudicatory process. However, 
with respect to reimbursement related appeals, HCFA maintains 
an Administratively created power to disregard or reject 
carefully crafted determinations issued in the appeals process.
    By regulation, the HCFA Administrator is authorized to 
unilaterally review and reject determinations issued by the 
Provider Reimbursement Review Board (PRRB) pursuant to its 
authority under 42 USC Sec. 1395 oo. Within the last several 
years, the Administrator has increasingly engaged in such 
action forcing providers to pursue these costly appeals in 
federal district court. The HCFA Administrator exercises this 
power to reverse PRRB decisions while acting as the real party 
in interest that is on the losing side of a PRRB appeal. It is 
unacceptable for one party to an appeal to possess the power to 
unilaterally overturn and reject that appeal determination. 
Such power disregards any semblance of due process.
    NAHC recommends that 42 USC Sec. 1395 oo be amended to 
prohibit the HCFA Administrator from maintaining unilateral 
power to reverse PRRB decisions.

5. Care and services determinations by providers should not be subject 
                          to Medicare appeals.

    In the testimony of Vicki Gottlich of the National Senior 
Citizens Law Center, it was proposed that Medicare 
beneficiaries should have an expedited appeal to Medicare 
whenever a fee-for-service provider denies services or reduces 
care to a patient. However, this position ignores the private 
relationship between the patient and the provider. It attempts 
to equate the decisions made by a private entity to those made 
by the government under the Medicare program.
    Unlike managed care entities in a Medicare+Choice plan, 
providers of services participating in the fee-for-service 
plans are not surrogate Medicare administrators. In fact, these 
providers of services can find themselves in an adversarial 
relationship with Medicare. They do not control Medicare 
determinations. Instead, they often appeal them on behalf of 
beneficiaries as well as themselves.
    To rewrite the principles of Medicare to subject a 
provider's care decisions to Medicare appeals would abrogate 
the insurance program concept and substitute a social program 
philosophy. Most care decisions by providers are unrelated to 
the Medicare coverage status of patients and should not be 
subject to Medicare review.


Statement of Pharmaceutical Research and Manufacturers of America

    The Pharmaceutical Research and Manufacturers of America 
(PhRMA) is pleased to submit these comments on the important 
issue of Medicare coverage. PhRMA represents the nation's 
leading research-based pharmaceutical and biotechnology 
companies, which discover and develop the majority of new 
medicines used in the United States and around the world. 
PhRMA's member companies will invest more than $24 billion this 
year alone on research and development. Last year, the industry 
brought 39 new prescription drugs and biologicals to market, 
including new medicines to treat diabetes, cancer, heart 
disease, Parkinson's disease, HIV/AIDS, asthma, and other 
deadly and debilitating diseases. While Medicare does not 
generally cover outpatient drugs, many of the medicines 
discovered and developed by PhRMA member companies are 
reimbursed by Medicare when used in an inpatient setting, 
incident to physicians' services, or certain other situations.
    The process and criteria for determining which treatments 
are covered under the Medicare program are critically important 
for ensuring that Medicare beneficiaries have access to high 
quality health care. We are very pleased that the Ways and 
Means Health Subcommittee, under the leadership of Chairman 
Thomas, is urging the Health Care Financing Administration 
(HCFA) to create an open and responsive process. For too long, 
Medicare has made its coverage decisions without adequate 
public input, timelines, or a process for appeals. We commend 
the committee for bringing attention to these coverage issues. 
Although HCFA's responses indicate a move in the right 
direction toward a better process, we are still very concerned 
about several issues concerning Medicare coverage of drugs and 
biologicals. We believe that some recent and proposed actions 
by HCFA and its contractors could inappropriately interfere 
with the practice of medicine and deprive Medicare 
beneficiaries of the most appropriate medical treatment.
    As background for our more specific comments, the following 
are six principles approved by the PhRMA Board of Directors 
that the industry believes should guide Medicare coverage 
policies affecting pharmaceuticals:
     Physicians should have access to the full range of 
approved products to treat Medicare beneficiaries. The clinical 
of judgment of physicians should be respected and their 
discretion preserved to allow them to prescribe the most 
appropriate therapy for their patients.
     Medicare should cover Food and Drug Administration 
(FDA) approved pharmaceuticals and biologicals. There is no 
need for Medicare to abandon its long-standing policy of 
relying on FDA approval as the standard for determining which 
medicines will be covered when prescription medicines are in a 
category reimbursed by Medicare.
     Medicare should cover off-label use of approved 
pharmaceuticals if independent compendia or peer-reviewed 
literature support such use. Long-standing HCFA policy is to 
cover off-label uses contained in compendia or supported by the 
peer-reviewed medical literature. HCFA policy should not be 
changed to prevent or discourage these beneficial used.
     FDA-approved labeling and off-label uses included 
in independent national compendia or supported by peer-reviewed 
medical literature should be the floor for local carrier 
decisions. In addition, local carrier decisions should be no 
more restrictive than any national coverage policy or 
decisions. To ensure that Medicare patients, regardless of 
where they live, receive high-quality health care, local 
carriers should not restrict the use of prescription medicines 
in any way that conflicts with (1) FDA-approved labeling, (2) 
off-label uses included in independent national compendia or 
supported by peer-reviewed medical literature, or (3) any 
national policy or coverage determinations.
     Medicare beneficiaries should have immediate 
access to FDA-approved drugs. To promote better health, patient 
access to effective new medicines should not be delayed.
     Medicare reimbursement mechanisms should encourage 
optimal drug therapy. Individual patients' medical needs vary 
greatly. Thus, Medicare should reject reimbursement schemes 
that encourage the use of less appropriate medications in the 
name of cost containment.

            Concerns with Current HCFA Policies and Practice

    Our comments, based on the above Principles, focus on three 
major areas: (1) Medicare's emerging practice of allowing 
coverage decisions to limit the use of pharmaceuticals to less 
than the labeled indications approved by the Food and Drug 
Administration; (2) Medicare's proposed use of comparability 
criteria in its coverage decisionmaking; and (3) problems in 
the local coverage decisionmaking process employed by 
Medicare's contractors.

   Medicare Restrictions on Use of Drugs in FDA-Approved Indications

    Long-standing Medicare policy relies on Food and Drug 
Administration approval as the basis for Medicare coverage for 
Medicare-eligible drugs.\1\ Since the inception of the program, 
when FDA approves a drug that is reimbursable by Medicare, 
physicians have been able to prescribe it and Medicare has paid 
for it. When determining whether a drug is medically 
``reasonable and necessary,'' current national Medicare policy 
is to consider a drug ``reasonable and necessary'' when it is 
used for one of the labeled indications approved by FDA. In 
addition, Medicare carriers have discretion to cover other 
medically accepted uses, as defined in major compendia, and 
must cover certain anti-cancer drugs even when used for certain 
off-label indications.\2\ This is an appropriate policy that 
has worked well for years. Importantly, it has ensured Medicare 
patients access to the FDA-approved drugs they need. (Of 
course, a determination of whether a drug is reasonable and 
necessary is made only if the drug meets other Medicare 
coverage requirements such as, for most drugs, not being self-
    \1\ Specifically, Sec. ``2049.4--Reasonableness and Necessity'' of 
the Medicare Carriers Manual states that:
    Use of the drug or biological must be safe and effective and 
otherwise reasonable and necessary. . . . Drugs or biologicals approved 
for marketing by the Food and Drug Administration (FDA) are considered 
safe and effective for purposes of this requirement when used for 
indications specified on the labeling. Therefore, you may pay for the 
use of an FDA approved drug or biological. . . .
    Moreover, this long-standing Medicare policy was adopted in all 
recent HCFA attempts to publish a Medicare coverage regulation: it was 
included in the 1989 Notice of Proposed Rulemaking as well as in both 
the 1992 and 1996 drafts of the final rule that were never published.
    \2\ The applicable manual provision states (Medicare Carriers 
Manual, Sec. 2049.4 Reasonableness and Necessity):
    An unlabeled use of a drug is a use that is not included as an 
indication on the drug's label as approved by the FDA. FDA approved 
drugs used for indications other than what is indicated on the official 
label may be covered under Medicare if the carrier determines the use 
to be medically accepted, taking into consideration the major drug 
compendia, authoritative medical literature and/or accepted standards 
of medical practice. . . Unlabeled uses of FDA-approved drugs and 
biologicals used in an anti-cancer chemotherapeutic regimen [are 
covered] if the use is supported by one of the approved medical 
    Deferring to FDA and medical compendia in determining 
medically acceptable uses of pharmaceuticals and biologicals is 
a sound policy in other respects. The FDA approval process is 
thorough and meticulous. HCFA and its contractors, the carriers 
and intermediaries, do not possess the expertise of the FDA, 
nor do they have sufficient staff resources to attempt to 
duplicate the FDA review process. In fact, to staff HCFA as 
would be necessary to carry out a supplemental review would be 
inefficient and wasteful of government resources. Medicare's 
policy has always been to consider all uses of pharmaceuticals 
and biologicals that fall within the FDA labeling to be 
reasonable and necessary. In fact, this policy is one of the 
very few Medicare coverage policies actually stated in program 
    Although the practice of deferring to FDA expertise in this 
area is clear and has been HCFA policy for years, PhRMA and its 
members are concerned that recent actions by several Medicare 
carriers, as well as statements by HCFA program officials, 
suggest that the agency's adherence to its long-standing policy 
may be weakening. We strongly believe that HCFA should not 
abandon this policy--or even consider modifying it--without 
consulting the Congress prior to formal rulemaking and an 
opportunity for public comment. A change in this policy would 
pose serious threats to Medicare beneficiaries' access to FDA-
approved drugs. We would quickly note that the agency has not 
initiated rulemaking to change the policy, and the Medicare 
Carrier's Manual remains unchanged.
    With the personnel and organizational changes that have 
accompanied HCFA's reorganization, combined with new activity 
on the part of some of the local carriers, HCFA needs to 
reaffirm its long-standing policies concerning Medicare 
coverage of pharmaceuticals with respect to labeled and off-
label indications. On several occasions, PhRMA and its members 
have urged HCFA--unsuccessfully--to take this action. This 
could be done simply--for example, through a Program Memorandum 
or other formal communication to carriers and fiscal 
intermediaries. In doing so, HCFA should state clearly that 
FDA-approved labeling and medical literature are the basis for 
determining when a drug is medically necessary, and that this 
policy applies to both local and national decisions about when 
the use of a drug is ``reasonable and necessary.'' It is 
regrettable that the agency now seems willing to vacate a 
policy that has been in place since the program's inception 
that underpins the high quality of health care delivered to 
Medicare patients. Strong and clear action is necessary to 
ensure that Medicare beneficiaries have access to the full 
range of approved drugs for all approved indications. HCFA 
should continue to rely on the expertise of the FDA for 
decisions regarding the appropriate use of drugs, and upon the 
clinical judgment of physicians concerning their use for 
individual patients. Medicare does not now, and will not in the 
foreseeable future, have the expertise to make independent 
medical determinations about the appropriate use of 
pharmaceuticals. PhRMA and its members urge the Committee to 
take legislative action, if necessary, to safeguard this 
important policy.

   Inappropriate Use of Comparability Criteria in Coverage Decisions

    As part of its new coverage proposal, HCFA also is 
considering establishing ``comparability'' as a new criterion 
for Medicare coverage. Under this standard, if HCFA determined 
two drugs or biologicals to be therapeutically equivalent, both 
would be reimbursed at the level of the lower-cost medicine. 
PhRMA and its members strongly oppose the application of 
comparability or ``least costly alternative'' determinations. 
We believe that, in decisionmaking about what medicines to use 
to treat a specific individual, only physicians are qualified 
to determine when two different medicines are likely to provide 
equal therapeutic benefit. HCFA and its contractors should not 
impose their views on these important doctor-patient decisions. 
Moreover, if a physician determines that a specific drug is 
best for the patient, whether or not that drug is the least 
costly alternative, reimbursement should be based on the price 
of that drug, not the price of the least costly alternative. 
Allowing HCFA this comparability authority would lower the 
quality of care provided to Medicare patients.
    Implementation of a comparability criterion implicitly 
assumes that two different chemical entities are essentially 
the same. We would emphasize that a process currently exists 
under which the FDA determines generic bio-equivalence of drugs 
with the same active ingredient. In addition, special Medicare 
rules are used to determine how much the program will reimburse 
for generically bio-equivalent drugs. For HCFA to go beyond 
these well established procedures for products that are not 
identical has no basis in science, medical practice or law.
    Moreover, we are concerned about the consequences for 
patients of letting HCFA and its contractors run free with 
comparability authority. Similar drugs can have very different 
effects in different patients. A particular drug within a 
multi-drug therapeutic class may be the best choice for one 
patient, but not for other patients with the same condition. 
These are exactly the decisions that should be reserved solely 
for the physician charged with treating a patient. The 
application of a comparability standard could lead to de facto 
denial of coverage for many prescription medicines that 
uniquely benefit Medicare patients. If Medicare reimbursement 
of providers is set at the level of the least costly treatment, 
payment policy--in conflict with best medical practice--will 
create strong incentives for physicians and providers not to 
use certain medicines, even when they are most appropriate for 
their patients. Clearly physicians and other providers would be 
inclined not to use medicines that cost them more than Medicare 
reimburses, even when the more costly medicine is more 
effective and more appropriate for the patient and, in many 
cases, more cost-effective overall. Because of its potential to 
lower the quality of patient care, we urge you to block HCFA's 
use of a comparability standard for determining Medicare 
coverage of drugs and biologicals.

               Serious Problems in Local Coverage Process

    We are particularly concerned that HCFA's current plan for revising 
its coverage process appears to exclude local coverage decisions. The 
overwhelming majority of Medicare coverage policies are local, not 
national, and it is unlikely that this will change in the near future. 
Our concern on this critical matter has been heightened by what our 
members see as new restrictions being imposed by Medicare's local 
carriers. There is a growing list of instances in which one carrier, or 
a group of carriers (for example, those in a particular regional office 
area), have established restrictive policies. We would note that these 
actions appear to occur most frequently with newer, more expensive 
drugs, raising the possibility that HCFA and its carriers are turning 
their backs on long-standing Medicare policy strictly for budget-
cutting purposes. These actions already are depriving Medicare patients 
in certain areas of beneficial drug treatments available to 
beneficiaries in other areas and to patients enrolled in private health 
    Carriers' restrictive policies are taking many forms. Sometimes, as 
noted, they deny coverage of drugs and biologicals for not being 
reasonable and necessary even when they are used fully consistent with 
FDA-approved indications or a listing in the medical compendia. Other 
times, they make decisions not to cover a particular drug because they 
consider it to be precluded from coverage by statutory restrictions on 
preventive treatments or drugs that are self-administered. Thus, for 
example, some carriers do not cover certain injectable drugs important 
to many cancer patients undergoing chemotherapy because some patients 
could administer the injections themselves--even though the usual means 
of administration is not by the patient. In another situation, carriers 
are withholding coverage because the drug can be used to reduce 
complications from surgery, such as transfusions. The carriers 
incorrectly and inappropriately deem this use to be preventive.
    These brief examples are only illustrative of some of the 
inappropriate and indefensible actions by Medicare carriers in recent 
months. We are disturbed not only by the seriousness and prevalence of 
these problems, but by the fact that HCFA continues to ignore them. 
Despite pleas from PhRMA and its member companies and many other 
associations representing patients, physicians, providers and 
manufacturers, HCFA has continued to refuse to address these concerns 
in its review of the coverage process. As we have already noted, in the 
case of pharmaceuticals and biologicals, many of the inappropriate 
carrier decisions could be avoided if HCFA were, with respect to drugs 
and biologicals, to reaffirm the reliance on FDA labeling and the 
medical compendia for Medicare coverage decisions. At a minimum, this 
should be done, and done quickly. But this alone would not be 
sufficient to address the many local problems restricting coverage of 
pharmaceuticals, biologicals and other health services. Unlike the 
national coverage process, which is not governed by any existing 
regulations or other formal policy, at the local level, HCFA's carrier 
manual requires a consultation process. In certain carrier areas, the 
local process--a Carrier Advisory Committee (CAC)--appears to work 
reasonably well. In other areas, the process is pro forma, at best. 
Because HCFA has failed to do so, Congress should review and tighten 
the requirements governing the local coverage process to ensure that 
local decisions are made in an open and consultative manner, and in 
full compliance with national policies. Moreover, given the importance 
of local coverage decisions in determining what treatments are actually 
available to Medicare beneficiaries, actions to improve the local 
process must be initiated as quickly as possible, as part of current 
    In conclusion, PhRMA believes that the current process for making 
Medicare coverage decisions at both the local and national level is 
closed and unresponsive to the public. The proposals that HCFA has made 
thus far do not go nearly far enough to address these and other 
problems. HCFA must publish both process and substantive requirements 
for establishing Medicare coverage through notice and comment 
rulemaking. HCFA's process for making coverage decisions should provide 
for public input at all stages, must include mandatory time frames, and 
must provide an opportunity for appeal. Moreover, the backbone of any 
new HCFA process must be reliance on FDA approval and medical compendia 
for coverage determinations, rejection of a comparability criteria, and 
inclusion of local carriers in decisionmaking.
    PhRMA believes that the proposed new process and criteria for 
coverage, as currently conceived by HCFA, risk lowering the quality of 
health care received by Medicare beneficiaries. We are particularly 
concerned that, if HCFA places new restrictions on patient access to 
pharmaceuticals and biologicals as planned, Medicare's elderly and 
disabled beneficiaries may be harmed.
    We thank you for the opportunity to submit these comments.


Statement of George A. Sample, MD, FCCP, Society of Critical Care 
Medicine, Anaheim, California

    I appreciate this opportunity to provide testimony on 
behalf of the Society of Critical Care Medicine (SCCM) to the 
Health Subcommittee of the House Ways and Means Committee with 
respect to certain regulatory issues facing physicians who 
provide critical care services to Medicare patients. In 
existence since 1970, SCCM represents over 6,400 physicians 
specializing in the delivery of medical care services to 
critically ill or injured patients.
    SCCM has previously has engaged in productive discussions 
with HCFA on regulatory issues. For example, immediately after 
the Physician Fee Schedule was implemented in 1992, SCCM was 
engaged in extensive discussions with HCFA officials over the 
significant undervaluation of critical care services. Critical 
care services had been ignored in the establishment of the Fee 
Schedule. During these conversations, there was agreement 
between HCFA and SCCM that critical care services essentially 
are medical management services whereby the critical care 
specialist is evaluating and manipulating complex databases to 
prevent or treat single or multiple vital organ system failure. 
The exact procedures to be bundle into payment for the critical 
care services were carefully negotiated in establishing an 
appropriate fee. There was much discussion and agreement that 
critical care services were not ``emergency'' or ``crash'' 
services. Moreover, the concept that these codes are only 
``emergency'' codes is contrary to the entire approach of the 
critical care physician as the manager of the care of these 
    In 1994, HCFA and SCCM coordinated national professional 
critical care organizations to address carrier medical 
directors' inappropriate interpretation of the critical care 
codes as ``emergency'' services. HCFA formed a task force of 
carrier medical directors to investigate the problem, with 
Marjorie Kanof, M.D., then-carrier medical director from 
Massachusetts chairing the task force. SCCM felt that the task 
force meetings were very productive and that once again HCFA 
officials and SCCM were in agreement as to the nature of 
critical care services as medical management codes. Indeed, Dr. 
Kanof clearly acknowledged that critical care services could be 
provided to ``hemodynamically stable'' patients and wanted to 
be informed of any carrier who was not adhering to this 
standard. As a result of the task force meetings, HCFA issued a 
program memorandum on February 10, 1995, signed by Elizabeth 
Cusick (the ``Cusick memo'') clarifying that critical care 
codes are management codes that could be used to describe 
services provided to prevent a patient from experiencing a 
single or multiple vital organ system failure. Moreover, the 
Cusick memo acknowledged that some carriers had required there 
to be a medical emergency for critical care to be billed but 
``[s]uch an interpretation is too narrow and restricts the use 
of the critical care codes inappropriately.''
    Now, once again, carrier medical directors are applying 
inappropriate, narrow interpretations to the critical care 
codes in contradiction to the Cusick memo, even when it is 
brought squarely to their attention. You will be receiving 
testimony from individual critical care physicians who will 
confirm that carrier medical directors are not abiding by the 
Cusick memo. HCFA once again has formed a task force to 
investigate the situation, and SCCM is working closely and 
productively with this task force.
    Just this past year, SCCM is aware of carriers covering the 
states of Maryland, Delaware, D.C., Texas, Idaho, and Tennessee 
attempting to implement local medical review policies (LMRPs) 
on critical care services that were in direct contradiction to 
the Cusick memo. At the very least, the LMRPs would have 
limited the use of the critical care codes to medical 
emergencies. Fortunately, when SCCM brought these LMRPs to the 
attention of HCFA, agency officials instructed the carriers not 
to implement LMRPs on critical care until the task force 
concludes its work. We would be remiss if we did not 
acknowledge the cooperation of Trailblazer's, which has worked 
with us toward a common goal of improving the conditions for 
carriers and physicians since that time.
    What is even more confounding to the Society and to 
practicing critical care physicians than the above mentioned 
LMRPs and the carriers' use of inconsistent standards is the 
fact that regardless of the standards that the carriers are 
using, there is no attempt to communicate these standards to 
critical care physicians until after an audit takes place and 
the carrier is sometimes demanding reimbursement of a 
significant overpayment. Many carriers are conducting ``post-
Cusick memo'' audits of medical records where it appears that 
they are again interpreting the critical care codes as 
``crash'' codes. In these audits, carrier medical directors are 
alleging that a large percentage of critical care services are 
``medically unnecessary'' by using criteria that had never been 
communicated to the physicians.
    Further, studies have shown that involvement of the 
critical care specialist in a patient's care can reduce length 
of stay in the ICU and the hospital, reduce patient mortality, 
and reduce health care costs. Nevertheless, several carriers 
are defining critical care services so narrowly that the 
majority of the services provided by the critical care 
physician would be deemed by the carrier as not medically 
necessary for the Medicare patient. We are concerned that these 
narrow carrier interpretations will produce a chilling effect 
on the delivery of critical care services. The net result could 
be that patient care will suffer and costs will escalate.
    Some carriers are denying critical care services if the 
medical record does not denote specifically the time spent 
providing critical care services. In many of these cases, it is 
absolutely clear from the substance of the physician note in 
the medical record that over 30 minutes of care to the patient 
was provided. While it is HCFA's view that the necessity of 
actual time being documented in the physician note is required 
in the Medicare carrier manual, it is not emphasized or clearly 
written, and, more importantly, is not typically communicated 
to physicians.
    Not only are the practicing physicians unaware of this 
rule, but some carrier medical directors are as well. In Idaho, 
the carrier medical director stated in a letter to an audited 
physician that ``. . . notation of time was not a necessity.'' 
Additionally, if the substance of the audited medical record 
supports the fact that over 30 minutes of care was provided, 
why should payment be denied just because actual time was not 
    A 1995 letter from Celeste Kirschner, Secretary of the AMA 
CPT Editorial Panel supports the position that the substance of 
the note could act as a proxy for a listing of the exact time. 
Despite the support of the AMA CPT Editorial Panel and some 
carrier medical directors, other carrier medical directors will 
deny critical care claims without a notation of exact time and 
assess physicians hundreds of thousands of dollars through 
claims extrapolation. At a minimum, physicians and carriers 
should be thoroughly educated on proper documentation nuances 
before a repayment is sought for services which were truly 
    Just as the absence of time notation is an automatic denial 
of a claim, so is the presence of the word ``stable'' in the 
minds of many chart reviewers. As an example, a critically ill 
patient on the fifth day of his/her sepsis, receiving 
vasoactive medication (Levophed, epinephrine) and on ventilator 
support, would be considered ``stable,'' because no changes 
were made in the patient's life sustaining support. In fact, no 
changes are made because the patient remains too ill and too 
tenuous to wean any support, yet not progressing or 
deteriorating either. The purpose of the Cusick memo was, in 
part, to inform carriers that critical care may be provided in 
clinical situations such as mentioned above. Further, the 
Cusick memo clearly states that critical care may be provided 
to prevent a patient from having single or multiple organ 
system failure.
    Taken to its absurdity, a patient with a DNR order has been 
deemed by a carrier medical director to be ineligible for 
reimbursement of critical care services. To the carrier, a DNR 
implies that the physician is either not actively managing that 
patient's care or the patient's condition does not justify the 
provision of critical care services. As you will hear, this is 
not an appropriate conclusion.
    Carriers also appear confused about critical care services 
provided within a global surgery period. The carriers do not 
appear to understand the concept of concurrent care that HCFA 
resolved in 1992. The surgeon continues to provide standard 
post-operative care to patients in the ICU, however, the 
critical care physician is managing the care of a particular 
problem or problems for the patient. Both the surgeon and the 
critical care physician are providing medically necessary 
    Most carrier medical directors are making no attempt to 
consult with critical care physicians in their area to develop 
reasonable criteria and documentation guidelines before these 
carriers audit a critical care physician, and potentially seek 
overpayment of assessments of hundreds of thousands of dollars. 
The medical directors are either unaware or defiant of the 
Cusick memo.
    For example, the South Carolina carrier medical director 
emphasizes in the Medicare Bulletin that the carrier physician 
education function is critical and that the carrier notifies 
doctors when their billing pattern varies substantially from 
that of their peers. As you will see from testimony here today, 
the South Carolina carrier made no attempt to inform critical 
care physicians regarding the criteria that would be used to 
audit critical care services in that state. Instead, the 
carrier appeared to use an arbitrary standard. We are also 
concerned that the medical director seemed to issue a 
prospective announcement in the Medicare Bulletin that in 1997 
he expected to recoup through audits $200 million.
    While we are encouraged by the direction and tone of our 
meetings with HCFA in developing further instructions to the 
carriers on the proper interpretation of the critical care 
services and the input from Trailblazer's, we have received 
little or no relief from HCFA relative to our concerns about 
how carriers currently are conducting audits of critical care 
services with the wrong interpretation of these codes and 
without providing physicians with any prior notice of their 
    Thus, we have the following recommendations for HCFA:
     HCFA should issue another clarifying memorandum to 
carrier medical directors explaining that the critical care 
codes are not simply ``crash'' codes.
     Carrier audits of critical care services, except 
for egregious situations, should be suspended until this 
clarifying memorandum can be issued.
     Past audits where the carrier used standards in 
contradiction to the Cusick memo should be reopened.
     HCFA should require carriers to conduct 
educational programs on critical care billing once the new 
memorandum is issued. The education should be based on the 
national standards. The professional critical care 
organizations would like to be part of this process, working 
closely with HCFA and the carriers.
     Carriers who purposely disregard a HCFA standard 
and subject physicians to erroneous reviews should be subject 
to some type of sanction by HCFA. The carriers should not be 
judged solely by how much money they recoup. There must be some 
forum established within HCFA for HCFA to hear and act upon 
complaints about carrier consistency with national standards. 
Physician input should be considered in annual carrier 
performance reviews.
     Carriers should be more circumspect in their use 
of extrapolation to levy six figure overpayment assessments. 
Prior to proper educational programs, carriers should not use 
extrapolation where audits reveal simply honest mistakes in 
documentation or interpretation.
     A claim should not be denied simply because the 
exact time was not recorded, because the word stable was used, 
because the words DNR appear, or because the patient is post 
surgery. Auditors must have sufficient clinical knowledge and 
must review the complete record so that they can determine from 
the substance of a note that over 30 minutes of care was 
clearly provided or that the patient's condition may have been 
hemodynamically stable because the critical care physician was 
closely monitoring the patient's condition. In addition, a 
critical care physician can actively manage the care of a DNR 
patient who requires critical care services and provide 
medically necessary services to post surgical patients.
     Billing patterns of critical care physicians 
should be compared to other critical care physicians.
    The system only works if physicians believe they are being 
treated fairly. The members of the Society of Critical Care 
Medicine would welcome an opportunity to work with the Health 
Subcommittee to address these important issues. Thank you.


                    SunDance Rehabilitation Corporation    
                                           Dallas, TX 75240
                                                        May 6, 1999
A. L. Singleton,
Chief of Staff,
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20525

    I would like to thank Congressman Bill Thomas for your most recent 
efforts to provide reasonable time frames for the appeals of claims for 
services provided to Medicare recipients. Denied claims may take over 4 
years to be resolved through the various steps of the appeal process.
    The process in question lacks fairness to the provider community. 
Please consider the following points.
    1. Services denied payment by Fiscal Intermediaries and 
subsequently deemed payable by an Administrative Law Judge continue to 
be denied payment when such services are provided. This creates great 
frustration for the service providers and the Administrative Law Judge. 
The appeals process becomes burdened with issues that have been ruled 
on numerous occasions.
    2. On average, I win 95% of the appeals that reach the 
Administrative Law Judge level. I do not believe that this percentage 
is significantly different than other providers. Based on this level of 
claims being overturned, it would lead one to view the appeals process 
as a system that delays payment for services not as a system that 
determines the appropriateness of the service.
    While your current legislation provides a much more reasonable time 
frame for claims to reach the Administrative Law Judge level, without 
similar time frames for this level, the backlog of claims will remain.
    You may also wish to consider that part of a viable solution rests 
in fewer claims needing the appeals process for resolution. This could 
be accomplished by HCFA taking a clear position on services rather than 
allowing the various Fiscal Intermediaries to create coverage policy. A 
uniform approach to this issue ensures that a greater consistency of 
the Medicare program for recipients, providers and regulators.
    Another solution, in reducing the number of claims seeking 
resolution through the appeal process, is the charging of interest on 
the withheld payment. When claims are denied, payment is not made for 
the service or goods the Medicare recipient has received. When the 
claim is resolved, years later, payment is for the original billing 
without any adjustment for interest. The impact of this practice is 
clear. At the same time, when a provider owes money back to the 
Medicare program, interest is charged on any unpaid balance, at an 
interest rate of nearly 14%. I fail to see the fairness in this 
    When Fiscal Intermediaries are faced with the prospect of paying 
interest for the abusive manner in which claims are denied, the process 
will improve.
    Currently, I have over $3,000,000.00 in claims at some step in the 
appeals process. I will win 95% or more of these disputes. I also 
realize that for every claim overturned in my favor I have lost the 
cost of that money over the years. In addition to the cost of money, 
are the expenses of the hearing process and the lost time of the staff 
required to present the claims. I also realize that if I do not pursue 
payment, I could be charged with fraudulent billing practices.

                                              David Kniess,


     Transamerica Occidental Life Insurance Company        
                                    Transamerica Center    
                                 Los Angeles, CA 90015-2211
                                                        May 4, 1999

Congressman William Thomas
Committee on Ways and Means
1136 Longworth House Building
Washington D.C. 20515

    Dear Congressman Thomas:

    As the Chief Medicare Officer for Transamerica Occidental Life 
Insurance Company, the Southern California Medicare Part B carrier, I 
would like to respond to the testimony given by Frank J. Kiesner, 
President and CEO of Oncotech Inc., to the House Ways and Means 
Committee, Subcommittee on Health, on April 22, 1999.
    Transamerica Occidental has been the Part B administrator in the 
Southern California area since the inception of the Medicare Program. 
Under our contract with the federal government, Transamerica Occidental 
follows specific rules and regulations outlined by the Health Care 
Financing Administration (HCFA) in processing Medicare claims. Our 
Medicare area currently processes close to 28 million claims a year, 
serving 1.2 beneficiaries and 25,000 providers. Many thousands of these 
processed claims are for cancer tests and treatments.
    Oncotech produces a cancer test called the Extreme Drug Resistance 
(EDR) test that determines if a patient is extremely resistant to a 
chemotherapy drug. While we are certainly eager to see effective, new 
treatments and tests for cancer patients, as more fully discussed below 
our opinion is that Oncotech's test is still considered experimental. 
Therefore, the company's claims have been denied.
    In certain instances, local carriers are given latitude in 
determining whether new tests and treatments fall within the prescribed 
HCFA guidelines. When this occurs, as is the case with the EDR test, we 
rely upon independent, outside medical consultants to advise us about 
the effectiveness of the test or treatment in question. These 
consultants are licensed practitioners who are board certified in their 
field of expertise. Their names are deliberately not revealed to avoid 
external influences by product or pharmaceutical manufacturers.
    Our discussions with these medical experts, along with our own 
medical department's evaluation of current scientific literature, have 
led us to conclude that the EDR test is virtually the same as a drug 
chemosensitivity test. Drug chemosensitivity tests are still considered 
``investigational'' by HCFA and not eligible for payment. At this time, 
the scientific evidence does not prove EDR's effectiveness in the 
diagnosis or treatment of the majority of oncology patients.
    Oncotech was notified several times about our decision and the 
rationale for it. In addition, all of Transamerica's decisions are 
published in our Medicare newsletter that is distributed to all 
providers. In the future, if HCFA determines that chemosensitivity and/
or EDR testing is reasonable and necessary and revises its national 
policy, we would change our policy as well. In addition, if new, 
scientific data leads our consultant experts to view EDR as a test 
covered under Medicare, we would change our local policy. This change 
would be communicated in our newsletter to providers.
    In his testimony, Mr. Kiesner also makes a number of 
recommendations regarding local Medicare processes and policies. 
Although not addressed in this letter, we would be happy to discuss any 
of the other points raised in his letter or to provide additional 
specific information about how we arrived at our decision related to 
the EDR test.

                                           George E. Garcia
                                             Chief Medicare Officer