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





MEDICARE'S MANAGEMENT: IS HCFA'S COMPLEXITY THREATENING PATIENT ACCESS 
                            TO QUALITY CARE?

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                         HEALTH AND ENVIRONMENT

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 27, 2000

                               __________

                           Serial No. 106-125

                               __________

            Printed for the use of the Committee on Commerce



                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
65-913                     WASHINGTON : 2000

                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
    Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
                   James E. Derderian, Chief of Staff
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
                                 ------                                

                 Subcommittee on Health and Environment

                  MICHAEL BILIRAKIS, Florida, Chairman
FRED UPTON, Michigan                 SHERROD BROWN, Ohio
CLIFF STEARNS, Florida               HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 PETER DEUTSCH, Florida
RICHARD BURR, North Carolina         BART STUPAK, Michigan
BRIAN P. BILBRAY, California         GENE GREEN, Texas
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia             THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma              LOIS CAPPS, California
  Vice Chairman                      RALPH M. HALL, Texas
RICK LAZIO, New York                 EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona             JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING,         (Ex Officio)
    Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Coble, Yank, Board of Directors, American Medical Association    80
    Fleming, Dave, Group Senior Vice President, Diagnostic 
      Products and Genetics, Genzyme Corporation on behalf of 
      AdvaMed....................................................    65
    Gottlich, Vicki, Center for Medicare Advocacy and the 
      National Academy of Elder Law Attorneys....................    89
    Hash, Michael, Deputy Administrator, Health Care Financing 
      Administration.............................................    12
    Mangano, Michael F., Principal Deputy Inspector General, 
      Office of Inspector General, Department of Health and Human 
      Services...................................................    73
    Waller, Robert R., Chairman, Healthcare Leadership Council...    58
Material submitted for the record by:
    American Association of Orthopaedic Surgeons, prepared 
      statement of...............................................   107
    American Psychiatric Association, prepared statement of......   110
    Hash, Michael, Deputy Administrator, Health Care Financing 
      Administration, responses for the record...................   120
    Mangano, Michael F., Principal Deputy Inspector General, 
      Office of Inspector General, Department of Health and Human 
      Services:
        Letter dated July 6, 2000, to Hon. Tom Coburn, enclosing 
          response for the record................................   116
        Letter dated July 6, 2000, to Hon. Charles Norwood, 
          enclosing response for the record......................   117
    Waller, Robert R., Chairman, Healthcare Leadership Council, 
      additional comments for the record.........................   114

                                 (iii)

  

 
MEDICARE'S MANAGEMENT: IS HCFA'S COMPLEXITY THREATENING PATIENT ACCESS 
                            TO QUALITY CARE?

                              ----------                              


                         TUESDAY, JUNE 27, 2000

                  House of Representatives,
                             Committee on Commerce,
                    Subcommittee on Health and Environment,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:07 a.m. in 
room 2322, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present: Representatives Bilirakis, Upton, Stearns, 
Greenwood, Burr, Whitfield, Ganske, Norwood, Coburn, Bryant, 
Brown, Strickland, Barrett, Capps, and Eshoo.
    Staff present: Tom Giles, majority counsel, Carrie Gavora, 
majority professional staff, Kristi Gillis, legislative clerk, 
Bridgett Taylor, minority professional staff, and Amy 
Droskoski, minority professional staff.
    Mr. Bilirakis. I am pleased to convene this hearing on the 
management of the Medicare Program by the Health Care Financing 
Administration.
    As this Congress has considered proposals to expand 
coverage of prescription drugs under Medicare, I have been 
struck by one of the common themes throughout several of the 
proposals.
    On both sides of the aisle there seems to be a pervasive 
belief that any additional Medicare benefit, especially one as 
important and difficult as prescription drug coverage, should 
not be administered by HCFA.
    This hearing is especially significant because any effort 
to reform Medicare must include a careful review of the agency 
that administers the program.
    I do not intend to bash HCFA; rather, I want to conduct a 
thorough examination of the Health Care Financing 
Administration, its regulations, policies and interactions with 
stakeholders as well as the impact with Congressional mandates.
    In the last Congress this subcommittee took a hard look at 
the Food and Drug Administration and crafted legislation to 
make that agency more consumer-friendly, more user-friendly, 
and more patient-friendly.
    I believe that the time has come to begin a similar review 
of HCFA as part of a broader effort to modernize both the 
agency and the Medicare Program.
    Beginning with this hearing, it is my plan to launch a 
serious, responsible, and bipartisan HCFA reform effort.
    Today we will hear from the medical device industry and 
health care providers, as well as Mr. Mike Hash, the Deputy 
Administrator of HCFA. I am hopeful that we will begin to 
understand some of HCFA's delays in implementing Federal law, 
including the hospital outpatient prospective payment system 
rule and the long-term care hospital prospective payment system 
rule.
    This Congress continues to debate managed care reform and 
prescription drug coverage. There is also considerable interest 
and speculation regarding the budget surplus and further 
refinements to the 1997 Balanced Budget Act.
    My staff is currently working to identify additional 
changes necessary to remedy unintended consequences of the 
Balanced Budget Act and to restore essential funding.
    In addition to HCFA reform, we welcome the input of the 
larger health care community on these issues. However, I hope 
we can keep this hearing focused on the critical issue before 
us and that is HCFA modernization and reform.
    I look forward to hearing from the agency and its 
stakeholders today. We must continue to work together to 
improve HCFA until it is truly consumer-friendly, user-
friendly, and patient-friendly.
    I would say at the outset that the opening statement of all 
Members of the subcommittee will hereby be made a part of the 
record and I will now yield to Mr. Brown for an opening 
statement.
    Mr. Brown. Thank you, Mr. Chairman. I would like to welcome 
Mike Hash and our other distinguished witnesses. Thank you for 
joining us.
    Most of us actually on this side of the aisle, many in this 
Congress do believe that prescription drug should in fact be 
administrated by HCFA.
    I don't question, Mr. Chairman, the value of this hearing. 
If there are ways HCFA can improve, can streamline its 
operations, as I am sure there are, we should encourage those 
changes. Coverage decisions should be made on a fair and timely 
basis.
    If there is any question as to whether those standards are 
being met, we should hear about it; similarly, with the efforts 
of Congress and the administration, to rout out fraud and 
abuse. There is a fine, but important, line between aggressive 
and abusive scrutiny of Medicare providers.
    However, if the goal truly is to do what is best for 
Medicare beneficiaries and not to bash HCFA, then I would like 
to suggest the following:
    First, HCFA does not operate in a vacuum. If there are 
problems in the administration Medicare Program, we in Congress 
share the blame. The executive branch shares the blame and 
Medicare providers share the blame.
    We starve HCFA and at the same time multiply its 
responsibilities. We legislate payment policy. We legislate 
restrictions on Medicare's use of cost containment mechanisms. 
We even legislate the specifics of complex payment systems and 
then we complain that HCFA just isn't flexible enough. We fault 
HCFA for red tape that if we took the time to trace it back, 
probably derives from pressure that we on this subcommittee and 
we on this full committee and we in this Congress placed on the 
agency.
    Medicare providers lobby us to restrict HCFA's authority, 
to dictate their every action, and the same providers vilify 
HCFA for their ``by the book'' bureaucratic approach.
    Last January 14, top health policy experts from across the 
political and ideological spectrum got together and wrote an 
open letter to Congress and to the administration. I am not 
exaggerating the diversity or credentials of this group, 
Marilyn Moon, Stewart Butler, Gail Walinsky, Robert Helms, Uwa 
Reinhardt, Robert Reicher, William Roper, a virtual who's who 
across the ideological spectrum in health policy, all signed 
their name to this document.
    This letter, which I would like to submit for the record, 
was published in the Journal of Health Affairs. I want to share 
some of the letter with you, beginning with the first 
paragraph.
    ``The signatories to this statement believe that many of 
the difficulties that threaten to cripple HCFA stem from an 
unwillingness of both Congress and the Executive to provide the 
agency the resources and the administrative flexibility to 
carry out this mammoth assignment.
    ``This is not a partisan issue because both Democrats and 
Republicans are culpable for their failure to equip HCFA with 
the human and financial resources it needs. They continue no 
private health insurer after subtracting its marketing costs 
and profit, would ever attempt to manage such large and complex 
insurance programs with so small an administrative budget.''
    They are referring to the fact that HCFA's administrative 
expenses represent 1 percent of the Medicare Trust Fund and 
only 2 percent of Part B spending. It leads me to my second 
point, Mr. Chairman.
    If you think private insurers can do a better job than 
HCFA, and in part that is what the prescription drug debate is 
all about, ask yourself the following questions:
    One, when you hear complaints about Medicare, how often are 
the complaints actually directed at the private contractors 
that administer Medicare benefits?
    Two, can you name a private insurer that markets 
indiscriminately to the healthy and the sick, that willingly 
covers pre-existing conditions, that wouldn't reduce benefits, 
that wouldn't drop enrollees if that meant making more money?
    Four, how much administrative costs does a private insurer 
typically absorb or typically take?
    Five, why do an overwhelming majority of Americans believe 
we need a patient's bill of rights to ensure that private 
insurance plans deliver on their promises?
    Six, why are 44 million individuals uninsured?
    Seven, why when we receive phone calls and letters from 
providers complaining about red tape, questionable coverage 
decisions and slow claims turnaround, is it so often the 
private insurance industry these providers are referring to.
    If there are actions we can take, if there are changes in 
what we do and what HCFA does that can improve this program's 
operations, let's make those changes.
    But I hope, Mr. Chairman, this hearing doesn't just become 
a vehicle for some of my colleagues to promote Medicare 
privatization or an excuse to deflect responsibility we all 
share by making this government agency a scapegoat.
    Taking this hearing in either direction would be a 
regrettable waste of time.
    Mr. Bilirakis. I thank the gentleman. Before I recognize 
the other members of the subcommittee, I would ask unanimous 
consent that a June 12, 2000 letter signed by better than 60 
Members of the House, a very bipartisan letter, a very large 
number of Members of the other party are signatories to that 
letter requesting this hearing. I request it be made a part of 
this record.
    Without objection, that will be the case. The letter says: 
``We are writing to request that you consider holding oversight 
hearings of HCFA and its carriers. We are concerned at the 
complexity of the program and the chevron of regulations that 
health care providers must now provide are serving as an 
impediment to quality health care services for Medicare 
beneficiaries, et cetera.''
    Then the last paragraph, ``Our overwhelming goal is to 
create a stronger and more effective HCFA that will be able to 
meet the challenging needs of the growing elderly population.''
    I would suggest to my ranking member, who is my very good 
friend, that that is the goal of this hearing, and not, as I 
said at the outset, to bash HCFA. The paragraph goes on:
    ``If HCFA is not able to adequately meet these needs we are 
worried that access to quality health are services for our most 
vulnerable population will continue to get worse.
    ``In the interest of Medicare beneficiaries and for the 
physicians who participate in the program, we urge that your 
committee takes prompt action.''
    [The letter follows:]

                      Congress of the United States
                                             Washington, DC
                                                      June 12, 2000
The Honorable Thomas Bliley
Chairman
Committee on Commerce
U.S. House of Representatives
2125 Rayburn House Office Building
Washington, D.C. 20515

The Honorable Michael Bilirakis
Chairman
Committee on Commerce
Subcommittee on Health and Environment
2125 Rayburn House Office Building
Washington, D.C. 20515
    Dear Mr. Chairmen: We are writing to request that you consider 
holding oversight hearings of the Health Care Financing Administration 
and its carriers. We are concerned that the complexity of the program 
and the sheer volume of regulations that health care providers must now 
comply are serving as an impediment to quality health care services for 
Medicare beneficiaries.
    We believe that every effort should be made to eliminate fraudulent 
activity in every Federal health care program. We also are concerned 
that Medicare's complex laws and unclear regulatory guidance have 
created an environment where honest providers fear that simple mistakes 
will trigger punitive fraud investigations. Many honest physicians 
believe that the risks are becoming too great and are not willing to 
accept new Medicare patients.
    The successful management and operation of HCFA and its carriers 
are critical to Medicare beneficiaries and health care providers. 
Hearings could identify the short-term challenges and the long-term 
goals of the Health Care Financing Administration. These topics could 
include:

 Are current HCFA initiatives effective at eliminating truly 
        fraudulent activity?
 Have HCFA's initiatives, such as ``Who Pays, You Pay'' 
        program, rooting out fraud, and how much detrimental effect 
        have these initiatives had on the physician-patient 
        relationship?
 Does the emphasis on documentation (quantitative concerns), 
        have an adverse effect on quality (qualitative) patient care?
 Are inadvertent billing errors and judgment decisions being 
        confused with intentional acts to defraud the Medicare program; 
        what has been the effect of random post payment audits on 
        honest medical practices?
 Are there more effective governmental approaches to 
        eliminating fraud and abuse that do not impose such a ``hassle 
        factor'' on honest physicians?
    Our overwhelming goal is to create a stronger and more effective 
HCFA that will be able to meet the challenging needs of the growing 
elderly population. If HCFA is not able to adequately meet these needs, 
we are worried that access to quality health care services for our most 
vulnerable population will continue to get worse. In the interests of 
Medicare beneficiaries and for the physicians who participate in the 
program, we urge that your Committees take prompt action.
            Sincerely,
    Signatures on Commerce Committee letter: Donald A. Manzullo, Collin 
            Peterson, Spencer Bachus, Jim McGovern, John E. Sweeney, 
            Richard H. Baker, Mark Souder, Van Hilleary, Julia Carson, 
            Shelley Berkley, Robert Stump, Lloyd Doggett, Darlene 
            Hooley, Mark Green, Lindsey Graham, David Phelps, David 
            McIntosh, John Baldacci, Bob Ney, Jack Kingston, Ronnie 
            Shows, John Shadegg, Edolphus Towns, Martin Frost, Terry 
            Everett, Tom Cambell, Floyd Spence, Elton Gallegly, Johnny 
            Isakson, James Sensenbrenner, Jr., Jerry Moran, James A. 
            Gibbons, Zoe Lofgren, Jim Ryun, Robert A. Brady, Ron Paul, 
            Mark Foley, Jo Ann Emerson, Louise M. Slaughter, Rodney 
            Frelinghuysen, Dave Weldon, Roger F. Wicker, Michael E. 
            Capuano, Earl Blumenauer, Sanford D. Bishop, Jr., George R. 
            Nethercutt, Jr., Lynn Rivers, Saxby Chambliss, Larry 
            Combest, Judy Biggert, Pat Toomey, Frank D. Lucas, Patsy T. 
            Mink, Sherwood Boehlert, Nick Rahall, John M. McHugh, David 
            Vitter, Wally Herger, Doug Bereuter, Bill Barrett, James E. 
            Clybrn, and Sue Kelly.

    Mr. Bilirakis. That having been said, the Chair now 
recognizes Dr. Ganske for an opening statement.
    Mr. Ganske. Thank you, Mr. Chairman. I hope that the 
committee learns something to day about how the Health Care 
Financing Administration can work more efficiently and to the 
benefit of the consumers, the beneficiaries, as well as 
providers that provide the care.
    All Congressman get phone calls and letters into their 
office about bureaucratic snafus with all government agencies, 
but HCFA is one of those that we receive, and as a past medical 
practitioner, I can say that I have had some questions that 
have gone into HCFA, too. But I would like to echo Mr. Brown's 
sentiments and that is that a lot of the questions that 
Congressman and Congresswoman get are generated from laws that 
Congress passes and then requires HCFA to implement.
    In 1997, BBA was a pretty complicated bill. It required 
HCFA to break ground on a lot of things like prospective 
payment systems which are not easy to implement, which have 
never been done before.
    When you starve an agency, I think you need to step back a 
little bit before you criticize whether the agency can get its 
job done.
    So, I have been a supporter of increased funding for the 
Health Care Financing Administration for several years, 
primarily because I have voted for some of the laws that we 
have passed that require HCFA to do an increased job. Let me 
give you an example. For several years, Congress has been 
interested in HCFA clamping down on fraud and abuse. That 
requires a certain amount of manpower.
    On the other hand, I have heard questions and comments 
about whether they have been over-zealous in that report, which 
brings up the never-ending conflict between how Congress writes 
laws. Do you write laws that are so proscriptive that the 
administrators have no leeway, but then become very, very 
complicated or do you write laws that allow some flexibility, 
that allow administrators to use some common sense?
    However, because some of their decisions may not be liked 
by certain providers or groups, they then come back to Congress 
and say, ``You need to tighten up the proscriptions on how this 
is done.''
    It is a never-ending balance. It is not just with this 
bill. It is with all the legislation that Congress does. It is 
that fine line of writing legislation that accomplishes what it 
wants to do, but at the same time allows some common sense.
    There was a very good book written on this a few years ago 
on how to do common sense legislation and some of the problems 
that Congress has had with it.
    Finally, I want to say that this hearing should not be used 
as a way to promote one prescription drug plan over another.
    I went to the rules committee yesterday and asked for a 
substitute on my bill which I introduced, H.R. 4743, which 
follows some of the lines that the Chairman has done with his 
bill, which would basically allow poor Medicare beneficiaries 
who are not dual eligible to access State Medicare drug grants 
up to 175 percent of poverty.
    That solution would not increase the HCFA bureaucracy, 
other than the fact that those Medicare beneficiaries would be 
able to access drug programs that are already run by the States 
and where the States have already achieved discounts with the 
pharmaceuticals.
    So, my proposal would not increase the bureaucracy or set 
up a separate bureaucracy. There are alternatives in this. But 
I think that this hearing should not be utilized as a way to 
promote one plan or another, to bash HCFA, to say that now we 
need to have a separate agency running part of what I think 
should be a comprehensive medical package of benefits.
    So, with that, Mr. Chairman, I will yield back.
    Mr. Bilirakis. I thank the gentleman. As you can see, we 
are not here to bash HCFA.
    I recognize Ms. Capps for an opening statement.
    Ms. Capps. Thank you, Mr. Chairman. I appreciate that you 
have decided to hold this most important hearing today on, as 
we have discussed, the relationship between Health Care 
Financing Administration's policies and the quality of care.
    Medicare is a sacred program to many of today's seniors. 
They count on Medicare for their health care and I believe we 
all agree they should be able to count on being able to do so 
in the future.
    In administering Medicare, HCFA is involved in a delicate 
balancing act. While we don't want to compromise patient care 
or medical advances with excessive regulation, we also want to 
make sure that the agency preserves a high level of program 
integrity and works to reduce fraud, waste and abuse.
    That being said, I believe there are many areas that need 
improvement when it comes to Medicare's management. I am 
concerned about patient access to Medicare technologies.
    I have heard repeatedly from device manufacturers who are 
unhappy with the HCFA coding and payment system. These systems 
make it difficult for beneficiaries to gain access to 
innovative technologies and procedures, even when Medicare 
covers these therapies.
    The manufacturer's primary concern is that technologies are 
reaching Medicare patients much too slowly because of delays 
and complexities related to these processes.
    In my own district, facilities such as Medtronics, PS 
Medical and Galleta are feeling the impact of this. Device 
manufacturers have also expressed specific concern over HCFA's 
rationale behind the new perspective payment system and the 
implementation of the transitional pass-through payments for 
medical devices.
    These concerns have led me to cosponsor HR. 4395 authored 
by my colleagues Karen Thurman and Jim Ramstad. This 
legislation requires HCFA to adjust and update more frequently 
Medicare's payment and coding systems so that Medicare 
beneficiaries can receive timely access to medical 
technologies.
    H.R. 4395 will help shorten the time it takes for medical 
products and therapies to reach nearly 40 million Medicare 
patients today.
    I cite this as one example of the way we need to work 
together and not in an adversarial relationship, but in a 
cooperative way to increase access, keep competition sharp, but 
also just be aware constantly of the difference in health and 
in many instances life and death the these decisions and these 
processes make with patients who are so dependent on the 
regulations that govern this agency.
    There are so many exciting new advances in medical device 
technology. This is new. When Medicare began I don't imagine 
there were more than a handful of technologies, which fit into 
this category. Now, they are springing up around the country.
    It is incredibly important that we stay sharp and able to 
deal with them as they come along. Many companies spend years 
navigating the rigorous FDA approval process for these often 
life-saving technologies. Then they are subjected to long and 
often unnecessary waiting periods by HCFA for administrative 
reasons, which to every patient and to every provider must seem 
terribly wasteful and pointless.
    Sadly, after manufacturers receive HCFA's approval for 
coverage, their products are sometimes out of date by that 
time. This type of over-regulation hurts the manufacturers. But 
in the end it really hurts patients.
    I believe that Congress must work closely with HCFA to 
create an environment in which medical device manufacturers and 
entrepreneurs can bring safe and effective medical devices to 
the public with deliberate speed and timeliness.
    HCFA has to keep pace with this innovation. To do otherwise 
is to short change patients across this country. I believe in 
Medicare. And I believe this institution also shares that 
conviction.
    We must therefore commit ourselves to improving the 
administration of the program. We must work with you in HCFA to 
help in this balancing act, to preserve program integrity while 
encouraging innovation.
    I yield back the balance of my time.
    Mr. Bilirakis. I thank the gentlelady.
    I recognize Dr. Norwood for an opening statement.
    Mr. Norwood. Thank you, Mr. Chairman. I have a very 
extensive, lengthy statement that I would like to submit for 
the record.
    Mr. Bilirakis. Without objection.
    Mr. Norwood. I will just make a brief comment.
    Mr. Bilirakis. Without objection, that will be the case, 
too, I trust.
    Mr. Norwood. The brief part, right.
    Well, first I want to thank you. I think this is a very 
important, it is always timely with HCFA to have this type of 
hearing and I do believe all of us really think authority you 
are correct in what this is about, this change.
    You can say it any way you want to. You can call it 
modernization. You can call it reform, but what we are really 
all screaming for is change in a system today that is not 
working well.
    I don't think we can find many people who would disagree 
with that. Now, I don't care to blame that on the 
administrators particularly or the managers at HCFA, although 
they share some of the blame. I think Congress shares probably 
more blame and certainly the Executive.
    But the bottom line is that we have an agency that is not 
doing well in terms of the patients of this country and the 
providers of care. We need to agree on both sides of the aisle 
that change doesn't have to be bad. It can be good. It can be 
innovative. That is really all we wanted to do.
    The last Georgian that spoke out on this subject was 
demagogued for a year. I cannot tell you how many television 
commercials. Because he would dare say that HCFA should wither 
on the vine. What that really means is that was an agency that 
he thought really needed to be overhauled or indeed changed 
totally if necessary so that it works for the patients of 
America.
    I want to thank you first, but encourage you, too, Mike. I 
don't think we can do this too often because we have to get to 
a point where both sides of the aisle will agree that 
legislative change has to be in the making before we are ever 
going to have this largest agency in the world improve.
    In my office I am proud to report that the IRS is still No. 
1 with complaints. But HCFA if close behind. There is no reason 
that has to happen. I blame a lot of that on the Congress of 
the United States.
    With, Mr. Chairman, I thank you for the opportunity.
    Mr. Bilirakis. I thank the gentleman. You have sort of 
paraphrased, in a way, much of what Dr. Ganske has said.
    I think the biggest concern that I have is that I would 
like to think that both sides of the aisle are interested in 
doing what is right here.
    But I have oftentimes in the past asked Mr. Hash and other 
members of HCFA why they don't make suggestions to us?
    Why don't they approach us and tell us, hey, the language 
in this legislation is restrictive and it keeps us from doing 
the job that we feel that we want to do as well as we need to 
do it.
    Those are the concerns that I oftentimes have, just the 
lack of needed communication.
    Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, thank you and I also am 
pleased that you are having this hearing. I think every Member 
of Congress spends a lot of time with physicians, hospital 
administrators, and other providers relating to health care 
because it certainly is one of the most complex problems we 
have facing our society today.
    Yesterday I had an opportunity to meet with a board, a 
nonprofit board connected with a particular church that owns 
seven hospitals and they echoed the concerns by many health 
providers that I see and that is that the health care system is 
so micro-managed today that people really feel like they are 
frequently tied up in knots in trying to abide by various 
regulations.
    I agree with others on this committee who said, you know, 
we can't run around blaming anybody for this, but I think we 
have to recognize that there are some genuine concerns out 
there about whether or not HCFA is unnecessarily interfering in 
the delivery of health care.
    I am sure that nobody has an answer to that. I was looking 
at some of the testimony and, for example, there is a seven-
page guideline as an example describing the examination and 
documentation requirements for billing under CPT Code 9215, one 
of only approximately 10,000 CPT codes.
    Then I know physicians, for example, feel like that their 
Practicing Physicians Advisory Council has not been consulted 
enough, has not worked on a regular basis with HCFA in trying 
to deal with just some practical problems that they have.
    So, I am delighted we are having this hearing. I think it 
is a very complex subject. Hopefully, we can come up with some 
information here that may benefit everyone.
    So, thank you very much.
    Mr. Bilirakis. I thank the gentleman. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. Any statement I have I 
will put in the record. I do want to welcome our good friend, 
Mike Hash, who is almost a member of this subcommittee, I 
think, as well as the very distinguished members of the second 
panel. Thank you.
    Mr. Bilirakis. I thank the gentleman.
    [Additional statements submitted for the record follow:]

  Prepared Statement of Hon. Fred Upton, a Representative in Congress 
                       from the State of Michigan

    Mr. Chairman, thank you for holding today's hearing on HCFA's 
management of the Medicare program. As we seek to further modernize the 
Medicare program, I want us to give serious consideration to whether or 
not the current system--HCFA's delegating claims payment and fraud and 
abuse detection to insurance carriers--is working well. Based on my 
experiences over the years with health care providers and beneficiaries 
and on the hearing that I held in the Oversight and Investigations 
Subcommittee on Medicare's management of the carriers, I have every 
reason to think that this system is not working well for beneficiaries, 
for providers, and for the taxpaying public.
    Let me give you just one example of what I see and experience all 
to often as I work with my beneficiaries and health care providers. 
Nearly a month ago, a physician's office manager in my district called 
my office to see if we could help her and the doctor to figure out what 
was happening at the carrier. It seemed that they had been receiving 
scores of requests for additional information about claims that they 
had submitted electronically. When they called the carrier, they were 
told that this was a ``pre-payment audit'' that HCFA had directed the 
carriers to undertake. When they asked how long the claims would remain 
pending, the carrier could give them no estimate. When they asked if 
interest would be paid on claims held beyond a certain period, the 
carrier told them that HCFA directed them to treat these claims as if 
they were in a claim category on which interest is not paid. When my 
constituents checked with the regional HCFA office, that office denied 
any knowledge of what was going on at the carrier.
    The physician now has nearly 40 percent of his Medicare claims 
being held by the carrier. And despite my staff's and my effort to get 
a straight answer from Medicare about what is going on here, we have 
yet to get a complete response--after over a month of prodding.
    If my staff person--who has nearly 20 years of dealing with 
Medicare issues--is having problems of this nature, what about busy 
doctors and confused beneficiaries? I wish this were a rare situation. 
It is not. It is in my experience typical of the lack of clear 
communication between HCFA and its carriers. And it is totally 
frustrating and maddening for everyone.
    Further, as you know, Mr. Chairman, last summer I held an Oversight 
and Investigations hearing on HFCA's management of its carriers. What 
we learned in the investigation leading up to the hearing and at the 
hearing itself was very troubling. Too many carriers, which are 
supposed to be the first line of defense against Medicare fraud and 
abuse, were themselves defrauding Medicare.
    Again, thank you for holding today's hearing. We've got to get to 
the bottom of these problems.
                                 ______
                                 
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress 
                       from the State of Florida

    Thank you Chairman Bililrakis for holding important hearing. The 
purpose of this hearing is to determine whether or not Medicare 
patients have access to the newest technologies available in the market 
place. Or, does HCFA's bureaucracy limit our nation's seniors access to 
medical treatments available to all other Americans. Is HCFA a 
bureaucratic nightmare that needs to be streamlined and brought into 
the 21st century? Without sounding like I'm piling on and being too 
critical, I think the answer has to be yes.
    With the many technological changes that have occurred since the 
program began and the need to keep pace with future advances that will 
be made, it is necessary that the program be overhauled completely. We 
need to help seniors gain access to affordable prescriptions and the 
newest technology available through insurance coverage and the truly 
effective price competition of an active marketplace. That is why I 
support the idea of using the Federal Employees Health Benefits Program 
(FEHBP) as a model. This would ensure that seniors would have access to 
newer drugs and devices because they would choose the plan they want. 
In fact, this type of approach would provide Medicare beneficiaries the 
same options that most federal employees, including the President and 
Members of Congress have. That is why I feel so strongly about the need 
to enact the proposal that was developed based on the recommendations 
of the bipartisan commission. That proposal is S. 1895, the Breaux-
Frist bill which would restructure Medicare, using the Federal 
Employees Health Benefits Program (FEHBP) as a model. This would ensure 
that seniors would have access to newer drugs and devices because they 
would choose the plan they want. These plans that do not limit the 
newest devices and drugs to its beneficiaries and neither should 
Medicare.
    One need look no further than a recent notice that was published by 
HCFA entitled: ``Process to Identify and Obtain Codes for Items 
Potentially Eligible for Payment as New Technologies or Transitional 
Pass-Throughs Under the Outpatient Prospective Payment System. This is 
a good example of how cumbersome the process is and continues to be 
when new technologies become available and need to be added to their 
list. In order to have a new technology added to HCFA's list you must 
apply for a special code. The application process can take up to two 
years provided the paperwork was sent in by April 1, 2000. It is 
absolutely ridiculous that in order to bring a new device to Medicare 
patients that the administrative and procedural requirements could 
delay its availability by as much as four or five years. That's not 
acceptable.
    Mr. Chairman, how can anyone be expected to know whether or not 
correct procedures are being followed--there 100,000 pages of HCFA 
regulations relating to the Medicare program. Physicians are asked to 
do the impossible. Unless they follow certain rules and regulations 
they are liable to be accused of fraudulent behavior. Of course, since 
what is covered and not covered is decided by HCFA and not the 
physician, the physician is placed in a compromising position. For 
instance, if a physician believes that a patient should have a 
screening evaluation, the physician must state that he thinks a patient 
has a certain underlying problem. This is the only way a routine 
screening evaluation with a physical examination and preoperative 
screening test can be carried out. Why don't we allow physicians to 
make such decisions without having to go through such a maze of 
bureaucratic red tape?
    HCFA is a bureaucracy dictating how physicians should practice 
medicine, a bureaucracy that prevents Medicare recipients from having 
access to the newest medical technology, and a bureaucracy that runs 
our seniors health care program through a maze of paperwork, codes, 
rules, regulations, etc., etc.
    The answer to the problems that are experienced with anyone using 
this program is clear. We need a major overhaul of the entire program. 
Thank you, Mr. Chairman.
                                 ______
                                 
Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Often times, it is very difficult to realize the true impact of 
issues and legislation on our local communities.
    The chain that extends from the federal government to the states is 
very long indeed, and each link represents some form of red-tape or 
another.
    HCFA, for example, is this huge entity that is very far removed 
from the people it serves.
    I can't tell you how many times my constituents have come to me 
with questions about their Medicare benefits because they can find no 
one at HCFA who will answer their questions. That just isn't right.
    I know all too well the problems that physicians are having when it 
comes to Medicare.
    Before I came to Congress, I spent years working with my husband in 
his medical practice and I know first-hand how difficult it is to deal 
with 1000 pages of Medicare regulations, and the endless confusion that 
goes along with the coding procedures.
    So much time is being consumed by administrative red-tape that 
medical practices are having difficultly delivering the care they 
should. And over the years, it has only gotten worse.
    And that's why it is so important for us as Members of Congress to 
get out there and speak with our constituents and learn first-hand what 
it is they feel and experience, especially when it comes to health 
care.
    I wonder, however, if HCFA has bothered to do the same thing??
    Today, I hope to get a better understanding of how HCFA develops 
its regulations because, frankly, it is just not responding to the 
rapidly changing marketplace as quickly as it should.
    That needs to be addressed and I hope we can work toward that end.
    Thank you, Mr. Chairman.
                                 ______
                                 
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce

    I want to thank the Chairman of the Health and Environment 
Subcommittee, Mr. Bilirakis for convening this hearing today. In 1997, 
this Committee improved patient access to drug discoveries by passing 
the Food and Drug Modernization Act. Today we are examining similar 
issues within the Health Care Financing Administration.
    The issue of Medicare complexity has been a growing concern to 
Congress. I would like to submit for the record a bipartisan letter I 
received earlier this month from over 60 Members of Congress. They are 
concerned, as am I, that HCFA is an impediment to Medicare 
beneficiaries. I hope today's witnesses, particularly Mr. Hash, can 
address these concerns.
    Medicare is vastly complex. The burden imposed by the over 110,000 
pages of laws, regulations, manuals and other program guidance is 
exceeded only by the penalties for failure to comply with these rules. 
This complexity has negative impacts.

 It steals doctor's time from their patients and research 
        activities.
 It denies seniors timely access to diagnostic tools and 
        treatments.
 It leads to compliance problems for providers trying to do 
        their best to follow the complex rules, but nonetheless finding 
        themselves on the wrong side of the rules.
    The Health Care Financing Administration, the agency which oversees 
Medicare, is an extraordinary bureaucracy. There are approximately 
10,000 codes linked to services that physicians and hospitals must use. 
HCFA oversees 60 different private insurers or ``intermediaries'' who 
process and pay the 900 million claims filed by beneficiaries each 
year.
    HCFA micromanages the Medicare program in excruciating detail. HCFA 
performs tasks such as collecting copays and deductibles, making 
coverage decisions, managing contracts with hundreds of private health 
plans, and checking quality, payment rates and billing compliance.
    Today's hearing is particularly timely given the current debate on 
adding a prescription drug benefit to the Medicare program. Both 
Democrats and Republicans have introduced separate legislation which 
would bring the administration of the benefit under an entity other 
than HCFA. The issue of self-injectable drugs which this subcommittee 
addressed at a hearing earlier this year, illustrates the potential 
problem of allowing HCFA to administer an expanded prescription drug 
benefit.
    I am hopeful this hearing will shed light on some of the thinking 
behind the decisions being made at HCFA. Congress has made many changes 
to the Medicare, Medicaid and SCHIP programs, as well as changes to the 
private health insurance market with the enactment of the Health 
Insurance Portability and Accountability Act, over the past four years. 
In part, many of these provisions were enacted to reign in the costs of 
federal programs. However, in no way did Congress ever intend to 
compromise the quality of care patients in these programs receive.

    Mr. Bilirakis. Michael, why don't you come forward? We have 
two panels today. Panel One consists of Mr. Mike Hash. You have 
already heard his name a number of times this morning. He is 
the Deputy Administrator of HCFA.
    Mr. Hash was a long-time counsel to this subcommittee and 
we have gotten to know him quite well before and after, if you 
will.
    Michael, you are representing the administration. The clock 
is at 10 minutes. Please proceed, sir.

  STATEMENT OF MICHAEL HASH, DEPUTY ADMINISTRATOR, HEALTH CARE 
                    FINANCING ADMINISTRATION

    Mr. Hash. Thank you, Chairman Bilirakis, Congressman Brown 
and distinguished members of the subcommittee. I want to thank 
you for inviting us here today to discuss our progress in 
attempting to streamline Medicare policies and help providers 
participate in the Medicare Program.
    I also want to say I am very much heartened by, and very 
appreciative of, the remarks that all the Members made in their 
opening statements about the purpose of this hearing and about 
their willingness to participate, and continue to participate, 
in a constructive dialog about how we can strengthen and 
improve our program.
    I take those offers quite seriously and want to continue 
working with all of you toward the ends that you identified, 
which we share wholeheartedly.
    All of us are interested in minimizing Medicare regulations 
and maintaining and strengthening the program's efficiency and 
integrity. I think we all appreciate, as some of you observed 
in your opening statements, that the challenges that these 
goals present, which are sometimes conflicting goals, are very 
serious ones.
    Such concerns have been heightened, I think, by the 
Balanced Budget Act's substantial impact on providers and by 
our success in fighting waste, fraud, and abuse in the Medicare 
Program.
    We are now taking a number of steps to review our policies 
for ways that they might be strengthened, streamlined, and 
simplified. We are also working to more sharply target our 
program integrity efforts and to make sure that providers have 
the information they need to do the right thing.
    Helping us in these efforts are several steps that we have 
recently taken. One is something known as our Physicians 
Regulatory Issues Team, or PRIT, as we call it. Its job is to 
review, clarify, and simplify rules, and ensure that the 
concerns of clinicians are heard and addressed in our programs 
and procedures.
    This team is developing an impact analysis initiative to 
ensure that we explicitly address how our policies affect 
practicing physicians.
    It is also establishing a sentinel practices system to 
query and monitor a selection of physician practices around the 
country and to receive ongoing and real time feed back on the 
real world day-to-day impact of Medicare rules on the practice 
of medicine.
    Another important effort we have under way is the 
development of simplified evaluation and management guidelines.
    One of you in your opening statements referred to the later 
testimony in which this is referred to. This is an effort 
designed to make simpler the guidelines for physicians as they 
make their decisions about coding for the level of visits they 
provide to Medicare beneficiaries.
    We want to make sure that these guidelines are clear, 
unambiguous, and streamline the documentation that is required 
to support claims that are submitted for physician services.
    We will soon be testing this new evaluation and management 
guideline approach to get direct physician input on whether 
they are really better in the real world of physician practice.
    We are also revamping the advanced beneficiary notices that 
providers give to beneficiaries when providing an item or 
service that Medicare may not cover.
    We want plain language, user friendly notices, explaining 
that a given service or item may not be covered and that the 
beneficiary may be responsible for paying for the service, so 
that the beneficiary can ultimately make an informed consumer 
choice.
    We have several other initiatives under way that are 
addressed in my written testimony. Several of these are 
designed to focus more sharply on our program integrity 
efforts.
    We realize that, in our efforts to reduce waste, fraud, and 
abuse in the Medicare Program, we have generated substantial 
concerns on the part of the provider community.
    We know, and we continue to believe, that the majority of 
providers are honest and conscientious and we have no intention 
of punishing or pursuing anyone for honest mistakes.
    If providers do make billing errors, we want to find these 
errors, preferably before we make our payments, but there is a 
world of difference between honest errors and the kind of 
outright fraud that we have been so successful in fighting.
    We do not refer providers to law enforcement for minor or 
occasional errors. Only the most serious matters are referred 
to law enforcement agencies. In fact, while some 660,000 
physicians receive Medicare payments each year, we only review 
1 percent of physician claims.
    In the past 2 years, physicians have accounted for only 52 
of the some 500 criminal health care convictions related to 
fraud at a time when the Department of Justice has achieved an 
85 percent conviction rate on fraud cases that it brings to 
court.
    Professor Uwa Reinhardt at Princeton, I think, provided a 
key perspective on all of this in a recent op ed piece that 
appeared in the Wall Street Journal. He noted that if those 
complaining about our regulations were to be brutally frank and 
honest, they would have to admit that the complexity is often 
the result of special accommodations for specific circumstances 
recommended by providers of services to Medicare beneficiaries.
    In the end, he says, a compromise must be struck between 
rules, which are so crude as to tolerate widespread abuse, and 
rules so finely honed as to become impenetrable.
    We want to work with Congress and the health care community 
to strike the right balance. The past few years have been 
particularly difficult for providers due to the many BBA 
changes and our vigorous program integrity efforts.
    But now I believe we are turning a corner. We are moving 
beyond implementation of the BBA.
    We are strengthening and expanding our efforts to help 
honest providers and we are more sharply targeting our fight 
against fraud, waste, and abuse.
    Mr. Chairman, I want to again thank you for holding this 
hearing and giving us an opportunity to continue a constructive 
collaboration to improve and strengthen our program.
    I look forward to responding to any questions that you and 
other members of the subcommittee may have.
    [The prepared statement of Michael Hash follows:]

   Prepared Statement of Michael Hash, Deputy Director, Health Care 
                        Financing Administration

    Chairman Bilirakis, Congressman Brown, distinguished Subcommittee 
members, thank you for inviting us to discuss our progress in 
streamlining Medicare policies and helping providers participate in the 
Medicare program.
    We all share the goals of minimizing Medicare regulations and 
maintaining and strengthening the program's efficiency and integrity. I 
think we also all appreciate the challenges these sometimes conflicting 
goals can present. The laws governing Medicare are complex and 
extensive, and its administration is complicated--in large part because 
medicine and our ever-evolving health care delivery system are complex. 
And Medicare, according to the General Accounting Office, is 
intrinsically at high risk of fraud, waste, and abuse because of its 
size and scope.
    Provider concerns about these issues have been heightened by the 
Balanced Budget Act's (BBA) substantial impact on providers, and by our 
unprecedented success in fighting fraud, waste, and abuse, which has 
cut the Medicare payment error rate nearly in half. We greatly 
appreciate the opportunity this hearing provides to explore additional 
actions we might take to help providers participating in the program.
    We are already taking a number of steps to review our policies and 
procedures for potential areas in which they might be streamlined or 
simplified. Last year, for example, we worked with Congress to develop 
the Balanced Budget Refinement Act (BBRA). We also took a number of 
administrative steps to help providers adjust to changes mandated in 
the BBA. And, as the President has announced, we want to enact further 
refinements to ensure that providers receive adequate payment and 
beneficiaries continue to have access to quality care.
    We have several other initiatives underway to help providers and 
better target our program integrity efforts.

 We have launched a wide-ranging education initiative to help 
        providers understand Medicare policies and how to bill 
        correctly, and to prepare them for the new payment systems 
        mandated by the law.
 We have formed a Physicians Regulatory Issues Team to review, 
        clarify, and simplify rules, and ensure that clinician concerns 
        are heard as we develop policies and guidance.
 We have worked with the HHS Inspector General to develop 
        compliance guidance for providers, including those issued just 
        this month for physicians, and are inviting public comments on 
        this guidance.
 We are studying payment error rates at the contractor level so 
        we can focus education and error prevention efforts more 
        sharply.
 We are requiring all claims processing contractors to 
        establish toll-free lines for providers to call with billing 
        questions.
 We will be testing simplified evaluation and management 
        guidelines designed to reduce the documentation required for 
        physicians to justify their claims.
 This month we sent a letter to more than 800,000 providers on 
        how to address the most common documentation problems.
 And we are conducting an increasing number of town meetings 
        and other endeavors to communicate directly with providers 
        about their concerns.

                               BACKGROUND

    The Health Care Financing Administration (HCFA) is the largest 
health insurer in the nation, covering some 74 million Americans 
through Medicare, Medicaid, and the State Children's Health Insurance 
Program. It will pay about $368 billion for health care services this 
year. For Medicare alone, we pay out more than $210 billion each year 
for nearly one billion claims by some 700,000 physicians, 6,000 
hospitals, and thousands of other providers and suppliers. The people 
who work at HCFA care deeply about serving the 39 million senior 
citizens and people with disabilities who rely on Medicare, and I am 
proud of our record of accomplishments.
    The innovations we have developed in quality improvement and 
prospective payment systems that promote efficiency have been widely 
adopted by other public and private sector insurers. We also have 
important statutory responsibilities to ensure that quality and safety 
standards are met for all patients served by health care providers, as 
well as to support medical education.
    The volume of Medicare laws and regulations covering all these 
responsibilities, while often greatly exaggerated, is substantial. The 
Social Security Act includes 900 pages of legislative language related 
to all HCFA programs. For all these programs including Medicare, we 
have issued 1,700 pages of regulations to implement this legislation. 
Individual providers need to understand only the fraction of these 
pages that relate to the specific services they provide.
    Our process for developing and implementing regulations is fair and 
open. Providers and other members of the public have ample opportunity 
to comment and seek adjustments. They have extensive, rule-based 
information on what is and is not allowed, rather than arbitrary 
decisions. They have due process rights. And we are held accountable to 
providers and other members of the public through the Executive, 
Congressional, and Judicial branches of government. This, as providers 
know, is far different from the way private insurers conduct their 
business.
    Virtually everything we do in regulations is in response to 
legislative mandates or directives. Congress is frequently very 
prescriptive in telling us how to implement the legislative changes it 
makes to our programs. This was particularly true with many of the 335 
BBA provisions related to our programs, including new prospective 
payment systems that require substantial change for skilled nursing 
facilities, home health agencies, and hospital outpatient departments.
    The BBA represented the agreement of Congress and the 
Administration to slow the growth in Medicare spending. Reducing 
spending by such an unprecedented amount in a relatively short time was 
an unequaled challenge. Virtually every hospital, physician, home 
health agency, skilled nursing facility, durable medical equipment 
supplier, and other health care provider in the country has been 
affected, and almost all have seen an impact on their revenues.
    Such significant change with such an ambitious implementation 
schedule has created pressures and dissatisfaction. HCFA, of course, 
was the face of the BBA for providers. While the past two years have 
not been easy, I do believe we have done a good job, albeit not a 
perfect job, in implementing the law and remaining true to the law's 
intent, given the time frames, the competing interests of program 
stakeholders, and the complexity of the changes.
    The BBA and the Health Insurance Portability and Accountability Act 
of 1996 both also included important new tools to help us prevent 
improper payments. The vast majority of providers are honest and we 
have no intention of punishing them for honest errors. However, we have 
an indisputable obligation to try to pay fairly, prevent and identify 
errors, recoup improper payments, and root out the small number of 
providers who are not honest. This is a leading concern among 
beneficiaries, who tell us that they feel that fraud, waste, and abuse 
are rampant in the system. Still, moving in just a few short years from 
relatively lax program integrity efforts to a zero tolerance policy has 
been challenging for both us and providers.
    But while difficult, the BBA and our successes in protecting 
program integrity have both been essential for preserving and 
strengthening the Medicare program. The Part A Hospital Insurance Trust 
Fund, which was projected to become insolvent in 1999 when President 
Clinton took office, is instead now projected to remain solvent until 
2025.

Improving Guidance and Education

    The need to continue with payment reforms, spending growth 
controls, and program integrity initiatives underscores the importance 
of our increased provider education efforts. We are therefore 
redoubling our efforts to reach out to all providers to ensure that our 
guidance on Medicare policies is clear, understandable, and consistent 
among the private insurance companies that, by law, we must contract 
with to process claims. We have initiated a wide range of provider 
educational activities.
    For example, we are:

 airing satellite broadcasts to hundreds of sites across the 
        country on topics of interest to providers such as Medicare 
        coverage and payment requirements, new Medicare benefits, 
        women's health and adult immunization initiatives, and more;
 surveying health care providers nationwide and analyzing data 
        collected to develop new education strategies for reaching out 
        to Medicare providers;
 developing computer-based training modules for providers on 
        topics such as proper claims submission, Medicare Secondary 
        Payer rules, and Medicare fraud and abuse efforts;
 writing articles on timely topics for fiscal intermediary 
        bulletins and other publications targeted toward physicians and 
        other providers;
 maintaining the www.hcfa.gov/medlearn web site to provide up-
        to-date, easily accessible material on a wide variety of 
        issues, including interactive courses on the proper filing and 
        documentation of claims;
 communicating on a regular basis through conference calls with 
        national and state provider associations and issuing nationwide 
        mailings on issues of interest;
 sharing feedback with providers, both on an individual and 
        community level, about how to correct and prevent the types of 
        errors identified in medical review of claims so we can reduce 
        the number of improper claims among the vast majority of 
        providers who make only honest errors; and
 working to ensure that contractor toll-free service lines are 
        responsive to provider questions.
    We also are strengthening and standardizing the way in which our 
contractors carry out provider education and customer service 
activities. We require all contractors to provide information via 
printed bulletins and newsletters, as well as via the Internet. Each 
contractor is required to link to our website from their website in 
order to give providers access to our Medicare learning network. We 
established a component within HCFA to specialize in education and 
training for the provider community. And we recently notified 
contractors that they may no longer charge providers a fee for 
attending training on Medicare issues.
    Among the most important of our efforts to improve provider 
guidance and education is the development and testing of simplified 
evaluation and management guidelines that are designed to reduce the 
documentation required for physicians to justify their claims. When our 
Administrator, Nancy-Ann DeParle, arrived at the agency and learned of 
physician dissatisfaction with a new revision of the guidelines, she 
ordered that physicians be allowed to use either the new or old 
version, and instructed our staff to review the situation.
    As a result, HCFA physicians started over with three goals in mind:

 simplify the guidelines;
 reduce the burden; and
 foster consistent and fair medical review.

    We have developed simpler versions of the guidelines that we 
believe provide clear, unambiguous guidance and streamline the 
documentation required for clinically appropriate record keeping and 
verification that services were medically necessary and rendered as 
billed. We are going to rigorously test these new versions in the real 
world of clinical practice. We will also test training mechanisms to 
determine the best way to help physicians learn how to use the new 
guidelines.
    Throughout the process we will seek physician input on whether the 
new version revisions being tested are, in fact, better for them in the 
real world of day-to-day clinical practice. To begin the feedback 
process, we held a public meeting last week in Baltimore to lay out our 
proposed guidelines and discuss our testing plans with leaders of 
physician organizations.
    Another good example of our increased education efforts is our 
current undertaking in preparation for implementation of the hospital 
outpatient prospective payment system, which was mandated by the BBA. 
This initiative, involving hospitals across the country, is 
unprecedented in its scope and second in size only to our Year 2000 
provider outreach efforts.
    As part of this effort, we are:

 holding nationwide train-the-trainer sessions for claims 
        processing contractors who, in turn, are providing training for 
        local hospitals and billing vendors in their areas;
 conducting additional training sessions for representatives 
        from national and state hospital associations, as well as 
        software vendors, in the coming months;
 posting training materials for providers on our www.hcfa.gov 
        website;
 sponsoring a national satellite conference specifically on the 
        hospital outpatient PPS;
 instructing all contractors to take immediate steps to 
        disseminate final program information as soon as we release it, 
        and to post these instructions on their websites; and
 encouraging contractors to publish articles in their provider 
        bulletins and conduct outreach to get detailed information to 
        providers.

Responding to Provider Concerns

    Parallel to our educational initiatives, we are working to improve 
the service we provide to physicians and ensure that our regulations 
help, rather than hinder, the provision of high quality patient care. 
To do so, we have doubled the number of physicians at HCFA and put them 
in key positions. We have rejuvenated and sharpened the focus of our 
Practicing Physicians Advisory Committee to ask their advice on how our 
policies affect real-life clinical practice.
    We also have established a new, internal, physician-led Physicians 
Regulatory Issues Team. This team is developing new systems to create 
rules and regulations that are simplified, clarified, and refined 
specifically to reduce administrative workloads on providers and better 
meet beneficiary needs.
    To do this, the Physicians Regulatory Issues Team is:

 developing an ``impact analysis'' initiative to ensure that we 
        explicitly address the impact on practicing physicians before 
        and after issuing new policies or interpretations of existing 
        policies, and has already begun piloting these ideas with some 
        current regulations;
 developing a ``sentinel practices'' system to query and 
        monitor a selection of diverse types of physician offices 
        across the country in order to receive ongoing feedback on the 
        real-world, day-to-day impact of Medicare rules;
 developing a ``physician service core group'' in which staff 
        involved in physician-related efforts--from developing 
        regulations to outreach and education--will work together to 
        ensure clear, concise, and consistent communication;
 enhancing communication at the State and County level by 
        having our regional offices develop outreach that reflects the 
        needs and character of local physician communities;
 developing a set of ``frequently asked questions'' for 
        physicians, as well as a ``rules of the road'' brochure on the 
        basics of Medicare participation for physicians;
 hosting monthly conference calls with physician organizations 
        across the country to address real-time and emerging issues, 
        such as hospital coding, Peer Review Organization efforts, 
        Medicare payment error estimate, and new preventive health 
        benefits; and
 upgrading our website to provide clearer, more user-friendly 
        information for physicians.
Other Administrative Action
    We also are taking a number of additional administrative actions to 
moderate the impact of the Balanced Budget Act, reduce administrative 
workloads, and assist providers in meeting the needs of the patients 
they serve. For example:

 We are revamping the advanced beneficiary notices that 
        providers give to beneficiaries when providing a service or 
        item that may not be covered by Medicare. The goal is to 
        provide a plain-language, user-friendly document explaining 
        that a given service or item may not be covered by Medicare and 
        that the beneficiary may be responsible for payment, so the 
        beneficiary can make an informed consumer decision. A new draft 
        notice for physician and other Part B services has recently 
        been reviewed by our Practicing Physicians Advisory Council, 
        and will soon go into the Paperwork Reduction Act clearance 
        process, which includes opportunities for public comments. A 
        new draft advanced beneficiary notice for home health services 
        is already in the Paperwork Reduction Act clearance process.
 We are delaying implementation of the hospital outpatient 
        prospective payment system until August 1. We are distressed 
        about having to postpone the benefits of this new system for 
        beneficiaries, but the one-month delay will give both us and 
        hospitals needed time to be fully prepared for this substantial 
        change. We also are asking hospitals to not collect deductibles 
        or coinsurance from Medicare beneficiaries beginning August 1 
        until we notify them of the correct amount. And we will provide 
        all hospitals with a ``plain language'' flyer to help explain 
        the change to beneficiaries.
 We are expanding the number of medical devices for which 
        ``pass-through'' payments will be made under the new outpatient 
        prospective payment system and continuing to work with the 
        device industry to determine additional devices for which these 
        payments can be made under the law. We also have committed to 
        making unprecedented quarterly updates to the pass-through list 
        to ensure that the outpatient prospective payment system does 
        not inhibit development and use of new technologies.
 We are postponing expansion of the BBA's ``transfer policy'' 
        for all hospitals for a period of two years, through 2002. As a 
        result, the transfer payment limits will apply only to the 
        current 10 Diagnosis Related Group (DRG) categories, as 
        prescribed by the BBA. We are carefully considering whether 
        further postponement of this policy is warranted.
 We are implementing new policies to make it easier for rural 
        hospitals, whose payments are now based on lower, rural area 
        average wages, to be reclassified and receive payments based on 
        higher average wages in nearby urban areas. As a consequence of 
        these policy changes, rural hospitals will receive higher 
        reimbursement. Similarly, we are helping rural hospitals adjust 
        to the new outpatient prospective payment system by using the 
        same wage index for determining outpatient payment rates that 
        is used to calculate inpatient rates.
 We are helping home health agencies by extending the time 
        frame for repaying interim payment system overpayments from one 
        year to three, with the first year interest-free. We are 
        postponing the requirement for home health agencies to obtain 
        surety bonds. And we have eliminated the sequential billing 
        requirement.
 We are helping skilled nursing facilities by refining the 
        payment classification system in a budget neutral way to 
        increase pay for medically complex patients.

Assisting Medicare+Choice Plans

    We also have taken important steps to help managed care and other 
health plans participate in the Medicare+Choice program. Final 
Medicare+Choice regulations announced last week incorporate many 
industry recommendations. They include several provisions that reduce 
administrative requirements for plans while maintaining strong 
beneficiary protections.
    For example, they:

 permit flexibility to tailor benefits under M+C plans through 
        the use of full-county segmented service areas with differing 
        benefits;
 reduce quality assurance requirements for Preferred Provider 
        Organizations, as defined by the statute;
 implement deeming procedures and expansion of deemable 
        categories to include not only quality assurance and 
        confidentiality requirements but also access standards, advance 
        directive requirements, and provider participation and anti-
        discrimination requirements; and
 reduce the re-entry limitation for M+C organizations that 
        terminated participation from 5 years to 2 years.
    We also earlier announced plans to modify our current risk adjusted 
payment system to pay more for the higher costs of providing high 
quality care for patients with congestive heart failure. We are 
developing a revised phase-in schedule for risk adjustment in 
conjunction with the Medicare Payment Advisory Commission, health 
plans, and beneficiary groups. And, of course, our proposed 
prescription drug benefit would result in more than $50 billion over 10 
years in additional payments to Medicare+Choice plans.
    We realize that health plans choose to participate in 
Medicare+Choice based on business decisions, but these changes and 
other initiatives we've announced underscore our willingness to be 
responsive to constructive industry suggestions by granting flexibility 
when possible.
Ensuring Program Integrity
    Although we recognize the need to reduce the administrative 
workload on providers and simplify documentation requirements where we 
are able, we also have a responsibility to be prudent stewards of the 
trust funds and maintain the financial integrity of our programs. We 
recognize this is a delicate, but critical, balance.
    Today, our efforts to identify fraud, waste, and abuse in all of 
our programs are more effective than ever before. From April through 
September, 1998, we stopped about $5.3 billion from being paid to 
providers for inappropriate claims. Our anti-fraud efforts returned 
nearly $500 million to the federal government, a 65 percent increase 
over the previous year. We have reduced the Medicare error rate by 
almost half since 1996, and maintained that progress in 1999. And total 
Medicare integrity program savings in fiscal year 1999 totaled $9.9 
billion.
    Yet Medicare pays 95 percent of ``clean'' claims submitted by 
physicians without asking for any medical record to confirm the 
accuracy of the code, the adequacy of the documentation, or the 
appropriateness of the service.
    We realize that our efforts to reduce fraud, waste, and abuse have 
generated concern among some providers. As we have said time and time 
again, we know the vast majority of providers are honest and 
conscientious, and we have no intention of punishing anyone for honest 
mistakes. If providers do make billing errors, we want to find those 
errors, preferably before we make payment. But there is a world of 
difference between honest errors and the kind of outright fraud we have 
been so successful in fighting.
    While some physicians have said they are afraid of being jailed for 
minor errors, we do not refer providers to law enforcement for minor or 
occasional errors. Only the most serious matters are referred for 
prosecution.
    We have spoken with hundreds of physicians about these concerns, 
and repeatedly asked them to tell us if they know of any instances of 
improper pursuit of physicians for honest, inadvertent errors. In fact, 
while some 660,000 physicians receive Medicare payments each year, in 
the past two years, physicians accounted for only 52 of some 500 
criminal health care convictions, at a time when the Department of 
Justice has achieved an 85 percent conviction rate on cases it takes to 
court.

                               CONCLUSION

    We are committed to helping providers participate in Medicare and 
to minimizing the amount of regulation, paperwork, and oversight as 
much as our obligation to taxpayers and beneficiaries will allow. We 
are taking many steps to be more responsive to provider concerns, and 
are open to considering others that may be appropriate. The past few 
years have been particularly difficult for providers due to the many 
BBA changes and our robust program integrity efforts.
    But now, I believe, we are turning a corner. We are moving beyond 
BBA implementation. We are strengthening and expanding efforts to help 
honest providers. And we are more sharply targeting the kinds of fraud, 
waste, and abuse that we have had so much success in fighting. I thank 
you again for holding this hearing and giving us yet another 
opportunity to address these issues. And I am happy to answer your 
questions.

    Mr. Bilirakis. Thank you, sir. You know in addition to 
trying to understand as much as possible all the complex 
legislation that goes through this House of Representatives 
that we have to ultimately vote upon in committee, if you will, 
in subcommittee and certainly on the floor, I have found that 
the most difficult part of our job is trying to understand the 
consequences of our acts, the unintended consequences, if you 
will, that quite often result from things such as BBA-97 and 
things of that nature.
    I have always been curious, Michael. We all get ill, so we 
all go to doctors. That is one thing about health care, we can 
talk about an awful lot of issues here in the Congress, but 
many of them we personally, we Members of Congress have not 
personally experienced.
    But when it comes to going to the physicians, to the 
providers, we all do that, I think. Certainly, if we don't 
experience it ourselves we do it with members of our family. 
You know, every time I go in and the doctor finds out that I am 
out in the waiting room waiting for my wife or whatever the 
case may be, obviously, I get a visit right away and an 
invitation to come in and sit down with the people who do the 
coding and things of that nature.
    I guess the thought comes to my mind, maybe a fundamental 
question, how much of that, the actual real world type of 
experience, does HCFA do in the process of doing their job?
    Mr. Hash. Well, Mr. Chairman, I think we need to do more of 
it. Clearly, the ability to assess both before we make policies 
and after we put them into place, what their impact is is a 
responsibility that we have.
    We are trying to use more effectively some of the resources 
that I referred to in my testimony regarding the Practicing 
Physicians Advisory Committee, and the new internal group 
called the Physicians Regulatory Issues Team. These are ways in 
which we are seeking to reach out and evaluate more 
appropriately, and more rapidly, the effect of our policies.
    We also have a huge obligation, I think, Mr. Chairman, and 
probably not sufficient resources to provide education and 
technical assistance to individuals who are participating in 
our programs.
    That is an enormous challenge and one where now we are 
trying to add a lot of resources related to phone lines for 
providers and physicians to get help and information. We are 
trying to do more educational programs.
    We now have on our web site self-training programs for 
physicians that are free of charge that they can download that 
helps them to understand how to code and how to answer 
questions about common billing issues.
    We need to do more of that. That is very important in 
supporting the providers who are serving our beneficiaries and 
that is what many of our initiatives are about.
    Mr. Bilirakis. Well, I know that you are an awfully busy 
guy. God knows you have a pretty tough job. I think we all 
recognize that, even those who chose to sometimes bash HCFA.
    I would suggest it would be great to just take some time 
and go down there where the grass roots are and take a look and 
see what these physician providers really go through in their 
offices.
    As I have said before, you may have heard me, 2 or 3 years 
ago my son opened up his own medical practice and he couldn't 
afford to get the computerized stuff so he used this manual 
method.
    I spent, I guess, 2 months, our January and February break, 
just sitting in there trying to do as much of that as I could 
and seeing the complexity of the coding. So, it is quite an 
experience, really, quite an education. When we talk about 
educating them, I sometimes think we need to be more educated 
than they do.
    The Chair will now yield to Mr. Brown.
    Mr. Brown. Mr. Chairman, thank you. I spent much of the 
break in a hospital observing from another angle. So, I would 
prefer your way next year. Thank you.
    Mr. Hash, the whole complexity of HCFA which is the subject 
of the hearing today, the complaint from some is that the 
private sector is so much simpler.
    Run through for us, if you would, sort of what you do when 
HCFA makes a decision in terms of the process that HCFA uses to 
develop regulations, making policy decisions, getting public 
input.
    Run through that process briefly, if you would.
    Mr. Hash. Yes, sir. Generally, Mr. Brown, we are subject to 
something called the Administrative Procedures Act, which 
governs all executive branch agencies as they make rules that 
have the effect of law to those who are subject to them.
    That process requires consultation with interested 
stakeholders, affected stakeholders. It requires generally the 
publication of proposed rules with opportunities for comment, 
but then of course requires us, after the comment period is 
closed, to respond to all of the comments and indicate why we 
didn't accept them or if we did accept them, why we did agree 
with the commenter.
    Then we put the regulations into final form. That process 
is subject to extensive review within the executive branch. 
Once the Health Care Financing Administration completes any 
rule or regulations, it is then reviewed by the Department of 
Health and Human Services because these are ultimately under 
the law regulations of the Secretary.
    Then the Office of Management and Budget also reviews them 
for their consistency with the programs and the policies of the 
President. So there is a lengthy review process for all of 
these.
    Mr. Brown. How long does it take generally for the whole 
process and how much of that time is sort of open to public 
comment where providers and others affected can have very 
specific input into the process?
    Mr. Hash. Well, typically when the Congress passes new 
legislation that requires the issuance of implementing 
regulations. We have a whole series of meetings, usually, when 
we are meeting with providers to get their input on what they 
think the implementation rules ought to look like.
    That is followed by us putting together, over a month or 2, 
an actual proposed rule, which we then publish formally in the 
Federal Register. Then interested parties again have an 
opportunity to submit written comments to us and many 
organizations and individuals not only submit written comments, 
but also come in and meet with us during the comment period to 
amplify their concerns and recommendations. After the closure 
of that public comment period, we are required to review all of 
the comments, to respond to all of them in the preamble of the 
final regulation, and then publish the final regulation with 
our final decision.
    Mr. Brown. Once it is published in the Federal Register for 
public comment, you typically gets hundreds, thousands, tens of 
thousands, what is typical?
    Mr. Hash. It depends on the rule. Typically it is several 
hundred on any major rule. But on occasion, for example, we 
published rules modifying the conditions of participation for 
hospitals. We received over 60,000 comments on that set of 
rules alone; 20,000 of which were related to a specific issue 
in that particular regulation.
    So, it can go all the way from several hundred, which is 
routine, to several thousand.
    Mr. Brown. Now, contrast your decisionmaking process to 
what we might see if Medicare over time is just turned over, is 
just privatized, turned over the private sector one way or the 
other and in the process of HCFA today with the process of 
private insurance when it makes decisions in the area of 
developing and implementing payment policy decisions, education 
material, what plays out that way?
    Mr. Hash. Well, I think for the most part, Mr. Brown, 
private insurance plans don't have the obligations and 
responsibilities that the Medicare program has on behalf of its 
beneficiaries. For example, we have rules and regulations about 
appeals and grievance procedures.
    There are usually no such arrangements in private health 
plans. We have rules on monitoring the quality of health care 
services and to ensure that quality improvement is going on. To 
my knowledge, not much of that is done in private plans at all.
    We have requirements to implement very specific payment 
policies associated with our programs and generally speaking 
private plans announce their payment arrangement, sometimes 
negotiate with providers, sometimes don't.
    Last, we have a very large obligation to go through a 
public and transparent process for determining the coverage of 
the program for specific services and items. Many private plans 
don't have any public coverage review process. They just 
announce by fiat what they are covering and what they are not 
covering.
    So, it is a very different environment largely driven by a 
much greater array of responsibilities that we have relating to 
our beneficiary protections, to quality, to coverage of our 
services and to payment of our services.
    Mr. Brown. Last question, Mr. Chairman. So, if we were to 
follow a sort of insurance company prescription drug program, 
you would see a very different HCFA versus using private 
insurance in terms of formularies and in terms of extent and 
breadth of coverage, all of those issues. You would see a very 
different prescription drug plan?
    Mr. Hash. That would be correct because it would be subject 
to decisions about marketing on behalf of private insurance 
companies, what kinds of plans and under what circumstances and 
in what areas they would make those plans available.
    Mr. Bilirakis. Mr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman. I have always thought 
that it would be interesting to more often have panels 
constituted where, for instance, we could have the HCFA 
representatives sitting at the same table with some of the 
other people giving testimony today and let you go back and 
forth a little bit more.
    Mr. Bilirakis. The trouble is, I don't think HCFA would go 
along with that. We have tried that in the past.
    Mr. Ganske. Mr. Hash, would you have a problem with that?
    Mr. Hash. Speaking on behalf of the administration, I 
believe that we have a policy at the Department of Health and 
Human Services that representatives of the administration would 
typically appear on their own.
    Mr. Ganske. Well, let it be noted for the record that if I 
were running HCFA I wouldn't mind sitting at a table and 
answering some questions in public.
    Mr. Hash. I understand, Dr. Ganske.
    Mr. Ganske. On the other hand, I am not asking for the job. 
I just want to make that clear.
    Well, let me take some of the questions that some of the 
others have because they won't be able to ask you this 
directly.
    Dr. Coble, who is testifying for the American Medical 
Association, points out that carriers generally refuse to 
answer physicians queries in writing and that physicians should 
be able to obtain a file copy.
    The question later arises, when I was in practice, for 
quite a while Medicare would provide me with a pre-
authorization for certain reconstructive procedures. Let us say 
a breast reduction on an elderly woman who had huge breasts 
that were causing a lot of back and shoulder pain and deformity 
and problems.
    That is typical practice for HMOs, for traditional 
indemnity insurers. One would examine the patient to make 
estimates for the amount of weight to be resected, even provide 
an authorized photograph from the patient to the insurer, not 
with any faces included, obviously.
    Then you would get a determination from the insurer and it 
used to be that Medicare would do the same thing. But then a 
number of years ago Medicare stopped doing that. Instead, they 
would write a letter to the beneficiary saying, ``Well, you can 
go ahead and have this procedure, but if we decide after you 
have had the procedure, then you are going to be responsible 
for the cost.''
    Now, was that just my local carrier's decision or was that 
a nationwide policy? This also has to do with a whole bunch of 
other procedures, types of eye procedures, and other things 
like that?
    Mr. Hash. Dr. Ganske, I actually don't know offhand, but I 
would be happy to find out and supply for the record when that 
changed and why it changed. But I would assume that it has to 
do with resources and workload.
    We have a very substantial volume of claims, as you know, 
660,000 practicing physicians around the country. I think our 
ability, and therefore our contractors' ability, to actually 
provide pre-authorization for a large volume of potential 
services was something which we could not finance.
    Mr. Ganske. With all due respect, Mr. Hash, it occurs 
anyway. It just occurs afterwards for a lot of these 
procedures. So that if the patient does decide to take the risk 
of being financially liable and goes ahead with it, then in 
every situation like that----
    For instance, let us take an eye surgeon where a patient 
has eyelids that are hanging over their eyelashes and 
restricting their peripheral vision so that when they are 
driving down the street they can't see a car alongside of them.
    That is typically something that if you would do that 
procedure, every time HCFA would ask for documentation of 
visual fields or that the procedure was necessary. But it would 
occur after the procedure.
    So, there is no saving any time there for the bureaucrats. 
It is just simply a matter, it seems to me, that you are trying 
to scare patients from getting medically necessary procedures.
    So, I want to ask you, will you reconsider that type of 
policy and start to allow prior authorizations?
    Mr. Hash. I would be happy to look at it, Dr. Ganske, and 
see what the reasons are for why it is the way it is. I just 
don't have that information available to me.
    I would say that the kinds of examples that you are giving 
me tend to relate to what we would call ``non-covered 
services,'' potentially. The issue here is distinguishing, as 
you know, between what would be an elective cosmetic kind of 
procedure versus what is a medically necessary procedure under 
the rules of the Medicare coverage.
    That distinction that you made very clearly here is the one 
that carriers are obligated to make when they get a claim that 
involves the provision of services that potentially may be non-
covered services.
    [The following was received for the record:]

    The law did once require prior authorization by Medicare Peer 
Review Organizations (PROs) for certain elective surgeries in order for 
payment of claims by Medicare carriers. However, the vast majority of 
surgeries were approved and the requirement was perceived as 
unnecessary red tape by many physicians. The requirement was repealed 
in the Social Security Amendments of 1994. There now is no requirement 
or specific authority under the law for prior authorization of claims 
by either the PROs or the carriers. The law merely requires that 
carriers determine whether a claim is for medically necessary services 
upon receipt of the claim.
    Whether there may be an appropriate and cost-effective role for 
prior authorization in Medicare is something that we are now exploring. 
Specifically, we are exploring the feasibility of a program for 
voluntary prior authorization for hospice services. This effort is in 
response to concerns that the benefit is under-used due to the 
difficulty in determining that a patient has six months or less to live 
and is therefore eligible for the benefit under the law.

    Mr. Ganske. Well, you might as well----
    Mr. Bilirakis. Without objection, the gentleman is given an 
additional 2 minutes.
    Mr. Ganske. Thank you, Mr. Chairman.
    Mr. Bilirakis. That shocked you; didn't it?
    Mr. Ganske. It isn't just reconstructive procedures that we 
are talking about. There are other types of procedures as well. 
You know, it is that type of a hassle that both patients and 
providers go through that drives them nuts.
    It is hard for me to understand how in the end it is saving 
the HCFA any work unless you are scaring beneficiaries from 
having the procedure done that they need and then they just 
don't pursue it. And I don't think you want to do that.
    Mr. Hash. No, Dr. Ganske, definitely not. We want to make 
sure that our beneficiaries get services to which they are 
entitled and to which they are entitled under our programs.
    Mr. Ganske. Well, what I would like is, I would like a 
letter back from you specifically addressing that. This is the 
type of thing, then, if there isn't a common sense solution, 
then you are forcing Congress to become much more prescriptive 
and proscriptive in terms of its legislation which I think then 
complicates your job.
    I appreciate the extra time, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman.
    Ms. Capps may inquire. Ms. Capps, you are welcome to have 7 
minutes.
    Ms. Capps. That is very kind of you in advance.
    Mr. Hash, thank you for being present here. If you wouldn't 
mind, I would like to continue along the lines that I began in 
my opening statement.
    Mr. Hash. I suspected that you would.
    Ms. Capps. Again, this is a good opportunity, I think, for 
us to discuss some of these issues that are on the minds of 
many of my constituents.
    This has to do with the speed at which Medicare covers new 
technologies. For example, when the President announced a few 
weeks ago that Medicare will begin paying for routine costs 
associated with clinical trials, this was good news.
    My question, and I will be as brief as I can to allow you 
to explain how you are doing that, but even more, what else are 
you doing in this kind of area? For example, I understand the 
agency is going to make additions this very week to the 
outpatient pass through list, products that serve a unique 
patient population.
    Many clinical trials that fall under that have no 
alternative therapies available to them. If these products 
don't make the list, therefore, patients don't get access to 
them starting August first. What adjustment can you make or 
hope that you can give these people?
    Mr. Hash. Let me mention three things, if I could. First, 
with respect to coverage of routine costs of Medicare 
beneficiaries in clinical trials, as the President announced 
several weeks ago, what we are doing is implementing 
recommendations that were made by the Institute of Medicine 
about Medicare's participation in clinical trials to make it 
clear that when our beneficiaries voluntarily elect to 
participate in an approved clinical trial, that the routine 
costs that would otherwise be covered for them but for the fact 
that they are in a clinical trial would not in any way be 
withheld from coverage for those individuals.
    So, we are going to be putting forward notices to our 
contractors so that they in fact will recognize and cover the 
costs of individuals' routine costs associated with the 
provision of clinical trial services. So, that is well under 
way.
    Second, as you know, about a year ago we began a very 
extensive and fundamental change in our coverage process in 
general in Medicare, how we recognize new advancements in 
health care delivery. That is now a transparent public process.
    We created a FACA compliant, a Federal Advisory Committee 
compliant advisory group on coverage policy of over 100 
distinguished scientists and clinicians from around the 
country. We committed ourselves to a set timeframe of 90 days. 
We committed ourselves to evidence-based decisionmaking and we 
are putting up on our web site all of the applications for 
coverage decision process, where they are in the process, so 
that the public can not only participate in this process, but 
is fully aware of the status for these activities.
    Last, in connection with the outpatient hospital payment 
system, what we have done is, as you noted, we have tried to 
work with the industry, particularly the device and drug 
industry, to make sure the pass-throughs to which they are 
entitled for new technologies that have come about since 1996 
are recognized for pass-through in our outpatient system.
    We are also recognizing that there are going to continue to 
be new advancements in devices and drugs and therefore, we 
committed to quarterly update the technology pass-through 
provisions that were put into the Balanced Budget Refinement 
Act.
    So, in a number of ways I think we are trying to address 
the issue of the rapidity and the openness of the process by 
which we make coverage decisions and bring advancements in 
health care rapidly to the bedside or to the clinic site for 
our beneficiaries.
    Ms. Capps. That is great. Just to clarify it a little bit 
more, maybe this is getting too picky, but in the BBRA of 1999 
cancer and orphan drugs have to automatically need to make that 
pass-through list.
    But if an orphan drug whose application was otherwise 
complete has been left off the list, what is the process then 
that they would have to go through to get it on before August 
first, for example?
    Mr. Hash. Well, what we did was, we set a deadline back in 
the spring of the first of April for device and drug companies 
to give us information about any items that we did not already 
have on our pass-through list. We got over 300 applications.
    I think we announced in May about 230 of them had been 
approved for the first quarter of the new payment system. We 
have since been meeting with the device industry and have found 
a number of errors that we made, or omissions that they may 
have made in their submissions.
    We are about to announce, as you mentioned a moment ago, 
probably an additional hundred items by the end of this week, 
which will be effective for the payment system in August.
    For any that are still not approved in-house, we will be 
reviewing and completing our action on them in time for the 
October first quarter update and there will be quarterly 
updates for each quarter thereafter.
    Ms. Capps. This sounds promising to me. Do you feel there 
is good enough connection between what you are doing and the 
providers? Is the website the best way?
    Mr. Hash. I think it facilitates it. We have also been 
doing a lot of meetings with not only the Association of 
Manufacturers but also individual manufacturers themselves.
    I think because of the nature of this new system, we have 
had to develop a much closer working relationship with the 
biotechnology and the drug and device industry than we 
previously had.
    That has not gone, initially, as smoothly as we would have 
hoped and liked, but I think over time this process of having 
quarterly adjustments to the outpatient payment system will 
ensure that new things that come on to the market that are 
approved by the FDA will be made available to our beneficiaries 
in the outpatient setting.
    Ms. Capps. Thank you. In our next panel, perhaps we will 
hear another side to this, but I also am hopeful that this is a 
way to think about HCFA in general, that it is much more 
responsive to the provider community as well as to the drug and 
device manufacturing community, that there is a communication 
that doesn't have to go through lots and lots of red tape.
    I don't know if there are other ways that you can see this 
being applied to the agency in general.
    Mr. Hash. Well, I think our coverage process that I 
mentioned, I mentioned a broader one that we are doing as of 
last July. We started a cycle of 90-day reviews.
    I think of it as really greatly compacted and accelerated, 
the process by which we go through and evaluate new things, new 
techniques, new procedures that have been developed for medical 
care and health care and hopefully can evaluate them based on 
evidence more quickly and then make them available under 
coverage to our beneficiaries much more quickly than has been 
the pattern in the past for Medicare coverage decisions which 
frequently took several years.
    Mr. Bilirakis. Dr. Norwood is recognized for a ``hard'' 7 
minutes.
    Dr. Norwood. Thank you, Mr. Chairman. I have my own line of 
questions, but I can't, Mr. Hash, leave this alone, what Dr. 
Ganske brought up to you about pre-authorization. First of all, 
it is totally unrealistic, in my view, for you not to simply 
tell the patient and tell the provider will you cover this or 
won't you? In the situation which he described, in which you 
are basically saying to the patient, ``Well, go ahead and have 
the procedure and we will decide later if we will pay for that 
benefit'' first of all has a very chilling effect on many 
patients receiving the treatment that the physician has 
prescribed for them.
    I can't for the life of me understand how that is useful to 
you frankly to not pre-authorize things like this and let 
people know if it is or isn't covered.
    Now, if it isn't covered, why don't you just say so?
    Mr. Hash. We try to, Dr. Norwood. I really think this is an 
issue that involves resources, about being able to make those 
decisions in a timely manner prior to the provision of the 
service.
    But as I indicated to Dr. Ganske, I intend to get back to 
all of you about why we have discontinued that practice and for 
what reasons.
    Mr. Norwood. Let me ask you, and Dr. Ganske can correct me 
if I am wrong, but generally this is not an emergency 
procedure. The case he used, the breast reduction, and I know 
what you are concerned about, it is do you really medically 
need that or is this cosmetic.
    But basically, I don't understand. If you want to be the 
administrator, then you have to be the administrator. That is 
not the way, in my view, to save money.
    I want a copy of that letter, too, because I am anxious 
about that, too.
    I want to review some of your testimony to make sure I have 
it right. I understood you to say that you have 660,000 
physicians that you deal with around the country. In reviewing 
their claims and looking for waste, fraud, and abuse, you 
typically look at about 1 percent. Over the last year you have 
actually found some claims where abuse at least has taken 
place.
    What percent of those have you found guilty of abuse?
    Mr. Hash. Well, we had an audit by our Inspector General of 
the accuracy of our claims processing system. they determined 
on a sample basis that we in fact had an error rate of close to 
8 percent, 7.97 percent.
    So, I think the empirical answer based on their work was we 
have an error rate of about 7 percent.
    Mr. Norwood. But you said you had actually believed 52 
cases in which you had found them guilty?
    Mr. Hash. Those were actual convictions of individuals who 
were convicted of criminal fraud in the Medicare Program who 
happened to be physicians out of a universe of a much larger 
number. Of 500 convictions for Medicare fraud, only 52 of them 
were physicians.
    Mr. Norwood. Of that, did that return any money to the 
Treasury?
    Mr. Hash. Yes, sir, it did. Well, I should say not the 
conviction itself, necessarily, but the claims that were 
subsequently not paid, or were collected on, resulted in 
collections to the Treasury and to the trust fund.
    Mr. Norwood. Can you compare for me the cost of the review 
versus the return to the trust fund?
    Mr. Hash. Well, I can't, Dr. Norwood, but I would be happy 
to try to get it together because a lot of the cost of the 
review is associated with the costs that were incurred by law 
enforcement to actually develop the prosecution and make the 
case.
    [The following was received for the record:]

    On average, the return is $17 for every dollar spent on cost 
review. We file a biannual Medicare Integrity Program savings report, 
which provides greater detail on savings from medical review, Medicare 
secondary payer, and cost report auditing. We do not claim savings from 
fraud referrals. Those referrals are counted by the Office of Inspector 
General and the Department of Justice (OIG/DOJ) and are referenced in 
their own reporting on Health Care Fraud and Abuse Control (HCFAC) 
funds. According to a 1999 report they released in January 2000, 
prosecutors filed 371 criminal indictments, convicted 396 defendants, 
won or negotiated $524 million in judgments, settlements and 
administrative fines, collected $420 million from those activities as 
well as prior year obligations, returned $369 million to the Trust Fund 
and $4.7 million as the Federal share of Medicaid restitution. The HHS 
Inspector General excluded 2,976 individuals from participation in the 
Medicare and Medicaid programs. The HCFAC account was appropriated 
$137.5 million in 1999, and the FBI was appropriated a separate $66 
million. We would defer to the OIG or DOJ as to whether they supplement 
the HCFAC money with direct appropriations.

    Mr. Norwood. Would you do that for me, Mr. Hash? I am not 
questioning you here at all. I am curious, is that a wise 
expenditure of money, looking at the big picture of the trust 
fund?
    Mr. Hash. Most of those expenses are not from the trust 
fund, Dr. Norwood. They are from the budgets of the law 
enforcement agencies, either the Inspector General's budget at 
HHS or the Department of Justice or the U.S. Attorneys offices 
around the country.
    Mr. Norwood. I understand. But it all comes out of the same 
pocket, whether it goes to the trust fund or whether it goes to 
the Treasury to be used at Justice, that taxpayer back home is 
paying that now.
    Mr. Hash. That is correct.
    Mr. Norwood. Do you think the 7 percent mistake rate, I 
guess that's the way to say that, do you consider that high or 
low?
    Mr. Hash. We consider it too high. We have indicated that 
when we started having these audits back in 1996. Our error 
rate was then about 14 percent. We have cut it in half, but we 
have set a goal of less than 5 percent for claims error rate on 
a volume of 1 billion claims a year.
    Mr. Norwood. If you were to stack your regulations up on 
this desk, how high would they go?
    Mr. Hash. Well, I don't think they would go as high as some 
people think they would. We have about 1300 pages in the Social 
Security Act for the Medicare Program, about 900 pages, I 
should say.
    We have about 1300 pages in the Federal Register in 
codified Federal Regulations and we have a number of manuals 
and other issuances that also support and explain the Medicare 
Program.
    Mr. Norwood. A foot would be okay, wouldn't it? I wouldn't 
be out of line saying 12 inches high worth of regulations?
    Mr. Hash. Not for regulations, it would not, no, sir.
    Mr. Norwood. The rules that a physician has to be aware of 
in order to treat a Medicare patient?
    Mr. Hash. Well, I would be happy to go through and give you 
the actual count of pages associated with-or submit it for the 
record.
    Mr. Norwood. Dr. Coburn says his are 18 inches high. So, 
that is good enough.
    My point though is, considering that it is the job of the 
physician to make the patient well, and he has 18 inches or 
regulations to follow from HCFA, do you still say a 7 percent 
honest error rate is out of line?
    Mr. Hash. The 7 percent error rate is too high. That is a 
very significant amount of dollars, public dollars, that are at 
risk as a result of that. We don't feel like we are doing our 
job as stewards of the program to tolerate an error rate of 7 
percent.
    Mr. Norwood. Are you doing anything in your job to lower 
that stack of regulations from 18 inches to 12?
    Mr. Hash. Yes, sir, we are. I tried to identify some of 
those steps in my testimony.
    Mr. Norwood. I will yield. Dr. Ganske, do you want to have 
a follow up?
    Mr. Bilirakis. Well, you don't have any time left.
    Mr. Norwood. Okay. I yield back.
    Mr. Bilirakis. You yield back zero, yes.
    Ms. Eshoo is recognized to inquire.
    Ms. Eshoo. Good morning, Mr. Chairman. Good morning, Mr. 
Hash, it is nice to see you. I think after trying to make 
optimum use of the time we have, 5 minutes, I am going to try 
something new.
    I am going to read all of my questions and then give them 
to you because usually once the witness gets the first 
question, you don't' get to ask the second and the third. Let 
me just start out that way.
    But let me thank you, Mr. Chairman, for having this hearing 
because I think that there are a whole host of issues that 
really fall into the realm of this hearing. I think that it is 
well timed.
    I have long been concerned about delays at HCFA because a 
delay, I believe, represents preventing Medicare beneficiaries 
from benefiting from the best that medical technology has to 
offer in our country, certainly at the high end in our nation 
we know that we have the best. I mean it is absolutely second 
to none.
    I understand that it can take up to 4 years for HCFA to 
make a coverage decision. That severely, again, delays the 
access for Medicare beneficiaries.
    Cardiac stents, for example, were available on the market 
long before they were made available to Medicare beneficiaries, 
and these products were available in Europe and Asia in their 
reimbursement systems before we did it here.
    Now, I know that FDA has specific statutory timeframes 
within which they are required to review and approve medical 
technology operations.
    My question is does HCFA keep track of the timeframes 
involved in making the coverage decision so that we can see 
what they are?
    Mr. Hash. We do.
    Ms. Eshoo. We do? Then once you keep track of them, what 
happens? I mean, do you acknowledge where your 3\1/2\ years 
flow? It is one thing to track it. It is another thing to do 
something with it. Is there any effort on the part of the 
agency, that is probably the larger question, to shorten the 
timeframes.
    My other question is that in following HCFA on the 
outpatient pass-through payment list, you know that I have 
concerns about it. I have written to HCFA expressing my 
concerns with this brand-specific approach to placing products 
on the list.
    I just have to tell you just right off the top that I think 
that is really faulty. Now, I guess a manufacturer whose 
product has hit the list is thrilled. But just for an example, 
rather than listing dual chamber pacemakers first, the list 
only includes Medtronic's Kappa 700. Medtronic even raised a 
question about that.
    So, I really don't understand the method for the madness of 
this. I know that sounds so disrespectful, but it really is 
making an awful lot of people scratch their heads about what 
your process is, how well thought-out it is, and, of course, it 
is not just for the technology people and the manufacturer of 
their products, we are here to talk about the people that we 
represent.
    You know they say that justice delayed is justice denied. 
Well, then I think in this case access delayed is quality 
patient care denied.
    So, it is in that context that I ask this, so maybe you can 
touch on what HCFA's rationale for listing specific brands of 
medical devices rather than product categories. Again, I think 
that it seems like an arbitrary decision. So far I don't think 
it is so workable because you have had to go back at it.
    You have people all over the country scratching their heads 
and they are up in arms. But if you explain it to us we might 
appreciate the underlying reasons.
    My last question is, when FDA-and some of us have had a 
little more experience with this than others because we were so 
involved in writing the legislation that brought about the 
reforms at FDA relative to medical devices. There are very 
favorable reviews on how that is working now which pleases me a 
great deal.
    When FDA goes through the process that it goes through so 
that a product is finally approved for use in our country, why 
is it that HCFA goes through a duplicative process? That is it.
    Mr. Hash. Okay. Those are great questions. Let me take them 
and try to do it quickly.
    First on the coverage process, about a year ago we 
announced a complete revamping of our coverage process. What we 
said was we were going to commit ourselves to specific 
timeframes, i.e., 90 days; that we were going to do evidence-
based coverage decisions that could be initiated by any 
individual, any company, any beneficiary, any person.
    We also created, just as the FDA had done, a national 
coverage advisory committee. Over 100 distinguished scientists 
and clinicians from around the country participate in that.
    We started that process last July. We have been making 
decisions within that 90-day timeframe. This is for coverage 
under the Medicare Program.
    We put up each and every application that comes in for that 
process on our web site. We update those entries all the time 
so people can look and see. We have been doing that, it will be 
a year this July 1.
    So, it is a complete revamping. For all of the reasons that 
you just said is why we did it. We are putting together 
additional guidance on the criteria that we are applying in 
that coverage process and as the FDA has done, we are 
developing sector specific guidance for devices, for drugs----
    Ms. Eshoo. That is what I don't understand. This sounds 
like a very tidy, needed process. But if, with what you just 
described, why you ended up in the mess with this outpatient 
pass-through payment thing?
    Mr. Hash. That is question two.
    Ms. Eshoo. How does one thing lead to the other?
    Mr. Bilirakis. Brief response now, because the 7 minutes 
are about up.
    Mr. Hash. The brief response is that the BBRA, last 
December when it was enacted, included direction for us to 
modify our outpatient payment system to recognize products that 
came on the market since 1996, which is the base year for 
establishing the outpatient payment rate.
    So, we had to identify which items of new technologies were 
actually put on the market for the first time after 1996 and 
therefore wouldn't be reflected in the data for the rates that 
were being established.
    That was a process that we believed required an item-by-
item review. That is what we have done. We are cognizant very 
much of the desire of people to move to a categorization scheme 
where in fact you would group like items and do it that way.
    The difficulties are, one, the categorization scheme does 
not exist.
    Ms. Eshoo. What does that mean?
    Mr. Hash. That means there is no agreed upon system for 
grouping hundreds of different devices that are similar and 
what defines what is similar and what is different enough to be 
in a different category.
    Furthermore, the way the law is written, if you had an item 
in a category that was actually on the market prior to 1996 and 
the rest of the items came on to the market after 1996, that 
whole category would not be eligible for the pass-through which 
is an outcome I don't think people would like to have happen 
either.
    Mr. Bilirakis. The gentlelady's time has long expired.
    Ms. Eshoo. Mr. Chairman, can I just state something for the 
observation of the committee?
    Mr. Bilirakis. You are in the 9th minute.
    Ms. Eshoo. Oh, all right.
    Mr. Hash. Mr. Chairman, I would be happy to get back to you 
on that.
    Mr. Bilirakis. Yes, I think that is necessary, certainly in 
writing, too.
    [The following was received for the record:]

    We have been engaged in discussions about the OPD pass-through 
issue with device manufacturers. As we have explained to them, there 
are significant problems with the category approach they have proposed. 
To be eligible for a pass-through payment, the law requires that, 
``payment for the device, drug, or biological, as an outpatient 
hospital service under this part was not being made as of December 31, 
1996.'' As a result, many of the devices we have approved would likely 
not have qualified under the category approach. That is because, under 
a category approach, if any device in the category was being reimbursed 
by Medicare as of December 31, 1996, the entire category of devices 
would not be eligible for pass-through payments. I do not believe that 
this is the result Congress intended (nor a result device manufacturers 
would desire). Nevertheless, we have indicated many times our 
willingness to continue to work with device manufacturers and with the 
Congress to address your concerns and to provide technical assistance 
should Congress decide to make revisions to the statute.

    Mr. Bilirakis. Mr. Whitfield.
    Mr. Whitfield. Thank you, Mr. Chairman. I actually was 
going to ask some questions about the documentation 
requirements for the CPT 99215 and then after I started going 
through the seven pages, it was so complicated that I decided I 
was going to give that to Dr. Coburn to ask. So, he will talk 
to you about that, I think, maybe.
    Mr. Coburn. Don't worry. I will.
    Mr. Whitfield. One of the questions I wanted to ask you, 
relating to audits, which I know is very important, but it 
seems to me some of the testimony that I have read about post-
payment audits and the testimony here is that physicians should 
enjoy the same due process rights as taxpayers undergoing IRS 
audits, who can appeal IRS fines, penalties and findings.
    It says that once Medicare conducts an audit or a carrier 
conducts an audit and they arrive at a projected overpayment 
amount by extrapolation, that a physician has three options: 
One, they can repay the extrapolated amount and waive their 
appeal rights. Two, they can repay the extrapolated amount and 
submit additional information while waiving their appeal 
rights. Or three, they can just open up their practice to a 
statistically valid random sampling of claims during the same 
period.
    So, your manual actually prevents physicians from retaining 
their due process rights unless they agree to open up their 
practices to a larger SVRS audit. Now, I would like to know 
what is the rationale for that type of practice?
    Mr. Hash. Mr. Whitfield, that practice is actually not a 
widespread practice in terms of what our carriers do in terms 
of doing sampling and extrapolation. But when it is used my 
understanding is that physicians do have the option of not 
waiving their appeal rights if in fact they want to challenge 
the basis for either the judgment about the individual claims 
in the sample or the validity of the extrapolation itself.
    Mr. Coburn. Would the gentleman yield? This is exactly the 
same situation where we were with IRS. You can do that, but any 
claim you file, they are not going to pay you. They are going 
to take the money out of the claim. So, in fact, you have given 
up all rights.
    So, to answer in that way, Mr. Hash, is actually not 
correct, because you don't have any rights once they say you 
owe them the money. You are going to take the money from them; 
correct?
    Mr. Hash. I believe that is correct.
    Mr. Whitfield. Then also, I noticed that if a physician 
determines himself or herself that they received an overpayment 
and they pay that back, evidently HCFA has instructed its 
carriers to begin auditing physicians who submit too large of 
an overpayment remittance.
    Mr. Hash. I have heard that, Mr. Whitfield, but the best 
that I have been able to do to get an answer to that is that I 
cannot in fact find any evidence that that is going on. But I 
would certainly be open to further inquiry.
    We don't intend that that be the policy at all by our 
contractors. I have been inquiring about that and have been 
unable to find any written instructions to that effect.
    Mr. Whitfield. So you would actually encourage the 
repayment of overpayments voluntarily then, I am assuming.
    Mr. Hash. We would, yes, sir.
    Mr. Whitfield. But this testimony says that HCFA has 
instructed its carriers to begin auditing physicians who submit 
these overpayments.
    Mr. Hash. If I am in error, I want to correct that. I knew 
this was an issue that was going to be raised. I am unaware 
that we have done any of that kind of instruction.
    Mr. Whitfield. Just going through some specific rules here, 
I could go through some relating to hospitals, but I just have 
the physician rules before me.
    It says a rule proposed in 1997 which still has not been 
finalized, details position supervision requirements for 
numerous office procedures.
    The regulation actually dictates during which procedures a 
physician must supervise from within the office suite, but not 
necessarily within the examining room.
    It seems to me that when you are dealing with these 
physicians who are professionally trained that this removes a 
lot of flexibility from them. I was just wondering if you might 
comment. It is so micro-managed that I guess you will reimburse 
if oversee it or supervise it within the examining room in some 
instances and in the office suite in other instances.
    Mr. Hash. That is correct, Mr. Whitfield. I know we have in 
our regulations standards that distinguish between what we 
would call general supervision which means that for individuals 
who are employed by or contracted by a physician, the physician 
needs to be present on the premises where the services are 
being rendered.
    Then we have under some circumstances a requirement that 
the physician must be physically present during the service 
provided by another health care professional.
    Mr. Whitfield. Can you give an example of one or both?
    Mr. Hash. It has to do largely with the license 
restrictions on these non-physician practitioners and what they 
are able to do without direct supervision and what requires 
direct supervision. I would be happy to get you a list of those 
kinds of circumstances, but I think it involves services such 
as some of the therapy services by therapy assistants.
    It turns very much on the qualifications and license 
restrictions of the individual health care professional vis-`-
vis the physician who is employing or contracting them.
    I would just say in general, the reasons for these 
requirements, as they are for the licensure requirements, is to 
ensure that quality of care is provided by people who are 
properly credentialed and properly supervised.
    Mr. Whitfield. Speaking of that, where are you all on this 
decision regarding anesthesiologists and nurse anesthetists? 
Are you all coming forth with something?
    Mr. Hash. We have separated that particular part of the 
rule which was published in December 1997 which was the 
hospital conditions of participation regulation and we are 
pulling that piece out and expecting to finalize it this 
summer.
    At the time, about a month ago, when we made this decision, 
the administrator communicated with a number of folks in the 
Congress indicating that it was our intention to finalize this 
reg as we had published it in the Federal Register. The 
regulation is now in clearance.
    Mr. Whitfield. Mr. Chairman, I assume my time has expired.
    Mr. Bilirakis. Yes. Dr. Coburn will inquire. You have 7 
minutes.
    Mr. Coburn. Mr. Hash, welcome. The intensity of my 
questions are no reflection upon you. I want you to know that. 
I am a thoroughly frustrated family practice doctor.
    You know I have a question. Why is it your carriers 
interpret different things? Why is it one carrier will tell me 
one thing and another will tell me something else? Where is the 
breakdown in the system that we don't have one Medicare agency, 
that we have several and that if I ask exactly the same 
question in written form I get a different answer with a 
different interpretation.
    Why is that?
    Mr. Hash. The reason I think largely, Dr. Coburn, is the 
historical fact that when Medicare was enacted in 1965, the 
plan was to do the administration of the program through 
private contractors, basically private insurance companies.
    At that time, it was felt that those insurance companies 
had the expertise and the experience about what local medical 
practice was like and the expectation was they would attempt to 
conform the Medicare Program.
    Mr. Coburn. I understand that. Why now?
    Mr. Hash. Well, now we have been trying to take steps to 
move toward more uniformity and consistency.
    Mr. Coburn. How can it not be uniform when you all send in 
exactly the same information on ``here is what we are going to 
do?''
    Why is it not uniform? Why is it the family practice or the 
ACOG or the Society of Surgeons or the AMA can't get something 
that is the same throughout the country as far as the rule?
    Mr. Hash. The reason for that is that within the scope of 
responsibilities, carriers, contractors, they have discretion 
under the leadership of their medical directors to make certain 
decisions and to establish publicly local medical review 
policies which can vary from one contractor to another.
    We are trying to evaluate whether or not we should move to 
a different system which restricts the ability of local 
carriers to make individual local medical review policies and 
to remove that discretion from those contractors.
    We have not arrived at that decision yet, but the reason 
there are differences is that there is a good bit of discretion 
at the local level for carriers to establish review policies on 
their own based on evidence and judgment that they bring to 
bear.
    Mr. Coburn. I just thing that is poppycock. We are not 
treating pneumonia different throughout this country. We are 
not seeing a person longer in Muskogee, Oklahoma than we are in 
Columbus, Ohio for the same thing. That may be 1965 policy, but 
that is ludicrous, especially in light of your practice 
parameters and guidelines and recording.
    I want to spend some time on that. Congressman Whitfield 
brought up a Level 5 office visit. I want to tell you, and I 
talked to Paul before this was instituted and I want to tell 
you it is happening.
    Is it in fact the case that when you all go in to audit and 
you decide that somebody has a 7 percent or an 8 percent 
upgrade, that your penalty for that is you apply that over all 
the payments that you made that year.
    In other words, you put the ``retro spectroscope'' on it 
and you assume, based on what is in the medical records of the 
few charges that you audit that they are guilty on everything; 
is that not the policy?
    Mr. Hash. We use what is called the sampling technique that 
has been statistically validated and from which we extrapolate 
the likely rate of error.
    Mr. Coburn. Out of that 7.97 percent error rate, how much 
of that do you perceive is up-coding?
    Mr. Hash. We have not been about, actually, I should say 
the Inspector General has not been able to break down the 
individual reasons for, or the causal factors for, the error 
rate, except it falls into, from their point of view, four 
areas.
    The largest area of error rate from their audits has 
consistently been the failure of the medical record to 
support----
    Mr. Coburn. That is up coding. That is exactly what I am 
asking you. The point is you all have set in place a rule that 
is driving every doctor in this country crazy. Here is the 
rule: If it is not documented in the chart, completely to the 
satisfaction of somebody outside, then you didn't do it.
    Now, here is what is happening. We have wonderful computers 
now. I can generate you the biggest line of medical BS that is 
going in the record. It is going in all across this country.
    When you go in to audit it, you are going to find that it 
meets everything that you need. But it has nothing to do with 
reflecting that patient's condition because over on the side is 
going to be the scribbling, mine, that you can't read and I can 
barely read, to tell me, because I know if I fail to make 
proper everything I said to that patient after seeing 22 
patients that day and not getting a chance to dictate it at the 
time, that in fact you are going to come in and kick my rear.
    So, you all are ruining the quality of care in this country 
because the medical record means nothing now. In your attempt 
to make it mean something to say every physician in the country 
is cheating Medicare, you have destroyed the quality of the 
medical record.
    My question to you is, when you have everybody down to 
where we have a computer-generated office visit that meets 
everything that the government wants and care declines because 
we don't have a consistent record, and then you spend twice as 
much money on the patients, haven't we really shot ourselves in 
the foot?
    Mr. Hash. Dr. Coburn, what we are trying to do, as I said 
in my opening statement, is to revise our evaluation and 
management guidelines in cooperation with physicians across the 
country.
    We just had a town hall meeting about a week ago where we 
rolled those out.
    Mr. Coburn. But if you continue to use that as your 
judgment, why don't you just say to the primary care doctors in 
this country, do it in blocks of time. Quit wasting your time 
and theirs. We know how to write a medical record. Every one of 
us writes a little bit different based on our own personality 
and what our training is.
    But you are going to use your standard of judgment or your 
carrier's standard of judgment that says I didn't do it right.
    So, you have intimidated, especially the internal medicine 
doctors in this country and the family practice doctors in this 
country into writing a bunch of stuff in the chart that will 
never be used, is of no value in the future except to the 
government.
    So why don't you just say we are stopping all this. Go in 
blocks of 10 minutes and we will pay you by blocks of 10 
minutes that will be reflective of your time. Medicare will 
save money. You won't have to come in and audit it. And we can 
save money in terms of following the response.
    What is wrong with that approach?
    Mr. Hash. Well, I think there are objectives here that 
should be complimentary to the practicing physician as well as 
to the program. That is, first, that we should have a standard 
that is fair and simple and easy for everybody to understand so 
that when their claims are, in fact, reviewed that they know 
the standards against which they are going to be evaluated.
    So, that has been the major purpose for trying----
    Mr. Coburn. That is right. Your standards right here for 
one office visit, here are six typewritten pages of the 
standard that has to be met for one office visit.
    Mr. Hash. That is no longer the guidelines that we are 
working on now.
    Mr. Coburn. That is the guidelines under which you were 
judging whether somebody up coded and did not bill Medicare 
correct today.
    Mr. Hash. Currently, we are using two sets of guidelines, 
ones we issued in 1995 and 1997, and we instructed our 
contractors to use whichever set of guidelines was most 
favorable for the physician.
    Mr. Coburn. Let me ask you one question and then I will 
yield.
    Mr. Bilirakis. Yes, very quickly.
    Mr. Coburn. If I went through a checklist in my chart and I 
have a checklist for all the review systems and I have a 
checklist for the chief complaint and then I have all the 
scribblings and here is my physical findings and here is my 
assessment and then there is a check list for when to follow 
up.
    That is the piece of paper. Yet, I spent an hour with the 
patient taking a detailed history, looking at him and doing 
everything. The paper would never say that. But the patient got 
the care.
    The thing that is so objectionable to physicians in this 
country is that you are like the IRS. We are guilty until we 
prove ourselves innocent. It should be about the patient, not 
about the doctor and not about Medicare.
    HCFA is no better than the health insurance industry in 
terms of not caring about what really matters. That is the 
patient.
    I am sorry about the tirade, but I want to tell you, my 
office is going nuts. We can't even tell from the records now 
because I can't read my partner's writing and the one that is 
typewritten certainly doesn't reflect what happened because it 
is computer-generated to please you.
    Mr. Whitfield. Mr. Chairman, I ask unanimous consent the 
gentleman be given 1 additional minute.
    Mr. Bilirakis. The gentleman has already taken, I think, 
close to 2 additional minutes. But in any case, are you 
finished, Tom?
    Mr. Coburn. Are we going to have any additional 
questioning?
    Mr. Bilirakis. I have extended the time to 7 minutes. We 
have another panel. That is my concern. Why don't we have Mr. 
Hash respond to Tom's, as he described it, ``tirade?''
    Mr. Hash. I don't view it as a tirade. I understand. I know 
there is a high degree of frustration and I appreciate that.
    What I am trying to say is we are trying to redouble our 
efforts to work more collaboratively and cooperatively with the 
physician community and my testimony lays out a number of steps 
we have been trying to take, including the issue of 
documentation of services.
    We need the continued support and input of physicians to 
get it right. As I was trying to say a moment ago, I think the 
balance we are trying to strike here is something that is 
useful to physicians because it compliments whatever they would 
ordinarily do as good practice and good documentation and 
provides us a basis for meeting our fiduciary responsibilities 
that we are paying for covered services that are billed at the 
appropriate level.
    Trying to figure out how we meet both those goals, to have 
guidelines that are not intrusive and burdensome on physicians 
but have some degree of accountability for what we are paying 
for is what we are trying to do.
    The problem with only time is that you lose in time the 
richness of the kinds of things that you just described that 
are actually going on and for which you should be compensated 
under our program.
    Mr. Hash, if I don't document it, you are assuming I didn't 
do it.
    Mr. Hash. But there should be a way in which that 
documentation guideline allows you to display whatever----
    Mr. Coburn. There is an easy way for Medicare to solve this 
problem. You pay doctors in terms of office visits on time and 
you put undercover patients out there.
    It is not the internists in this country. There are certain 
subspecialties like cardiology where we have way too many 
echocardiograms, you all know that. We know it. You can't 
filter it out because they are great at documenting it.
    Until you put undercover patients out there to get the real 
bad actors out of Medicare, you can't write enough rules to 
require us to document. You will never catch them. People that 
went to medical school made it out of high school. Their IQs 
are generally above a lot of other people's. Therefore, they 
know how to get around the corner.
    Mr. Bilirakis. Mr. Greenwood to inquire.
    Mr. Greenwood. Thank you, Mr. Chairman. Mr. Hash, a few 
years ago this committee spent a lot of time and effort to 
reform the Food and Drug Administration. One of the reasons we 
did is because as we looked at the pipeline between the 
laboratory and the patient trying to move medical devices and 
pharmaceutical products, we saw FDA as a bit of a bottleneck.
    Obviously, they have a function that they have to perform. 
But we thought that this tremendous promise that continues to 
mount that is developed in the laboratory and the biologics and 
pharmaceuticals really need to get to the patient as 
expeditiously as possible.
    We are now in the throes of trying to figure out how to add 
a prescription drug benefit to Medicare. It has the 
potentiality of the creation of another bottleneck. That is, 
once FDA approves the product, somebody under some model has to 
decide whether the patient is going to get reimbursed for that.
    Would you describe for me how, under the President's 
proposal, when the FDA approves a product, what will happen 
prior to that product being available to a Medicare beneficiary 
and reimbursed.
    Mr. Hash. Under the President's proposal, Mr. Greenwood, 
the agency would contract with private pharmacy benefit 
management organizations who are providing prescription drug 
coverage for privately insured people and that those 
organizations under our contract would be required to cover all 
therapeutic classes of drugs and all drugs for which the 
prescribing physician had requested as medically necessary for 
their patients. Those are the terms of the contracts that would 
be written with those organizations.
    Then they would in fact administer the program, pay the 
claims, check on drug interactions and drug utilization and 
provide the services that they are typically providing for 
private health plans today.
    Mr. Greenwood. So, there is no function that HCFA would 
play in that?
    Mr. Hash. There is no function that HCFA would play in that 
process.
    Mr. Greenwood. And how would you compare and contrast that 
to the legislation that the House is going to consider tomorrow 
in terms of those issues, in terms of the ability to get that 
product approved for reimbursement?
    Mr. Hash. My understanding is that there would be 
specifications in the law that would be proposed here for the 
bill that is coming before the House for private insurance 
companies to offer policies that cover drugs only and that they 
would be required, if they were going to offer such a policy, 
to meet a certain actuarial standard for that policy.
    But beyond that, they would be largely free to design their 
own formularies, to decide on issues between generic and brand 
name and how those substitutions would or would not----
    Mr. Greenwood. Except that our legislation requires that 
all therapeutic categories be covered as well; does it not?
    Mr. Hash. But essentially, the private insurance company 
that is offering the drug-only plan would be subject to 
whatever requirements you put into the law.
    Mr. Greenwood. Under the President's proposal, the coverage 
decision is completely contracted out by headquarters. As we 
said earlier, HCFA needs to make-HCFA doesn't need to put a 
finger on the decisionmaking process.
    Mr. Hash. There would clearly be an oversight 
responsibility in terms of ensuring that the organization was 
adhering to its contractual obligations.
    Mr. Greenwood. But you would argue, not one that would 
delay the----
    Mr. Hash. No.
    Mr. Greenwood. I assume that you think that is a pretty 
efficient model.
    Mr. Hash. Our reason for selecting that model is that we 
believe the vast majority of Americans who are fortunate enough 
to have prescription drug coverage, that is how they are 
getting their coverage today. We think that system is working 
for those Americans and we would like to make it work for 
Medicare beneficiaries.
    Mr. Greenwood. Now let's turn our attention to medical 
devices. Why not apply that model to coverage decisions for 
medical devices?
    Mr. Hash. Well, as I mentioned earlier, we put into place a 
coverage process for Medicare that includes devices, as well as 
new procedures, which is an evidence-based system, a 90-day 
cycle. We borrowed very heavily in designing this system from 
the FDA system where there are set timeframes, where there is 
an established outside advisory body that opines on proposals 
to add new devices or new procedures to Medicare.
    We think that that is a transparent, publicly----
    Mr. Greenwood. What value does that process add to what FDA 
has already set forth in its approval of product?
    Mr. Hash. My understanding is the FDA assignment or 
responsibility is to determine the safety and efficacy of drugs 
before they go to market.
    In the case of Medicare, we are applying a slightly 
different standard. We are taking the safety and efficacy 
information from FDA, but we are making a decision about 
whether or not under the Medicare statute the device or the 
procedure is reasonable and necessary which is the standard the 
statute sets forth for Medicare-covered services.
    That is not the same standard of safety and efficacy that 
the FDA has.
    Mr. Greenwood. Earlier on you were responding to a 
question, I think, from Mr. Brown about time sequences and you 
talked about how long it takes to evaluate the comments that 
come in sometimes, sometimes a hundred and sometimes tens of 
thousands.
    If you had to reinvent that whole process, that is a very 
time-consuming process and obviously many of those comments are 
redundant.
    Let me ask you, to what extent is HCFA actually thinking 
way outside the box in trying to reinvent that process so that 
you don't have these tortuous time delays in implementation 
that are caused, at least the extent to which those delays are 
caused by the tedious nature of evaluating, soliciting, 
collecting and evaluating those comments?
    Mr. Hash. First, I would say we actually believe that what 
sets Medicare apart, what distinguishes it from private health 
plans is the fact that its policies are subject to public 
participation and accountability, both through the rulemaking 
process, through oversight by the Congress, through judicial 
oversight----
    Mr. Greenwood. But that is a mixed blessing. What we have 
said is that you are erring on the side of all of that input, 
but there is a price to pay for all of that and that price is 
time.
    Mr. Hash. In some degree that is true. But I think in terms 
of beneficiary involvement and provider involvement in 
formulating our policies that to not allow that to go forward 
would be a great loss to the program and would erode, I think, 
what is broad and deep public support for the public Medicare 
Program.
    Mr. Bilirakis. The gentleman's time has expired. I have 
increased the time from 5 to 7 minutes. We have managed to run 
well over the 7 minutes.
    Mr. Norwood. Mr. Chairman, that is an indication of how 
important this hearing is. Thank you for having it.
    Mr. Bilirakis. I thank you for you. Mr. Bryant.
    Mr. Bryant. Thank you, Mr. Chairman. Welcome. I apologize 
for my absence.
    I want to ask you, in your testimony you list an impressive 
array of activities going on at HCFA to educate providers on 
how to work within the maze of Medicare requirements.
    A senior official at HCFA a week or so ago on June 18 in a 
New York Times article was quoted about Medicare beneficiaries 
not being able to handle too many choices because they find 
them confusing.
    I would think that the beneficiaries find the paperwork 
that they receive and have to manage with HCFA also extremely 
confusing. Is HCFA concerned about that?
    Mr. Hash. Yes, sir. One of the things we have been trying 
to do is to simplify and put into plain language our 
communications with beneficiaries. We are doing that in several 
different places.
    One is there is a series of notices that beneficiaries get, 
things like an advanced notice of coverage that we are trying 
to simplify so that they are plainly written and easy to 
understand.
    Second, we have completely revamped the notices that we 
send to beneficiaries, which we call the explanation of 
benefits. This is essentially an accounting of what services 
they were provided and when those services were provided.
    We have revamped that into something that is going to be a 
monthly notice called a Medicare Summary Notice that would look 
very much like a credit card bill. For each month, if there was 
activity in the sense of services covered by Medicare for an 
individual, they would get an aggregated monthly notice that 
would itemize the items, services, or visits that they 
received, indicate from whom and for what purpose, so that they 
could have a record of their own encounters and help them to 
navigate more easily the Medicare systems.
    Last, we spent a considerable effort in launching a 
national Medicare Education Program last year which will 
continue hopefully into the future if we continue to get 
resources for it.
    That consists of sending every beneficiary a handbook 
called ``Medicare and You,'' which is mailed to their home each 
fall. We have a 1-800 Medicare telephone number that has 
individuals who are trained on Medicare policy and procedures 
to answer questions of our beneficiaries.
    Also, we have a web site with a lot of comparative 
information about the health care choices that Medicare 
beneficiaries have, including quality and satisfaction data 
about health plans that is now readily available to Medicare 
beneficiaries to support their decisions and choices.
    All of this material is now focus group tested. It is 
reviewed for purposes of understandability and comprehension 
and when you consider that, on average, the comprehension and 
educational level of many of our beneficiaries is still eighth 
grade education or lower, it is very important that we 
communicate in the most clear and simple manner possible so 
that beneficiaries are aware of their opportunities in 
Medicare.
    Mr. Bryant. Let me ask you a couple of follow up questions. 
On your Item 2, EOB, the Explanation of Benefits form, you said 
it would be an itemization. For those people who can review 
this document, would there be sufficient data on that document 
for them to continue as a check and balance in terms of making 
sure services were rendered and so forth?
    Mr. Hash. That is correct. There is also a 1-800 number on 
that summary notice that tells them if this isn't clear, if you 
think there is an error here, or if you want to make a 
correction, call this number.
    Mr. Bryant. Let me jump over to telemedicine if I could, 
very briefly. HCFA's final rule implementing the Balanced 
Budget Act of 1997 denies payment for telemedicine store and 
forward application, which is widely accepted as a cost 
effective way to transmit an image to a remote specialist to be 
reviewed at a later time.
    Ignoring the development of technology, HCFA has, we 
believe, arbitrarily ruled that in order to qualify as a 
consultation, all practitioner/provider encounters has to occur 
in real time.
    Why is HCFA preventing the growth of this technology of 
telemedicine at a time when Congress is working to increase 
access to health care at all levels of society and particularly 
in some of the rural areas that I represent in Tennessee?
    Mr. Hash. Well, I think we need to work on that together, 
Mr. Bryant. I think that telemedicine does offer real valuable 
opportunities for access to health care services by people who 
live in more isolated areas.
    I think the problem in a nutshell is that the statutory and 
regulatory provisions for the codes that we recognize for 
billing purposes don't yet include that kind of encounter. They 
are all based on some kind of physical encounter between a 
patient and a provider of health care services.
    I think we need to look and see how we can change that to 
make those services more available to the individuals because I 
agree with you. It does represent an important opportunity to 
deal with access questions for isolated populations.
    Mr. Bryant. I would like to follow up with you on that 
point. I know you will be back up here probably within the 
week. I would like to give you a little bit more time and maybe 
after our third or fourth encounter after we go through this 
year or next year, I want to follow up and ask you about that, 
if you could have some optimistic and favorable----
    Mr. Hash. Yes.
    Mr. Bryant. I will yield back the balance of my time.
    Mr. Bilirakis. Mr. Burr to inquire. I understand Mr. 
Strickland has no questions at this time.
    Mr. Burr?
    Mr. Burr. Thank you, Mr. Chairman.
    Welcome, Mike.
    Mr. Hash. Thank you, Mr. Burr.
    Mr. Burr. Let me just start with one glaring thing that I 
have. That is a response to a letter I wrote in November, the 
response I got from Robert Berenson, M.D., Director, Center for 
Health Plans and Providers, dated June 9, 2000; 7 months after 
I made a request on clarification on three issues. I won't get 
into the issues. I will take them up later with you.
    I would only say that for all the claims that you make and 
that the agency makes about the ability to stay on top of 
things, clearly I would hope that coverage determinations that 
were inquiries from Members of Congress either receive a better 
response than 7 months or that I haven't stumped you to the 
degree that it took 7 months to figure out the answer that you 
wanted to share with me.
    I will highlight just one of the responses. It was to a 
reclassification of a particular procedure. The answer that I 
got was disturbing because it gets into an issue that you and I 
have dealt with at another time.
    The answer basically was that we looked back at the claims 
that we paid. Most of them were reclassified anyway to the tune 
of 88 percent of the claims.
    Therefore, we don't feel like we need to make a decision to 
change it from the lower reimbursement to the higher 
reimbursement because in 88 percent of the cases we already 
paid the higher reimbursement. I would tell you that that is 
not necessarily the best policy that we can adopt. I will 
revisit that one with you.
    Mr. Hash. I apologize for the response or failure to 
respond. I can assure you that we are trying to work on our 
correspondence. It is not an acceptable excuse to say that we 
get literally thousands of Congressional letters a month, but 
we do.
    They deserve and merit prompt and clear responses and we 
are trying to improve that.
    Mr. Burr. I am just fortunate that you are able to come to 
this subcommittee where I can ask you in person and all the 
other 500 can't.
    Do you plan to continue to use contractors in Medicare?
    Mr. Hash. Yes, sir, we do.
    Mr. Burr. You defined contractors earlier as private 
insurance companies. What is the different between that and 
what we propose to do in H.R. 4680 as it relates to private 
entities to administer our drug plan?
    Mr. Hash. Well, in the case of what the Medicare Program 
does under the statute, it is that it is obligated to have the 
claims processing and review functions done through contracts 
with specified organizations which by and large are insurance 
companies of one kind or another.
    Their scope of work, what their responsibilities are, what 
the policies are that they apply are ones that we include in 
their contracts.
    Mr. Burr. You said to Mr. Whitfield and Dr. Coburn that the 
contractors have the latitude to address the individual needs 
of individual markets.
    Mr. Hash. They have some latitude.
    Mr. Burr. Some latitude. So, as long as the drug bill 
prescribed a general outline like actuarial value and some 
degree of certainty in the scope of drugs covered, it is not 
private insurers that you are worried about, it is how 
prescriptive we are in the legislation to make sure that this 
benefit is provided to everybody; right?
    Mr. Hash. No, sir. I would phrase it a little differently. 
I would say what we are worried about, with respect to that 
proposal, is the fact that there is no guarantee in there that 
there will be prescription drug benefits that are affordable 
and accessible to all 39 million beneficiaries.
    Mr. Burr. But the reason is not the private insurance 
companies.
    Mr. Hash. Unless the provision is to require that private 
insurance companies offer prescription drug benefits to 
Medicare beneficiaries.
    Mr. Burr. My interpretation of entitlement and specifically 
stating it is part of Medicare implies that it has the same 
rights as other Medicare services.
    Mr. Hash. But it doesn't require any insurance company to 
actually offer such a policy; does it?
    Mr. Burr. Nor does what you just described to us about your 
contractors because they have the latitude on some services 
either to cover or not to cover; am I correct? Is it in some 
cases and not others?
    Mr. Hash. In some cases and not in others. There is a 
balance between----
    Mr. Burr. So, it is okay for you. It is okay for HCFA, okay 
for Medicare in general, but it is not okay for us under a new 
plan when the only difference is we use a private entity to 
administer it and not HCFA.
    Mr. Hash. No, sir. I disagree with that. There is a 
fundamental difference here and that is, that for our 
contractors who are processing claims, they process and pay 
claims and are required to do so for all covered services under 
Medicare. They are there for certain----
    Mr. Burr. But do they have the latitude to determine what 
those covered services are?
    Mr. Hash. Only in some circumstances that are not spoken 
to. But it doesn't mean that they are not there doing our work 
under contract. It is very, very different to talk about 
whether or not a private insurance company might decide to open 
up a line of business to offer a private drug insurance policy, 
under what terms they would offer that, whether it would be 
open enrollment, community rated, all of those are issues that 
would be left to the marketplace.
    In the case of the Medicare Program and its relationship 
with contractors, there is no doubt about the coverage that is 
there for the Medicare beneficiary.
    Mr. Burr. It is a great try, but you know we are talking 
apples and apples. You said earlier that the goal of HCFA is 
for quality care provided by properly qualified and properly 
supervised individuals.
    You are aware, I know, that there is a study, a peer review 
article that is ready to be published, I believe, this week or 
next week, as it relates to the anesthesiologists question.
    Share with me, if you will, why there was such a hurry to 
propose a final rule and to get a sign-off on that, given that 
you knew that there was a very in-depth peer reviewed article 
that addresses this issue that was going to come out very soon.
    Mr. Hash. I don't believe we have been rushing, Mr. Burr. 
We published the proposed rule in December 1997, so we are 
coming up on 3 years since the proposed rule was actually 
published.
    Second, what I have seen, which is really an abstract of an 
earlier draft of the study, so I don't speak with any authority 
about what is actually in the study----
    Mr. Burr. But you are aware of what it is.
    Mr. Hash. I am aware that there is a study, but my 
understanding of what the study is about is a comparison of the 
supervision of certified nurse anesthetists by 
anesthesiologists compared to their supervision by physicians.
    The point that we are doing in our reg is not supervision 
by other physicians, but independently practicing CRNA's who 
are licensed to do so by the State in which they are 
practicing.
    Mr. Burr. This study suggests that your final rule was 
incorrect. Is HCFA prepared to go back and pull that final rule 
proposal?
    Mr. Burr. We would always be open to review and adjustment 
of any of our policies based on evidence like that, absolutely.
    Mr. Bilirakis. The gentleman's time has expired. Well, a 
very brief question and a very brief response.
    Mr. Burr. Last question, if I could, Mr. Chairman. The 
physician self-referral laws over which this community has 
primary jurisdiction were passed by Congress 10 years ago. 
Earlier you talked through this process that HCFA goes through 
when implementing a statute.
    Notice, common period, final rule and implementation. Could 
you walk us through that process for self-referral laws 
Congress passed?
    Mr. Bilirakis. When you walk through, please do it very 
briefly.
    Mr. Hash. If I may, Mr. Burr, I would like to supply that 
for the record. I don't have the timeframes at my fingertips. 
But what I will say here is that clearly we have been delayed. 
It has taken a very long period of time. We are in the final 
stages of publishing the final stages of what is called STARK 
II, which is the second iteration of those referral limitations 
and we expect to have those out in the fall.
    Mr. Burr. So, just for the purposes of all the Members, we 
don't have any regs?
    Mr. Hash. Well, there are regs on the first, but not on the 
second, not on STARK II.
    [The following was received for the record:]

    The time line of the self-referral laws Congress passed is as 
follows:
    December 19, 1989: The Omnibus Budget Reconciliation Act of 1989 
added section 1877 to the Social Security Act (commonly referred to as 
Stark I). In general, this law provided that, if a physician (or an 
immediate family member of a physician) has a financial relationship 
with a clinical laboratory, unless an exception applies, that physician 
could not make a referral to the laboratory for the furnishing of 
clinical laboratory services for which Medicare might otherwise pay. 
The law also provided that the laboratory could not present or cause to 
be presented a Medicare claim or bill to any individual, third-party 
payer, or other entity for clinical laboratory services furnished under 
the prohibited referral. In addition, the law provided for reporting 
requirements.
    November 5, 1990: The Omnibus Budget Reconciliation Act of 1990 
(OBRA 1990) amended certain provisions of section 1877 to clarify 
definitions and reporting requirements and created one additional 
exception.
    December 3, 1991: We issued an interim final rule with comment 
period setting forth the reporting requirements.
    March 11, 1992: We published a proposed rule setting forth the 
self-referral prohibition and exceptions, as amended by OBRA 1990 
(Stark I) and as they related to referrals for clinical laboratory 
services.
    August 10, 1993: Section 1877 was extensively revised by the 
Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) (commonly known 
as Stark II) to apply to referrals for 10 additional designated health 
services. Exceptions were modified and new exceptions were added. 
Aspects of the referral prohibition were extended to the Medicaid 
program.
    October 23, 1993: The HHS Office of Inspector General (OIG) 
published a proposed rule that would set forth penalty provisions for 
violations of the law.
    October 31, 1994: The Social Security Act Amendments of 1994 (SSA 
1994) amended the list of designated health services and changed the 
reporting requirements and amended some of the effective dates of the 
OBRA 1993 provisions.
    March 31, 1995: OIG published a final rule with comment period 
implementing the penalty provisions.
    August 14, 1995: We published a final rule with comment period that 
incorporated into regulations the provisions that relate to the 
prohibition on physician referrals for clinical laboratory services 
(Stark I). We incorporated the amendments and exceptions created by 
OBRA 1993 and the amendments in SSA 1994 that related to clinical 
laboratory services.
    August 5, 1997: The Balanced Budget Act of 1997 (BBA 1997) amended 
section 1877 to require that the Secretary issue written advisory 
opinions for the purpose of providing additional formal guidance to 
outside parties regarding the application of the physician referral 
provisions. These provisions apply to requests submitted after November 
3, 1997 and before August 21, 2000.
    January 9, 1998: (1) We published a proposed rule incorporating the 
statutory provisions enacted through 1994 (Stark II). We also published 
a final rule with comment period incorporating into regulations 
specific procedures for issuing advisory opinions, as required by BBA 
1997.
    We were careful in our proposed regulations to clarify the law and 
create appropriate flexibility. One of the most important provisions 
establishes that referrals to an entity with which a physician has a 
compensation arrangement are generally permissible as long as the 
compensation is at ``fair market value,'' furthers a legitimate 
business purpose, and is not tied to the volume or value of physician 
referrals. This exception goes a long way in simplifying the policy 
under the law.
    We have carefully evaluated the 12,800 comments we received on the 
proposed regulations and are now working to resolve remaining issues in 
ways that simplify the regulations while not undermining the law's 
intent to prevent arrangements that would increase costs to taxpayers 
and subject beneficiaries to possible harm from unnecessary tests and 
procedures. We must take great care in translating this important 
legislation into policy. Important exceptions are needed to protect 
beneficiaries' access to care, and we must take into account the many 
detailed financial arrangements in today's health care delivery system.
    In the meantime, physicians and other health care entities have by 
and large made a good faith effort to comply with the law, which is 
generally self-enforcing. The simple existence of an improper financial 
relationship is subject to loss of Medicare payment or a civil fine. 
This creates a powerful incentive to proactively comply with the law 
through due diligence efforts to avoid financial arrangements that may 
unethically lead to substantial increases in use of services. The law's 
preventive nature makes a highly effective contribution to our 
increasingly successful efforts to protect Medicare and Medicaid 
program integrity.

    Mr. Bilirakis. Mr. Strickland, I understand you have a 
question or two?
    Mr. Strickland. Yes, sir. Thank you.
    Mr. Hash, I am sitting here feeling almost amazed at myself 
that I might be saying something positive or defensive about 
HCFA because you and I have had lots of talks about some of my 
concerns.
    But sometimes I think those of us who sit up here don't 
accept a reasonable share of the responsibility for the 
problems that you and others in governmental agencies have.
    I just wanted to ask you this question. The proposed budget 
mark for HCFA is about $220 million, I think, below that 
requested by the President.
    Some of the initiatives or programs that will suffer as a 
result, I understand, is the nursing home initiative, a 
reduction of about $35.8 million; Medicare contractor oversight 
initiative, $42.5 million; Medicare customer service, $143 
million; legislative implementation, which enables you to carry 
out the responsibilities that we gave you under the Balanced 
Budget Act and so on.
    So, given the fact that you do get thousands of letters, 
and I think everyone on this panel understands what it is like 
to keep up with correspondence; it is the major headache in my 
office. Some of my constituents get very frustrated, although 
we do the best we can answering thousands of letters that are 
technical in nature and require research, I mean, that is an 
understandable difficulty that you face.
    Would you just take a moment and speak about the lack of 
resources and whether or not you can do a better job if you 
have greater resources?
    Mr. Hash. Well, I appreciate that question, Mr. Strickland, 
because resources are an important issue. We are quite 
distressed about the House mark for the Labor HHS Appropriation 
for our administrative budget.
    It is $220 million below the request of the President and 
it would eliminate or seriously curtail our initiatives in the 
nursing home reform area, and our oversight of the Medicare 
contractors that we have definitely tried to step up.
    As you point out, many of our customer service initiatives 
that we have are at risk, and we are hopeful that as this 
process moves forward in the Congress that that money will be 
restored.
    Medicare has an administrative budget that is about 2 
percent of the money that we actually spend on behalf of 
beneficiaries. There is no program anywhere like the scope of 
Medicare that has administrative costs of 2 percent or less.
    I don't say that with the sense that that is where it ought 
to be. I think given the scope of responsibilities that 
Medicare has, the administrative budget should be significantly 
larger as a percent of its overall responsibilities.
    Just in closing on that point, what people fail to, I 
think, appreciate often about Medicare is that it is not just 
about processing claims and paying bills. It is about ensuring 
the integrity of the process. It is about reviewing the 
credentials of providers who provide services.
    It is about assuring quality of care, not just for Medicare 
beneficiaries, but for all Americans who use our health care 
facilities because a Medicare certification of a provider is 
not just an ``it's okay for Medicare.'' It means it is okay for 
all Americans.
    That is a responsibility that no other health program has 
and on the kind of budget that we have, I think our ability to 
do that in an effective and efficient manner is hampered by the 
lack of resources.
    Mr. Strickland. Thank you. I would like to yield to my 
friend from Ohio my remaining time.
    Mr. Brown. Thank you, Mr. Strickland. Just for 
clarification, from some of the questions and the comparisons 
of the HCFA-administered benefit compared with the GOP-
insurance based prescription drug plan, just if you would 
clarify, now my understanding is that Medicare has a single 
beneficiaries package, a single risk pool, predictable cost-
sharing, availability everywhere in the country, no possibility 
of terminating or changing the plan overnight. Enrollees are 
not subject to that kind of behavior by the administrator and 
predictable premiums and all that; is that right?
    Mr. Hash. That is absolutely correct.
    Mr. Brown. With an insurance-based prescription drug plan, 
you can't necessarily count on all those elements; correct?
    Mr. Hash. You cannot. We are very concerned about any 
potential for Medicare beneficiaries not to be able to access 
affordable prescription drug benefits. Under other plans that 
do not integrate the prescription drug benefit fully into the 
Medicare Program, that guarantee is not there, Mr. Brown.
    Mr. Brown. In light of some things also that were said, if 
we were to privatize Medicare, there were criticism of you from 
several people, not you personally, but of HCFA in terms of the 
lack of uniformity because of using different administrators in 
different regions and different states of the country.
    If we were to privatize Medicare or pass a private 
insurance company-based prescription drug benefit, what are the 
chances that coverage decisions would be uniform across the 
country then?
    Mr. Hash. Well, I think they would, as they do today in the 
private sector, they would vary according to the decisions of 
individual plans. Therefore, there would not be uniformity or 
consistency with what the benefit package would be, what the 
premiums would be, what the coinsurance or cost sharing would 
be. All of those are specified as part of the basic Medicare 
Program and they are guarantees that our beneficiaries can rely 
on.
    Mr. Brown. So, again, a Medicare-based plan, whether it is 
prescription drugs or whether it is the Medicare fee-for-
service or Medicare as we know it even with the +Choice and all 
that, in terms of benefit package, the cost-sharing, the 
availability everywhere in the country, there is a huge 
contrast between what Medicare offers with prescription drugs 
if we were to do that and what we would see if we saw an 
insurance based plan.
    Mr. Hash. I agree with that, Mr. Brown.
    Mr. Norwood. Mr. Strickland, would you yield for just a 
quick question?
    Mr. Strickland. If I have any time, sir.
    Mr. Bilirakis. You have 44 seconds.
    Mr. Norwood. Mr. Hash, I was curious about the 1,000 
letters a month you receive from Congress. That implies we each 
write you twice a month or half of us write you four times a 
month. Is that true?
    Mr. Hash. I may have overstated it, but it is in the 
several hundred a month, I know, and maybe----
    Mr. Norwood. Mr. Burr, who waited 7 months for a reply 
surely didn't write every other 6 months waiting for another. 
If you would check on that I am real curious.
    Mr. Hash. Yes, sir, I will.
    [The following was received for the record:]

    In 1998, we received a total of 12,591 pieces of Congressional 
correspondence, for an average of more than 1,000 letters per month. In 
1999, we received a total of 6,140 pieces of Congressional 
correspondence, for an average of more than 510 per month. Also, from 
January 2000 to date, we have been averaging about 510 per month.

    Mr. Brown. Would Mr. Strickland yield to me?
    Mr. Strickland. Yes, sir, I will.
    Mr. Brown. My understanding is we all have caseworkers in 
our districts that write you time after time after time that we 
don't even necessarily know about. It is not necessarily always 
a letter that is a policy question. It is more, ``can you help 
us clarify some point'' or ``would you help our constituents''?
    Mr. Hash. That is correct.
    Mr. Bilirakis. Mr. Upton?
    Mr. Upton. Thank you, Mr. Chairman. Mr. Hash, it is good to 
see you again. As I have been listening to a number of the 
questions and the testimony, I wanted to share with you two 
very frustrating cases that have come across my desk and I 
think are really indicative of the frustration that my 
physicians back home who I meet with fairly often would cite as 
fairly routine.
    One of the examples that my staff and I have been working 
on for a month now, a physician's office manager in our 
district called and is trying to figure out what was happening.
    It seems that they have been receiving scores of requests 
for additional information about claims that they had submitted 
electronically. When they called the carrier they were told 
that this was a prepayment audit that HCFA had directed the 
carriers to undertake.
    When they asked how long the claim would remain pending, 
the carrier could give them no estimate. When they asked if 
interest might be paid on the claim beyond a certain period, 
60, 90, who knows how long, days, the carrier told them that 
HCFA directed them to treat the claims as if they were a claim 
category in which interest is not paid.
    When they checked with the regional HCFA office, that 
office denied any knowledge of what was going on. This 
particular office has about 40 percent of their claims being 
held by the carrier. Despite our efforts to try and get a 
straight answer, including my staff which had been working on 
HCFA claims, really, for 20 years, we have been unable to get 
any type of response at all.
    The other sort of normal thing that we have seen, I have 
spent, earlier this month, a number of hours at one of my 
physician's clinic and walked through a number of examples that 
they go through.
    Jane, if you could just share a letter. I am going to read 
parts of it into the record. Actually when I saw down and 
looked at this case, this is 78 pages long in terms of what 
they submitted.
    They have actually now done what my 7th grade daughter does 
quite a bit on the computer. She likes to put letters in 
different colors, yellow, red, and black, to try and highlight.
    It starts off by saying that ``This claim is now being 
submitted to you for the ninth time. Six times you have 
requested a prepayment review on portions. This goes back a 
good number of months.''
    In fact, as I indicated, 78 pages of the information that 
they have submitted, they did receive a letter back since I was 
there earlier this month, and they asked again for more 
information, which means now that this is going to be the tenth 
time in the payment they are trying to seek and trying to 
clarify the particular procedures that were done.
    Now, this clinic is actually pretty familiar to me because 
this is where I take my kids. I know these physicians. They 
want to practice medicine. They don't want to go into all the 
paperwork and everything else and they just want to get paid 
for a decent day's work. It is unbelievable looking at these 
types of claims that they are submitting and the rejections 
back and forth. They really don't seem to be getting anywhere.
    I know as I have talked to you in previous years you all 
process literally 1 billion claims a year. But there is a 
tremendous frustration with our physician community and with 
the patients as well, in terms of whether they are covered or 
not and what goes on, particularly if you deal with Medicare 
individuals over 65 years old. They just want to get treatment. 
They want the bills to be paid. It is a very frustrating number 
of days in their lives as they try and deal with this.
    Going back to Dr. Coburn's questions, Dr. Ganske and Dr. 
Norwood, somehow we have to come up with a better system than 
is out there right now because it is just not working.
    Our physicians are frustrated beyond belief in terms of the 
work that they have to do. I wanted to share, particularly, 
this claim here with you. At the time that I met with Mike I 
was not aware of this hearing taking place and it was something 
that we went back and retrieved from my office down the hall 
this morning.
    Mr. Hash. You know, again, I cannot defend this. I think 
this should have been resolved much earlier. I don't know, 
obviously, what the facts are here. No matter what the facts 
are, it shouldn't have gone on for this long.
    I can assure you, at least in this particular one and the 
other one that you mentioned, I am happy to get to the bottom 
of it quickly and get it resolved one way or another.
    On the broader question, you are absolutely right. It is a 
difficult system, a fee-for-service based system with seven to 
ten thousand different codes in the physician procedural 
terminology makes for an extremely difficult system to balance 
the opportunity for the variation that is required in the care 
of individual human beings versus the accountability of the 
program.
    In many cases, I think we have not struck the right 
balance. We are trying to take a number of steps to actually 
address the failure either of us or our contractors to properly 
dispose of and dispense with controversies like this in a much 
more efficient and short timeframe than this lays out here.
    I agree with you that experiences like this are what the 
face of the Medicare Program is to many providers and 
practitioners.
    One of our major goals here is to try to do something in 
terms of our management and oversight of our contractors in the 
way that they provide customer service for the provider 
community as well as the beneficiary community and the way that 
we invest in educating them to be partners with us rather than 
adversaries in these matters.
    There is no excuse, really for controversy like this to 
have continued for this period of time.
    Mr. Upton. I am just a layman. I am not a lawyer. I am not 
a doctor. I dropped chemistry in college. I did very well in 
high school, but that is a recurring nightmare that the drop 
did not go into effect and all of a sudden my project is due at 
the end of the semester.
    But it doesn't take very much time to actually go through 
some of these 78 pages to say, here is the service that was 
provided. You ought to get paid. The realization by a number of 
my physicians is that this is the way to delay payment and make 
money off the interest that is not going to be made.
    At the end of the day when in fact something does happen 
that is positive and the claim is paid, it seems it is fairly 
often a routine that a number of months later after the case is 
being closed, it in fact opens up again and they have to go 
back through the whole case again.
    Mr. Bilirakis. The gentleman's time has expired. I would 
love to hear an explanation as to why something like this 
happens, but, I am going to yield to Mr. Stearns first.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Hash, in April 1999, HCFA published in the Federal 
Register a notice announcing a new national coverage process 
including procedures for seeking review by the new medical 
coverage advisory community.
    In that notice HCFA stated that after a coverage 
determination was made, HCFA expected, and that is a quote, 
``to make a payment change effective within 180 calendar days 
of the first day of the next full calendar quarter that follows 
the date we issue the national coverage decision.''
    Help me understand that statement, specifically, tell me, 
if we approve something today, take me through that statement 
and see how many days, months, years----
    Mr. Hash. What that describes is the process for 
establishing the payment rate for the covered item or service 
and the fact that we were committing ourselves to cover it 
within 6 months after the period that the coverage decision was 
actually announced.
    I think that is intended to be an outside limit because in 
many cases the payment policy may already be established and it 
won't take any time to assign an appropriate payment level to 
the new covered item.
    In other cases, if it represents something for which we 
have no analog, for which we have not paid for anything like it 
before, we do need to go through a process to develop 
information about what are other payers paying for this item of 
service in the private market.
    Mr. Stearns. But you see how complicated this is. It is not 
just 6 months. There are 180 calendar days. ``Of the first day 
of the next full calendar quarter.'' What does that mean? ``The 
next full calendar quarters.'' Why can't you just--I mean once 
the agency decides to issue a code and affirmatively decides to 
cover it, why don't you just move quickly and why such 
bureaucratic language?
    But still, take me through the process. You have 180 
calendar days of the first day of the next full calendar 
quarter.
    Mr. Hash. For example, if we made a decision today----
    Mr. Stearns. Okay, just take me through that.
    Mr. Hash. The next calendar quarter is July 1. I believe 
that is Saturday. I think that is July 1. That would be the 
first day of the next calendar quarter. That would be 6 months 
from then which would be----
    Mr. Stearns. That follows the date we issue the national 
coverage decision?
    Mr. Hash. Right. We issued it today. It would be 6 months 
from July 1 which would be December 31 or January 1, 2001.
    Mr. Stearns. Okay. Is there any reason why it takes that 
long?
    Mr. Hash. Because it depends on whether or not the item of 
service that is covered is something that we are already 
essentially paying for something like it, therefore we can 
easily establish a payment amount.
    If it is something for which we have not been paying for, 
we have to establish some kind of basis for establishing the 
price and we do that by collecting data about what it is being 
paid for by other payers. Sometimes that takes a period of 
time.
    Mr. Stearns. Like, you talk about the quarters.
    Mr. Coburn. Would the gentleman yield?
    Mr. Stearns. Yes, just 1 second. Let's say it could be more 
than 6 months. I mean even under your example it is more than 6 
months.
    But I mean let's say it was in the first quarter of 
January, February, and March, let's say the first of April you 
issued it or in the middle of April, then you go the next 
quarter. That would be three-quarters of a year, right? You 
would have April, May, and June and then the first of July 
would start the next quarter.
    So, in addition to 6 months, you add another almost 3 
months. Then you are talking about 9 months. I mean, it just 
seems like you wouldn't need that much time to go ahead.
    Because you have already affirmatively decided to cover a 
new technology procedure. So therefore, why can't you just go 
with it?
    Mr. Hash. There are two different questions. One is, is it 
covered. If the answer to that is yes, how much do we pay for 
it?
    Mr. Stearns. But don't you decide that at the same time?
    Mr. Hash. No. It is not a part of the coverage decision.
    Mr. Stearns. Sure.
    Mr. Coburn. If the gentleman would yield. I think there are 
a couple of other issues. No. 1 is, you won't pay for anything 
until a CPT code or ``J'' number has been assigned to it.
    Mr. Hash. That is correct.
    Mr. Coburn. That is ludicrous and I will give you an 
example.
    Mr. Stearns. How long does that take?
    Mr. Coburn. It takes forever. Let me give you an example. 
Pap smears that are questionable, a repeat Pap smear with a 
thin prep pad, it took you all 18 months to approve payment for 
a thin prep Pap smear, 18 months. They wouldn't pay for it.
    So, what happens is, the patient pays for it because we 
have them sign a deal, this is not a covered service. So the 
patient has to pay for it.
    The question I wanted to ask is: Do you have an incentive 
system out there for your carriers to not pay or to delay 
payment or to find more fraud?
    Mr. Hash. No, sir, we do not.
    Mr. Coburn. There is no incentive at all for a carrier to 
lessen their payments or to find more fraud.
    Mr. Hash. No, sir, they do not.
    Mr. Stearns. Reclaiming my time, but you see what he is 
saying, you are saying there are two things, you are 
implementing the procedure and then determining the cost. Give 
me an example. Are we talking about, as he says, 18 months or a 
year? I think what you seem to understand here is that you have 
bureaucratic language and you are not getting with it.
    I don't think a corporation today that is trying to earn a 
profit is going to do this. I am not saying you should make a 
profit obviously, but I am saying you should expedite this 
along.
    Mr. Hash. The whole purpose of the coverage process that 
you are referring to from that note was to bind ourselves to 
specific timeframes because in the past the process, as Dr. 
Coburn just pointed out, was very uncertain, took place over a 
long period of time, and we would view these commitments as you 
have just read to me, as improvements in the timeliness and 
responsiveness of the process compared to what it had been in 
the past.
    Mr. Stearns. Based upon this new published notice in the 
Federal Register, what have you seen out in the field now? What 
is the average time?
    Mr. Hash. We started using the 90-day process----
    Mr. Stearns. 180?
    Mr. Hash. No, no, no. I am back to the coverage process 
itself. In that notice you are referring to, we said we would 
do those reviews and make a decision within 90 days. We have 
been doing that unless there was an issue about additional 
evidence that had to be submitted. But generally, we have been 
living up to that 90-day requirement.
    With respect to the assignment of a payment or 
reimbursement level, I don't know exactly what the timeframes 
have been, but I would be happy to check on them.
    Mr. Stearns. You should know, though. I mean that would be 
something that----
    Mr. Hash. Well, there are a lot of things I should know, 
Mr. Stearns, but I just don't happen to have that one. But I 
will try to get for you a list of all the ones we have approved 
since July and when the payments were established for use by a 
carrier.
    [The following was received for the record:]

    Since publishing Medicare's new coverage process in the Federal 
Register on April 27, 1999, the following pending and completed 
National Coverage Determinations have been posted on the HCFA web site 
at http://www.hcfa.gov/quality/8b.htm. National Coverage Decisions 
(NCDs) can take a number of forms. They can cover or not cover medical 
items or services, leave coverage decisions of medical items and 
services subject to regional practice variations to local carriers, or 
make coverage decisions with limitations. It is just as important for 
Medicare beneficiaries that NCDs made to not cover items are 
implemented as swiftly as those made to cover items. Therefore, this 
list includes all of the NCDs HCFA has published.

1) Augmentative and Alternative Communication (AAC) Devices--On April 
        26, 2000, HCFA published a NCD classifying AAC devices as 
        durable medical equipment (DME) and therefore eligible for 
        coverage by Medicare carriers. The non-coverage decision on 
        these devices could be found in the Coverage Issues Manual sec. 
        60-9, which was based on Section 1861(n) of the Social Security 
        Act (the Act) which defines DME. The longstanding policy was 
        based on a determination that AAC devices were ``convenience 
        items'' and therefore not DME. The Center for Health Plans and 
        Providers (CHPP) decided that AAC devices do fit within the 
        definition of DME. The Office of Clinical Standards and Quality 
        (OCSQ) decided that many factors may weigh into the decision of 
        whether this device would be medically reasonable and necessary 
        for an individual beneficiary. Therefore, effective January 1, 
        2001 coverage of this piece of DME is at carrier discretion.
2) Autologous Stem Cell Transplantation (AuSCT) for AL Amyloidosis--On 
        January 14, 2000 HCFA published a NCD to not cover AuSCT for AL 
        Amyloidosis because of a paucity of evidence on its 
        effectiveness. This decision is effective October 1, 2000. HCFA 
        received a formal request to examine this treatment for this 
        indication which had not previously been addressed at the 
        national level and was therefore at the discretion of local 
        contractors.
3) Autologous Stem Cell Transplantation (AuSCT) for Multiple Myeloma--
        On May 31, 2000 HCFA decided to issue a NCD for AuSCT in the 
        treatment of multiple myeloma limited to patient populations 
        shown to derive benefits from the treatment. This NCD is also 
        effective October 1, 2000.
4) Breast Biopsy--On December 7, 1999 HCFA established a national 
        coverage policy for percutaneous image-guided breast biopsy for 
        some non-palpable lesions and left coverage of non-palpable 
        lesions to the discretion of individual carriers.
5) Continuous Subcutaneous Insulin Infusion Pump--On August 26, 1999 
        HCFA issued a NCD to cover continuous subcutaneous insulin 
        infusion pumps for type I diabetics. This decision was 
        effective for services furnished on or after April 1, 2000.
6) Electrical Stimulation for Fracture Healing--On November 9, 1999 
        HCFA issued a NCD maintaining a limitation on coverage of 
        electrical bone growth stimulators to long bones, but changes 
        it definition of nonunion fracture from a fracture in which 
        healing ceased for nine months to one where it ceased for three 
        or more months. Effective for services performed on after April 
        1, 2000.
7) External Counterpulsation Therapy--On November 22, 1999 HCFA amended 
        sec. 35-74 in the Coverage Issues Manual (CIM) to reinforce a 
        previous NCD effective on July 1, 1999. On July 1, 1999 HCFA 
        changed its non-coverage NCD by issuing a NCD to cover this 
        device for patients diagnosed with disabling angina (Class III 
        or Class IV, CCSF score or equivalent classification) and who, 
        in the opinion of a cardiologist or cardiothoracic surgeon, are 
        not readily amenable to surgical intervention. The November 
        decision, written in response to two separate formal requests 
        on this topic--one to broaden the terminology to include other 
        devices and the other to reconsider the coverage policy and 
        withdraw coverage of this service altogether, changed the 
        wording in the CIM from ``Enhanced External Counterpulsation 
        (EECP)'' to ``External Counterpulsation (ECP)''. While EECP was 
        commonly used in the medical field, EECP was a proprietary name 
        and therefore a revision to the original decision was needed to 
        clarify that equivalent devices produced by other manufacturers 
        were also covered.
8) Extracorporeal Immunoadsorption (ECI) Using Protein A Columns for 
        Treatment of Rheumatoid Arthritis--On April 27, 2000 HCFA 
        expanded its coverage of this treatment. Since 1991, the 
        treatment has been covered for only for idiopathic 
        thrombocytopenia purpura (ITP). Recently, the labeling 
        instructions including using this treatment for severe 
        rheumatoid arthritis sufferers. Effective on January 1, 2001, 
        Medicare will cover this treatment for rheumatoid arthritis 
        sufferers who have failed at least three disease-modifying 
        anti-rheumatic drugs.
9) Ferrlecit--On April 20, 2000 HCFA issued a NCD to cover this 
        intravenous iron therapy drug for end stage renal disease 
        (ESRD) patients. Since this is a new drug, no national policy 
        had been in place and therefore coverage of the drug was at the 
        discretion of local carriers. Effective thirty days following 
        issuance of instruction, which is currently in the clearance 
        process.
10) Helicobactor Pylori Testing or Fecal Antigen Assay for Diagnosis of 
        Helicobactor Pylori (H. pylori)--On November 8, 1999 HCFA 
        issued a NCD retaining contractor discretion of this test. The 
        test had been at contractor discretion before HCFA received the 
        formal request to review for national coverage by Meridian 
        Diagnostics, Inc. HCFA believes that leaving this diagnostic 
        test to contractor discretion will encourage technology 
        diffusion at the local level and create an opportunity for 
        stool antigen testing to obtain an appropriate diagnostic 
        foothold.
11) Liver Transplantation-- On December 2, 1999 HCFA issued a NCD to 
        remove the exclusion of patients with hepatitis B, but to 
        retain the exclusion of patients with liver cancer in CIM sec. 
        35-53. This decision was effective on December 10, 1999.
12) Pressure Reducing Therapy (Support Surfaces)--On June 12, 2000 HCFA 
        issued a NCD which modifying CIM sec. 60-19 entitled ``Air-
        Fluidized Bed''. Air fluidized bed therapy had been covered 
        with some limitations including a requirement that conservative 
        treatment be used first. The modifying NCD defined conservative 
        treatment. Anticipated effective date is December 2000 when 
        instructions to Durable Medical Equipment Regional Carriers 
        (DMERCs) are issued in the next quarterly bulletin.
13) Prolotherapy for Chronic Low Back Pain--On September 27, 1999 HCFA 
        issued a NCD retaining its national non-coverage policy in CIM 
        sec. 35-13. Since no systems or coding changes were necessary, 
        the policy was effective immediately.
14) Re-Evaluation of Criteria for Medicare Approval of Transplant 
        Centers--On July 26, 2000 HCFA issued a NCD revising the 
        criteria for Medicare Transplant Center Medicare approval. The 
        NCD maintained existing standards for patient selection, 
        management and commitment. Also, the NCD kept the standards for 
        facility plans, survival rates, maintenance of data, organ 
        procurement, laboratory services, and billing. The NCD changed 
        volume criterion to require 12 transplants over a 12-month 
        period for heart and liver transplant centers, and 10 
        transplants over a 12-month period for lung transplants and 
        eliminated the 2-year minimum experience requirement. 
        Instructions making this policy effective have not yet been 
        issued.
15) Ultrasound Stimulation for Nonunion Fracture Healing--On July 31, 
        2000 HCFA issued a NCD rescinding its national noncoverage 
        policy on Ultrasonic Osteogenic Stimulators. CIM sec. 35-48 is 
        amended to define osteogenic stimulators and covered 
        indications. Instructions making this policy effective have not 
        yet been issued.

    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Bilirakis. All right. We have gone all the way through 
here. The chair is going to claim the 2 additional minutes 
because he gave it to the others and didn't take it for 
himself.
    Following up, Ms. Eshoo is not here, but the device 
problem, I understand that the agency is continuing to insist 
on a buy brand rather than the category approach to classified 
devices.
    There are numerous problems with the buy brand approach. I 
think those have already been shared with you. Let me ask you, 
Michael, is there any precedent in Medicare's history of 
establishing a payment system based on a brand of technology?
    Mr. Hash. Well, I don't think there is, but I think the way 
we got there is by our reading of the Balanced Budget 
Refinement Act last December when it was signed into law. It 
says that, it refers to specific items that were in use after 
1996, which is the base rate for the payments.
    Mr. Chairman, I didn't get a chance to say this earlier, 
but we have had long discussions with folks who are interested 
in the category approach to reviewing and approving these 
items. We have indicated that we would be willing to talk about 
a categorization scheme. We think it has pluses and minuses. 
But we couldn't implement it at the very outset here by August 
first, which is the implementation date of the outpatient PPS.
    But since we are going through, as I indicated earlier, 
quarterly updates where new technologies are considered and 
added every quarter, we would over time be able to think about 
developing a categorization scheme and we are open to having 
that discussion.
    Mr. Bilirakis. I understand that industry has offered to 
sit down with you since December of last year to do just that. 
They say a system of 8 to 10 device types could be easily 
developed; is that true?
    Mr. Hash. I think they have indicated to us that they want 
to have such a scheme. We don't actually have such a scheme and 
in order to put one into place while we are, at the same time, 
trying to review over 300 applications, we didn't feel that we 
could do all that and have our payment system in place by this 
summer, which was the goal which we had established through the 
statute.
    Furthermore, we do believe that our reading of the statute 
does produce the kind of outcome that we have done. When we 
were consulting with the Congress when the provision was 
written, we indicated at that time this was exactly how we 
would administer it.
    Mr. Bilirakis. I think it is related to comments that I 
have made previously and that is a willingness on our part, the 
Congress. I know sometimes we draw these things up and there 
are unexpected consequences. If you come back to us and 
basically say to us, look we kind of agree with you on these 
categories but we need some changes made.
    You know, certainly we would address that. But it hasn't 
taken place.
    By the way, Mr. Oxley, who is not a member of this 
subcommittee but is a member of the full committee, has two 
concerns related to HCFA implementation of Section 401 of the 
Balanced Budget Refinement Act. I am not going to read those to 
you, but I am going to furnish them to you and request a 
relative soon type of a response, not 7 months as Mr. Burr 
experienced.
    Mr. Hash. Yes, sir.
    Mr. Bilirakis. There will be a number of questions in 
writing which I know, as per usual, you will respond to, 
hopefully within a short period of time.
    I will yield the balance of my time approximately 1\1/2\ 
minutes, to Mr. Ganske.
    Mr. Ganske. Thank you, Mr. Chairman. I want to follow up on 
the issue of audits. Correct me if I am wrong, but when you do 
audits of physicians or when you have done it at hospitals, you 
have looked at a limited number and then when you find mistakes 
where the coding has resulted in higher payment, you 
extrapolate from that number to the total number of cases and 
then you want a refund.
    Am I not also correct that when you do those audits if you 
find codes that have been coded lower than normal then you are 
not taking that into consideration or are you taking that into 
consideration to balance out the----
    Mr. Hash. We are, Dr. Ganske.
    Mr. Ganske. Were you doing that initially or has that been 
a change?
    Mr. Hash. I am not aware that that is a change, but I think 
that there might have been inconsistent performance by the 
contractors. We have indicated and redoubled our indications to 
them that this is a requirement that any claims that are under-
coded, that those be adjusted properly to the right code and 
reimbursement be made or netted out against any overpayments 
that are determined.
    Mr. Ganske. When did you send out that information to the 
contractor?
    Mr. Hash. I don't have that right at my fingertips but I 
will get you something that will show you how we addressed 
that.
    Mr. Ganske. Will that be retroactive to the audits that 
have been done before?
    Mr. Hash. I don't know, Dr. Ganske. I don't know how it is 
worded. But I do know that it has been our intention that 
underpayments be netted out against overpayments. It is not 
just overpayments.
    Mr. Ganske. And that has been your policy all along?
    Mr. Hash. I believe it has been our policy.
    Mr. Ganske. So if the contractors were not doing that 
initially, then the providers that were unfairly hit with not 
having the positive part counted in should get a refund.
    Mr. Hash. I think it should be netted against whatever 
liability they might have.
    Mr. Ganske. Have you actually put that in writing?
    Mr. Hash. I need to review the documentation on that, Dr. 
Ganske. I don't know right off the top of my head. But I will.
    Mr. Ganske. It should be in writing; shouldn't it?
    Mr. Bilirakis. Your office can follow up with something on 
that.
    Mr. Hash. I will get you whatever we have on that subject.
    [The following was received for the record:]

    First, it must be understood that, as a general matter, post-
payment audits are not performed randomly, but rather are data driven 
and are performed when the contractor believes an overpayment exists. 
In fact, in a recent Program Memorandum (Transmittal AB-0072), HCFA 
reminded Medicare contractors of the steps that must be taken for the 
efficient and effective use of medical review. For example, the 
Memorandum stresses that the decision to conduct medical review should 
be ``data-driven,'' and that potential problems should be validated by 
conducting ``probe'' reviews (i.e., reviewing a limited number of 
claims). Finally, post payment audits are only to be performed when 
there is a major level of concern about overpayments. Thus, Medicare 
contractors take into account whether a provider has been underpaid in 
their initial decision regarding whether to conduct post-payment 
audits.
    Second, when contractors do perform post-payment audit, they take 
into account both underpayment and overpayments. Written instructions 
in March 1999 were issued stating that in calculating overpayment using 
a statistically valid random sample, contractors should offset 
underpayment against overpayments. Such instructions were not 
retroactive; however, it has always been HCFA's policy to pay it right, 
which has implications for overpayments as well as underpayment.

    Mr. Bilirakis. Well, we are going to let you go now, Mr. 
Hash. I honestly don't think that HCFA has been bashed. You 
certainly haven't been bashed. You experience the frustration 
that is felt and the reason why I wanted to extend the time is 
because we have three medical providers on this committee and 
they are the real world with the experiences out there. Ms. 
Capps is a nurse. I certainly didn't mean to slight her. She is 
a provider, too.
    So, this is why I wanted to extend more time. It took a 
little longer. I apologize to the second panel for their being 
delayed as long as they have been, but it is important that we 
go into this.
    In the past we have met with you sort of sitting around a 
table and giving people an opportunity to raise some of their 
frustrations, some of their problems. You have responded and 
hopefully, maybe we can do that again sometime.
    I would have like to have seen this hearing devoted just to 
you, quite frankly.
    Mr. Hash. I want to say to you, Mr. Chairman, I do 
appreciate the spirit in which people have entered into this 
discussion. I do appreciate the frustrations that are expressed 
here on behalf of others. I know they are real because I have 
been out there myself.
    I do think if we can command the proper amount of resources 
that we can continue to work with the provider community and 
with you all, that together we can continue to ensure that 
Medicare serves the next generation of beneficiaries.
    I appreciate the constructive way in which you have 
conducted this hearing.
    Mr. Bilirakis. Michael, you were a part of this community 
for so many years as counsel. You know us and we know you. 
There shouldn't be any hesitation on your part to say to the 
committee, hey, we need some changes made in order to be able 
to do a better job.
    Mr. Hash. Yes, sir.
    Mr. Bilirakis. Again, part of my frustration is that that 
has not taken place.
    Mr. Hash. I understand. Thank you, Mr. Chairman.
    Mr. Bilirakis. Panel two consists of Dr. Robert R. Waller, 
Chairman of the Healthcare Leadership Council; Mr. Dave 
Fleming, Group Senior Vice President, Diagnostics Products and 
Genetics, Genzyme Corporation on behalf of advaMED here in 
Washington, DC; Mr. Michael F. Mangano, Principal Deputy 
Inspector General, Office of the Inspector General, Department 
of HHS; Dr. Yank Coble from Jacksonville, Florida, welcome to 
Washington, Dr. Coble, a member of the Board of Directors of 
the American Medical Association, and Ms. Vicki Gottlich, 
attorney, Center for Medicare Advocacy.
    Welcome. Ladies and Gentlemen, your written statements are 
a part of the record. I will set the clock at 5 minutes. 
Hopefully, you can stay within that period of time. Obviously, 
if you go over a few seconds, no problem, but we would prefer 
that you sort of complement and supplement your written 
statement as much as possible, if you would do it.
    Dr. Waller, we will start off with you, sir.

STATEMENTS OF ROBERT R. WALLER, CHAIRMAN, HEALTHCARE LEADERSHIP 
COUNCIL; DAVE FLEMING, GROUP SENIOR VICE PRESIDENT, DIAGNOSTIC 
    PRODUCTS AND GENETICS, GENZYME CORPORATION ON BEHALF OF 
    ADVAMED; MICHAEL F. MANGANO, PRINCIPAL DEPUTY INSPECTOR 
GENERAL, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND 
   HUMAN SERVICES; YANK COBLE, BOARD OF DIRECTORS, AMERICAN 
 MEDICAL ASSOCIATION; AND VICKI GOTTLICH, CENTER FOR MEDICARE 
    ADVOCACY AND THE NATIONAL ACADEMY OF ELDER LAW ATTORNEYS

    Mr. Waller. Thank you. Good afternoon, Mr. Bilirakis, Mr. 
Brown and members of the committee. Thank you for this 
opportunity.
    As you have heard, Medicare is one of our great social 
programs in this nation. I think our government deserves more 
thanks than it often receives for its commitment to our 
nation's health.
    Those who administer Medicare, Nancy-Ann Min De Parle, Mike 
Hash, Dr. Bob Berenson, and others are dedicated, talented 
people. But the system is broken. All of us can share 
responsibility for where we are today. Seven administrations, 
18 Congresses, all of us in the health care sector and our 
patients.
    The bottom line for the Health Care Leadership Council is 
that we just can't adequately manage our current system so we 
need to change it. The drivers for change are overwhelming You 
have heard them, issues of quality and cost and access and 
solvency top everyone's list.
    But complexity has to be added to the chief drivers. 
Complexity is staggering. According to a recent survey that we 
have done, complexity is a No. 1 issue for the beneficiaries. A 
prime indicator of the complexity is the 110,000 pages of 
Medicare rules and regulations.
    This is 1 year's worth from the Federal Register on the 
table. We are spending precious time counting the number of 
pages of rules and regulations that we don't have or that we do 
have and how many rules and regulations we have now has kind of 
taken on a life of its own.
    The consequences of complexity are enormous. Let me mention 
three quickly. Complexity stifles innovation. The goal that we 
all have is to constantly improve care and not to achieve a 
defined regulatory standard.
    Health care is constantly improving, such as the genome 
project. If you place a regulatory stake in the ground and 
define what quality is today, tomorrow that quality may be in 
the wrong place.
    Second, dealing with the labyrinth set of rules and 
regulations does create honest differences of opinion in 
interpretation of those regulations and breeds and stakes. I am 
concerned that the public has been led to believe that the 
Medicare system is riddled with fraud, when in reality 
complexity so often is the root of the problem.
    We have heard about the need to have zero tolerance for 
real fraud, but differences in interpretation of rules and 
honest mistakes are not fraud.
    Third, complexity is stealing time from patient care. Dr. 
Coburn is exactly right. A recent survey found that 22 percent 
of our physician and office staff time is devoted to compliance 
with Medicare regulations and it also noted that processing 
costs with Medicare claims are about 26 percent higher than the 
costs associated with private claims. We need less paper and 
more care.
    A few examples of complexity: Completing claim forms are 
nightmarish for the physician and the patient. Denied claims 
can take up to several years to complete, as you have heard. 
Services covered in one location of care are not covered in 
another location of care. The process for seeking new 
treatments is extraordinarily lengthy. Insurance piecemeal with 
multiple products.
    This is difficult for patients, difficult for providers, 
and it leaves the system vulnerable to honest errors and true 
fraud.
    At the top of our list, Dr. Coburn's concern, having to 
document what patients don't have. I practiced medicine at the 
Mayo Clinic for 30 years, was President of the Mayo Foundation 
for 11 years up until last year. Our colleagues and the members 
of the Healthcare Leadership Council will tell you that working 
with private payers, we work with them as partners.
    The private payer does not require us to document the 
number of body systems that we must examine to bill for a visit 
or whether the supervising physician must be in the same room 
when a nurse tests a patient's pacemaker. The record has indeed 
become less of a record of care and more of a legal and a 
billing and a coding document, as Dr. Coburn said.
    So, in short, Medicare in its current structure with 
continued price controls, ratcheting down of payments to 
providers and plans, yes, micromanagement and a piecemeal 
approach to coverage just will not work.
    We have noted the efforts to assist providers conducting 
town meetings, providing toll-free lines, advisory committees 
and yet developing more volumes of guidelines. These are 
additional manifestations of a regulatory system with an 
increasing number of negative consequences for patients.
    There are 55 chief executives of the Healthcare Leadership 
Council who represent all health care sectors and they believe 
that the current system needs to be uprooted and replaced with 
a system where there is more choice, similar to what Federal 
employees, including Members of Congress, and many employed 
Americans now have, more competition, more innovation and 
shifting the private, public partnership that we now have more 
toward the private sector.
    I will just sum up by saying we know it is going to take 
time to achieve comprehensive reform. We do have some interim 
suggestions that I hope the committee will find helpful.
    First, please stabilize the current Medicare Program. There 
is a financial crisis for providers and plans and it must be 
addressed.
    Second, appoint a Medicare board external to the Health 
Care Financing Administration. This will be a key element to 
encourage competition, ensure more flexibility and less 
regulation.
    Third, improve the collaboration among the agencies 
enforcing the Medicare regulations. The Office of the Inspector 
General provides reduced penalties for voluntary disclosure of 
billing errors. The Department of Justice does not. If it is an 
error, why should there be any penalties at all?
    Fourth, we need a better system to account for the costs 
associated with more regulations. One example, HHS estimated 
that costs to implement medical records privacy regulations 
would cost $3.8 billion over 5 years.
    An independent organization estimates costs to be over $40 
billion over 5 years. Somehow we need to be on the same page. 
Medicare is a great social program. It has been structured for 
a different time and a different science.
    The Healthcare Leadership Council looks forward to working 
with the committee toward comprehensive reform, which we hope 
will happen very, very soon. Thank you.
    [The prepared statement of Robert R. Waller follows:]

   Prepared Statement of Robert R. Waller, President Emeritus, Mayo 
       Foundation and Chairman, The Healthcare Leadership Council

                              INTRODUCTION

    Good morning Mr. Bilirakis, Mr. Brown and members of the sub-
committee. I want to thank you for your invitation to appear here today 
to convey the views of the Healthcare Leadership Council on the very 
compelling issue of how the complexity of the Medicare program hinders 
patient care. I would also like to thank this committee for the 
extensive leadership and dedication to the Medicare program you have 
provided over the past several years.
    The Healthcare Leadership Council (HLC) represents a comprehensive 
spectrum of innovators in the health care sector. Because of this broad 
representation, what I convey to you today can be considered a unified 
position of a variety of the nation's most respected leaders in the 
delivery of health care services and products.
    The HLC has been committed, since its inception, to advancing a 
health care system that values innovation and provides affordable, 
high-quality health care in a patient-centered environment. 
Beneficiaries of the Medicare program deserve no less. We believe that 
Medicare is a valuable social program. Medicare has broadly impacted 
the health and financial security of all Americans, young and old. It 
provides health coverage to almost one of every ten Americans. And it 
relieves millions of the elderly's children from what could be 
catastrophic medical expenses.
    Today's Medicare, however, has some very real problems that must be 
squarely faced. Under Medicare's current structure, the federal 
government has been unable to manage Medicare efficiently. The program 
is highly regulatory and inflexible, with over a hundred thousand pages 
of regulations, rules, manuals, instructions, letters, alerts, notices, 
etcetera. Carriers and intermediaries apply rules differently in 
different locations. And there are often inconsistencies among these 
many rules.
    Of late, trust fund longevity has been the driving force behind 
calls for Medicare reform. But Medicare insolvency, as critical as it 
is, is not the most immediate danger facing Medicare beneficiaries. 
While insolvency could rob beneficiaries of high quality, innovative 
health care in the near future, the inefficiencies of the Medicare 
program are robbing beneficiaries now.
    No single source is to blame for the inefficiencies and complexity 
of the current Medicare program. The massive amount of regulation for 
this program has evolved at the hands of seven administrations, and 18 
Congresses. And those of us in the health care system share 
responsibility as well. I would even compliment those who regulate this 
program--in both the Congress and in the Health Care Financing 
Administration. They are good and talented people. But it is beyond the 
power of the most powerful policy makers to make substantial 
improvements to the existing Medicare program. The system as a whole 
needs to be uprooted, and replaced with a private, value-based, 
competitive system. Under such a system, plans and providers would 
compete with one another to offer--not just the highest quality, most 
innovative care--but also the most user-friendly delivery of care.
    In my comments today I would like to discuss the patient 
consequences of our complex Medicare program. I will provide some 
examples of where the Medicare program is characteristically burdensome 
for both consumers and providers. And I will outline HLC's vision for 
an efficiently run Medicare program.
                 consequences of today's complex system
    The inefficiencies within the Medicare program adversely affect its 
beneficiaries on many fronts.
    First, Medicare's complexity stifles innovation. Medicare cheats 
beneficiaries from being able to receive the best care achievable when 
its regulations set inflexible standards of care. On virtually a daily 
basis, our nation's health system makes incredible advances in the 
diagnosis and treatment of illnesses, and on new approaches to 
optimizing good health. These advances are improving the quality of 
health care at a pace far more rapid than the legislative or regulatory 
process can maintain. Quality improvement is a continuous process that 
must be woven into the fabric of how providers of care think, act, and 
feel. The goal should be to constantly improve patient care, not to 
achieve a defined regulatory standard. Regulating quality essentially 
freezes in place today's best practice--which may be a mediocre 
practice less than a year from now.
    Second, complex Medicare regulations contribute greatly to a false 
image of a system plagued with fraud and abuse. Let me begin this part 
of the discussion by stating clearly that the Healthcare Leadership 
Council has zero tolerance for true fraud and abuse. True fraud and 
abuse in our health care system undermines quality, threatens patients' 
trust, should not be tolerated, and must be eradicated.
    But the public's confidence in the nation's health care system has 
been eroded by headlines of health care fraud investigations that are 
not always the result of true, intentional fraud. Many have been led to 
believe that Medicare is riddled with fraud when, in actuality, 
complexity is more often the root of fraud investigations. Accusations 
of fraud are most frequently the result of honest mistakes and 
differences in interpretation in dealing with a labyrinthian set of 
confusing and conflicting regulations. This complexity actually 
undermines compliance.
    Most of those on this panel are probably aware that Medicare grew 
by only 1.5 percent in 1998 and by a negative 1 percent in 1999--the 
lowest rate of growth in Medicare's history. This reduced growth rate 
has been attributed in part to cuts by the Balanced Budget Act of 1997, 
and to reduced fraud and abuse. But do you know that this remarkably 
slow grow is largely due--not to the actual reduction of fraud--but to 
the tremendous fear of false accusations of fraud? Recent evidence 
shows that health care organizations have been going to great expense 
to avoid the Department of Justice's overzealous use of the False 
Claims Act by undercoding for their service in order to avoid any 
possibility of false accusations of fraud.
    February, 2000 testimony from the Congressional Budget Office 
included an analysis of changes in hospital billing patterns and their 
impact--the analysis noted that, for example, hospitals have been down-
coding ``simple pneumonia'' to ``respiratory infection'' at a far 
greater rate than ever before. However, the Medicare Payment Advisory 
Commission pointed out in its 2000 annual report to Congress that CBO 
did not analyze the clinical appropriateness of these coding decreases. 
In fact, Gail Wilensky, Chairman of the Medicare Payment Advisory 
Commission was recently quoted as saying that billing Medicare for less 
than a provider is entitled is a serious problem. She added that ``You 
don't hear the OIG or the Department of Justice worrying about whether 
we are underpaying''.
    Third, today's complex and burdensome Medicare system saps time and 
financial resources. Time and money spent by providers on extensive 
documentation, poring through compliance guidelines, and hiring 
compliance experts, could be used more productively in providing 
patient care or developing innovations to improve patient care. A more 
efficiently run Medicare could perhaps even return to the beneficiary 
some savings to offset certain medical expenses and other out-of-pocket 
costs. A recent survey of the Association of American Physicians and 
Surgeons revealed that 22 percent of physician and office staff time is 
devoted to compliance with Medicare regulations. In addition, they 
found that the processing costs associated with Medicare claims are 26 
percent higher than the costs associated with private claims.
               examples of complexity within the program
    Features of the Medicare program that consume providers' time and 
resources and cause confusion for Medicare beneficiaries include the 
following:
    Medicare's many complex coding and documentation rules make 
completing the claim form and ensuring appropriate coding extremely 
burdensome and time-consuming. For example, drugs must be coded with a 
Medicare-specific code, and the provider must adjust billed quantities 
to comply with the code description. Private health plans, on the other 
hand, use national drug codes assigned to all drugs approved by the 
FDA.
    In addition, Medicare's documentation requirements lead to 
redundant and inefficient documentation practices. For example, 
physicians must write all notes regarding patient assessment, 
regardless of whether a registered nurse under his supervision wrote 
identical notes at an earlier point in the day that concur with the 
physician's view.
    As another example, I have attached to my testimony, a seven page 
guideline describing the examination and documentation requirements for 
billing under CPT code 99215--one of approximately 10,000 CPT codes. 
You can see from this document how extensively the Medicare program 
prescribes the activities that must take place within the patient 
examining room in order to bill under just this one code. For example, 
billing for a ``complete review of systems'' requires ``at least ten 
organ systems to be reviewed''. Those systems with positive or 
pertinent negative responses must be individually documented. For the 
remaining systems, a notation indicating all other systems are negative 
is permissible. In the absence of such a notation, at least ten systems 
must be individually documented.
    Medicare's extensive coverage process for new items and services 
can leave beneficiaries behind the curve of advancements in health 
technology. The administrative process used for modifying benefits and 
for determining whether certain medical treatments or procedures merit 
coverage under Medicare is extraordinally complex, lengthy, and 
sometimes irrational--resulting in the delay or denial of lifesaving 
treatments. For example, even though scientific evidence had shown for 
sometime that the outcomes for Hepatitis B liver transplants were 
comparable to the outcomes of liver transplants made necessary by other 
primary indications, Medicare did not begin covering these transplants 
until very recently. In 1999, before Medicare began covering Hepatitis 
B liver transplants, a survey by the American Liver Foundation found 
that 99 private insurance companies, as well as the Department of 
Defense, reimbursed for Hepatitis B transplants. The survey also showed 
that most of the largest liver transplant centers indicated that 
Medicare was the only carrier that did not reimburse for these 
transplants.
    Medicare's standards of care prescribed in regulation are often 
inflexible and often nonsensical. Efforts to protect the program from 
fraud have led to tedious rules that reduce the quality of a patient's 
interface with the medical system. For example, Medicare will not 
reimburse for physician visits and/or diagnostic tests that occur more 
than once per day per patient. As a result, patient care may be 
compromised, patients are inconvenienced, providers are unable to run 
confirming or clarifying diagnostic tests, and the course of care is 
disrupted.
    This is especially a concern of Medicare patients of the Mayo 
clinic who often travel long distances to use our medical facilities 
for a series of diagnostic tests and treatments during the minimum 
number of days possible. Because of Medicare's prohibition against 
payment for two separate evaluation and management services occurring 
on the same day, we are faced with the choice of either not being paid 
or requiring patients to prolong their stay and then incur unnecessary 
hospital costs or costs for lodging, meals and other expenses. This 
rule is also a problem for Medicare beneficiaries in rural areas who 
must travel to a distant urban area for similar tests and treatment.
    Medicare beneficiaries and providers constantly wrestle with a 
piecemeal approach to insurance. Beneficiaries must piece together 
multiple health insurance products--including Medicare, Medicaid wrap-
arounds, Medigap, and retirement wrap-arounds--like a jigsaw puzzle, in 
order to be comprehensively covered. In addition, their providers must 
deal with the multitude of instructions and claims paperwork associated 
with this piecemeal coverage. This hybrid of uncoordinated care 
increases the system's vulnerability to billing errors as well as true 
fraud and abuse.
    Medicare has inconsistent coverage policies based on the specific 
site of care. For example, infusion services are covered in the 
hospital, but not in the home setting. As another example, a rule 
proposed in 1997--yet still not finalized--details physician 
supervision requirements for numerous office procedures. The regulation 
actually dictates during which procedures a physician must supervise 
from within the examining room and which procedures the physician can 
supervise from within the ``office suite'' but not necessarily within 
the examining room.
    Such site of care standards are unnecessary inconsistencies that 
take discretion away from providers, reduce the quality of care for 
beneficiaries, and simply lengthen the long check list of rules that 
providers must remain wary of when treating beneficiaries.
    Medicare's very lengthy appeals process can result in long waits 
for needed care or for payments for services rendered long ago. When 
Medicare carriers deny claims, there are several tiers of review, the 
highest of which--review by an Administrative Law Judge--can take up to 
four years to complete. In the meantime, either the beneficiary is 
denied this care, or a provider is denied payment.

                      HLC'S VISION FOR EFFICIENCY

    HLC's vision for administering Medicare in this century is a 
management model that is lean, efficient, independent, and able to 
adapt quickly to innovation. We see a Medicare program that will not 
steal time from patient care, will not be a hybrid of uncoordinated 
health care programs, and will not have inflated costs because of 
burdensome micro-management and heavy government regulation. We believe 
strongly in the need to provide seamless, integrated care for the total 
care of the patient.
    This model already is working well for some 59 million Americans in 
large employer plans and the nine million people in the Federal 
Employee Health Benefits Plan (FEHBP). Under FEHBP, the government's 
micro-management and mandating of benefits is kept to a minimum, 
consumers have better benefits, lower out-of-pocket costs, more choice, 
and higher quality care. If used for Medicare, this model would allow 
the market to respond to changing beneficiary needs with a variety of 
products, keeping pace with advances in health care. Medicare 
beneficiaries deserve these quality improvements.
    The Mayo Clinic, like many members of the HLC, works with many 
private insurance companies and payers. We deal with them as partners, 
through a process of negotiations, establishing goals for quality, 
cost, and patient satisfaction, and monitoring the results. These 
insurance companies do not tell us how to document the number of body 
systems we must examine to bill for a visit, or whether the supervising 
physician must be in the same room when a nurse tests a patient's 
pacemaker. The more efficient Medicare we envision would not try to 
micromanage virtually every aspect of the care patients receive, but 
would allow providers and plans to compete in a marketplace on the 
basis of quality, cost, and efficiency, holding us accountable for the 
care we provide.
    Medicare must embrace the innovations in health care delivery, 
benefit design, and cost management techniques that have occurred in 
the private sector in order to best serve its beneficiaries. A Medicare 
system that is run efficiently will be dedicating its time to patient 
care, not to the administration of regulations. And such a system will 
be free of the inflated costs that are associated with inflexibility 
and burdensome micro-management.

                              THE INTERIM

    As I said earlier in my testimony, I do not believe there is a way 
to fix the existing Medicare program without starting completely from 
scratch, not that there haven't been valiant efforts to do so. In fact 
I would like specifically to complement Dr. Robert Berenson who has 
traveled to the Mayo Clinic to listen to our concerns and to try to 
correct some of the problems we face. And earlier in this hearing, we 
heard from Mike Hash of HCFA about some impressive efforts underway to 
try to help providers and plans navigate the complex maze of this 
program.
    But I believe that these efforts to assist and educate providers, 
to provide toll free lines, to conduct town meetings, to develop more 
volumes of guidelines are just additional manifestations of a 
regulatory system gone awry. The additional resources required of HCFA 
to develop these various guidance tools, and the resources required of 
providers to take advantage of them are misdirected resources.
    I do, however, recognize the realities of the time and political 
process necessary to change a government program of this magnitude and 
importance. So I would like to mention a few things that the HLC 
believes would be helpful in the interim.
    Our most urgent suggestion is for the Congress and the 
Administration to work together to financially stabilize the existing 
Medicare program. While the Medicare's complexity demands ever-
increasing resources of health care providers and plans, the overseers 
of the program have carved away at Medicare reimbursements 
substantially over the past several years. As a result of the Balanced 
Budget Act cuts, virtually all Medicare providers groups-- Hospitals, 
home health agencies, skilled nursing facilities, and Medicare+Choice 
plans--are experiencing severe and ongoing funding shortages. 
Decreasing payments in conjunction with increasing regulatory and other 
administrative burden has to eventually prove to be a losing 
combination for beneficiary care.
    Second, we would propose the development of a Medicare management 
board external to HCFA with authority to adapt to changing health care 
practices without Congressional activity and HCFA micromanagement, 
reducing the heavily regulated environment of the current Medicare 
program.
    Third, we suggest an improvement in the collaboration of the 
agencies involved in the regulation and enforcement of the Medicare 
program, namely the Health Care Financing Administration, the HHS 
Office of Inspector General, and the Department of Justice, including 
the U.S. Attorneys. There is a growing multi-layered network of 
investigators and prosecutors working through all of these agencies who 
have conflicting interpretations of Medicare regulations as well as 
conflicting enforcement programs. For example, the Office of Inspector 
General has notified Medicare providers that voluntarily disclosing 
billing errors found within their organizations will result in reduced 
penalties. However, many organizations are reluctant to come forward 
with found billing errors because the Department of Justice treats such 
disclosures the same as if the DOJ had discovered a truly fraudulent 
cover-up.
    To help facilitate better coordination and education among these 
agencies and the provider community, in 1998, the Healthcare Leadership 
Council formed our Industry and Government Partnership for 
Accountability Task Force, which consists of organizations representing 
every segment of the health care system. Sectors represented include: 
hospitals, medical clinics, health maintenance organizations, 
pharmaceutical companies and medical device manufacturers.
    To date, we have had several dialogues with these agencies 
regarding the intricacies of complying with Medicare regulations. The 
Industry and Government Partnership for Accountability plans to 
continue to undertake a significant effort to educate opinion leaders 
and top government officials and to engage in a constructive efforts to 
resolve this debate.
    We believe that formalization of such a partnership to ensure 
clarification and consistency in the enforcement of Medicare rules 
would help to move the current system away from a model based on 
confrontation and litigation and toward a model based on education and 
remediation.
    And finally, we believe that a more formalized system of regulatory 
accountability within Medicare could help to decrease the growth of the 
regulatory burden and compliance costs on providers and patients. 
Currently, cost/benefit analyses of regulations are only loosely 
required by an executive order that gives agencies great discretion in 
determining whether a cost benefit analysis is necessary and how that 
cost is estimated.
    A recent example of controversy in this regard arose around the 
DHHS's cost estimate for compliance with the recently issued rule on 
medical records privacy.
    While HHS estimated that complying with this new regulation would 
cost the industry $3.8 billion over the next 5 years, a reputable 
independent analysis determined that the cost would be over $40 billion 
over the same period.
    Possible alternatives to the existing informal requirements for 
estimating compliance costs include (1) requiring that the cost of a 
regulation be conducted by an entity other than the agency developing 
the regulation, (2) legislating more formalized requirements and 
guidelines for conducting the cost analysis, and/or (3) requiring the 
inclusion of how the cost of compliance could materially impact patient 
care. These alternatives could help to instill greater awareness of the 
consequence of over-regulation.
                               conclusion
    Today's Medicare was built for another science in another time. The 
inefficiencies and complexities of this program are such that Medicare 
beneficiaries are stuck in an outmoded health care program that is 
capable of delivering, and needs to deliver, so much more. The 
Healthcare Leadership Council stands ready to help this committee work 
toward assuring that, in the near future, Medicare beneficiaries are 
able to take advantage of the full potential of our health care system.

    Mr. Bilirakis. Thank you, Doctor.
    Mr. Fleming?

                   STATEMENT OF DAVE FLEMING

    Mr. Fleming. Thank you, Mr. Chairman and other members of 
the committee. I am Group Senior Vice President of Genzyme 
Corporation and Chairman of the AdvaMED Board Committee on 
Payment and Health Care Delivery. AdvaMED is the Advanced 
Medical Technology Association, formerly known as HIMA.
    The new name reflects more clearly the industry's central 
role as a source of medical innovation, research and medical 
technology.
    Mr. Chairman, I am here today to talk about one subject, 
which many of you on the subcommittee have raised this morning. 
That is timely patient access to quality health care.
    For the past 35 years, Medicare has provided life-saving 
and life enhancing technologies to millions of Medicare 
patients. In that sense, Medicare has been a blessing.
    Today, though, Medicare processes for improving and paying 
for new medical technologies are not keeping pace with 
innovation.
    I would like to answer the question asked by Mr. Stearns 
and in fact, after FDA review, the approval process going 
through HCFA takes another 4\1/2\ years or longer to go through 
the process and reach the patients. So, again, 4\1/2\ years 
after FDA review.
    As you can see from the chart that would be to your right, 
it lays out the process and again, if you start from the left 
you have FDA approval. This is something that the Commerce 
Committee helped reform in 1997, but the rest of the chart 
refers to HCFA.
    If you disentangle and lay the HCFA process end to end, you 
go through coverage coding and payment process. Ms. Eshoo asked 
this morning about the first part, the coverage part, where 
HCFA decides whether to include a new technology in the 
Medicare payments package.
    I do compliment the agency on opening up the coverage 
process, on making it more transparent, but to clarify, the 
agency has 90 days to make an initial assessment, not the final 
coverage decision.
    After that time, after the first 90 days, there are no time 
limits. HCFA can refer the decision to MCAC or to another 
outside technical assessor which guarantees delays, as 
mentioned earlier, of 6 months to several years.
    So, the coverage decision process in my mind takes anywhere 
from 12 to 36 months.
    The next step is coding, as has been mentioned. New 
technologies are given a 6 or 5-digit code which providers use 
when they bill for the service. The coding process in itself 
takes anywhere from 15 to 24 months. So that is added on to the 
coverage. Again, payment is not made until you have a code, as 
has been mentioned by the committee.
    The final step involves determining the appropriate payment 
level, which can take another 2 years on up. So, I want to make 
the point that medical technologies have to go through this 
complex, approximately 4\1/2\ year HCFA approval process and 
they usually do not reach the Medicare patients until after the 
process is done. This is why Medicare needs reform.
    Let me cite one example which is on the chart to your left. 
It involves coronary stents, also mentioned earlier by Ms. 
Eshoo. This is a revolutionary device that is inserted into the 
coronary artery during angioplasty to reduce the narrowing and 
facilitate normal blood flow.
    As the chart shows, the medical device manufacturer first 
requested the unique code in 1990. But HCFA did not approve the 
new code until 1995, 5 years later. Once the code was approved, 
it took another 2 years from 1995 to 1997 to set direct 
reimbursement levels for the stent.
    Now, here is the ramifications of that: FDA had approved 
the product in 1994, but through the time period until 1997, 
hospitals received $3,000 to $5,000 below per procedure what it 
cost them to provide the breakthrough technology, the therapy.
    So, here is the impact on patient access. During that time 
when HCFA reimbursed hospitals at the low level, only five to 
25 percent of the eligible Medicare patients received the 
technology. But once adequate payment was finally approved in 
1997, patient access improved up to a level of 75 to 80 percent 
of eligible patients.
    So, stepping back a minute, Mr. Chairman, the case study 
shows a 7-year process from the time the code was requested, 
and that is, I believe, a virtual eternity in the life of 
device innovation, which generally takes about 2 years.
    More importantly, think of it from the patient perspective. 
Imagine being that Medicare patient awaiting HCFA's action and 
not having availability to this life sustaining technology.
    So, I think Mr. Chairman, examples like the coronary stent 
are examples that the system is in serious need of reform. I 
have a couple of recommendations to provide in addition to 
those.
    Mr. Bilirakis. Do so very briefly, if you would.
    Mr. Fleming. First, Medicare must place top priority on 
streamlining its systems to dramatically shorten the overall 
4\1/2\ year process.
    Second, HCFA should institute reforms that encourage rapid 
assimilation of new technologies into the Medicare beneficiary 
plan.
    Third, HCFA should update all of the payment systems more 
frequently, at least annually, to reflect changes in medical 
technology.
    The last point is that we also urge the subcommittee to 
throw its support behind H.R. 4935, the Medicare Patient Access 
to Technology Act of 2000. This bill, of course, was introduced 
by Representative Jim Ramstad and Representative Karen Thurman 
and is co-sponsored in fact by several members of the 
subcommittee. I think we view this legislation as critical to 
digging into the nuts and bolts that we have been talking about 
all morning.
    It really represents a very important down payment on the 
larger effort to modernize HCFA. Thank you very much, Mr. 
Chairman.
    [The prepared statement of Dave Fleming follows:]

 Prepared Statement of Dave Fleming on Behalf of the Advanced Medical 
                         Technology Association

                              INTRODUCTION

    AdvaMed is pleased to submit this statement as the Subcommittee 
examines HCFA's management of the Medicare program. AdvaMed, the 
Advanced Medical Technology Association, was formerly known as HIMA, 
the Health Industry Manufacturers Association.
    Before we begin our remarks, we would like to provide some 
background on our industry and whom AdvaMed represents.
    AdvaMed is the largest medical technology trade association in the 
world, representing more than 800 medical device, diagnostic products, 
and health information systems manufacturers of all sizes. AdvaMed 
member firms provide nearly 90 percent of the $68 billion of health 
care technology products purchased annually in the U.S. and nearly 50 
percent of the $159 billion purchased annually around the world.
    This new name reflects our industry's central role as a source of 
medical innovation, research, and advances in therapies, diagnostics, 
and health information technology. This change does not represent a 
change of role or mission; merely a clearer reflection of those 
functions.

                            ROLE OF MEDICARE

    Mr. Chairman, Medicare has accomplished a tremendous amount in 
improving the quality of medical care for beneficiaries over the past 
35 years. Medicare has been a blessing. Millions upon millions of 
elderly and disabled Americans have regained their health, improved the 
quality of their lives, and lived longer and more productive lives 
thanks to Medicare.
    We also believe we owe a debt of gratitude to the many individuals 
who have served in the public sector, administering Medicare over that 
period--and especially those who serve at HCFA today. These individuals 
deserve special recognition as they are confronted with the infinitely 
complex tasks of seeing to it that Medicare's 39 million beneficiaries 
gain prompt access to the highest-quality care, at a time of severe 
budget constraint.
    Despite the hard work of these individuals and the continuing 
efforts of this Committee and Congress to oversee the activities of the 
agency, we see an agency unable to keep up with the pace of new medical 
technology.
    As a result, patients are not gaining prompt access to the medical 
technologies they need and deserve--access that was the very purpose of 
Medicare in the first place.
    Today, we will outline some of the Medicare system's shortcomings. 
Then we will turn to what we believe are some reasonable solutions in 
addressing this problem.

                     COVERAGE, CODING, AND PAYMENT

    Before we provide you with a review of recent key issues on how 
HCFA deals with medical technology, we would like to define some of the 
key terms that are used to describe Medicare policies on medical 
technology. Specifically, we refer to ``coverage,'' ``coding,'' and 
``payment.''
    Coverage. As you know, Mr. Chairman, once products are reviewed and 
cleared by the Food and Drug Administration, they must undergo Medicare 
review to determine if they will be included in the portfolio of 
services Medicare makes available to its beneficiaries. This is 
commonly referred to as coverage. It usually occurs routinely as local 
Medicare contractors process bills from doctors and other providers. 
But some technologies undergo full-blown national coverage review, 
which is a complex evaluation of the benefits of a technology--similar 
to a pre-market evaluation done by the FDA.
    Coding. As Members of this Subcommittee are aware, this is just one 
step in obtaining reimbursement for a new technology. To be covered by 
Medicare, either locally or nationally, new medical technologies must 
be assigned what is known as a procedure code. These codes are 
comprised usually of five or six digits, often a combination of letters 
and numbers, and identify literally thousands of medical treatments and 
procedures. Providers use these procedure codes when they submit bills 
to Medicare and private insurance companies. Virtually all medical 
products must either fit into existing codes or, if they are unique or 
breakthrough products, they must have a new code of their own.
    Payment. Once a new technology or medical procedure has a code, 
then the final stage is to determine an appropriate payment level, or 
Medicare price, for the product. As you are aware, this is accomplished 
by folding the new technology or procedure into Medicare's various 
payment systems, each of which has its own complex set of rules 
governing how technology is treated. These systems range from the 
Resource Based Relative Value Scale, which is a physician fee schedule, 
to DRGs in the inpatient setting, to the new Ambulatory Payment 
Classifications (APCs) for the soon-to-be-implemented outpatient 
payment system.
    This Subcommittee is well aware that each of these payment systems 
is extremely complicated; each has many moving parts. If any one of 
those parts is not working optimally, access to new technologies for 
patients and medical professionals will be slowed or even stopped 
outright. That's because coverage, coding, and payment systems interact 
with one another. It's not enough to be just covered, or just coded, or 
even just paid. You need all of these elements to be present and to be 
operating properly to ensure a prompt and appropriate reimbursement 
level that permits appropriate access.
    Now we would like to introduce the reality that we, as 
manufacturers, face--and that must ultimately be borne by patients and 
providers as well. HCFA's systems of coverage, coding, and payment--the 
systems we just described--are not working well. In many cases, they 
are slow; they are inefficient; they contain inappropriate incentives; 
and they are inordinately complex. That does not suggest they do not 
work; it suggests that they simply do not work well.
    For example, the entire process can take four years or more to 
complete. That includes the one to three years it can take to obtain a 
coverage decision; the 15 months to two years it may take to secure a 
code; and the two years it can take to secure an appropriate payment 
level for a technology. We have attached a chart with this statement 
that illustrates the times associated with these review processes, as 
well as several other charts and case studies focusing on particular 
medical technologies.
    Keep in mind that these HCFA processes take place after FDA review, 
which itself might be a year or so. And that they take place after the 
time it takes to develop a product, which can consume anywhere from two 
to six years, prior to FDA review.
    We offer this context, Mr. Chairman, because we believe it is 
critical in understanding HCFA's current performance in reviewing and 
adopting medical technology in Medicare. This Committee deserves 
enormous credit for its leadership role in reforming the Food and Drug 
Administration. But we want to stress that, as far as ensuring access 
to new technology for Medicare beneficiaries, the goals of FDA reform 
are often thwarted by HCFA's coverage, coding, and payment policies.
    And the effects of this are clear: Patients, and the medical 
professionals who treat them, will not gain access to available, 
cutting-edge medical technologies for many years after they are cleared 
for marketing in the United States. And if you add it all up, Mr. 
Chairman, we are often talking about more than a four-year delay--as we 
noted earlier. We need to ask ourselves what the value-added benefit of 
this delay is for patients and medical professionals. We want to stress 
that we do not see this as intentional on HCFA's part. These systems, 
as we indicated, were put in place in a piecemeal fashion and were not 
designed to work together.
    Now, we would like to take a few moments to let you know about two 
issues of significant importance to the industry, which bear on 
Medicare coverage, coding , and payment policy.
    Coverage Issues. A year ago, Mr. Chairman, HCFA instituted a new 
process for making national coverage determinations on medical 
technologies. This was a positive change. HCFA opened the process, 
allowed the public to participate, and provided information on the 
status of coverage through its web site. HCFA deserves clear credit for 
these changes.
    Yet recently, HCFA announced another policy that may entirely 
overwhelm whatever progress it made in opening the process. We are 
referring to the agency's Notice of intent to issue new criteria for 
making Medicare coverage decisions. In essence, these are the standards 
that products must meet in order to get covered. We believe that 
several sections of the Notice of intent conflict with the agency's 
overall goal of improved patient access.
    First, in its Notice, HCFA raises the possibility of denying 
Medicare coverage of certain technologies on the basis of their cost. 
HIMA believes that economic factors such as cost properly are 
considered in the context of payment, not coverage, decisions. In a 
recent nationwide survey by polling firm Penn, Schoen & Berland, 67% of 
Americans said they would oppose limiting availability of new 
technologies on the basis of cost.
    Second, we are concerned by the evidentiary burdens presented by 
the Notice. As new requirements are put in place that define levels of 
evidence required for device coverage decisions, HCFA must recognize 
that new devices emanate from a dynamic, incremental innovation 
process, and that they have very short life cycles. As a result, no one 
type of information should be required for medical devices. Instead, 
many different types of evidence must be used to guide clinical use of 
new technologies, with the evidence tailored to the medical device that 
is being considered.
    Third, we are concerned that the Notice is overly prescriptive and 
curtails physicians' and patients' ability to decide which medical 
treatment option is best. Society has entered an era in which patients 
are playing an increasingly important role in making decisions about 
their health care. Patients and physicians have a unique role to play 
in deciding whether, for example, the improved quality of life offered 
by a new technology outweighs potential risks. Medicare should craft 
coverage criteria that empower patients and physicians, rather than 
unnecessarily restricting their ability to decide among different 
treatment options.
    Mr. Chairman, we will be filing comments on this Notice with the 
agency later this week.
    The next issue we would like to discuss relates to a new 
prospective payment system that HCFA is implementing for hospital 
outpatient services.
    Hospital Outpatient Payment. When HCFA proposed its plan for an 
outpatient payment system, it based the payment categories and payment 
levels on data that would have been four years old by the time the 
system was expected to go into effect. The data would have been seven 
years old by the time the system would have been updated. This would 
have left out literally hundreds of critical technologies.
    By providing for two-to-three years of market-based pricing before 
new technologies and devices are folded back into the APC groupings, 
the Congress assured adequate access to these incredibly important 
items for Medicare beneficiaries. While the list of eligible devices 
released by HCFA to date has been inadequate, we are currently working 
closely with the agency to ensure that the payment system implemented 
on August 1 recognizes new technologies that were inadequately 
represented in the data used to design the APC payment categories. We 
believe this is a critical issue affecting patient access to medical 
care, and we applaud the Congress for enacting these provisions.

                     CASE STUDY: THE CORONARY STENT

    Mr. Chairman, we would like to present an example of how the 
shortcomings in all these systems affect one technology, the coronary 
stent. The coronary stent is a revolutionary device that is inserted 
into the coronary arteries during angioplasty to reduce narrowing and 
permit normal blood flow.
    As the chart at the end of this statement shows, the device 
manufacturer first requested a unique code for the device in 1990. But 
HCFA did not assign the code until 1995--five years later. Once the 
code was approved, it took the agency another two years--from 1995 to 
1997--to gather and analyze data on the product's costs and charges 
before it set the correct reimbursement level for the stent. Therefore, 
from the time FDA approved the device in 1994 through the time that 
HCFA actually arrived at the correct payment level in 1997, hospitals 
received $3,000 to $5,000 below what it cost them to provide this 
breakthrough therapy.
    Now, consider the impact on patient access. During the time that 
HCFA reimbursed hospitals at this low level, only between 5-25 percent 
of eligible Medicare patients received the technology. But once 
adequate payment was finally approved in 1997, patient access grew. And 
today, some 70 to 80 percent of eligible patients receive the stent. 
So, stepping back for just a moment, Mr. Chairman, this case study 
shows a seven-year process from the time that the code was requested to 
the time that adequate reimbursement was actually provided.
    That can be an eternity in the world of device innovation--where 
the average life cycle of a technology is often two years or less. And 
if you are a Medicare patient, you don't want to wait for this kind of 
technology, while HCFA's policy machinery churns. Please recognize that 
this occurred at a time when other patients who had private insurance 
did not have trouble getting access to the stent. In fact, coronary 
stents became the standard of care long before Medicare got around to 
paying for them adequately.

                        ADVAMED RECOMMENDATIONS

    We do not come before you, Mr. Chairman, to say that fixing these 
problems is easy. These problems are, in many cases, a result of years 
of complex rules layered upon complex rules; problems that are as much 
matters of perspective as they are problems of structure and 
operations.
    Nevertheless, there are a series of practical steps that can be 
taken to address them. These steps should be helpful in guiding your 
thinking as you contemplate HCFA's operations and management.
    First, we believe that HCFA must place top priority on streamlining 
its coverage, coding, and payment systems to dramatically shorten the 
overall four and one-half year process.
    Second, we believe that HCFA should institute reforms that 
encourage the rapid assimilation of new technologies into the Medicare 
beneficiary plan.
    Third, we believe that HCFA should update all of its payment 
systems more frequently--at least annually--to reflect changes in 
medical technology.
    What we are advocating, Mr. Chairman, is more timely beneficiary 
access to new medical technologies.

                               CONCLUSION

    In conclusion, Mr. Chairman, we want you to know that we appreciate 
the important role this Committee played in improving FDA regulation of 
medical technology. Unfortunately, the promise of FDA reform--that is, 
prompt availability of technologies for patients' has not been 
fulfilled because too many Medicare policies are not working. We look 
forward to working with this and other committees in addressing these 
problems.
    Mr. Chairman, we also have a request. We want to make the Committee 
aware of, and ask that it support, a recently introduced piece of 
legislation that would begin addressing some of the issues we have 
raised in this statement.
    The legislation, H.R. 4935, is entitled ``The Medicare Patient 
Access to Technology Act of 2000,'' and it was introduced by 
Representatives Jim Ramstad and Karen Thurman. Several Members of this 
Subcommittee have co-sponsored this legislation. This bill digs into 
the nuts-and-bolts of HCFA policies that affect innovation--from coding 
timetables, to the type of data that HCFA insists upon, to how 
frequently payment systems should be updated--and it offers practical 
solutions.
    It also takes a holistic view of HCFA's performance regarding 
medical technologies in that it would require the agency to report 
annually on how long it took during the preceding year to make 
coverage, coding, and payment policy determinations on a technology-
specific basis. Such a report would create useful benchmarks against 
which HCFA's performance can be more easily measured, understood, and 
reformed.
    We view this legislation as a down payment in the larger effort to 
modernize HCFA, and we ask your support for it, and we urge you to 
consider including it in any appropriate Medicare bill you may take up 
this year.
    We at AdvaMed are currently studying the structure of the agency 
and plan to have additional views on how HCFA can be more responsive to 
beneficiary needs for timely access to new and innovative medical 
technologies.
    Thank you for permitting us to offer our views on this important 
matter.

[GRAPHIC] [TIFF OMITTED] T5913.001

[GRAPHIC] [TIFF OMITTED] T5913.002

    Mr. Bilirakis. Mr. Mangano, please proceed.

                STATEMENT OF MICHAEL F. MANGANO

    Mr. Mangano. Thank you, Mr. Chairman. I appreciate the 
opportunity to be with you here today to give you an update on 
the efforts and results of our continuing fight against fraud, 
waste and abuse in the Medicare Program, as well as to address 
the question of this hearing of Medicare's complexity as it 
affects the patient's access to quality care.
    At the outset, I want to make it clear that we believe the 
overwhelming majority of health care providers in this country 
are honest and provide high quality care. When we talk about 
fraud, we are talking about those who would intentionally set 
out to steal from the Medicare Program, act in reckless 
disregard of its rules or deliberate ignorance of the truth.
    Thanks to your leadership, Mr. Chairman, and this 
committee, several years ago the Congress passed an Insurance 
Portability and Accountability Act which required the 
Secretary, working through the Inspector General, as well as 
the Attorney General, to work together in a coordinated program 
to address these problems in the Medicare Program.
    The committee also provided the necessary resources to 
enable us to mount a successful effort. We are grateful to the 
Congress for that legislation. I can tell you today that it is 
reaping a lot of results, very positive ones.
    In the last 3 years we have produced savings of over $31 
billion. That is comprised of $226 million in audit 
disallowances, over $2 billion in investigative receivables, 
and over $28 billion in terms of changes in law and regulations 
recommended by our office.
    Even more important, we helped HCFA reduce its error rate 
from a level of $23 billion 4 years ago to $13.5 billion. That 
is an annual savings of just under $10 billion. Every dollar of 
that we can say was achieved without a single beneficiary 
losing an eligible service or a health care provider being 
denied a legitimate compensation, $13.5 billion in improper 
claims is still too much.
    According to the Congressional Budget Office and Medicare 
trustees, our efforts have contributed to the lowest inflation 
rate in Medicare's entire history and an extension of the 
solvency of the trust fund after 2025, which is about a 26-year 
extension just based on the work in the last 3 years.
    But this is not a time to let our guard down. My testimony 
presents numerous examples of fraud in the system that we still 
need to pay attention to.
    I next want to turn to the question of whether complexity 
in the Medicare Program is threatening access to quality care. 
We are well aware of the growing complexity of Medicare due to 
its numerous amendments and regulations to put those amendments 
into effect.
    The methods of reimbursement changing in the Medicare 
system, the cost base, the charge base, the prospective pay and 
fee schedules, as well as the structure of the entire health 
care delivery system today emphasizing managed care and 
vertical and horizontal integration.
    Periods of transition like we are going through right now 
are always taxing and uncomfortable for those involved in that 
system change. Are Medicare rules too complicated to 
understand? On the basis of our work, sometimes they are.
    When we find that to be the case, we recommend to HCFA that 
they do simplify them. I also want to say that on the basis of 
our annual review of the Medicare error rates, that 92 percent 
of all the claims that we reviewed, the national statistical 
sample, are free of errors, suggesting that most health care 
providers are getting it right.
    HCFA has placed some additional burdens on health care 
providers, some of which we think are legitimate. Those 
providers in that category are subject to some of the pre- and 
post-payment edits that are designed around services that we 
have been finding are particularly abusive. In fact we have 
recommended some of those edits.
    But very few health care claims in total actually go 
through this more intensive scrutiny. One of the things that we 
have tried to emphasize in the last 3 years is a operative 
working relationship with the health care community in 
developing voluntary guidance to help them avoid some of the 
innocent billing mistakes, but also to help them discover more 
abusive practices that may be occurring in the organizations 
that they are not aware of.
    All of these are paying handsome dividends like the drop in 
the error rate, lowest inflation rate in years and the 26-year 
extension of the trust fund.
    I might add that these have also had a positive effect on 
beneficiaries in that they are paying lower co-payments and are 
actually receiving the service they are supposed to be 
receiving because of this additional scrutiny. We think that is 
possible because health care providers are generally doing a 
much better job complying with the rules, and we are doing a 
better job in catching the errors where they exist.
    Finally, I do not believe this complexity has resulted in a 
threat to patient access to quality care on the basis of the 
reviews that we have done in the areas that we have looked.
    Recent reviews that we have undertaken with hospital 
discharge planners and nursing home administrators show that 
beneficiaries are getting placed in nursing homes and home 
health without serious problems. We will continue to watch 
these closely, though, to see if changes occur over the years.
    Mr. Chairman, this completes my testimony and I would be 
happy to answer any questions.
    [The prepared statement of Michael F. Magano follows:]

 Prepared Statement of Michael F. Mangano, Principal Deputy Inspector 
            General, Department of Health and Human Services

    Good morning Mr. Chairman. My name is Michael F. Mangano. I am 
Principal Deputy Inspector General for the Department of Health and 
Human Services (HHS). It is my pleasure to be here today to give you an 
update on our efforts and accomplishments in our continuing fight 
against waste, fraud and abuse in the Medicare program as well as 
address the question of the complexity of the Health Care Financing 
Administration (HCFA) as it affects potential access to quality of 
care.
    In summary, we are fully engaged and making good progress. We 
continue to believe that most health care providers do their best to 
provide high quality care and are honest in their dealings with 
Medicare. When we talk about fraud, we are not talking about providers 
who make innocent billing errors, but rather those who intentionally 
set out to defraud the Medicare program or abuse Medicare 
beneficiaries. The importance of our ongoing work is not only to 
protect the taxpayers and ensure quality healthcare for Medicare 
beneficiaries, but to also make the Medicare environment one in which 
honest providers can operate on a level-playing field and do not find 
themselves in unfair competition with criminals.
    At the same time, we must be concerned about all errors, even those 
which are totally innocent. The complexity of the program places an 
obligation on health care providers, beneficiaries, fiscal 
intermediaries, carriers, and HCFA to take reasonable care to comply 
with its rules. Thus, our audits and studies are also intended to 
identify vulnerabilities to administrative errors and to the related 
dollar losses which can be quite significant. In addition, our reviews 
show that Medicare complexity has not been an impediment to patient 
access to care nor has it imposed unreasonable burdens on most health 
care providers.
    As a result of an unparalleled coordinated and cooperative response 
to the problem of health care waste, fraud and abuse by the Congress 
and the Administration, particularly through the landmark pieces of 
legislation--the Health Insurance Portability and Accountability Act of 
1996, we have been able to expose and measure the problem more 
completely and accurately than ever before. It is bigger, more 
sophisticated, and more formidable than many may have imagined. But we 
are more fully armed, have better tools, and are better organized than 
in the past. As a result, we have recently had some notable successes 
and are confident of favorable outcomes on several fronts. And we feel 
fully supported by allies in every branch and unit of government as 
well as by the healthcare community and senior advocacy groups.
    However, we must temper our optimism and remain vigilant. Due to 
the complexity of the Medicare program and the tremendous number of 
dollars flowing through the program, there will always be those who 
will continue to seek loopholes and look for ways to siphon those 
dollars earmarked for maintaining and improving the health of the 
elderly and disabled in this country.

                               BACKGROUND

    The Office of Inspector General (OIG) was created in 1976 and is 
statutorily charged with protecting the integrity of our Department's 
programs, as well as promoting their economy, efficiency and 
effectiveness. The OIG meets this statutory mandate through a 
comprehensive program of audits, program evaluations, and 
investigations designed to improve the management of the department and 
to protect its programs and beneficiaries from fraud, waste and abuse. 
Our role is to detect and prevent waste, fraud and abuse, and to ensure 
that beneficiaries receive high quality, necessary services, at 
appropriate payment levels.
    The Health Care Financing Administration (HCFA) is the largest 
single purchaser of health care in the world. With expenditures of 
approximately $310 billion, assets of $181 billion, and liabilities of 
$40 billion, HCFA is also the largest component of the Department. 
Medicare and Medicaid outlays represent 34.2 cents of every dollar of 
health care spent in the United States in 1998. The Medicare program is 
inherently at high risk for payment errors due to its size as well as 
its complex reimbursement rules, and decentralized operations (39 
million beneficiaries and 860 million claims processed annually).

                         RECENT ACCOMPLISHMENTS

    Many specific, positive changes have been made to shore up the over 
$200 billion Medicare program and its payment methods. Thanks to 
increased resources provided through recent legislation, our 
Department, the Department of Justice (DoJ), and related agencies at 
the State and Federal levels now have better authority and capacity to 
fight fraud and to reduce waste in all federally-funded health care 
programs. We have also strengthened our efforts to prevent fraud, 
waste, and abuse from occurring in the first place.

HIPAA Accomplishments--Increased Recoveries, Exclusions, Convictions, 
        and Settlements

    The Fraud and Abuse Control Program, a key part of the Health 
Insurance Portability and Accountability Act of 1996, enabled us to 
boost our efforts in identifying and preventing waste, fraud and abuse 
in Medicare. This program provides much needed resources, stronger 
enforcement tools, and a management structure to coordinate the efforts 
of numerous fraud fighting units of Federal, State, and local 
governments.
    The program is under the joint direction of the Attorney General 
and the Secretary of Health and Human Services, working through the 
Inspector General. It mandates a comprehensive program of 
investigations, audits, and evaluations of health care delivery; 
authorizes new criminal, civil, and administrative remedies; requires 
guidance to the health care industry about potentially fraudulent 
health care practices; and establishes a national data bank to receive 
and report final adverse actions imposed against health care providers. 
The Act also provides an innovative mechanism to fund these new anti-
fraud efforts, thereby assuring that needed resources are always 
available for the effort.
    We are grateful to the Congress in passing this landmark 
legislation and we are pleased to report that we are already reaping 
substantial benefits of the additional resources and authorities. In 
the past three under HIPAA (FY 1997 through FY 1999), we have reported 
overall savings of $31.0 billion. This is comprised of $226 million in 
audit disallowances, $2.1 billion in investigative receivables, and 
$28.7 billion in savings from implemented legislative or regulatory 
recommendations and actions to put funds to better use. The savings 
that result from our recommendations that are implemented into law or 
regulation, and independently scored by the Congressional Budget Office 
or HCFA, represent taxpayer or Medicare Trust Fund dollars that will 
not be spent.
    During this same period, we excluded more than 8,697 abusive or 
fraudulent individuals and entities from doing business with Medicare, 
Medicaid, and other Federal and State health care programs. Additional 
accomplishments include 1,085 convictions of individuals or entities 
that engaged in crimes against departmental programs. We increased 
convictions by nearly 20 percent in 1997, another 16 percent in 1998, 
and by almost 54 percent in 1999.

Medicare Fee-For-Service Payment Error Rate

    The OIG recently issued its fourth report on the Medicare fee-for 
service payment error rate. Based on a statistically valid sample, 
improper payments totaled an estimated $13.5 billion, or about 8.0 
percent of the $169.5 billion in FY 1999 processed fee-for-service 
payments. Improper payments include those for: unsupported services, 
medically unnecessary services, errors due to incorrect coding, and 
noncovered services. Over the four years we have conducted this review, 
the improper payment rate declined by 42 percent, from a midpoint of 
$23.2 billion (14 percent) in 1996, to $13.5 billion (8.0 percent) in 
FY 1999--a drop of $9.7 billion. This represents a cut in Medicare 
costs without a single beneficiary being denied a needed service or a 
health care provider being denied legitimate compensation.
    Many Medicare watchers attribute at least part of this downward 
trend to the increased oversight and enforcement efforts of our office, 
HCFA, DoJ and the FBI that were made possible by the steady funding 
stream created by HIPAA. According to the Medicare Trustees and the 
Congressional Budget Office, these waste, fraud and abuse efforts 
contributed to Medicare's lowest inflation rate in history and the 
extension of the viability of the Trust Fund until 2025--a 26 year 
extension brought about over the last three years.

Waste, Fraud and Abuse Prevention

    The OIG has continued to expand activities designed not just to 
uncover existing waste, fraud and abuse, but to prevent it. A 
cornerstone of our prevention efforts has been the development of 
compliance program guidance to encourage and enlist the private health 
care industry in the fight against waste, fraud and abuse. The guidance 
is developed in cooperation with the provider community and identifies 
steps that health care providers may voluntarily take to improve their 
compliance with Medicare and Medicaid rules. We have published eight 
compliance guidance documents covering hospitals, clinical 
laboratories, home health agencies, third-party billing companies, 
durable medical equipment, hospices, Medicare + Choice organizations, 
and nursing facilities. We have recently invited comments on our draft 
guidance related to individual physicians and small group practices.
    OIG has also increased its activities with respect to monitoring 
settlement agreements with integrity provisions and corporate integrity 
agreements that have been entered into by health care providers as part 
of a global settlement of OIG investigations and audits. The current 
caseload of approximately 440 is expected in increase to over 475 by 
the end of 2000. Our efforts to focus on preventing health care fraud 
also includes guidance to the industry on the propriety of health care 
transactions. OIG has published two significant final regulations 
creating 10 new safe harbors to the Federal anti-kickback statute. 
Finally, the OIG continues to promote beneficiary involvement in 
identifying fraudulent activities. This includes operating our HHS 
hotline which currently receives approximately 48,000 calls per month.

                       CONTINUING VULNERABILITIES

    We in the Office of Inspector General are heartened by the support 
we have received from the Congress, Administration, as well as by the 
healthcare community and senior advocates in our fight against fraud, 
waste, and abuse in the Medicare program. At the same time, our new 
authorities and resources have enabled us to see more clearly just how 
pervasive and overwhelming these problems are. While our recent error 
estimates in the fee-for-service part of Medicare shows a general 
decline, it is still too high; all money improperly paid is wasteful. 
Additionally, these audits do not detect well known forms of fraud such 
as kickbacks or deliberate forgery of bills or supporting documents. 
Further, whatever the audits reveal or fail to reveal, we know from our 
investigations and from complaints that we receive that waste, fraud 
and abuse are still pervasive in the health care sector.
    All of this is to say that we cannot take much time out of our 
fight against fraud, waste, and abuse. We are still watching all areas 
of Medicare through our audits, inspections, and investigations. And we 
are continuing to encourage and receive support from industry and 
beneficiary groups in our efforts. At this time, however, I would like 
to single out some areas where we continue to have special concerns and 
give some examples of the results of several significant audits and 
investigations.

Partial Hospitalization and Community Mental Health Centers

    In collaboration with the Department, we examined the growth of 
Medicare expenditures to community mental health centers for partial 
hospitalization services (highly intensive psychiatric services) and 
found that Medicare was paying for services to beneficiaries who had no 
history of mental illness and for therapy sessions that consisted of 
only recreational and diversionary activities, such as watching 
television, dancing, and playing games. Our review in five States, 
which accounted for 77 percent of partial hospitalization payments to 
mental health centers nationally during 1996, disclosed that Medicare 
paid $229 million for unallowable and highly questionable services. 
Ninety-one percent of the services reviewed did not meet Medicare 
reimbursement requirements. Reviews of 20 individual centers by both 
OIG and HCFA disclosed similar problems. In response to our 
recommendations, HCFA instituted extensive corrective actions, 
including terminating egregious centers, conducting intensified medical 
reviews, and collecting overpayments.

Hospital Outpatient Psychiatric Services

    The OIG conducted a 10-State review of outpatient psychiatric 
services, which accounted for 77 percent of the value of partial 
hospitalization program and other outpatient psychiatric claims at 
acute care hospitals nationally. Our final report estimates that in the 
ten States reviewed, about $225 million of $381.9 million (almost 60 
percent) in 1997 outpatient psychiatric claims made by hospitals did 
not meet Medicare's reimbursement requirements. These unallowable 
services included: services not reasonable and necessary for the 
patient's condition; services not authorized and/or supervised by a 
physician; services not adequately documented or not documented at all; 
and, services rendered by unlicenced personnel. Reviews at individual 
acute care hospitals disclosed problems with unsupported and medically 
unnecessary services and unallowable costs included on the hospital 
cost reports.

Home Health

    Looking behind the explosive growth in Medicare expenditures for 
home health care since 1990, OIG, using claims data from 1995 through 
part of 1996, found that 40 percent of the payments were improper. We 
also determined that many home health agencies shared characteristics 
that could undermine the Department's ability to recover overpayments 
or levy sanctions. Our recommendations to strengthen the Medicare 
certification process and to otherwise protect the trust fund were 
adopted in the Balanced Budget Act of 1997. Conducted at the 
Department's request, our follow-up work, which examined 1998 claims 
data, noted that the payment error rate had fallen to 19 percent. Below 
is an egregious example of misappropriation of Medicare funds and 
potential abuse of Medicare patients by a home health agency which we 
audited as part of our Operation Restore Trust effort.

St. John's Home Health Agency

    In our audit of St. John's Home Health Agency, the highest paid 
home health agency in South Florida, we found that St. John's billed 
Medicare for non-rendered or upcoded home health services and that 
nurses and home health aids permitted subcontracting groups to use 
their name and/or create fraudulent documents to support nonrendered 
services. We also found that some nursing visits were provided by 
unlicenced persons. Further, we found that subcontractors paid 
kickbacks to St. John's employees in order to do business with them. 
Twenty-six people were indicted in December 1999 for racketeering, 
conspiring to racketeer, conspiring to launder money and conspiring to 
submit false claims to the Medicare program. Subsequent to plea or 
trial, there were 24 guilty verdicts (one individual became a fugitive 
and one was acquitted); all 24 guilty verdicts are in the process of 
being excluded.

Medicare Contractors

    The Medicare program is administered by the Health Care Financing 
Administration (HCFA) with the help of 64 contractors that handle 
claims processing and administration. The contractors are responsible 
for paying health care providers for the services provided under 
Medicare fee-for-service, providing a full accounting of funds, and 
conducting activities designed to safeguard the program and its funds. 
There are two types of contractors--fiscal intermediaries and carriers. 
Intermediaries process claims filed under Part A of the Medicare 
program from institutions, such as hospitals and skilled nursing 
facilities; carriers process claims under Part B of the program from 
other health care providers such as physicians and medical equipment 
suppliers.
    Of all the problems we have observed, perhaps the most troubling 
has to do with contractors' own integrity--misusing government funds 
and actively trying to conceal their actions, altering documents and 
falsifying statements that specific work was performed. In some cases, 
contractors prepared bogus documents to falsely demonstrate superior 
performance for which Medicare rewarded them with bonuses and 
additional contracts. In other examples, contractors adjusted their 
claims processing so that system edits designed to prevent 
inappropriate payments were turned off, resulting in misspent Medicare 
Trust Fund dollars. We have also encountered problems associated with 
financial management and accounting procedures and longstanding 
weaknesses in internal controls, including deficiencies related to the 
receivable amounts reported in HCFA's financial statements and 
electronic data processing.
    In addition, there have been numerous allegations that contractors 
have falsified statements that specific work was performed, and 
altered, removed, concealed, and destroyed documents to improve their 
ratings on Medicare performance evaluations. Wrongdoing has been 
identified and we have entered into civil settlements with 13 Medicare 
contractors since 1993, with total settlements exceeding $350 million. 
In addition, two contractors have entered into guilty pleas for 
obstruction of a federal audit.

Fresenius Medical Care Holdings, Inc.

    The government recently reached a record-breaking Medicare fraud 
settlement with Fresenius Medical Care Holdings, Inc. (FMCH), the 
Nation's largest provider of kidney dialysis products and services. As 
a result of a joint investigation by OIG and multiple law enforcement 
agencies and an OIG audit, FMCH agreed to a global resolution under 
which three subsidiaries pled guilty, and the company agreed to pay 
$486 million to resolve the criminal and civil aspects of the case. As 
part of the civil settlement agreement for credit balances, the company 
paid directly to HCFA $11 million for overpayments which were 
previously reported to the fiscal intermediaries but never recouped. 
The alleged criminal misconduct involved illegal kickback activity, 
submission of false claims for dialysis-related nutrition therapy 
services, improper billing for laboratory services and false reporting 
of credit balances. This misconduct was engaged in by National Medical 
Care, a nationwide dialysis company, and various of its subsidiaries 
prior to a 1996 merger with FMCH. As part of the settlement, the 
company also entered into the most comprehensive corporate integrity 
agreement ever imposed by OIG.

          COMPLEXITY OF MEDICARE AND IMPACT ON PATIENT ACCESS

Increasing Complexity

    Since the inception of Medicare, numerous legislative changes have 
been made and amendments added to the Social Security Act which have 
led to substantial changes to the Medicare program. With each addition, 
HCFA is required to develop new regulations as well as update its 
contractor and provider rules and guidelines. For example, the Balanced 
Budget Act of 1997 contained 335 provisions related to Medicare 
programs, including mandates for new prospective payment systems in 
several programs, which required the development of a substantial 
number of new regulations.
    Much of the complexity in the Medicare program is not inherent in 
the program itself, but rather it parallels the ever increasing 
complexity of our health care system. For example, the development of 
various forms of managed care and new kinds of vertical and horizontal 
integration have led to the need for Medicare rules and regulations to 
evolve along with them.
    Additionally, the way Medicare pays for health care has changed 
through time, from primarily cost/charge based payment systems to new 
fee-schedule and prospective based arrangements. For example, hospital 
inpatient, physician, then lab and durable medical equipment services 
were the first areas of the program to switch to prospective payment or 
fee schedule based payment systems. More recently, skilled nursing 
facility, home health, and hospital outpatient services have moved or 
are moving to prospective payment systems as well. This transitioning 
from one payment system to another inevitably involves an intensive and 
somewhat uncomfortable learning period. In the long run, it is hoped 
that these new payment systems will simplify and reduce the 
administrative burdens of providers.

Provider Burden

    Is the Medicare payment system too difficult to understand? In some 
cases our audits and evaluations do indicate that some rules are 
unnecessarily complex and burdensome. In such cases, we make 
recommendations for simplification. However, our recent error rate 
review would indicate that providers are doing a very good job of 
negotiating their way through Medicare payment systems--we found that 
92 percent of all claims submitted by health care providers are free of 
error. In the substantial majority of cases, legitimate providers are 
billing for legitimate services.
    We do recognize that HCFA has placed some additional burdens on the 
health care providers. Many of these, however, we think are legitimate 
and some have been instituted from IG recommendations based on past 
abuses we have found in the system. For example, to sustain its 
progress in reducing payment errors, we have recommended that HCFA:

 Enhance prepayment and postpayment controls by updating 
        computer systems and related software technology to better 
        detect improper Medicare payments;
 Expand provider training to further emphasize the need to 
        maintain medical records containing sufficient documentation, 
        as well as to use proper procedure codes when billing Medicare 
        for services provided;
 Direct its Peer Review Organizations to identify high-risk 
        areas and reinstate selected surveillance initiatives, such as 
        hospital readmission reviews and diagnosis related group (DRG) 
        coding reviews; and,
 Continue to refine Medicare regulations and guidelines to 
        provide the best possible assurance that medical procedures and 
        services are correctly coded and sufficiently documented.
    It should be noted, however, that very few health care claims are 
subjected to this more intense review. For example, while some 660,000 
physicians receive Medicare payments each year, HCFA only reviews about 
5 percent of physician claims. Additionally, we continue to work with 
industry sectors to develop voluntary guidance to help them avoid 
innocent billing errors as well as discover and/or prevent more abusive 
practices within their organizations. This will help to ensure that 
they can avoid any unnecessary scrutiny.
    Prior to HIPAA, the efforts of HCFA, the OIG, and DoJ to identify 
and prevent waste, fraud, and abuse in health care was far less than 
adequate. With the new infusion of resources, we have been able to get 
serious. Some of the impact has been greater scrutiny of certain types 
of providers and more care by providers in general to bill properly. 
For example, there has been more scrutiny by HCFA of home health and 
intensive psychiatric services as a result of our identifying serious 
abuse by some providers. As a result of these efforts we have realized:

 A 42 percent drop in the Medicare fee-for-service error rate;
 An extension of the solvency of the Medicare Trust fund by 26 
        years; and,
 The lowest inflation rate in Medicare history.
    These results have had a positive effect on beneficiaries as well. 
The lower inflation rate, and our greater scrutiny of claims, means 
that beneficiaries pay lower copayments and receive the services they 
really need. These have been possible because health care providers are 
doing a better job of complying with Medicare rules and we are doing a 
better job in catching the errors and more serious attempts to defraud 
the Medicare program.

Patient Access to Quality Care

    We do not believe that the complexity of the Medicare program has 
resulted in a threat to patient access to quality of care in the areas 
we have examined. For example, we studied the impact of the new nursing 
home prospective payment system on access to care. We found that 
Medicare patients are able to access care in skilled nursing 
facilities, particularly therapy patients. In fact, we found that it is 
easier to place Medicare therapy patients in nursing homes after the 
new payment system went into effect than before. Further, in a recent 
inspection looking at how the interim payment system for home health 
agencies is affecting Medicare beneficiaries' access to home health 
care for patients discharged from hospitals, we found that 85 percent 
of discharge planners report that Medicare patients are able to obtain 
home health care when they need it and three quarters said that they 
need to only contact one home health care agency on average to arrange 
for that care. We will continue to monitor access to these services as 
well as other areas in the health care system.
    In general, we see that the failure of enforcing provisions, rather 
than the increased complexity of rules and regulations, has led to 
improper and poor quality of care. For example, dollars spent on 
psychiatric patients to watch television, could and should have been 
put to better use in providing appropriate and high quality mental 
health care for these beneficiaries.

                               CONCLUSION

    As I stated at the beginning of my testimony, I believe a 
concentrated effort by a large number of people has resulted in 
tangible progress in combating fraud, waste, and abuse in recent years. 
But as I have also discussed with you today, the problems that remain 
are serious, complicated, and have profound consequences. I am 
particularly concerned about the deliberate fraud which we cannot 
always measure but that we know continues. We must never let down our 
guard, and we must continue to dedicate the resources and make the 
concerted effort to reduce these problems.
    We in the Office of Inspector General will be actively overseeing 
how the new resources and safeguards provided in the HIPAA are used to 
determine their effectiveness in preventing and combating criminal 
activities. For true criminals, the only effective safeguards are 
tough-minded program measures to prevent fraud and a strong law 
enforcement presence with equally strong penalties applied to 
defrauders.
    It must be recognized that some of these efforts have led to an 
increased burden on some providers. Put into context however, it also 
must be recognized that this is a small price to pay to extend the 
viability of the Medicare Trust Fund and ensure health care for our 
elderly and disabled for another 26 years. This concludes my testimony.
    I greatly appreciate the opportunity you have given me today to 
focus attention on the continuing problems and vulnerabilities that 
confront the Medicare Program and to share with you our progress as the 
result of some of our recent efforts and initiatives. I would be happy 
to answer any questions.

    Mr. Bilirakis. Thank you. I would like to ask, is anyone 
from HCFA still here or have they all left? They have all left. 
As Dr. Norwood commented, they certainly should be here to hear 
this testimony, but we did not request that.
    Mr. Coburn. They have to get back and answer all those 
letters. Mr. Chairman, for the record to note, nobody is here 
from HCFA hearing this testimony.
    Mr. Bilirakis. That is right.
    HCFA Representative. I am here as a note-taker.
    Mr. Bilirakis. Then HCFA is represented. Okay, you will 
share then some of this testimony with them.
    Dr. Coble?

                    STATEMENT OF YANK COBLE

    Mr. Coble. Thank you, Mr. Chairman and members of the 
subcommittee. My name is Yank Coble. I am Secretary-Treasurer 
of the American Medical Association Board of Trustees. I 
practice endocrinology in Jacksonville, Florida.
    We appreciate very much the opportunity to testify on the 
complexity of Medicare regulations and how they adversely 
affect patient care and physician's practices throughout the 
country.
    Physicians are now subject to over 100,000 pages of rules 
and regulations as you have heard several times. They by far 
exceed the IRS code. It has gotten to the point where Medicare 
regulations are flooding physicians' offices. There is not a 
month that goes by that HCFA or the OIG does not issue a 
complex new Medicare regulations which impacts physicians and 
their patients.
    As a result, physicians have to devote many more hours each 
week to comply with these ever changing Medicare rules and 
regulations. These are hours that physicians cannot spend on 
patient care.
    Indeed, many physicians are now so frustrated with the 
volume of regulations and how they are being vilified by HCFA 
that they are less and less willing to see new Medicare 
patients. In rural communities we are experiencing the effects 
of this dissatisfaction with the program by seeing entire 
practices pull out of the Medicare Program.
    Even in Denver, Colorado, there is now a shortage of 
physicians who will see Medicare patients. Even in my own case, 
because of the regulations governing Medicare diabetes 
patients, I have gradually over recent years stopped seeing 
those patients in my practice.
    Congress recognized that HCFA had to address those 
regulatory hassles when it created the Practicing Physicians 
Advisory Council, PPAC, nearly a decade ago. Unfortunately, 
HCFA has never effectively used this valuable resource, despite 
repeated promises to make PPAC more effective.
    Instead, 3 years ago, HCFA created an internal task force, 
the Physician Regulatory Initiative Team, PRIT, to examine the 
regulatory burden on physicians. PRIT has yet to issue a final 
report, eliminate a single regulation or simplify Medicare 
rules and regulations.
    To make matters worse, physicians have been unable to 
obtain clear and consistent information on billing, coding and 
documentation questions from their carriers because carriers 
also generally refuse to answer physician's queries in writing, 
physicians are unable to obtain a file copy if a question later 
arises.
    The communication process does not improve a great deal 
during the post-payment audit process. The carrier simply mails 
a letter to the physician requesting records and later informs 
them of a projected over-payment.
    In addition to written requests, carriers should telephone 
physicians to request records and should maintain a dialog with 
physicians prior to the onset of a formal audit and settlement 
process.
    These communications should specifically cite possible 
improper billing, appending post-payment audit, the outcome of 
the audit and the physician's appeal rights.
    I have several broader examples that I would like to share 
with the subcommittee explaining how HCFA's over zealousness 
and refusal to abide by statutory mandates has either 
compromised patient care or has limited patient access to 
physicians.
    The first example concerns hospice rules. The Wall Street 
Journal recently reported that the government contracted with a 
private company to notify hospice patients who exceeded their 
6-month life expectancy that they were no longer entitled to 
hospice benefits.
    Hospice benefits should not be cutoff if a patient happens 
to live longer than 6 months. The government contractor is 
incorrectly interpreting the hospice statute which, of course, 
is resulting in patient harm. HCFA should remedy this problem 
immediately.
    The second example concerns physician post-payment audits. 
Medicare carriers can audit physician records many years after 
claims have been paid by conducting post-payment audits.
    Currently, unless a physician agrees to open her office to 
additional audits on top of the original audit, the physician 
has to waive all of her rights and agree to repay a projected 
overpayment amount. These projected amounts can bankrupt 
physician's practices.
    We believe that HCFA should be required to institute due 
process protections for physicians undergoing post-payment 
audits which would allow an overpayment determination be 
appealed to an administrative law judge.
    Finally, the sustainable growth rate, SGR, which Congress 
addressed in 1999 with the Balanced Budget Refinement Act, is 
another area where HCFA is not adhering to its statutory 
mandate.
    As the committee knows, the SGR sets a target rate of 
spending growth based on four factors, one of which applies to 
legislative and regulatory changes affecting physician 
expenditures. I emphasize ``regulatory.'' However, HCFA has not 
factored in the new regulatory burdens for purposes of 
calculating changes to the SGR.
    We urge Congress to ensure that HCFA meets its statutory 
obligations by considering both statutory and regulatory 
changes before formulating the SGR.
    The AMA has numerous concerns regarding recent HCFA and 
carrier activities. We have included these additional issues in 
our written testimony, which I would also be happy to discuss 
here at a later time.
    Thank you for the opportunity to share our concerns of how 
HCFA regulations negatively impact patient care and their 
access to physicians in the Medicare Program.
    We urge Congress to undertake the HCFA reform effort as it 
did with the IRS several years ago, removing some of these 
regulatory burdens to allow physicians to redirect efforts 
toward providing patient care.
    We thank you.
    [The prepared statement of Yank Coble follows:]

   Prepared Statement of Yank D. Coble, Board of Directors, American 
                          Medical Association

    Mr. Chairman and members of the Subcommittee, my name is Dr. Yank 
D. Coble, and I am a practicing endocrinologist from Jacksonville, 
Florida, and the Secretary-Treasurer of the American Medical 
Association (AMA) Board of Trustees. On behalf of the 300,000 physician 
and medical student members of the AMA, I would like to thank you for 
holding this extremely important hearing to examine the activities of 
the Health Care Financing Administration (HCFA) and the negative impact 
their policies have on patient care and physicians treating Medicare 
patients. The AMA serves as an umbrella organization for over 90 
medical specialty societies who also have numerous and extensive 
concerns regarding different HCFA regulations, which are broader than 
those mentioned in our statement. We appreciate this opportunity to 
testify, and we urge the Subcommittee to continue these hearings to 
explore the widespread concern across the entire physician community 
with HCFA policies and those of its carriers.
    America's physicians have reached a point where the volume of 
Medicare regulations, combined with the fear that they may be 
unnecessarily and unfairly audited, have prompted them to question 
whether they should continue to accept new Medicare patients. America's 
patients and their physicians are harmed by many of these unneeded 
regulations, which cause physicians to spend far too much time on 
paperwork and less time providing patient care. This seriously 
diminishes patient access to care. For example, in the well-populated 
city of Denver, Colorado, there is no longer a sufficient number of 
physicians for the patient population willing to participate in the 
Medicare program. In rural areas, such as Idaho, the impact of fewer 
physicians involved in the Medicare program can be especially 
devastating.
    We hope this hearing will demonstrate that HCFA must recognize the 
burdens placed on physicians and providers by its regulatory agenda. 
The agency has issued volumes of regulations and policies that are 
overly burdensome, confusing, conflicting and selectively enforced. The 
AMA has vigorously contested many of the HCFA policies that negatively 
impact physicians and the patients we serve, but to date, HCFA has not 
been able to make serious progress in streamlining its regulations.
    In fact, we believe HCFA has squandered its many opportunities to 
streamline the process through the use of the Practicing Physician 
Advisory Council (PPAC), a federal advisory committee, which Congress 
established almost a decade ago with the AMA's support. PPAC is 
comprised of fifteen private practice physicians and providers who meet 
quarterly. It is supposed to advise the Secretary of the Department of 
Health and Human Services and the HCFA Administrator on prospective 
policy issues impacting the physician community and the Medicare/
Medicaid programs as a result of contemplated or current federal 
rulemaking. The Congress enacted this legislation because of 
physicians' concerns about the ``hassle factor'' involved in dealing 
with the Medicare program. Unfortunately, the Administration has never 
effectively used this potentially valuable resource despite repeated 
promises to make it more effective.
    Three years ago, HCFA engaged in a well-publicized campaign to 
respond to the growing concern about regulatory burdens on physicians. 
Unfortunately, HCFA again failed to seriously employ the expertise of 
the practicing physicians on PPAC. Instead, the agency formed an 
internal work group known as the Physician Regulatory Initiative Team 
(PRIT). PRIT has never issued a final report, eliminated a single 
regulation, or simplified the morass of rules, regulations, and 
memorandums that govern the Medicare program. The AMA certainly 
supports the worthwhile intent of both PPAC and the PRIT. After three 
years, however, there is little evidence to indicate that HCFA will 
successfully reduce the burden or hassles that confront physicians and 
their patients.
    For purposes of this hearing, we will focus on several specific, 
yet illustrative, examples of regulations run amok, as well as 
additional concerns related to the lack of a communication process 
between HCFA, its carriers and physicians.
Regulations . . . and More Regulations
    Health care is a highly regulated profession, and HCFA is 
overzealous in its regulatory scope and enforcement activities. 
Physicians are subject to over 100,000 pages of Medicare regulations 
and policies, including the preambles and accompanying text to the 
regulations, which attempt to explain the intent of the often 
convoluted and ambiguous regulations. These materials, however, often 
raise more questions than they answer. Further, in addition to new and 
existing regulations, physicians must be familiar with the volumes of 
ever-changing bulletins and carrier materials sent to their offices.
    In fact, HCFA, the Office of the Inspector General (OIG), and other 
federal agencies continuously issue new regulations that apply to 
physicians, providers, and their patients. To truly understand these 
regulations and policies and their impact on their practices, 
physicians would have to hire scores of attorneys and consultants. In 
his testimony to the House Budget Committee Health Task Force last 
week, Dr. Robert Berenson, Director of the Center for Health Plans and 
Providers at HCFA, tried to justify the vast number of HCFA regulations 
during the past several years by stating that the agency has had to 
respond to 335 statutory changes as a result of provisions in the 
Balanced Budget Act of 1997 (BBA). Many of these statutory changes were 
translated into new and extremely complex regulations for physicians 
and other providers. These 335 statutory changes and their regulations 
are in addition to the other regulations issued during this time by 
other agencies and entities that regulate physicians. We have attached 
a chart to our statement depicting the vast regulatory structure that 
govern physicians and their practices.
    We offer the following examples to illustrate the extent to which 
several of the many HCFA regulations and policies place burdens on 
physician practices and are increasingly out-of-touch with patients' 
health care needs:
    Hospice Rules--The Wall Street Journal reported on June 5, 2000, 
that the government contracted with a private company to notify hospice 
patients that their benefits expired because the patients had exceeded 
their six-month life expectancy, which entitled them to hospice 
benefits. The article recounted heart-wrenching stories of many 
patients being forced into nursing homes as a result of the contractor 
terminating their hospice benefits. In accordance with HCFA's hospice 
policy, if a physician believes that a patient's life expectancy will 
not exceed six months, then the patient can qualify for hospice 
benefits. If a patient outlives this six-month limit, these patients' 
hospice benefits should not be withdrawn. This is a further instance of 
HCFA regulations and government contractor actions that contradict 
congressional intent and directly cause patient harm. (Article 
attached.)
    Post-Payment Audits--Physicians should enjoy the same due process 
rights as taxpayers undergoing IRS audits who can appeal IRS fines, 
penalties, and findings. To the contrary, once a carrier conducts a 
post-payment audit of a physician's practice, the carrier determines 
the amount of projected Medicare overpayments through an extrapolation 
process. Since the amount is determined through extrapolation, it can 
easily rise to tens of thousands of dollars. Once carriers arrive at 
this projected overpayment amount, carriers give physicians three 
options: (1) repay the extrapolated amount and waive their appeal 
rights; (2) repay the extrapolated amount and submit additional 
information while waiving their appeal rights; or (3) open up their 
practice to a statistically valid random sampling (SVRS) of claims 
during the same time period. HCFA's carrier manual options prevent 
physicians from retaining their due process rights unless they agree to 
open up their practices to a larger SVRS audit. This is patently 
unfair, and many physicians feel compelled to agree to settlements to 
avoid a burdensome, expensive, and protracted SVRS audit. Targeting 
physicians in this manner will result in physicians restricting their 
Medicare practices, thereby decreasing patient access to these 
physicians.
    HCFA should be required to alter its carrier manual instructions to 
ensure that physicians undergoing post-payment audits are not forced to 
waive their due process rights. Passage of H.R. 3300, introduced by 
Representative Shelley Berkeley, would remedy the current post-payment 
audit process and would address many of the broader Medicare education 
issues for physicians that are addressed later in this statement.
    Overpayment Audits--The AMA understands that HCFA has instructed 
its carriers to begin auditing physicians who submit too large of an 
overpayment remittance to HCFA. According to Part B News, HCFA has also 
told carriers to launch an audit if the carrier suspects ``a pattern of 
inappropriate payment.'' HCFA should encourage this voluntary refund of 
overpayments, rather than target honest physicians who are attempting 
to return overpayments to their carriers. As discussed with respect to 
post-payment audits, targeting physicians in this manner will result in 
physicians restricting their Medicare practices, thereby decreasing 
patient access to these physicians. We therefore recommend that HCFA be 
prohibited from targeting physicians for audits based solely on the 
fact that they have voluntarily refunded overpayments.
    Self-Referral--Physicians considering any type of an ownership 
interest in any facility or thinking of providing additional services 
within their own practice have to hire attorneys to advise them on how 
to attempt to stay within the bounds of these regulations. Physicians 
must also get legal advice before they receive anything of value from 
any entity to which they refer patients.
    The intent of the self-referral statutes was to prevent 
overutilization of services due to physician ownership in facilities--
not to limit patient access to care and micromanage physician practices 
and contracting arrangements. This regulation has transgressed well 
beyond the intent of the statute. HCFA plans to release the final 
regulations this year, and we anticipate they will create an extremely 
high anxiety level among physicians regarding their contracting 
arrangements and the internal workings of their practices. The AMA 
supports H.R. 2651, the ``Physician Self Referral Amendments of 1999,'' 
which would streamline the self-referral laws for physicians, leading 
to increased access for patients, particularly in rural areas.
Impact of Regulations on the Sustainable Growth Rate (SGR)
    The SGR system is a further example of the need for Congress to 
exercise diligent and ongoing oversight of HCFA. The SGR sets a target 
rate of spending growth based on four factors: changes in payments for 
physician services before legislative adjustments (essentially 
inflation); changes in Medicare fee-for-service enrollment; changes in 
real per capita gross domestic product (GDP); and an allowance for 
legislative and regulatory factors affecting physician expenditures.
    We appeared before this Subcommittee last year to discuss erroneous 
projections by HCFA during the first two years of the SGR (1998 and 
1999) and HCFA's decision to renege on its pledge to correct these 
errors, despite the agency's decision having no statutory basis. These 
errors shortchanged physician payments by more than $3 billion.
    In response, Congress enacted provisions under the Balanced Budget 
Refinement Act of 1999 (BBRA) to ensure that HCFA meets its statutory 
obligation to correct its projection errors and appropriately pay 
physicians for Medicare items and services furnished to patients.
    The AMA appreciates the Subcommittee's responsiveness and strong 
oversight of HCFA on this matter. While HCFA has begun to comply with 
the SGR statutory provisions under the BBRA, the agency has 
nevertheless determined that it will ignore another statutory mandate 
established under the original SGR formula enacted under the BBA. That 
is, for purposes of establishing the SGR, HCFA is not permitting the 
proper allowance for changes in legislative and regulatory factors 
affecting physician expenditures despite being required by statute to 
do so.
    In HCFA's April 10, 2000, Federal Register notice of the SGR for 
calendar year 2000, the agency explained that only ``legislative 
changes contained in the BBA and the BBRA will have an impact on 
expenditures for physicians' services under the SGR in CY 2000.'' 
Although HCFA appears to have factored the impact of these statutory 
changes into the CY 2000 SGR, it did not discuss factoring into the SGR 
any impact resulting from regulatory changes. As we discussed earlier, 
HCFA has been promulgating hundreds of regulations in response to the 
BBA and other laws, many of which impact physician expenditures.
    HCFA's disregard of this statutory mandate is further exemplified 
by the fact that the agency regularly fails to develop appropriate and 
accurate regulatory impact analyses with respect to the various 
regulations promulgated by the agency. Although the law requires HCFA 
to establish such analyses, the agency's estimates are light-years away 
from representing the actual impact of the regulation on practicing 
physicians and often do not even take into account any impact on 
physicians.
    For example, HCFA requires beneficiaries with diabetes to have 
their prescriptions for diabetes test strips renewed by their physician 
every 6 months. The rules that were developed by Medicare's durable 
medical equipment carriers governing these test strips have imposed an 
enormous burden on physicians, yet this burden has never been included 
in any regulatory impact analysis under any HCFA rule. This burden, in 
turn, adversely impacts patient access to care--the more physicians are 
forced to focus on burdensome regulatory requirements, the less time 
can be spent on patient care.
    HCFA recently testified before Congress that the AMA is overstating 
the size of the regulatory burden that Medicare imposes on physicians. 
HCFA implied that most of the rules it issues do not have any effect on 
physicians and that the number of pages of final regulations affecting 
physicians is quite small. In fact, however, nearly every rule 
published by HCFA imposes new burdens on physicians. These rules and 
policies include not only the final regulations established by the 
agency, but what has become a constant stream of Program Memorandums, 
Operational Policy Letters, and carrier bulletins.
    The result of HCFA's behavior is that physicians are forced to 
invest an ever-increasing proportion of their resources on the heavy 
paperwork burden. The resources could be better utilized on investment 
in new medical technologies and expansion of patient care services. The 
quality of our nation's health care system depends on physicians being 
able to spend their time on patient care, not paperwork.
    Accordingly, we urge the Subcommittee to ensure that HCFA meets the 
statutory obligations mandated by Congress and prevent HCFA from 
engaging in abusive tactics that exceed its discretionary authority. 
Specifically, HCFA should be directed to conduct more accurate 
regulatory impact analyses and to account for the regulatory burden on 
all those affected by a regulation, physicians providers and patients. 
Further, we urge Congress to direct HCFA to account accurately for the 
cost of Medicare rules, policies, and regulations in the calculation of 
each year's SGR.

Ineffective Communication with Carriers and Physicians

    Increasingly, HCFA appears to be making decisions in a vacuum. Once 
it was common practice for the agency to consult with medical 
organizations prior to issuing rules expected to have a significant 
impact on physician practices. At that time, practical considerations 
as well as policy implications could be hashed out in advance of 
publication and many problems were altogether avoided.
    For a variety of reasons, including HCFA staff reductions, 
reorganizations, and the burdens imposed by the BBA, this sort of 
consultation is a rare occurrence today. Rather, communications in the 
current environment are increasingly one-sided with edicts issued with 
little attempt to determine whether the order is either reasonable or 
necessary. Items that ought to be covered in a proposed rule instead 
are released and implemented through directives to the contractors who 
administer the Medicare program. Alternatively, they are placed in a 
final rule, effectively side-stepping the requirement that major 
changes in Medicare policy go through a public comment period. We urge 
Congress to ensure that HCFA adheres to the strictures of the 
Administrative Procedures Act in its issuance of new rules and 
regulations.

Seclusion and Restraints

    One of the most egregious examples of HCFA's propensity for making 
arbitrary and unilateral decisions occurred last summer with the 
release of an interim final rule on one section of a plan to modify 
Medicare's conditions of participation. Included in the rule was a new 
provision that would require a face-to-face evaluation by a physician 
or licensed independent practitioner within one hour of the application 
of seclusion or restraints to patients with behavioral health problems.
    This rule, which went into effect just 30 days after it was issued, 
constitutes a major change in clinical practice that was never tested 
in the general population. Yet it was put into place without any prior 
consultation with hospitals and physicians, and without clarifying 
guidelines, which were not issued until ten months after the rule went 
into effect. This rule has the potential to significantly increase 
hospital costs, disrupt care of other patients and further jeopardize 
the continued existence of some small rural hospitals.
    The Joint Commission on Accreditation of Healthcare Organizations, 
using a much more deliberative, patient-focused and scientifically-
based process, came up with a less stringent rule, but HCFA has refused 
to modify the provision and, nearly a year later, still has not issued 
a final rule acknowledging and responding to the thousands of negative 
comments it received on the one-hour requirement.

Critical Care Codes

    Another example of HCFA failing to consider advice from practicing 
physicians, and thereby adversely impacting patient care, is the 
development of policy concerning critical care codes. Due to 
inconsistent interpretations by HCFA carriers, affected medical 
specialties asked the CPT (Common Procedural Terminology) Panel of the 
AMA which develops procedure codes, to redefine what constitutes 
critical care services. Even though HCFA participated as a member of 
this procedure coding committee, no strong objections were heard from 
HCFA about the resulting definition. In the final fee schedule 
regulation notice, HCFA indicated its disagreement with the CPT Panel, 
and reduced the payment levels for these codes by 10 percent based on 
the assumption that more services would be billed as critical care.
    The effect of that decision is that Medicare pays substantially 
lower payments to physicians who treat the most critically ill 
patients. The consequences of this ill-conceived policy are obvious--
its creates perverse incentives and thus physicians will be forced to 
spend less time with critically ill patients, who, ironically, are in 
most need of a physician's time and care.
    After repeated expressions of alarm from the medical profession 
about the impact of the lower values on these essential services, HCFA 
agreed to ask the CPT Panel to again revisit the definition of critical 
care services. Both sides have now agreed on a mutually acceptable 
definition of critical care, but HCFA has not yet restored the correct 
payment levels for these codes.

Communication with Individual Physicians

    Physicians must have the ability to contact HCFA or its carriers 
and receive a reliable and consistent response to questions concerning 
claims for patient services. Physicians are often a beneficiary's link 
to Medicare with regard to the translation of Medicare coverage 
decisions. Improved communication between carriers and physicians will 
ultimately result in better informed patients.
    HCFA and its carriers, however, do not adequately communicate with 
and conduct educational initiatives for physicians. For example, in a 
February 1999 Report entitled, ``Ordering Medicare Equipment and 
Supplies--Physicians' Perspectives,'' the OIG confirmed that ``75 
percent of physicians reported they have never received any educational 
materials from their Medicare carrier concerning the equipment and 
supply ordering process.''
    Physicians document patient visits and submit hundreds of claims to 
the program during every month. If these claims submitted to carriers 
are not done correctly, physicians can be subjected to investigations, 
audits, and penalties.
    Use of a general website alone to educate physicians and inform 
them of changes to coding, documentation and coverage policies is not 
sufficient. Physicians have great difficulty in securing specific 
answers from their carriers regarding these important coding, 
documentation, and coverage policy questions. Carrier staff frequently 
provide inconsistent answers to critical questions. In addition, most 
carriers refuse to answer physicians' queries in writing, so the 
physician can maintain a copy of the correspondence for his or her 
records. After years of asking HCFA to reinstitute toll-free lines for 
physicians, the AMA was pleased when HCFA agreed this spring to reopen 
these lines. While these toll-free lines are not a cure-all, the AMA 
hopes that these carrier lines will be adequately funded and will begin 
to address physicians' questions regarding the Medicare program.
    The processes that HCFA uses during post-payment audits are also 
antiquated and ineffective. For instance, when carriers audit physician 
practices, physicians receive a letter, which carries no special 
designation or marking, requesting records via regular mail. 
Physicians' offices receive lab reports, payments from government, 
private, and individual payors in addition to other correspondence 
related to practice management in their daily mail deliveries. The AMA 
recommends that carriers orally communicate with physicians concerning 
a records request and maintain a dialogue throughout the audit and 
settlement processes concerning compliance activities with respect to 
any alleged physician billing errors. Specifically, HCFA should require 
its carriers to contact physicians orally and in writing to inform them 
of: possible improper billing, a pending post-payment audit, the 
outcome of the audit, and the physician's appeal rights.
    As the foregoing discussion demonstrates, physicians have serious 
concerns with HCFA's management of the Medicare fee-for-service 
program, in which 85 percent of the Medicare population is enrolled. 
These deficiencies demand Congress' serious and immediate attention. 
While our testimony has attempted to cover several major areas where 
HCFA oversight is desperately needed, we also have concerns with 
numerous other policies, which we would pleased to discuss with the 
Subcommittee at a later date or at a later hearing. We would be happy 
to discuss any of these issues in more detail, and look forward to 
working on these issues more extensively with the Subcommittee in the 
months to come.

[GRAPHIC] [TIFF OMITTED] T5913.003

    Mr. Bilirakis. Thank you very much, Dr. Coble.
    Ms. Gottlich?

                   STATEMENT OF VICKI GOTTLICH

    Ms. Gottlich. I am Vicki Gottlich. I am with the Center for 
Medicare Advocacy. I am also representing the National Academy 
of Elder Law Attorneys.
    Center advocates and NAELA attorneys have direct experience 
in counseling and representing older people, people with 
disabilities and their families. The center responds to over 
1500 calls about Medicare and other health issues each quarter 
on a toll-free hotline.
    As of last Friday, we have 13,342 open cases involving 
access to Medicare benefits. We also work to assure access to 
employer-sponsored health insurance and have been counsel and 
provided technical assistance in litigation to secure health 
care rights for participants in private health plans.
    Our experience has given us the opportunity to compare the 
difficulties of Medicare beneficiaries in obtaining necessary 
health care with the difficulties of plan participants under 
private health insurance.
    Despite our past and ongoing differences with HCFA, and 
these include several of the issues mentioned today such as 
preauthorization, such as coverage determinations, we have 
determined that HCFA does a much better job in administering 
Medicare and in protecting beneficiary rights than private 
insurance companies do in protecting the rights of private plan 
participants.
    The added protection comes from regulations and guidance 
that implement Medicare from the accountability of HCFA as a 
government agency and from increased participation of 
beneficiaries and their advocates in HCFA processes.
    Regulations are issued pursuant to directions from Congress 
in order to protect Medicare beneficiary rights. Though there 
are a lot of Medicare+Choice regulations, these really 
implement a very detailed, complex program.
    The best example we have is the rules promulgated to 
implement the Nursing Home Reform Law. They were imposing 
standards that were really best practices that very few nursing 
homes were using.
    But after they were implemented, the reduced use of 
physical and chemical restraints improved quality for residents 
and other savings resulted in annual estimated savings to the 
Medicare Program of $2 billion in hospital costs in 1992 
dollars.
    Regulations set standards. When a client comes to us who is 
a Medicare beneficiary and says ``I have been denied nursing 
home care because I don't meet the definition of skilled 
care,'' we know where to find it in the regulations and in the 
manuals.
    When the same client comes to us or a different client and 
has the same issue in private health insurance, there are no 
regulations. There are no standards and there are no easy ways 
to get those regulations and the standards from the health 
plans.
    We end up with clients who have been denied care even 
though they meet the Medicare regulations for the definition of 
skilled care.
    When HMOs terminate their coverage, they provide notices 
that are readable, they provide people explanation of their 
rights upon the termination of their HMO. This is all because 
of regulations and HCFA's involvement in trying to protect 
beneficiaries.
    Private health insurance plans that terminate their 
coverage do so without any notice to beneficiaries at all. The 
four notices that HCFA is working to improve actually are being 
improved. We have had lots of complaints about them over the 
years. I think some of the efforts are due to some of our 
litigation.
    But the form notices that we see from private health 
insurance many times do not even comply with the standards of 
ERISA. I have never seen one that gave a good explanation of 
why coverage had been terminated and what rights there are.
    Medicare beneficiaries are protected by the accountability 
of HCFA as a Federal Government agency. As an agency it must 
promulgate regulations. It must have open meetings. It must 
appoint advisory committees that comply with FACA.
    Most importantly, it is subject to hearings such as this 
one where, when people have problems with HCFA, we can rake 
them over the coals or interrogate them. That is not true of 
private health insurance plans. We have no opportunity as 
beneficiary representatives to work with private health 
insurance plans to deal with the systemic problems that we see 
on behalf of our clients.
    HCFA has also made a great effort in the past few years to 
increase beneficiary access, so we can have the opportunity to 
talk to HCFA about our problems, to discuss with HCFA some of 
the changes that it is planning to make.
    We are very concerned that some of the proposals under 
consideration to change the way the Medicare Program is managed 
would increase rather than decrease beneficiary vulnerability.
    Privatization of management of the Medicare Program removes 
the protections provided by government management of Federal 
programs.
    We are concerned that private entities don't operate as 
efficiently as Medicare, raising the concern that more Medicare 
dollars would be spent on administrative costs if programs are 
managed by private entities.
    We also are very fearful about the proposal to bifurcate 
the administration of Medicare between two entities. We are 
fearful this will cause confusion for Medicare beneficiaries.
    We envision a bureaucratic nightmare of coordinating 
information about one program between two agencies that will 
exasperate duplicative administrative, unnecessary paperwork 
and cost delays.
    What we would like to see would be some efficiencies that 
have already been discussed in terms of streamlining time 
lines. We would like to see additional resources given to HCFA 
so they could improve the work that they are doing.
    We thank you for the opportunity to participate today.
    [The prepared statement of Vicki Gottlich follows:]

  Prepared Statement of Vicki Gottlich, Attorney, Center for Medicare 
                             Advocacy, Inc.

Introduction

    Good morning. I am Vicki Gottlich, a staff attorney with the 
Healthcare Rights Project of the Center for Medicare Advocacy, Inc., 
(the Center) and chair of the Subcommittee on Managed Care, Public 
Policy Committee of the National Academy of Elder Law Attorneys 
(NAELA). I appreciate the opportunity to address the Subcommittee on 
Health and Environment of the Commerce Committee on behalf of these two 
organizations. We, like you, are concerned with the important issue of 
HCFA's role in Medicare management.
    Center advocates and NAELA attorneys have direct experience in 
counseling and representing older people, people with disabilities, and 
their families. The Center for Medicare Advocacy responds to over 1,500 
calls about Medicare and other health issues each quarter on a toll 
free telephone line in Connecticut. As of June 23, we have 13,342 open 
cases involving access to Medicare benefits. Members of the Center's 
legal staff have been leaders in advancing Medicare coverage and due 
process rights and access to health care through class action 
litigation and administrative advocacy.
    Most recently, in Grijalva v. Shalala, a nationwide class action, 
the Center was successful in obtaining a court order which established 
due process rights for Medicare managed care enrollees throughout the 
United States. In Healey v. Shalala, we represent a nationwide class 
and have successfully challenged the manner in which Medicare 
beneficiaries are denied home health benefits and services. Finally, 
Center staff and NAELA members also work to assure access to employer-
sponsored health insurance, and have been counsel and provided 
technical assistance in litigation to secure health care rights for 
participants in private health plans.
    Our experience has given us the opportunity to compare the 
difficulties of Medicare beneficiaries in obtaining necessary health 
care with the difficulties of plan participants under private health 
plans. Despite our past and on-going differences with HCFA over the 
administration of the Medicare program, we believe strongly that HCFA 
does a better job in administering Medicare and in protecting 
beneficiary rights than private insurance companies do in protecting 
the rights of their participants. The added protection to beneficiaries 
comes from the national regulations and guidance that define program 
policy and standards in implementing the Medicare program, from the 
accountability of HCFA as a government agency, and from the increased 
participation of beneficiaries and their advocates in HCFA processes.

Regulations Are Issued Pursuant to Directions from Congress in Order to 
        Protect Medicare Beneficiary Rights

    Some health care providers contend that the voluminous Medicare 
regulations make it impossible to provide services under the program 
and impede access to care. We disagree. Medicare regulations are issued 
by HCFA to implement the changes in the laws passed by Congress, to 
protect the rights of Medicare beneficiaries to receive medically 
necessary services, and to assure accountability of providers and of 
HCFA. For example:

 The Balanced Budget Act of 1997 included a specific statutory 
        section, 42 U.S.C. Sec. 1395w-26, that directed HCFA (a) to 
        establish standards for financial solvency of Medicare+Choice 
        plans, and (b) to establish other standards to carry out the 
        new Medicare Part C, the Medicare+Choice program. Other 
        statutory sections relating to Part C directed HCFA to address 
        specific substantive issues, for example, standards for 
        exercising choice and electing a Medicare+Choice plan, 
        guidelines for post-stabilization care, and time periods for 
        appeals of adverse determinations, and included details about 
        what should be included in the regulations. Thus, the nearly 
        100 pages of interim final regulations 1 added to 
        the Code of Federal Regulations to implement the 
        Medicare+Choice program were done so at the explicit direction 
        of Congress to help with the administration of this new and 
        very complex program.
---------------------------------------------------------------------------
    \1\ Final regulations to implement the Medicare+Choice program have 
been posted on the HCFA web page and are expected to be published in 
the Federal Register this week.
---------------------------------------------------------------------------
 Federal Medicare and Medicaid rules promulgated by HCFA to 
        implement the Nursing Home Reform Law of 1987 have led to 
        reduced use of physical and chemical restraints in many skilled 
        nursing facilities nationwide, allowing facilities to provide 
        better care for residents at lower cost. They also led to a 30% 
        increase in the use of hearing aids; an increase in use of 
        toileting programs for incontinent residents; a 28% decrease in 
        the proportion of residents with little or no activity; and a 
        26% reduction in hospitalizations of residents (resulting in an 
        annual estimated savings to the Medicare program of $2 billion 
        in hospital costs in 1992 dollars) 2.
---------------------------------------------------------------------------
    \2\ Dr. Catherine Hawes, Assuring Nursing Home Quality: The History 
and Impact of Federal Standards in OBRA-1987 (Commonwealth Fund, 
December 1996).
---------------------------------------------------------------------------
Regulations, HCFA Manuals and Other Guidance, and Form Letters Provide 
        Standards That Help Beneficiaries Know Whether They Have 
        Received the Benefits to Which They Are Entitled.

    Medicare regulations and other guidance developed by HCFA help 
assure that beneficiaries receive the services they need. Private 
insurance provides no similar protection for plan participants. For 
example:

 We consistently are asked to assist Medicare beneficiaries and 
        private health plan participants who have been denied home 
        health or nursing home benefits on the grounds that the care 
        they need is not skilled care. While 42 C.F.R. Sections 409.32 
        and 409.33 (approximately three pages) define the criteria for 
        and give examples of skilled care for the Medicare program, no 
        similar standards exist under the Employee Retirement Income 
        Security Act (ERISA), which governs private employer and union-
        sponsored insurance, or under the majority of private health 
        plans I have examined over the years. The lack of standards 
        leaves clients in private plans unsure about their coverage and 
        results in frequent benefit denials. In a case from 
        Indianapolis last year, the claims workers for a large 
        insurance company covering a large employer stated in 
        depositions that they were given different and inconsistent 
        information about what was skilled care, and ended up rejecting 
        virtually every claim. Had the client in that case been covered 
        under Medicare, his care needs would have met the regulatory 
        definition of skilled care.
 Medicare regulations and HCFA guidance require HMOs which 
        terminate their contracts with HCFA to give their enrollees 
        advance notice of the termination and to explain their rights 
        upon termination. The HMOs use model notices developed by HCFA 
        to help assure readability and understanding by the 
        beneficiaries. When private insurance companies terminate their 
        contracts with employers, they are not required to provide 
        advance notice to plan participants, or to inform them of the 
        other health plans in which they may enroll. Employers are not 
        required to maintain one consistent, standard plan, such as 
        traditional Medicare, to which their employees may return.
 Form notices developed by HCFA to explain what services have 
        been covered, what services have been denied, why they have 
        been denied, and what a beneficiary can do about a denied 
        service provide accurate information and 
        consistency.3 There is no consistency in the form 
        notices provided by private insurers; each insurer has its own 
        forms. Many do not meet the notice requirements of ERISA.
---------------------------------------------------------------------------
    \3\ Several of the revisions to forms and notices have come as a 
direct result of litigation conducted by Center and NAELA attorneys. 
See, for example, Grijalva v. Shalala, supra, (managed care appeals 
notices); Healey v. Shalala, supra, (home health termination notices), 
and Sarrassat v. Sullivan, (N.D. Cal. 1989) (nursing home discharge 
notices).
---------------------------------------------------------------------------
 Beneficiaries are more vulnerable when HCFA does not mandate 
        forms. Last year, I served as a consumer representative to an 
        informal work group designed to assist HCFA in the development 
        of a standardized summary of benefits (SB) form for 
        Medicare+Choice HMOs. Most of the SB forms developed by the 
        private insurers offering Medicare+Choice plans that I reviewed 
        as a part of the process were not beneficiary friendly. The 
        form SB developed through HCFA contains accurate descriptions 
        of Medicare benefits and was focus group-tested to assure 
        comprehension and readability. As a result, the SB will be a 
        better education piece for beneficiaries and a better marketing 
        tool for Medicare+Choice plans.

Medicare Beneficiaries Are Protected by the Accountability of HCFA as a 
        Federal Government Agency.

    Because HCFA is a federal government agency, it must meet the 
requirements of all agencies to make public its meetings, to publish 
its proposed standards and regulations, and to appoint advisory 
committees that comply with the Federal Advisory Committee Act (FACA), 
Pub. L. 92-463, 5 U.S.C. App. 2. The administration of its budget is 
subject to oversight, as are the workings of the agency as a whole. 
This very hearing is evidence of the high level of accountability to 
which HCFA is held. As a result, beneficiaries have greater assurance 
that the administration of the Medicare program is being monitored 
closely and that they will have an opportunity to participate in 
decisions that affect their program. For example:

 HCFA is revising the process for deciding the particular 
        services and technologies to be covered and paid for by 
        Medicare. We have been very visible in our complaints about the 
        coverage determination process, through litigation, 
        4 through testimony before HCFA's Medicare Coverage 
        Advisory Committee (MCAC), and through testimony at 
        Congressional and other briefings. We intend to file comments 
        vigorously objecting to HCFA's proposed criteria for making 
        determinations, published in the Federal Register in 
        May.5 We can only engage in such advocacy on behalf 
        of Medicare beneficiaries because of the openness of the 
        government process. There is no similar mechanism for 
        participation in or contesting the process for deciding what 
        services and technologies will be covered under private health 
        insurance plans, even those that are collectively bargained.
---------------------------------------------------------------------------
    \4\ See, e.g., Jameson v. Bowen, C.A. No. CV-F-83-547-REC (E.D. 
Cal.1987), and Richey v. Shalala, CV (W.D. Tex. Feb. 1, 2000)
    \5\ 65 Fed. Reg. 31124 (May 16, 2000).
---------------------------------------------------------------------------
 When HCFA decides to change its regulations, it allows 
        beneficiaries and others to comment on the effect of the 
        changes on them and their ability to receive medically 
        necessary care. For example, as part of interim final 
        regulations published in 1998 to implement a prospective 
        payment system (PPS) for Medicare skilled nursing facility 
        benefits, HCFA deleted from the regulations sections which give 
        examples of certain nursing services that are considered 
        skilled care.6 Because the sections and examples 
        also apply to skilled care in the context of home health 
        benefits, the deletion generated confusion about the scope of 
        the regulations. The Center filed comments on the regulations 
        and wrote to HCFA Administrator Nancy-Ann Min Deparle for 
        clarification of the extend of their applicability. Ms. Deparle 
        responded that others had also expressed confusion, and that 
        HCFA did not intend the deletion of regulatory sections to mean 
        that they ``. . . no longer regard these services as 
        appropriate examples of skilled care.'' 7 The final 
        PPS regulations, issued in July 1999, 8 responded to 
        the comments and reinserted the deleted sections. This process 
        of first proposing changes to standards and soliciting comments 
        is not available for private insurance.
---------------------------------------------------------------------------
    \6\ 42 C.F.R. Sec. 409.33(a)(1)-(3).
    \7\ Letter from HCFA Administrator Deparle, April 28, 1999, 
www.medicareadvocacy.org.
    \8\ 64 Fed. Reg. 41670, (July 30, 1999).
---------------------------------------------------------------------------
Increased Access to HCFA and its Processes Assures Greater Beneficiary 
        Participation and Protection.

    In recent years, HCFA has come to understand the importance of 
including beneficiaries and beneficiary concerns in its administration 
of the Medicare program. In HCFA parlance, they have determined that 
beneficiaries are their ``customer.'' Though we still question HCFA's 
understanding of the importance of beneficiaries to the Medicare 
program, we have seen improvements, especially in regards to 
information and education.

 In response to complaints by beneficiary representatives, HCFA 
        several years ago changed the quarterly beneficiary meetings to 
        monthly meetings. These meetings have turned from ``show and 
        tell'' programs whose agendas were dictated by HCFA to meetings 
        in which beneficiaries have dialogues with HCFA staff 
        responsible for administering Medicare, Medicaid and the state 
        children's health initiative program.
 Because of their increased emphasis on beneficiaries, their 
        reaching out to beneficiary representatives, and their 
        responsibility as a public entity administering a public 
        program, HCFA's efforts are highly improved and more effective 
        for beneficiaries than the efforts we have seen from private 
        insurance. HCFA initially developed its managed care marketing 
        guidelines with in-put only from plan representatives. When 
        beneficiary and consumer organizations were asked to review the 
        final product HCFA and the plan representatives had developed, 
        they found that the guidelines contained information that was 
        inaccurate and confusing and that the guidelines did not 
        explain fully the rights of beneficiaries enrolled in managed 
        care.
 HCFA has established two separate entities to assist with 
        Medicare+Choice education and information. The National 
        Medicare Education Partnership (NMEP) coordinates with 
        organizations representing a variety of interests--
        beneficiaries, plans, employers, unions, government--to assure 
        that beneficiaries receive accurate and adequate explanations 
        of their Medicare benefits and the choices available under the 
        Medicare+Choice program. The Center for Medicare Advocacy 
        serves as a member of the NMEP Coordinating Committee. The ten-
        member Citizens Advisory Panel on Medicare Education (APME) is 
        a FACA authorized committee designed to assist HCFA with its 
        statutorily mandated Medicare+Choice education efforts.

HCFA Has Done a Gone Job Satisfying The Beneficiary Education 
        Obligations Imposed by the BBA.

    Congress in the Balanced Budget Act imposed a very heavy burden 
upon HCFA to provide beneficiary education. The BBA requires HCFA to 
establish and maintain an Internet site to provide information, to 
conduct annual information fairs, to maintain a toll-free hotline, and 
to send out annual mailings to each Medicare beneficiary that not only 
describe the Medicare program but that include the Medicare+Choice 
options available in the different communities. The solution to 
problems observed in the education component is not to take the 
responsibility for education away from HCFA, but to assure that HCFA 
has adequate funding and staff to do a good job.

 HCFA has done a remarkable job, given the financial 
        constraints imposed by Congress, the lack of staff, and the 
        complexity of the Medicare+Choice program. Thanks to comments 
        by NMEP members and others, the Medicare and You Handbook 
        improves each year. The information about plan choices on the 
        Internet is reasonably accurate, and HCFA continuously works to 
        make the site more useable. I have personally called the 1-800-
        MEDICARE hotline number to test its accuracy, and I have been 
        given correct information even when I asked complex, difficult 
        questions. On the other hand, clients who have sought 
        information from their health plans directly have been given 
        incomplete or incorrect information, including being told that 
        they have no right to appeal an adverse determination.
 The problems with HCFA's education program stem from the 
        growing complexity of the Medicare+Choice program and not the 
        failure of HCFA's initiatives. The Center for Medicare Advocacy 
        requires three days to train volunteers for CHOICES, the 
        Connecticut state health insurance counseling program, about 
        Medicare and Medicare+Choice. When HCFA tried to describe the 
        new Private Fee For Service plan to the NMEP coordinating 
        committee, it quickly became apparent that even NMEP members 
        who are knowledgeable about Medicare needed more time to 
        understand the complexities of this option.

Proposals to Change the Way the Medicare Program is Managed Would 
        Increase, Rather Than Decrease, Beneficiary Vulnerability.

    Current proposals to change the way the Medicare program is managed 
would harm beneficiaries dramatically by reducing their access to the 
administrators of the program, removing many of the protections 
available to them, and causing confusion in management.

 Proposals to biforcate the administration of Medicare between 
        two entities, regardless of whether the second entity is a 
        federal government agency, will cause confusion for Medicare 
        beneficiaries. Beneficiaries will not know to which of the 
        entities to turn with their questions, particularly when 
        questions fall within the jurisdiction of both entities. Our 
        clients who are dually eligible for Medicare and Medicaid would 
        have to seek out information from both entities, since HCFA 
        will retain jurisdiction over Medicaid, and possibly from their 
        state Medicaid agency as well. Clients with functional 
        disabilities and mental impairments will be harder to reach and 
        serve. The bureaucratic nightmare of coordinating information 
        about one program between two agencies will exacerbate problems 
        of duplicative administration, unnecessary paperwork, and 
        delay. The costs of program administration will increase 
        unnecessarily.
 Privatization of the management of the Medicare program 
        removes the protections provided by government management of 
        federal programs. Private entities may not have to meet the 
        same requirements concerning open meetings, appointed advisory 
        committees that are representative of all interested parties, 
        promulgation of standards through a prescribed regulatory 
        process that allows for public comment.
 Private entities do not operate as efficiently as Medicare, 
        raising the concern that more Medicare dollars would be spent 
        on administrative costs if the program were managed by a 
        private entity. Data from 1997, the most recent year posted on 
        HCFA's web site, indicate that administrative expenses were 
        1.2% of benefit payments for Part A and 2.0% of benefit 
        payments for Part B.9 The Office of Inspector 
        General (OIG) recently found, on the other hand, that from 1996 
        through 1999 the average amount allocated by a managed care 
        organization for administration ranged from 3% to 32%. The OIG 
        recommended that HCFA set a ceiling for administrative rates of 
        15%.10 Since proposals calling for private 
        administration of Medicare would allow the private entity to 
        pay its chief administrators more than civil service rates, 
        there is no indication that current cost of administering 
        private entities would decrease. Medicare dollars would be 
        spent on administrative costs.
---------------------------------------------------------------------------
    \9\ HCFA, Office of Strategic Planning: Data from the Division of 
Medicare and Medicaid Cost Estimates; www.hcfa.gov/stats/hstats98/
blustat4.htm.
    \10\ Office of Inspector General, Administrative Costs Reflected on 
the Adjusted Community Rate Proposals Are Inconsistent Among Managed 
Care Organizations (A-14-98-00210 January 2000).
---------------------------------------------------------------------------
    Organizations that represent beneficiary and consumer interests 
will have difficulty with whatever entity manages the Medicare program. 
We push constantly to assure that our clients' rights to medically 
necessary health care are protected in every way. The proposals under 
consideration--to reduce regulations that set standards and protect 
beneficiaries, to remove administration of the Medicare program to 
private entities with fewer obligations to the public interest and the 
public fisc, and to split the responsibilities for management of 
Medicare--do nothing to meet the needs of the beneficiaries for whom 
the program was established. Instead, they would reduce beneficiary 
rights and their access to care.
    Thank you for the opportunity to testify.

    Mr. Bilirakis. Thank you, Ms. Gottlich.
    We understand that the votes might be called about 1:30. 
That is always a ``give or take.'' Hopefully, we can excuse 
this panel by the time we have to run to vote. It is up to the 
members here, I guess.
    Dr. Waller, I understand that the Mayo Clinic was 
approached by HCFA to become a Center of Excellence but 
declined; is that correct?
    Mr. Waller. That is correct.
    Mr. Bilirakis. Can you tell us why?
    Mr. Waller. Well, I think that first the regulatory burden 
and the need to document what we would do in a center of 
excellence was just far above what we could do. But I think the 
bottom line to it was that HCFA came to us and said, if you 
will be a center of excellence, we will name you a center of 
excellence, if you will take a discount, a discount beyond the 
price control environment that we have been in since 1984. But 
we couldn't do that.
    The patients who come to Mayo Clinic severity of illness is 
extraordinarily high when you compare to other practices and 
the resources needed to take care of patients with severe 
illness are significant.
    So, to be a center of excellence and take a discount for 
the payments to us was beyond the price controlled environment 
was not anything that we could do. I guess the bottom line is, 
though, when we talk to private payers, Mr. Chairman, we can 
negotiate with them as partners. What can we do to provide 
quality? What will it cost? How can we work together?
    Basically, with all due respect, HCFA said to us, ``Here 
are the rules, take it or leave it.'' We decided to leave it.
    Mr. Bilirakis. So, outside of the scope of being designated 
as a center of excellence, Mayo accepts Medicare patients?
    Mr. Waller. Oh, yes, we do. We take all patients, Medicare 
patients, Medicaid patients, patients who have no money, 
patients who have money. We take everybody who comes to our 
doors.
    Mr. Bilirakis. Thank you, sir.
    Dr. Coble, I have a series of questions here which I am not 
going to expect you to respond to now because it would take the 
rest of the time. What are the unnecessary Medicare 
regulations? What rules should be eliminated? What can we do to 
fix the problems you have described?
    In general, do you have a list, does the AMA have a list, 
of what they consider unnecessary Medicare regulations?
    Mr. Coble. Yes, indeed. I would be happy to provide those 
to you, sir.
    Mr. Bilirakis. Do they have a list of the rules that they 
consider or recommend be eliminated?
    Mr. Coble. Yes. Of course, some of these may be technically 
rules, some regs, some guidelines and so forth.
    Mr. Bilirakis. Well, can the AMA furnish that information 
to this committee?
    Mr. Coble. Yes. We would be delighted to do so.
    Mr. Bilirakis. All right. Now, that will be in writing.
    Now, you referred in your testimony to inquiries made, I 
guess, regarding coding and the billing by the physicians or 
providers to HCFA and their responses. Many of those responses, 
and I believe it was Dr. Coburn who referred to this, that they 
are quite often not in writing.
    What is the significance of their being in writing?
    Mr. Coble. Well, then you can always go back and say this 
is documentation of what we have been advised and we have 
complied. But it is very difficult to get that in writing or 
impossible.
    Mr. Bilirakis. They won't give it to you in writing, even 
though you might require it?
    Mr. Coburn. Would the chairman yield for just a second?
    Mr. Bilirakis. Yes.
    Mr. Coburn. Personal experience, they will not give you an 
answer in writing.
    Mr. Bilirakis. Is that something that the Congress should 
mandate, Dr. Coble?
    Mr. Coble. We would think that is highly appropriate. It 
would be very desirable to always be able to identify the 
person who was talking to you on the phone. Often you cannot 
get an identification about that individual either.
    Mr. Brown. Is that the carrier or HCFA?
    Mr. Coburn. It is the carrier.
    Mr. Coble. It is the carrier.
    Mr. Coburn. But the carrier is function under the auspices 
of HCFA.
    Mr. Coble. They are chosen by HCFA, as I understand it, to 
function that way.
    Mr. Bilirakis. If the requirement was that they be in 
writing, do you think that will slow down the process? Should 
it slow down the process?
    Mr. Coble. Well, with the availability of faxes and e-mails 
now, that should be a fairly rapid process.
    Mr. Bilirakis. So you don't think it should slow down the 
process?
    Mr. Coble. I certainly would hope not. Our intent is 
certainly to decrease hassle factors.
    Mr. Bilirakis. Ms. Gottlich, you refer to 13,000 open 
cases. I suppose maybe others will get into that. My time is 
about to expire. He is a good staffer. He shut the clock off at 
4 seconds left. It is a long 4 seconds.
    I would hope that you might go into some details regarding 
that, but I would hope that some of the others will ask that 
question of you.
    I will go ahead and yield to Mr. Brown at this time.
    Mr. Brown. Mr. Mangano, the managed care organizations 
complain of not enough flexibility, of too much regulation, of 
not enough reimbursement. I am looking at an IG report that you 
furnished about administrative costs are not allowable.
    Entertainment, gifts, employee morale costs, $69,000 for 
holiday parties at three MCOs, $190,000 for one sales award 
meeting in Puerto Rico for one MCO, $249,000 in meeting costs 
including food, gifts, alcoholic beverages at one MCO. My 
favorite, $157,000 for a party celebrating a managed care 
organization's parent company's 150th anniversary. That is 
taxpayer dollars. Fortunately, you disallowed it.
    The MCO solution, when they complain of not enough 
flexibility, too much regulation, and not enough reimbursement 
is to minimize HCFA interference and to turn the program over 
to the private sector. What happens then?
    What do you think the result of lessening HCFA oversight on 
Medicare+Choice plans would be? Would they have flexibility, 
giving Medicare+Choice plans more flexibility in claiming 
administrative costs? Talk to me about that.
    Mr. Mangano. Well, I think I remember the report you are 
talking about. Those costs were not disallowed. In the managed 
care program HCFA pays a set price for every beneficiary each 
month. The managed care organization puts a budget together 
that includes their administrative costs as well as their 
service delivery costs.
    But because it is a Managed Care+Choice plan, the normal 
rules of Medicare do not apply. In a fee-for-service program, 
all costs must be reasonable and necessary for the provision of 
care.
    But in managed care, they don't have to apply those rules. 
So, if a company wants to do those things with their 
administrative costs, they can do that.
    We have recommended to HCFA that they seek legislative 
change that would apply that rule to the managed care plans as 
well. That is, that the money should go for patient services 
rather than some of these more frivolous costs that some of 
these companies are incurring.
    Mr. Brown. So, under this private part of Medicare that we 
call Medicare+Choice, the taxpayers paid that $1.5 million that 
could have gone to patient care.
    Mr. Mangano. That is correct. In our review, looking at the 
companies nationally, we found that 3 to 32 percent of the 
money going to managed care plans was spent for administrative 
costs.
    One of the recommendations that we had made was to cap that 
at 15 percent, which was about the average for the managed 
care+choice plans. If they did that, that would save about $1 
billion that could be used to reduce patient deductibles or to 
increase services to those beneficiaries.
    Mr. Brown. So it is 3 to 32 percent and you suggest a 15 
percent cap. That saves $1 billion plus. Medicare's 
administrative costs are one to 2 percent; correct?
    Mr. Mangano. That is correct.
    Mr. Brown. So much for the efficiency of the marketplace 
sometimes.
    Mr. Mangano. What is happening here is that private 
companies spend money on things that you probably wouldn't want 
Federal funds to be used for. So, companies do plan to buy sky 
boxes at sports stadiums, do plan to sponsor golf tournaments 
and do plan to take yacht trips out on the New York Harbor to 
look at fireworks.
    Mr. Brown. Not to jump to conclusions, but salaries at the 
Healthcare Leadership Council members might actually be higher 
than Mike Hash's salary, too?
    Mr. Mangano. I would suspect that is the case, yes.
    Mr. Brown. Dr. Coble, you mentioned that HCFA's excessive 
paperwork is taking up valuable time, and I think you are 
right, time the doctors could be spending with their patients. 
Some doctors are questioning whether it is worth the effort to 
see Medicare patients, as I have heard and as you have stated 
also.
    Do you have similar concerns with the private sector? Do 
you worry the paperwork that the HMOs require is forcing you to 
compromise on the time you spend with patients and are doctors 
questioning whether it is worthwhile to practice within an HMO 
structure also?
    Mr. Coble. Well, there are obviously concerns throughout 
the system and of course our focus today is on Medicare 
regulations and that is why I limited my address to that 
particular issue.
    But the changes in regulations that are also somewhat 
arbitrarily issued, I think, the restraint regulations, the 1-
hour rule is an excellent example of this work without any 
evidence that that is the way in which a patient who in a 
behavioral health center is placed in restraints for their own 
safety and the safety of those around them.
    We have suddenly the involvement in the medical process 
that puts burdens and changes in the quality of care in a very 
diverse country that has very different needs from one part of 
the country to the other and takes medical decisionmaking away 
from the patient and the providers and the physicians who are 
caring for them.
    Mr. Brown. I have admired the American Medical 
Association's leadership on the Patient's Bill of Rights. Your 
organization has been one of the major, one of the real 
fighters for that legislation.
    I would guess, if we had more time and if this hearing were 
focused somewhere else, you would be able to delineate many of 
those same concerns about private insurance and HMO treatment 
of physicians that you laid out understanding you were here to 
talk about HCFA, that you laid out for HCFA today, I assume.
    Mr. Coble. We would certainly attempt to do that, yes. 
There are opportunities to improve quality of care in every 
venue imaginable.
    Mr. Brown. Okay. I thank you.
    Mr. Bilirakis. It looks like we have the bells ringing for 
a vote.
    Dr. Ganske.
    Mr. Ganske. In light of the fact that we will have to leave 
soon for voting, I am just going to ask one question. One of my 
concerns with the Republican prescription drug bill is that it 
really does not define a standard benefit.
    I have concerns that it will be difficult for senior 
citizens to be able to compare one plan to another based on 
costs and service when there are differences in the underlying 
benefit. So it is a problem of being able to compare an apple 
to an apple.
    I realize this is a little astray from the hearing, but Dr. 
Waller, does the Healthcare Leadership Council have any opinion 
on that particular issue?
    Mr. Waller. Yes, they do. If you look at the Federal 
Employee Health Benefits Plan, Dr. Ganske, and you look at the 
plan that Members of Congress have and 59 million employed 
American, many of them have, there is choice.
    One can chose a plan that will provide drug benefits from 
anywhere from aspirin to chemotherapy. There are other plans 
that can provide no drug benefits. There are other plans that 
can provide drug benefits somewhere in the middle.
    I think our whole approach to life is providing the 
Medicare recipients with choice so that they can elect which 
plan would best suit their needs. So, I think we favor a drug 
benefit within the framework of comprehensive reform amendment 
in the nature of as we have spoken in our testimony.
    Mr. Ganske. So you would like to see this issue addressed?
    Mr. Waller. I think we would be concerned about having it 
be addressed in a piecemeal fashion as an add-on to the current 
Medicare system. But rather have it incorporated into 
comprehensive reform according to the principles that we have 
laid out in our written testimony.
    Mr. Ganske. Dr. Coble, has the AMA taken a position on 
whether to have a standard package of benefits as versus 
whatever the insurer wants to offer with ``comparable value?''
    Mr. Coble. We haven't taken a position. We have developed 
some principles that we would like to see considered and not to 
do something that will create further regulatory hassle and 
inadequate access and unfair system. We will be happy to 
provide those principles to the committee.
    But we have not looked at the pending bills or the 
development of bills to have a position on these at this time.
    Mr. Ganske. Mr. Mangano, from the IG's perspective, when 
you start looking at whether plans are fulfilling their 
promises, do you have an opinion on whether it would be easier 
or harder for your office to determine whether in fact a plan 
is keeping its promises if there are 500 plans out there as 
versus a requirement that a prescription basically be offered 
if the physician prescribes it?
    Mr. Mangano. Actually, you know, we haven't taken any 
position on this issue at all. I know there is wide divergence 
of views here.
    I think that we would be interested in seeing what controls 
are built into the process to ensure the beneficiaries get what 
they are supposed to get and that people are not overcharged 
for, be it the government or the beneficiaries themselves, for 
the particular drugs that they need to have.
    So, we would be looking for any enforcement mechanism that 
could be put into place to ensure that that happened.
    Mr. Ganske. Do you think it would be useful to look at the 
President's bill, the administration bill, and the Republican 
bill in more detail in order to address that issue in the form 
of some additional hearings?
    Mr. Mangano. For those particular issues, it is certainly 
something that we would be happy to give our point of view on. 
But it is really a policy issue, the direction you want to go 
on.
    Mr. Ganske. I thank you, Mr. Chairman.
    Ms. Gottlich. Dr. Ganske, I would like to just add to the 
question you asked. You asked how beneficiaries can chose.
    Last year when I was on the subcommittee that worked with 
plans and HCFA and consumer groups about designing the summary 
of benefits form, the hardest part to design was the 
prescription drug section. That is because HMOs do so many 
different ways of designing the benefit. It was very hard to 
design language that would help people compare and make a 
choice.
    We know that our beneficiaries chose managed care plans 
often very much based on the prescription drug benefit that the 
plan offers.
    Because of the confusion, that was the one are of the 
summary of benefits form where the group could not come to as 
much consensus as we did in other areas. I think the education 
and information aspect of having so many different plans is 
really going to be very difficult for Medicare beneficiaries.
    Mr. Ganske. I thank you.
    Mr. Bilirakis. Dr. Norwood.
    Mr. Norwood. Thank you, Mr. Chairman. My observation is, 
ladies and gentleman, that this hearing is about HCFA, but 
there have been a lot of shots at the private health care 
industry which I certainly do agree with.
    But I don't want anyone to leave here without understanding 
the difference. In private health care insurance today there is 
not public policy. They determine how they operate their plans. 
Congress gave them that privilege.
    Because they are doing bad and HCFA is just doing a little 
better doesn't mean that HCFA isn't in a great deal of trouble. 
The difference is HCFA does have public policy. It does have 
Congressional oversight. It does have people watching what they 
are doing. And they are still taking 4\1/2\ years for an 
approval process.
    So don't leave here thinking because HCFA is only doing 
better than what we are seeing in the private insurance agency 
that we don't have a very serious problem going on in this 
country with health care.
    Dr. Coble, I can only speak for the 10th District of 
Georgia where the Medical College of Georgia is, but the 
question was asked earlier, are physicians leaving the system?
    The answer is: Absolutely. Those in my district over 50, if 
it isn't Medicare and HCFA driving them crazy, they are trying 
to get out of it as fast as they can. That is bad for this 
nation and bad for patients, because you are losing some of 
your most experienced physicians in America because of what 
HCFA is doing to them and because of what managed care is doing 
to them.
    Let me say again, I want to make this clear for the record 
that the people who need to be in this room the most, Mr. Hash 
and his team, have decided no matter what we hear or learn to 
date, they don't need to learn it. That is no way we will ever 
be able to reform HCFA in this country.
    Mr. Mangano, let me ask you a question just out of 
curiosity. You took a great deal of pride, it seems to me, or 
it was in your voice about the dollars that you saved in waste, 
fraud and abuse. All of us certainly want that eliminated.
    I would appreciate it very much if you would tell me, not 
now, but in writing, exactly where those dollars come from. I 
need to understand how many of those dollars have you actually 
saved, for example, with the subcontractors of HCFA that are 
terribly inefficient?
    How many of those dollars have you saved from physician 
community and how many of those dollars come from the hospital 
community?
    Explain to me in writing where this money comes from 
because you implied because of the good work in waste, fraud, 
and abuse, that our trust fund is now solvent. I have forgotten 
the year that you said.
    Mr. Mangano. 2025.
    Mr. Norwood. Because of all this money. I want to 
understand that better because it is my impression that a great 
deal of that insolvency came when we transferred home health 
payments from Part A to Part B.
    I'll bet you if we take a close look at that, that is where 
the biggest savings actually has come. Go ahead and respond.
    Mr. Mangano. The Congressional Budget Office has attributed 
the solvency extension to three factors: One the lower rate of 
inflation in the country in general; two, was the Balanced 
Budget Act provisions; and three was the fraud, waste and abuse 
efforts.
    Mr. Norwood. Well, the Balanced Budget Act included the 
part of home care being transferred from the trust fund to the 
everyday taxpayer.
    Dr. Waller, do you want to comment?
    Mr. Waller. I would just add that we are concerned about 
the solvency issue. Extending Part A to 2023 is really a 
misleading statement. It ignores the huge increases in Part B 
to outpatient services. It ignores the movement, as you have 
just said, Dr. Norwood, of home health care to Part B.
    And it ignores that the way to get to solvency is continued 
price controls and continued reduction of payments to providers 
and plans.
    The inflation rate also ignores the fact, as Dr. Coburn 
said earlier, that physicians are constantly over-documenting 
and under-coding because they are threatened with fraud and 
abuse.
    I think we have to add all those things to the equation 
when we talk about solvency.
    Mr. Norwood. I am glad you put that on the record because 
that should follow behind, well, we are nice and solvent to 
2025.
    Dr. Coble, would you explain to me, if you can, why it is 
that HCFA refused to give any consideration to PPAC? Why is it 
that they don't use that expertise in their effort to work out 
the payment system?
    Mr. Coble. I can't, firsthand, answer that. I have talked 
to the past members of it. They indicate that the agendas are 
not formed by them, that they have very little input into the 
agendas. The agendas that are provided to them are often not 
germane to the real concerns of practicing physicians.
    Of course, PPAC is made up by a large percentage, almost 
the total group are practicing physicians. We understand there 
has been some attempt to enhance the process in the two most 
recent meetings, March and June. But I cannot speak 
specifically to those yet.
    Mr. Norwood. Well, time is up.
    Mr. Bilirakis. Time is long up, yes.
    Dr. Coburn.
    Mr. Coburn. Thank you. I want to share a story. My wife and 
I were driving down the road 1 day and I just about ran into 
the back of a truck. She got after me for not paying attention. 
I had had a couple of wrecks in my 52 years. She said, ``you 
know, I have never had a wreck.''
    I said, ``Yes, but you are forgetting one thing. You have 
caused hundreds.''
    To claim that HCFA is efficient and is a great organization 
is ludicrous. The 2 percent overhead that they have is because 
they have shifted 10 percent to the providers. We do all the 
work for HCFA now. All that work is done by the providers 
through layers and layers of regulation and rules and 
paperwork.
    Every Medicare patient who walks into my office today is 
asked by the nurse beforehand, ``The doctor may want to do 
something that is not a covered benefit. Here is a sheet. You 
can't sign this yet. He has to make sure he remembers to ask 
you to sign this if he does anything to you. So, will you help 
the doctor remember?''
    We have another piece of paper that goes with every 
Medicare patient now, so that in case I order an EKG that they 
may not think was indicated, I have a patient sign it so that 
if Medicare doesn't pay for it, they can be responsible for it.
    The whole idea to say that HCFA has any resemblance-Mr. 
Hash could not even answer the questions about his own 
organization. Nobody in HCFA knows all the rules, and they will 
all readily admit it, including the administrator.
    So, to claim that we have this wonderfully efficient 
organization, that it is administering Medicare, to me is 
absurd. They are not efficient. They create inefficiency. They 
have raised costs. I want to make one other point. There is no 
question that a large portion of the solvency, and remember, 
when we say ``solvency,'' we are talking about the time when 
the Medicare part of the trust fund runs out of money.
    In 2012, it starts paying out more than comes in. One of 
the major reasons it is doing this is because we are collecting 
a whole lot more Medicare money because a whole lot more people 
are working at a whole lot higher salaries. It never goes away. 
It doesn't matter how much you make in this country, you are 
still going to pay 2.8 or 2.9 percent of what you earn.
    So, as we get all hot and bothered about how well we have 
done, what we have really done is what Dr. Waller said. My 
partners are scared to death. They never code adequately on 
Medicare because they never want to be accused that they over 
billed Medicare because they don't want to go through all their 
charts for an audit and lose their Constitutional rights to a 
government which I consider an agency that is worse than the 
IRS ever thought about being in terms of the way they treat 
physician-providers and hospitals.
    If you don't think that is true, go to a hospital and ask 
them to show you how many people are there to provide the 
record documents for Medicare. In my hospital that has 1,000 
employees, 130 employees are there because Medicare has made 
them be there to document what they are doing.
    The assumption is that you are doing it wrong and you have 
got to be able to prove it right, rather than you are innocent 
and we are going to prove that you did it wrong.
    Until we change that philosophy at HCFA, until we assume 
that people are going to do the right thing, and catch the ones 
who are doing it wrong, we are going to continue to have people 
running away from Medicare.
    In my community alone, today, Medicare patients can't find 
a physician to care for them. They cannot. It is not money. 
They don't want the hassle any more.
    You know, I don't want this hearing to end with anybody 
thinking HCFA is doing a great job. Because the job they are 
doing is gumming up the works in terms of health care.
    Are we doing great for patients on Medicare? Are we doing 
better? Yeah, but HCFA isn't doing any better. We are doing 
better because physicians and providers out there are 
sacrificing their own income to make sure people are careful.
    People aren't getting stents-the other point, Mr. Fleming, 
and the point that wasn't made is we had a whole lot of people 
who ended up having ``cabbages,'' coronary artery bypass 
grafts, had their chest opened, of which about 5 percent die, 
because the government wouldn't approve a stent. So they are 
having an invasive procedure that cost Medicare a ton more than 
having the stent put in.
    So to say that HCFA is doing a great job, it fits with what 
goes on in Washington. It tells you that we have no connection 
with reality, the real world.
    I want to ask one other question. If the error rate allows 
$13 billion in errors now, and we are proud of that, we are 
down to 7.9 percent, what is going to happen to get it down the 
rest of the way.
    Mr. Mangano. One of the things that we have encouraged HCFA 
to do is far more education, providing more services to the 
Medicare community to help them work their way through the 
process. They need to do a better job explaining what the 
regulation are.
    Mr. Coburn. Okay. Let me ask you a question. Did you hear 
my comment to Mr. Hash about why don't we just change it and 
just go by blocks of time?
    Mr. Mangano. Yes, I did hear that.
    Mr. Coburn. What is wrong with that?
    Mr. Mangano. You know, when you ask an Inspector General 
what you would like to have, we would like to have as simple a 
process as possible because it is real easy to enforce the law. 
I think it is a novel approach.
    Mr. Coburn. You know, I can only work 24 hours a day. If I 
am billing Medicare for more than 24 hours, there is something 
wrong there.
    Mr. Mangano. Now, you would be surprised, but we have had 
physicians who billed more than 24 hours in a day.
    Mr. Coburn. I understand that, but I would also contend 
with you that the vast majority of physicians in this country 
sacrifice their family, sacrifice their social life, sacrifice 
most of the things because they are seeing patients 12 to 15 
hours a day.
    The fact is that the last thing you want to do is cheat 
Medicare. What they want to do is dedicate their lives to 
taking care of folks.
    The assumption that has come about is that physicians are 
at a higher rate of defrauding the government in terms of 
Medicare. Mr. Norwood and I had a conversation and the fact is 
that I will bet on physicians as compared to the Members of the 
Congress any day in terms of integrity, honesty and work ethic.
    For us to allow them to be painted as something less than 
working and caring for their patients I believe is wrong.
    So, why hadn't that come back from the Inspector General 
saying change this stupid system where it is something 
manageable and measurable?
    Mr. Mangano. We have on a number of occasions recommended 
to HCFA areas where they could simply any number of different 
kinds of----
    Mr. Coburn. What has been their response?
    Mr. Mangano. One of the areas that we were particularly 
strong on was laboratory services. For example, back a number 
of years ago we found it difficult to understand why some 
laboratory tests would be covered in one part of the country 
and not in other parts.
    You already had that discussion so I won't go into that. We 
recommended that they try to create more of a uniform policy 
across the United States so people knew what was going to be 
covered.
    I know they did make some changes but I don't think they 
went as far as they could have gone.
    Mr. Coburn. Would you be so kind as to give us other 
recommendations that you have made that they have not done?
    Mr. Bilirakis. Well, I don't know that we should. Can you 
respond to that in writing, sir?
    Mr. Mangano. Sure. We will go back and look through it.
    Mr. Bilirakis. You are very helpful here. But in a 5-minute 
questioning and your 5-minute opening statement, that is just 
scratching the surface, barely.
    So, we would very much appreciate information from you that 
might be helpful as we take a look at the overall picture. I 
have already mentioned a number of areas to Dr. Coble.
    How much time, sir, do you think it will take for you to 
respond regarding my questions?
    Mr. Coble. A week.
    Mr. Bilirakis. Mr. Mangano, Dr. Coburn's question?
    Mr. Mangano. I think we could probably do that in a week.
    Mr. Bilirakis. Let me just ask Mr. Fleming. Mr. Fleming, it 
may not be a bad idea if, rather than do it now, if you can 
respond in writing to the problems that HCFA seems to be having 
with your category approach.
    Mr. Fleming. Yes.
    Mr. Bilirakis. From what I understand, you all have done 
everything you possibly can to get their attention regarding 
recommendations that you have made.
    Mr. Fleming. Mr. Chairman, there is nothing in the statute 
that says you cannot use categories.
    Mr. Bilirakis. But they insinuated that that was the case, 
if you will recall. So, please respond in writing to us.
    Mr. Fleming. I will do that.
    Mr. Bilirakis. Ms. Gottlich, I don't know if you had 
anything you wanted to offer, but by all means, please feel 
free to do so.
    Dr. Waller, I know you put up your hand. Did you want to 
make a statement?
    Mr. Waller. Just to comment on Dr. Coburn's questions and 
throughout the hearing, the hearing is all about the patient. 
Quality of care if the problem, not managed care. We have 
overuse and misuse and under use of services and we need to put 
a system together that will allow quality to improve.
    I just will make one final comment about the private 
marketplace. We don't have one. We don't have a truly 
competitive marketplace and the reason we don't is because 
fully a third or more of the payments for medical services 
which come from our government, and we appreciate those, have 
been under price control since 1984, and in a true competitive 
marketplace, you can't have one when price controls are present 
at that level.
    So, I think that what we need is a system where the 
entitled consumer of health care is the valued conscious 
consumer of health care. When that occurs, we won't need to 
mandate all the rights that we are trying to mandate.
    Thank you very much.
    Mr. Bilirakis. Before I yield to Mr. Brown, Dr. Coburn made 
the statement comparing, I guess, the integrity of the members 
of the medical profession and Members of Congress.
    Well, I think the integrity of the medical profession is 
really up there. There is no question about it. My son is one 
of them and he is a primary care physician, not a specialist.
    But, I sort of disagree in a sense. I think Members of 
Congress in general are the most intelligent, basically one of 
the most ethical people I have ever seen. There are rotten 
apples in every bushel. God knows the medical profession has 
its share, too. I have experienced it.
    Having said that, Mr. Brown.
    Mr. Brown. None of them are on this committee, Mr. 
Chairman.
    Mr. Bilirakis. No, not a member of this committee.
    I just have one quick question for Ms. Gottlich, if I could 
ask her a question. One advantage of Medicare is the rules of 
the program are set out in statutes and regulations and they 
are the same for all patients.
    Patients in the private sector, as you know from them 
calling you, have different rules depending on their health 
plan and equally important, these rules are not always 
disclosed by the health insurers.
    What difference does that make if the patient knows what to 
expect from a health plan? Do patients expect, do they think 
Medicare will treat them more fairly than private insurance?
    Ms. Gottlich. It makes a very big difference. And it makes 
a very big different for those of us who represent them. If 
someone comes to me and they say, ``I was denied by Medicare 
for dental coverage'' I can say, ``Medicare doesn't cover 
dental coverage except in limited circumstances'' because I 
know what the rules are.
    If they come to me in a private health insurance plan, I 
have to get the plan, which is first a very big hassle and 
delaying technique. Then I have to figure out where it is in 
the plan. Then I have to figure out where the appeals procedure 
is. That varies with each plan.
    Under Medicare there is a set appeals procedure. So, the 
process takes a lot longer for private insurance to try to 
figure out where you are and what you get covered when you have 
terms like skilled nursing care and they are not defined 
anywhere in the private health plan.
    Then you have to go look at State law and you have to make 
arguments relating to Medicare. It is really very difficult and 
you also get in the same context, different interpretations as 
you do with different carriers.
    At least in the Medicare regulations you have a definition 
of what skilled nursing care is.
    Mr. Brown. Do patients expect that Medicare will treat them 
more fairly than private insurance?
    Ms. Gottlich. Yes, I think that they do. I think for the 
most part they think that things will be done in a routine way. 
They will get the certain kind of same standard notices that 
they see from time to time. If you are on a private health 
insurance plan it is going to differ from each, insurer to 
insurer.
    Mr. Coburn. Would the gentleman yield?
    Mr. Brown. Sure, I will yield.
    Mr. Coburn. I just wondered, Ms. Gottlich, would it be your 
opinion that the government ought to run all health care that 
way?
    Ms. Gottlich. I would like to see certainly Dr. Norwood's 
Patient Bill of Rights.
    Mr. Coburn. But that is not what this hearing is about.
    Ms. Gottlich. No, it is not what this hearing is about.
    Mr. Brown. I asked her that question, in her defense.
    Mr. Bilirakis. Why don't we get into those better than 
13,000 claims. What are those?
    Ms. Gottlich. They run the gamut from every kind of 
Medicare case that you can think of. The majority of them are 
denials or terminations of home health care, skilled nursing 
care and hospital care under Part A. But they will also be for 
devices and technologies and services under Part B as well. The 
issue would be whether the service is necessary.
    Ms. Gottlich. We wouldn't take them if they were not 
meritorious. Let me explain what that 13,000 means. The 13,000 
is cases at a variety of different levels in the appeals 
system. The claim comes to us. We do an initial analysis of 
whether or not we are going to take the case.
    If we decide we are going to take the case, it then goes 
through reconsideration. Once it goes through reconsideration, 
we decide again whether we are going to appeal to the 
administrative law judge. If it gets to the administrative law 
judge and we lose, we make this winnowing out.
    We are not going to pursue a case that is not worthwhile 
for a number of reasons. One, it is fraud on the system, and 
No. 2, we have limited resources as well.
    Mr. Bilirakis. Well, I appreciate that. Are these all fee-
for-service type cases, would you say?
    Ms. Gottlich. No. They are fee-for-service and managed 
care.
    Mr. Bilirakis. What would you say is the percentage?
    Ms. Gottlich. The overwhelming majority of our cases are 
fee-for-service cases because a lot of our clients are duelly 
eligible for Medicare and Medicaid so there are situations 
where the Medicaid has paid first and we are trying, because 
Medicaid is the payer of last resort and we are trying to get 
Medicare payments where it is appropriate to do so.
    Mr. Bilirakis. Is there anything further from the 
subcommittee?
    Mr. Brown. Thank you everyone.
    Mr. Bilirakis. Yes, we appreciate your patience sitting 
through the very lengthy first panel. You know, you have been 
an awful lot of help. You will be even that much more of 
benefit to what we do here if in fact you will submit, even if 
you haven't received a particular question, to us any 
suggestions you may have regarding the ``onerousness of HCFA,'' 
if you will.
    I don't think anybody has thrown stones at HCFA in terms of 
their lack of wanting to do the job well. But we also have 
heard these horror stories of the paperwork and the over-
regulations. So we need your help in that regard.
    Thank you very much.
    The hearing is adjourned.
    [Whereupon, at 1:40 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
 Prepared Statement of the American Association of Orthopaedic Surgeons
    The American Association of Orthopaedic Surgeons (AAOS), 
representing 16,000 Board certified orthopaedic surgeons, appreciates 
the Subcommittee on Health and Environment of the Committee on Commerce 
for holding hearings to address Medicare's regulatory burden on 
physicians. We would like to offer our perspective on this issue and 
welcome the opportunity to work with the Subcommittee as you examine 
the management of the Medicare program and the levels of burdens placed 
on physicians through Federal regulations.
    The AAOS shares the Federal government's concern about intentional 
acts to defraud the Medicare program. There is no question that every 
reasonable effort needs to be made to eliminate true waste, fraud and 
abuse from the Medicare program. However, fraud and abuse regulations 
should not be so complex and so difficult to follow that the honest, 
vast majority of physicians wind-up making unintentional errors. We 
also do not believe that these regulations should be so burdensome that 
physicians and their staff end up spending more time trying to comply 
with them and less time taking care of patients.
    Navigating the complex maze of fraud and abuse regulations has 
become a nightmare for physicians, burying them in an unprecedented sea 
of ``red tape'' and administrative hurdles. More importantly, these 
regulations are threatening access to quality health care services for 
Medicare beneficiaries because physicians have less time to spend with 
patients.
    Federal regulatory requirements and their enforcement frustrate 
physicians on a daily basis. Time once spent treating patients is now 
being spent completing mandatory documentation and billing 
requirements, as well as other regulatory obligations. Not only are 
physicians spending more time away from treating patients, but also, 
the Health Care Financing Administration's (HCFA's) burdensome and 
complex requirements are making it difficult and sometimes impossible 
for doctors to accept new Medicare patients. In some cases, physicians 
are leaving the medical profession altogether. Moreover, physicians are 
spending more time second-guessing the regulators and the enforcers 
about whether they should be providing a particular service, instead 
of--and without hesitation--doing what is in the best interest of the 
patient.
    The biggest problem in this area of Federal regulation is that 
there is no ``bright line'' as to what constitutes ``illegal'' or 
improper conduct. The presumption running though these regulations is 
that physicians are violating the law and are guilty of defrauding the 
government, unless they can document otherwise. We need rules and 
regulations that are understandable, fair and, most importantly, 
provide clear guidance about what constitutes proper and improper 
conduct. Instead, we find the current environment to be confusing and 
ambiguous--where law-abiding doctors are placed in an increasingly 
hostile and adversarial relationship with the government.
    In an effort to ensure that the regulatory requirements placed on 
physicians do not adversely affect access to quality patient care, the 
AAOS supports remedies that are consistent, predictable and clearly 
understood by physicians. It is our hope that through oversight 
hearings, we will be able to:

 Simplify and clarify the regulatory requirements placed on 
        physicians;
 Address the broad latitude HCFA has taken in interpreting its 
        regulatory authority;
 Examine the documentation requirements placed on physicians to 
        determine if they are achieving their intended goals;
 Examine HCFA's medical review process and explore how the 
        current process places the onus on physicians to show that they 
        are complying with HCFA's requirements without adequate due 
        process protections;
 Restore the physician-patient relationship to one where there 
        is trust between parties;
 Encourage cooperation between the government and physicians 
        rather than continue the current adversarial relationship; and,
 Apply regulations in a consistent, clear and understandable 
        manner.
    As Congress tackled the enormous task of reforming the Internal 
Revenue Service, these hearings begin the effort to improve HCFA and 
its administration of the Medicare program. By taking this step we will 
ensure that a reasoned approach emerges that will reduce the incidence 
of real fraud and unintentional errors while freeing up physicians to 
do more of what they were originally trained to do--take care of 
patients.
    The AAOS has identified a number of specific issues where 
congressional oversight is necessary.
Aggressive and Overreaching Authority by Federal Agencies
    We believe HCFA and the Department of Health and Human Services has 
overstepped their authority in their efforts to eliminate Medicare 
fraud and abuse by using aggressive, overzealous enforcement techniques 
against physicians without sufficient evidence of intentional 
wrongdoing.
    For example, the Anti-Kickback Statute was, in theory, intended to 
promote the integrity of the health care system. While it has achieved 
this goal, in practice, the statute also has stifled innovative 
business practices that could have saved the government money. The 1972 
statute was originally enacted to address bribes and kickback 
arrangements in the health care arena. Congress broadened its scope in 
1977 to address ``any remuneration'' giving the Office of Inspector 
General of the Department of Health and Human Services (OIG) great 
latitude in interpreting its mandate and applying this law to business 
arrangements far beyond kickback and bribes. While Congressional intent 
was to prevent unscrupulous behavior, the statute has allowed the OIG 
to develop a confusing patchwork of complex regulations and advisory 
opinions concerning, joint ventures, leases, discounted services, 
personal service contracts, that significantly limit innovation in the 
integrated health care delivery marketplace.
    HCFA also has taken broad latitude in interpreting its authority by 
implementing initiatives such as the ``Who Pays? You Pay.'' campaign. 
This initiative attempts to enlist Medicare beneficiaries to inform on 
their physicians if they suspect their Medicare bill is fraudulent. 
Unfortunately, it has the serious potential to damage the physician/
patient relationship by creating an atmosphere of distrust between the 
doctor and patient when an open and honest relationship is essential to 
effective care.
    The OIG also recently unveiled its ``Compliance Program Guidance 
for Individual and Small Group Physician Practices.'' This compliance 
program significantly raises the stakes for hardworking and honest 
physicians who currently make every attempt to comply with the law. Not 
only is the creation of a plan extremely labor intensive and expensive, 
it has the potential to shift the burden of proof to the physician.
    The OIG has stated that it only prosecutes offenses that are 
committed with actual knowledge of the falsity of a claim, reckless 
disregard or deliberate ignorance of the truth or falsity of a claim. 
But by having an effective plan in place, virtually any innocent 
billing error or mistake could trigger OIG action or prosecution since 
a compliance plan in place will indicate that the physician knew or 
should have known that a certain activity violated the law. While OIG 
officials may claim that the presence of an effective compliance plan 
will be taken into consideration if punitive action is necessary due to 
alleged billing errors, evidence of a compliance plan could be 
interpreted to transform the knowingly and willfully standards of law 
into per se violations.

Complex and Contradictory Regulations and Increased Documentation 
        Requirements

    Many rules promulgated by HCFA are so confusing that they convey no 
clear indication of how the agency will deal with a particular practice 
leading physicians to be unsure about their duties and liabilities. We 
need better guidance to negotiate the complex maze of regulatory 
requirements.
    For example, orthopaedic surgeons in the AAOS have been perplexed 
about the in-office ancillary services provisions of ``Stark II'' and 
HCFA's proposed rule requiring suppliers of durable medical equipment 
(DME) to obtain a surety bond. The proposed rule to ``Stark II'' 
excludes DME from the in-office ancillary service exemption, thus 
prohibiting the disbursement of DME in-office. Yet, under the surety 
bond proposed rule, HCFA states that physicians will not have to meet 
the DME surety bond requirement--if they are providing these items 
incident to patient care. It seems that HCFA is recognizing that DME is 
distributed by physicians in-office, even though the proposed rule to 
``Stark II'' seems to prohibits it.
    Thus, it appears to the AAOS that HCFA has two proposed rules that 
have contradictory statements. Are physicians in the various practice 
arrangements allowed to disburse DME incident to patient care without 
violating the "Stark II?" Do physicians need a surety bond to disburse 
these items in office? If they have a surety bond, and are designated 
as suppliers by HCFA, then how is ``Stark II'' applicable?
    Since DME is such an integral, customary, and appropriate part of 
patient care, commonly provided to patients as an in-office ancillary 
service, the blanket prohibition in ``Stark II'' makes little sense, 
and the AAOS would strongly urge both HCFA and Congress to revisit this 
issue, so physicians have clear guidance about the disbursement of DME.
    In addition to this DME issue, the AAOS is greatly concerned about 
the enormous complexity of the proposed rule related to the physician 
ownership and self-referral statute known as ``Stark II.'' The AAOS 
maintains that HCFA's proposed rule issued in January 1998 does not 
provide clear, unambiguous guidance for compliance. Instead, it has 
added even more confusion to what activities are permissible with 
regard to the ban on physician self-referral. While the AAOS is hopeful 
that the final rule for ``Stark II'' will address many of these 
concerns, Congressional oversight is necessary and legislative remedies 
may be appropriate to achieve Congress' intent and to provide clear 
guidance to physicians.
    The AAOS also is concerned with HCFA's increased documentation 
requirements for physicians when they perform and bill for evaluation 
and management (E&M) services. There seems to be a presumption that 
physicians who make errors in coding these services on Medicare claim 
forms are ``guilty'' of defrauding the system--unless they can prove 
otherwise. Even though HCFA has attempted to ease these documentation 
requirements, physicians still can run afoul of the rules and 
regulations.
    For example, when coding modifier-25 is used with CPT codes for E&M 
services, they may trigger an audit even though their usage is 
perfectly legitimate and saves on paperwork and reduces the 
administrative burden for both physicians and claims reviewers. 
Modifier-25 is used in billing when additional services are provided to 
beneficiaries beyond the services described by E&M codes. This modifier 
was intended to reduce the documentation requirements imposed on 
physicians. However, because their usage may trigger an audit, 
physicians are forced to submit claims for each additional service 
supported by separate documentation for each service in order to avoid 
triggering audits.
    In sum, confusing, complex regulations and documentation 
requirements present the physician with a maze of nearly 
incomprehensible rules for which non-compliance may be inevitable even 
for those with the best of intentions of filing appropriate claims for 
services provided under the Medicare program.

Limited Due Process

    Through pre-payment reviews and post-payment audits conducted by 
carriers, HCFA engages in audits of physicians on a random basis 
without probable cause. Even while HCFA acknowledges that much of what 
is uncovered in these reviews and audits are simple billing mistakes, 
lack of documentation or disagreement on treatment procedures, claims 
submission has become legally treacherous for physicians. Fear of 
triggering an audit has actually led to ``downcoding''--a practice of 
underbilling Medicare for services provided to Medicare beneficiaries--
in order to reduce the chance of triggering an audit.
    Under the current scheme, physicians are exposed to purely random 
audits without probable cause and without knowing of the criteria used 
by HCFA or its carriers to make its determinations. And once an audit 
is triggered, physicians are subject to recoupment of alleged 
overpayment, penalties and interest through the use of extrapolation 
techniques. The only remedy for physicians once they receive an 
overpayment notice is to open their practice to a statistically valid 
random sampling of claims to contest HCFA's findings, which, by HCFA's 
own admission, is very disruptive to a health care practice. Physicians 
would like the government to define the rules, parameters and standards 
that outline the scope of these audits as well as clearly identify the 
criteria used to trigger audits.

Conclusion
 
   The vast majority of physicians are honest and dedicated 
individuals who make every attempt to comply with Medicare's complex 
requirements. Their primary goal is to provide the highest quality care 
to their patients. Physicians understand the need for regulations in 
the health care system. However, the rules that they are being asked to 
comply with and support should be presented in a clear and precise 
manner so that they can practice their profession without fear of 
punishment because they could understand what was expected of them.
    The AAOS is very pleased that the Congress is taking an active role 
to ensure the Medicare program functions efficiently for all 
stakeholders. Through Congressional oversight hearings, we will be able 
to examine what is working and what is not working in the current 
system.
    As Congress moves forward, the AAOS has several recommendations 
that would address many of physicians' concerns:

 Simplify and clarify HCFA regulations related to the Medicare 
        program so that they are less burdensome and more easily 
        understood by physicians;
 Promote a more accommodating environment between physicians 
        and Federal agencies through more collaborative education 
        efforts;
 Establish adequate due process protections and a threshold 
        requirement of probable cause when investigating health care 
        professionals providing services under the Medicare program;
 Develop mechanisms to hold HCFA and other government agencies 
        accountable for oversight and review activities;
 Delay when a law goes into effect, as well as all enforcement 
        activities, until final regulations are issued;
 Eliminate the prohibition of administrative or judicial review 
        of Medicare payment and review methodology; and,
 Eliminate the ``scoring'' of budget savings as a result of 
        fraud and abuse activities. As long as the pursuit of fraud is 
        viewed as a ``bounty'' or revenue raising activity, cost-
        containment measure, or a way to expand program benefits, 
        overzealous investigations of physician coding and billing 
        activities will continue.
    Again, we appreciate the opportunity to share with the Subcommittee 
our concerns about the unnecessary burdens currently placed on 
physicians by the activities of HCFA and the OIG, and we look forward 
to working with you to ensure quality patient care under the Medicare 
program.
                                 ______
                                 
   Prepared Statement of Steven M. Mirin, Medical Director, American 
                        Psychiatric Association

    The American Psychiatric Association (APA), the medical specialty 
society representing more than 42,000 psychiatric physicians 
nationwide, is pleased to submit this statement to the Subcommittee on 
Health and Environment at its hearing on the management of the Medicare 
program by the Health Care Financing Administration (HCFA). First and 
foremost, Mr. Chairman, the APA commends you and the Subcommittee on 
Health and Environment for your concern about our patients and 
profession by conducting today's hearing.
    We acknowledge at the outset that the task of day-to-day 
operational management of Medicare must be daunting. By its own 
statement, HCFA--through Medicare, Medicaid, and the new children's 
health insurance program (SCHIP)--is the largest health insurance 
administrative entity in the nation. It will process almost a billion 
claims submitted by some three-quarters of a million physicians, non-
physician health professionals, hospitals, and other health providers 
and suppliers. On the Medicare side alone, HCFA is the insurance 
company for 39 million elderly and disabled beneficiaries.
    The sheer size of the Medicare program alone is staggering. Nor is 
Medicare a static target. As you know, the program is subject almost 
every year to numerous legislated changes (335 in the Balanced Budget 
Act of 1997, according to HCFA), including in recent years the 
development of extraordinarily complex system for paying physicians 
(i.e., the RBRVS-based fee schedule). Budget-driven priorities have led 
successive Administrations and Congresses to farm the statute for 
short-term savings necessitating complex changes in payment rules, or 
for longer-term changes in program administration (i.e., stepped-up 
efforts to target program fraud and abuse).
    Each of these developments requires the promulgation through public 
process of new regulations and the development of a variety of complex 
instructions to HCFA contractors (i.e., Medicare carriers and fiscal 
intermediaries) on how to administer claims on a day-to-day basis. 
Thus, it is small wonder that as the covered population and covered 
services have grown, and as the various mandates passed on to HCFA by 
successive Congresses and Administrations have also grown, the Medicare 
program itself has become extremely complex and, from the perspective 
of the physicians represented by the American Psychiatric Association, 
increasingly unwieldy, unresponsive, and in many cases apparently 
hostile to the physicians who provide medically necessary care to our 
patients who are Medicare's beneficiaries.
    APA would like to associate itself with the excellent remarks 
presented to the Subcommittee by Yank D. Coble, M.D., on behalf of the 
American Medical Association. We also believe that the Subcommittee 
would be interested in the specific problems APA members--and their 
patients--are now experiencing with the Medicare program. This 
statement will focus on these issues.
    On a general basis, APA as the national medical specialty for 
psychiatrists is increasingly hearing grave concerns from our 
physicians in the field that they and the patients they serve feel 
under siege by a Medicare administrative operation that is too-often 
unresponsive, insensitive, and hostile. We believe that much of the 
problem stems from the autonomous nature of HCFA carrier operations.
    As you know, Medicare covers services that are medically reasonable 
and necessary, entitles beneficiaries to these services, and requires 
appropriate documentation for claims filed. Medicare uses roughly 
twenty-four private contractors (the carriers) to administer claims 
filed under Part B of the program.
    As contractors, carriers are subject to specific contractual 
requirements from HCFA that govern their responsibilities. Despite the 
fact that Medicare is a federal program with supposedly uniform 
national coverage and payment criteria, carriers in fact are given 
considerable autonomy and flexibility in their administration of Part 
B. For example, carriers are left to develop their own local medical 
review policies (LMRPs). The LMRPs are primarily a program integrity 
tool to specify criteria to determine whether a service is covered and 
to set standards for determining whether a covered service is 
reasonable, necessary, appropriate. The LMRP is not supposed to 
restrict or conflict with national coverage policy.
    Too often, however, the LMRPs provide the means for widespread 
variation between carriers in the treatment of claims common to all 
carriers. This is particularly true of psychiatric services, where 
services defined as reasonable and necessary for beneficiaries in one 
carrier jurisdiction are denied as not being reasonable and necessary 
in another. This results in two major distortions of what should be a 
national program. First, patient access to identical services varies 
from carrier to carrier. Second, documentation requirements imposed on 
physicians for identical services vary from carrier to carrier. Taken 
together, these two important problems can and do result in reduced 
access to care for our patients and increased hassles for 
psychiatrists.
    General carrier-related problems and anomalies associated with 
psychiatric services include the following:

 Alzheimer's Disease Coverage: The Medicare Carrier Manual 
        stipulates that Alzheimer's patients are entitled to 
        psychiatric services. A number of carriers, however, have been 
        routinely denying any psychotherapy services for patients with 
        a primary diagnosis of Alzheimer's disease, no matter what 
        stage of the progressively degenerative disease the individual 
        patient is in or how minimal their cognitive impairment may 
        actually be.
 Drug Management: Pharmacologic management (CPT-90862) is a 
        service clearly covered by Medicare. APA review of carrier 
        LMRPs shows widespread variation from the AMA's CPT manual that 
        serves as the descriptor for the service.
 Family Therapy: This is another service clearly covered by 
        Medicare, but APA members report that some carriers routinely 
        deny all claims for the service, even when full documentation 
        is provided.
 Review Triggers: Medicare's coverage of outpatient 
        psychotherapy services is not subject to annual visit limits. 
        Increasingly, however, carriers are developing LMRPs that 
        subject all claims above a certain number (typically 20) to 
        intensive review (in some cases 100% review). This creates a 
        major administrative hardship for psychiatric physicians who 
        often practice in a solo office environment and is a 
        significant detriment to quality patient care.
    Real-world examples of carrier specific issues include the 
following:

 In New York, the carrier, Empire, is routinely subjecting 100% 
        of claims for CPT codes 90846 and 90847 (family therapy with 
        and without the patient present) to prepayment reviews. This 
        occurs every time these codes are submitted, even when Empire 
        has approved the same service for the same patient by the same 
        psychiatrist the month before.
 In Massachusetts, Maine, New Hampshire, and Vermont the 
        carrier, NHIC, has been routinely denying medical family 
        therapy claims, even though family therapy is clearly a benefit 
        covered under Medicare. I note that psychiatrist appeals of the 
        denials are usually decided in favor of the psychiatrists.
 In Arkansas, one of our members reported that his hospital had 
        started a partial hospitalization program (PHP) at the urging 
        of managed care organizations who told them frequently that 
        patients were not critical enough for acute hospitalization but 
        would be appropriate for partial hospitalization care if the 
        hospital would establish a PHP. Less than a year after the 
        hospital instituted its partial hospitalization program they 
        were forced to shut it down because the Arkansas carrier 
        decided to restrict all PHP care in response to fraud committed 
        by a single mental health center in Arkansas that had 
        contracted with an out-of-state company to manage their partial 
        hospitalization program. While it certainly may have been 
        appropriate to shut down the offending operation, it should not 
        have resulted in the effective shutting down of every 
        legitimate partial hospitalization program in the state as 
        well.
    In addition to the carrier-specific anomalies cited above, there 
appear to be general problems in the ways in which HCFA identifies 
potential problems within the Medicare program that adversely affect 
psychiatric services to patients. For example, we understand that HCFA 
uses ``BESS'' data (Part B Extract and Summary System data) to flag 
anomalous code usage and notify carriers that code usage within their 
charge locality is at variance with national averages, and to instruct 
carriers to develop LMRPs to respond to the variance.
    Yet there seems to be no effort made to determine why the variance 
exists. It may well be that physicians in one state are encouraged by 
the carrier to use one code, while those in another are encouraged by 
their carrier to use a different code. Or it may be that a few 
individual physicians or other health professionals are outliers, using 
a disproportionately large share of the codes within a carrier's 
locality. Thus, coverage policies affecting thousands of physicians and 
the patients they serve seem to be made on the basis of abstract 
statistical data analysis, not on the basis of a determination that a 
specific problem exists.
    Psychiatrists' problems with Medicare are not confined to carrier 
interface. Under current law, Medicare beneficiaries are required to 
pay a discriminatory 50% copayment for outpatient psychotherapy 
services. As a result of the 1990 budget law, Medigap insurance 
policies are supposed to cover the 50% copayment, but 10 years later, 
we continue to hear from psychiatrists who are having difficulty in 
persuading Medigap insurers that they are in fact liable for coverage 
of the 50% copayment.
    In another example of how HCFA policy-making can have a sweeping 
impact on physicians, in July 1999, HCFA released an unannounced and 
complex new rule establishing a new ``Patients Rights'' condition of 
participation for Medicare and Medicaid hospitals. Included within the 
patient's rights is a series of provisions governing the use of 
seclusion and restraint of patients in acute medical and psychiatric 
settings. These sweeping standards amount to the imposition of untested 
standards of clinical care by federal regulatory fiat.
    Issued as an interim final rule, the seclusion and restraint 
standards were put in force on 30 days notice (i.e., they were 
enforceable as of August, 1999) without benefit of prior public comment 
or field testing. A year later HCFA has still not issued a final rule, 
nor has it responded to the thousands of comments from psychiatrists, 
other physicians, and hospitals, all of whom have pointed out major 
clinical problems with the interim final rule.
    Despite the fact that the rule affects every Medicare/Medicaid 
hospital and imposes burdensome and sweeping patient care requirements 
that invariably will affect hospital staffing and require more 
intensive patient interaction per capita, the interim final rule 
asserts that costs associated with compliance will be minimal. This is 
palpably untrue, but HCFA has failed to respond to our requests for 
substantiation of its cost analysis.
    APA, AMA, and the hospital community have exhausted all efforts to 
engage HCFA in a meaningful dialogue that might result in the 
development of clinical consensus. Yet the standards remain in force, 
despite widespread and thoughtful disagreement from expert clinicians, 
and despite compelling evidence that some hospitals may not be able to 
comply with the standards, thus risking decertification. At a minimum, 
the rules represent a substitution of the inflexible judgment of a 
bureaucrat for the independent clinical judgment of the physician 
responding to the needs of his or her patient.
    Ironically, we believe that the rule will result in reduced access 
to needed inpatient psychiatric care, as hospitals may screen out 
patients with a track record that suggests the likelihood of restraint 
and or seclusion. Such patients will more than likely end up in the 
forensic system where they are much less likely to receive the care 
their mental disorders require. This will be the unhappy result of the 
establishment of clinical practice standards by bureaucratic fiat, and 
furthers HCFA's image as unthinking, unresponsive, and capricious.
    Finally, our members in the field tell us that a major problem with 
Medicare is a lack of responsiveness and accountability throughout the 
system. For example, carriers have told our members that Carrier 
Advisory Committee meetings are not subject to federal sunshine 
requirements, and thus that the CACs are under no specific obligation 
to open up their meetings to the concerned physicians and their 
representatives who are directly affected by CAC deliberations. In 
addition, there is widespread reluctance throughout the system to put 
information and interpretations about claims, particularly about denial 
policies, in writing. Thus, physicians are forced to rely on oral 
statements from carriers which cannot subsequently be used to justify 
future claims.
    Mr. Chairman, to sum up, we believe that HCFA has an unenviable and 
complex job of administering the largest health insurance program in 
the United State. Psychiatrists, as any group of physicians, are 
interested only in the provision of medically necessary care to our 
patients. We would welcome the opportunity to work in partnership with 
Congress and HCFA to craft common sense solutions to Medicare's myriad 
operational problems with the object of improving patient access to 
care.
    To that end, we make the following recommendations on behalf of our 
patients and our profession:

1. HCFA should conduct a systematic review of carrier operations with 
        an eye to removing widespread variations in coverage and review 
        practices by carriers. There is no justification for one 
        carrier to routinely reject services that another carrier 
        routinely covers.
2. 100% claims review practices effectively constitute carrier 
        harassment of physicians and should be halted. If there is a 
        specific problem with a specific code, HCFA and the carriers 
        should work with local and national physician organizations to 
        understand first if there is in fact a problem and second to 
        craft a solution to the identified problem.
3. HCFA should follow administrative procedures. We echo the AMA's 
        recommendation that HCFA should be required to conduct accurate 
        regulatory impact and cost analyses and to fully account for 
        the burden of complying with a proposed regulation before 
        putting them in force.
4. HCFA should conduct nationwide physician education workshops. If, as 
        HCFA suggests, there are widespread inadvertent claims 
        submission errors, then it is logical that the errors stem from 
        program complexity and lack of clear direction on how to 
        properly file claims. Rather than assuming criminal intent, 
        HCFA should acknowledge the necessity for widespread 
        cooperative education of physicians and other providers.
5. Carriers should be required to provide explanations of coverage 
        decisions and interpretations in writing in an understandable 
        form. If physicians request guidance from carriers on how to 
        file claims and which codes to use, the information should be 
        provided in writing when requested. Carriers should not be 
        allowed to avoid responsibility for the advice that they give 
        to physicians, nor should physicians be subject to sanctions 
        and penalties for following carrier guidance.
6. HCFA and the carriers should be instructed to reduce the adversarial 
        nature of communications with physicians. Too often carrier 
        communication with individual physicians is predicated on the 
        assumption that the physician is trying to defraud the Medicare 
        program. To the contrary, the overwhelming majority of 
        physicians are simply trying to render medically necessary care 
        to their patients and to be paid with a minimum amount of 
        bureaucratic hassle for the services rendered.
    Thank you for the opportunity to testify.
                                 ______
                                 
Additional Comments for the Record of Robert R. Waller, M.D., President 
   Emeritus, Mayo Foundation and Chairman, The Healthcare Leadership 
                                Council

    I would like to thank you for inviting me to appear before your 
Subcommittee on Health and Environment to convey the views of the 
Healthcare Leadership Council on the negative effects that Medicare's 
complexity has on patient care. In addition, I would like to take this 
opportunity to comment further on some of the issues outlined in my 
testimony as well as some other related matters.
    Mr. Chairman, many of the problems with the Medicare program, which 
were raised by members and witnesses alike during the hearing on June 
27th, would be eliminated if the program was replaced with a private, 
value-based, competitive system. Under such a system, plans and 
providers would compete with one another to offer--not just the highest 
quality, most innovative care--but also the most user-friendly delivery 
of care. Competition between plans would ensure that the current 
Medicare program, which, as we heard during the hearing, has resulted 
in thousands of outstanding claims being reviewed by the Center for 
Medicare Advocacy, would be replaced by a program that offered a higher 
quality of care and more efficient coverage, in a less administratively 
complex program.
    The current system has no incentives for efficiency. In the 
marketplace, competition is the mechanism by which we assure that 
prices are fair and that services are provided with maximum efficiency. 
Competition rewards informed consumers with lower prices and better 
quality of care, and punishes producers who are inefficient. 
Competition also rewards innovation and resourcefulness. Under the 
current Medicare program, price controls prevent prices from varying; 
thus, no incentive exists for either innovation by physicians or price-
comparison by beneficiaries. By allowing providers to participate in a 
market reflecting actual economic conditions, they can distinguish 
themselves by competing for patients based on quality and value.
    No one benefits--not the government, not the provider, and 
certainly not the patient--when providers must make the hard choice of 
whether to reduce their services to beneficiaries in the face of 
Medicare's misguided payment policies. Furthermore, beneficiaries would 
rather be welcomed by health care providers as valued patients and 
customers than be viewed as wards of a flawed and poorly conceived 
public program. Beneficiaries under a competitive value-based system 
would be rewarded tangibly for seeking value. The result of such a 
program will be a health care delivery system that is patient centered, 
not one that simply achieves a regulatory standard.
    In sum, price controls don't save, they cost--they cost us in lower 
quality, less innovation, and wasted energy. Patients, providers and 
taxpayers all suffer because the distortions have become so great as to 
become the central features of the system.
    False positive projections of a healthy trust fund reduce the 
incentive for reform. Unfortunately, estimates regarding the integrity 
of the Medicare program, provided in annual updates on the program's 
date of insolvency, are not only delaying these much needed fundamental 
reforms, but do not accurately reflect Medicare's financial health. 
Without reform, the program is expected to face mounting pressures in 
coming years, arising not only from the rapid growth in the number of 
eligible people but also from increases in the cost of care per patient 
as medical technology advances and longevity of life increases.
    Medicare trustees noted in their 2000 report of the Hospital 
Insurance (HI) trust fund that under a less promising, higher cost 
economy, Medicare bankruptcy could occur as early as 2012. By the 
trustees' own admission, projecting the health of the trust fund, even 
a short time into the future, can yield precarious estimates. The 
following are quotes from the 2000 trustees' report:
        ``Without corrective legislation, the assets of the HI trust 
        fund would be exhausted within the next 12 to 23 years under 
        the high cost and intermediate assumptions. The fact that 
        exhaustion would occur under a fairly broad range of future 
        economic conditions, and is expected to occur in the not-
        distant future (under most scenarios) indicates the importance 
        of addressing the HI trust fund's financial imbalance.
    Today's booming economy means higher wages and more employment. For 
Medicare, this means that the 2.9% Medicare tax has applied to a much 
larger base of payroll in recent years. Employment taxes flowing into 
the HI trust fund dramatically increased by 19% over the past 2 years 
(from $112.7 billion in 1997 to $134.4 billion in 1999). These revenues 
cannot be depended on in the coming years. Besides the possibility of 
the economy slowing down, the number of people working and paying the 
Medicare tax will soon begin declining as baby boomers begin retiring 
in 2010. Once the baby boom generation has fully entered retirement by 
2030, workers per beneficiary will decrease from the current 4.0 to 
2.3. While the baby boom population currently pays 57.7% of all payroll 
taxes, in thirty years, that number will drop to less than 2%.
    Growth in Medicare spending since the BBA passed has slowed 
dramatically--much more so than was projected at the time of passage. 
Medicare spending increased by only 1.5% in 1998, compared with a 
projected 5.7% by the CBO when the BBA was enacted. And in 1999, for 
the first time in history, Medicare spending actually declined, 
dropping by about 1% instead of increasing by 5% as CBO projected. The 
substantial documented hardship these reductions have created 
demonstrate that continuing provider cuts in the current Medicare 
program cannot be depended on to sustain Medicare in the long run.
    Just before the Balanced Budget Act of 1997 was passed, the 
Medicare trust fund was projected to run out of money in 2001. 
Immediately upon passage of the BBA, the Medicare bankruptcy projection 
was shifted from 2001 to 2007. What many do not realize is that barely 
two of these additional years were attributed to provider cuts. The 
majority of this trust fund solvency extension was due to the law's 
requirement that $174 billion in home health spending during the 
ensuing 10 years become a new responsibility of the Medicare Part B 
trust fund instead of the Medicare Part A trust fund as it had 
traditionally been.
    While growth in home health spending has slowed dramatically since 
passage of the BBA--even more than was intended by the provisions 
therein (it grew on average by 21.9% a year from 1992 to 1997, and has 
slowed to -26.9% since the BBA)--relieving the Part A trust fund of 
this high-cost item has contributed significantly to the healthy 
appearance of the Hospital Insurance trust fund. However, transferring 
the responsibilities of the Part A trust fund to the mostly taxpayer-
funded Part B trust fund is not an option for ensuring that the 
Medicare program can continue to provide high quality health care 
benefits into the future.
    I emphasize these facts because, despite the trustees' warnings, I 
believe that these false positive reports of the HI trust fund's safety 
and soundness have indeed created a sense of complacency among 
policymakers. Indicative of this is the fact that earlier this year 
there was a marked change of course in the Medicare debate. While the 
year began with momentum to fundamentally reform Medicare, it is ending 
with the lesser goal of creating a Medicare prescription drug benefit, 
without comprehensively reforming the program. While we believe 
strongly in the need to provide seniors increased access to 
prescription drugs, the absence of reform, along with expanded 
benefits, will only serve to perpetuate the inefficiencies and 
complexities of the current program.
    Since it appears that comprehensive Medicare reform will not occur 
in the immediate future, I will elaborate on a few areas that I believe 
could be addressed now.
    The complications involved in the seemingly simple matter of 
Medicare payments has devolved billing errors into a morass of health 
care fraud. With no unity among the Department of Justice (DOJ), the 
Health Care Financing Administration (HCFA), and the Office of the 
Inspector General (OIG) in their approach to fraud prevention and 
investigation, voluntary disclosure among providers is not possible. 
Because there is a lack of clarity and understanding as to how the 
government will respond to entities who willingly come forward to 
report billing errors, any effort on behalf of providers to self-police 
is difficult, if not impossible.
    For more than a year now, the Administration on Aging (AOA), HCFA, 
and the OIG, together with AARP and the DOJ, have been working to 
develop a nationwide outreach campaign to educate seniors on how to 
recognize and report Medicare fraud. However, no similar coordinated 
effort has been formalized by the government to help providers combat 
fraud and abuse.
    As I mentioned in my testimony, the Healthcare Leadership Council 
(HLC) has formed an Industry and Government Partnership for 
Accountability Task Force, which consists of organizations representing 
every segment of the health care system. To date we have had several 
dialogues with these agencies regarding the intricacies of complying 
with Medicare regulations. The Industry and Government Partnership for 
Accountability plans to continue to undertake a significant effort to 
educate opinion leaders and top government officials and engage in a 
constructive effort to resolve this issue. The HLC believes that 
formalization of such a partnership, with specific responsibilities to 
Congress to ensure clarification and consistency in the enforcement of 
Medicare rules, would help move the current system closer toward a 
model based on education and remediation.
    The uncertainty of agency actions raises another concern that I 
believe deserves considerable attention. In my testimony I referred to 
the dramatic difference in the cost of compliance that HCFA and an 
outside organization estimated for the recently issued medical records 
privacy rule. A formalized approach in preparing cost-benefit analyses 
would not only minimize the uncertainty that is associated with these 
rulemakings, but would also ensure that only those rules that maximize 
net benefits would be finalized.
    As you know, under Executive Order 12866, covered agencies are 
required to submit their ``significant'' rules to the Office of 
Management and Budget (OMB) before publishing them in the Federal 
Register. Agencies are also required to prepare a detailed economic 
analysis for any regulatory actions that are ``economically 
significant.'' This economic analysis is to include an assessment of 
the costs and benefits anticipated from the action as well as the costs 
and benefits of ``potentially effective and reasonably feasible 
alternatives to the planned regulation.''
    In January 1996, the Office of Management and Budget (OMB) issued 
``best practices'' guidance on preparing cost-benefit analyses under 
the order. The guidance gives agencies substantial flexibility 
regarding how the analyses should be prepared, but also indicates that 
the analyses should contain certain basic elements and should be 
``transparent''--disclosing how the study was conducted, what 
assumptions were used, and the implications of plausible alternative 
assumptions.
    However, GAO testimony submitted in June, 2000, ``Procedural and 
Analytical Requirements in Federal Rulemaking'', found that many 
agencies were not incorporating the best practices set forth in the 
OMB's guidance, including the failure to discuss alternatives to 
proposed regulatory action and assess the uncertainty associated with 
the agencies' estimates of benefits and/or costs. The GAO has 
recommended that the OMB's best practices guidance be amended to 
provide that economic analyses should (1) address all the best 
practices or state the agency's reason for not doing so (2) contain an 
executive summary, and (3) undergo an appropriate level of internal or 
external peer review by independent experts. Formally implementing 
these guidelines would create a critical threshold that would have to 
be met before potentially damaging changes are made to the Medicare 
program.
    As long as the viability of a provider's business is subject to our 
ability to analyze and correct any ``rosy scenario'' assumptions used 
in government cost-benefit analyses, we have no choice but to divert 
our attention, energy and resources at the expense of patients.
    Finally, the sacrifice in innovation spills over into the non-
profit health care sector. That is why, Mr. Chairman, it is important 
to note that non-profit organizations--not just the for-profit 
community--support changes to the Medicare program that would rely on 
competition. These organizations, including the Mayo Clinic, treat 
patients who come from widely varying socioeconomic backgrounds and who 
are represented by private and public health plans. We all believe that 
fundamental changes are the only way to ensure that Medicare 
participants are not left behind the medical technology curve, but, 
rather, are beneficiaries of high quality, innovative, and patient-
centered health care delivery system.
                                 ______
                                 
              Department of Health & Human Services
                                Office of Inspector General
                                                       July 6, 2000
The Honorable Tom Coburn
House of Representatives
Washington, D.C. 20515
    Dear Mr. Coburn: In my testimony on June 27 before the House 
Committee on Commerce, Subcommittee on Health and Environment, you 
asked me to provide you with some examples of recommendations that the 
Office of Inspector General has made to reduce the complexity of, or 
simplify the Medicare program.
    Over the years, we have addressed the problem of complexity in our 
reports and in testimony before the Congress. Examples include our 
recommendations to:

 Require that all Medicare carriers use uniform prices when 
        reimbursing outpatient prescription drugs.
 Equalize payments for ambulatory surgical centers and hospital 
        outpatient departments when the same service is provided.
 Replace Medicare's complex and vulnerable cost-based 
        reimbursement systems for nursing homes and home health, which 
        tend to be very cumbersome and complex and include cost 
        reports, with prospective payment systems.
 Eliminate differences in payments to physician offices when 
        hospitals purchase physician practices.
 Develop product classification lists for orthotics not only to 
        ensure that Medicare carriers can effectively verify that the 
        correct amount is being billed for each item, but also to 
        reduce the confusion suppliers may face in applying current 
        orthotics codes.
    In addition to our formal studies, we are sometimes called upon to 
provide advice during the course of day to day discussions about 
current Medicare payment, coverage, or administrative issues. In this 
context we also make recommendations to simplify Medicare rules. One 
good example is our advice to make Medicare coverage of laboratory 
services uniform among the Medicare contractors, recognizing that 
laboratory companies often operate across State and Medicare contractor 
boundaries.
    Not only do Medicare policies need to be as simple as possible, but 
so do the systems used to submit bills and service beneficiaries and 
health care providers. The program needs to be understandable and easy 
to use by both. While adequate controls must be in place to ensure that 
only legitimate entities are paid for covered services, the program 
cannot be so complex and cumbersome that the deliverance of timely, 
quality care is hindered.
    Therefore, in addition to making recommendations to simplify the 
program, we have conducted studies to obtain feedback from 
beneficiaries and health care providers regarding Medicare operations 
and program requirements. For example, we have conducted satisfaction 
surveys of:

 both fee-for-service and managed care beneficiaries;
 beneficiaries whose health maintenance organizations withdrew 
        from the program;
 physicians regarding their use of and satisfaction with 
        certifications of medical necessity for medical equipment and 
        supplies; and
 physicians regarding their experiences with managed care.
    In the same vein, we have conducted studies of the 
understandability of marketing materials for Medicare+Choice programs.
    I hope these examples give you a flavor for the kind of work we do 
to help the Medicare program operate as smoothly as possible. It is 
sometimes difficult to balance the need for program controls with the 
need for simplicity, but we try our best to find ways to do so.
    I hope this letter is responsive to your questions. Please feel 
free to contact me, or your staff may contact Helen Albert, Director 
for External Affairs at (202) 260-8610 if we can be of any assistance.
            Sincerely,
                                         Michael F. Mangano
                                 Principal Deputy Inspector General
cc: The Honorable Michael Bilirakis, House of Representatives
   The Honorable Sherrod Brown, House of Representatives
                                 ______
                                 
              Department of Health & Human Services
                                Office of Inspector General
                                                       July 6, 2000
The Honorable Charles Norwood
House of Representatives
Washington, D.C. 20515
    Dear Mr. Norwood: Enclosed is our response to the question you 
posed during the June 27th hearing about the composition of the savings 
the Office of Inspector General (OIG) reports to the Congress. Also 
enclosed is a chart by provider of the health care savings that OIG 
reported in Fiscal Year 1999.
    If you have any additional questions, please call me or have your 
staff contact Helen Albert, Director of External Affairs, at (202) 260-
8610.
            Sincerely,
                                         Michael F. Mangano
                                 Principal Deputy Inspector General
Enclosures

cc: The Honorable Michael Bilirakis
   The Honorable Sherrod Brown
          Savings Reported by the Office of Inspector General
    Question: You have reported savings resulting from OIG work of 
$12.6 billion in Fiscal Year 1999. What are these savings exactly and 
how are they realized?
    Answer: The OIG measures its goal of having a positive impact on 
HHS programs in part by the savings that result from its work. These 
savings are categorized into three major types: (1) investigative 
receivables, (2) audit disallowances, and (3) funds put to better use.
    Investigative Receivables--This category contains the monetary 
receivables attributable to our investigative activities. This category 
represents all fines, restitutions, settlements and recoveries 
generated by judicial or administrative action resulting from OIG 
investigations. Thus, criminal fines and civil judgements (whether 
levied by a Federal or State judge, or an Administrative Law Judge) are 
included in investigative receivables, as are voluntary settlement 
amounts and restitution orders. Total investigative receivables for FY 
1999 were $407.7 million. Following is an example of this type of 
savings resulting from our work:

 A major provider of home health services and one of its 
        subsidiaries entered into a $61 million global settlement, 
        including approximately $10 million in criminal fines, related 
        to, among other things, a series of transactions that the 
        corporation made to disguise non-reimbursable acquisition costs 
        as Medicare-reimbursable management services.
    Audit Disallowances--In conducting audits, OIG routinely identifies 
improper expenditures and recommends that these ``questioned costs'' be 
recovered or redirected by agency management. Costs may be questioned 
because of an alleged violation of a provision of law, rule, contract, 
grant or other document governing the expenditure of funds; a finding 
that the costs were not supported by adequate documentation; or a 
finding that the expenditure was unnecessary or unreasonable.
    After HHS management concurs with the OIG assessment that certain 
costs are questionable, those costs are disallowed, and the funds are 
recovered through direct repayment, offset or withholding. For FY 1999, 
a total of $251.5 million was identified for disallowance or 
redirection by agency management in response to OIG recommendations. As 
an example:

 The OIG reported to the Administration for Children and 
        Families (ACF) that a State's retroactive claim improperly 
        shifted juvenile justice costs to the Federal Emergency 
        Assistance program (a former AFDC program that offered 
        temporary financial assistance to eligible families 
        experiencing an emergency) that ACF administered. The ACF 
        agreed and notified the State that those costs were unallowable 
        and requested repayment. The Department recently received a 
        $17.3 million check from the State as repayment of the 
        disallowed costs.
    Funds Put to Better Use--The role of OIG is not limited to after-
the-fact detection of fraud, waste and abuse; equally important is 
OIG's role in preventing such inappropriate expenditures. As a result 
of OIG audits and evaluations, recommendations are reported to 
management that frequently specify legislative, regulatory or 
administrative action. When implemented, they result in overall program 
savings. Management actions that could give rise to ``reportable'' 
savings include: direct reduction in budget outlays; deobligation of 
funds from agency programs or operations; avoidance of unnecessary 
expenditures identified in preaward reviews of contracts or grants; and 
costs not incurred as a result of implementing recommended improvements 
related to agency, contractor or grantee operations.
    In calculating the amount of cost savings attributable to 
implementation of its recommendations to put funds to better use, OIG 
considers ``implementation'' to have occurred when the corrective 
action is actually accomplished. Thus, for example, savings will accrue 
only after the legislation is actually passed, when final rules are 
promulgated or when final action is taken by agency management. It is 
important to note that these savings are not calculated by OIG--instead 
the fiscal impact of legislative actions, for example, is estimated by 
the Congressional Budget Office in terms of annualized amounts that 
will likely be saved over a 5-year budget cycle. These CBO estimates 
serve as a neutral third-party valuation of actions corresponding to 
OIG work and are reported in Appendix A of the Inspector General's 
Semiannual Report to the Congress. Similarly, OIG reports regulatory 
and operational savings estimates as stated by the involved HHS agency 
(e.g., HCFA). In FY 1999, ``funds put to better use'' savings resulting 
from OIG recommendations totaled $11.9 billion. Following is an example 
of such recommendations implemented through legislative action:

 Medicare Secondary Payer Extensions--legislative provisions 
        enacted as part of the Balanced Budget Act (BBA) of 1997--FY 
        1999 savings estimated by CBO totaled $1,700 million.

    In a body of work of approximately of 40 separate audits and 
evaluations issued since 1984 and in a number of testimonies before the 
Congress, OIG recommended that legislation be enacted to (i) establish 
a centralized database of information about private insurance coverage 
of Medicare beneficiaries and (ii) extend the Medicare secondary payer 
(MSP) provision to include end stage renal disease (ESRD) beneficiaries 
as long as the individual has employer based coverage available.
    Section 4631 of the Balanced Budget Act (BBA) of 1997 permanently 
provided into law that Medicare was the secondary payer for disabled 
beneficiaries in large group health plans and made permanent and 
extended Medicare as the secondary payer for ESRD from 18 to 30 months. 
It also made permanent the HCFA/IRS/SSA data match program.

[GRAPHIC] [TIFF OMITTED] T5913.004

Responses for the Record of Michael Hash, Deputy Administrator, Health 
                     Care Financing Administration

       Congressman Bliley's Questions and Answers for the Record

    1. Software has been developed that can enable a physician 
to use a hand-held computer to prescribe medication wherever he 
or she sees a patient. This software is capable of instantly 
alerting the prescribing physician to possible adverse 
reactions to other medication that a patient may be taking. In 
addition, this software enables physicians to electronically 
prescribe and transmit prescriptions to the staff in his office 
or to other pharmacies.
    Q1a: Would you agree that the federal government should 
encourage the use of computerized prescribing and dispensing 
systems? If so, what steps can the Department take to take 
advantage of these systems?
    A1a: We will publish regulations this year requiring the 
over 6,000 hospitals participating in the Medicare program to 
have ongoing medical error reduction programs that would 
include, among other interventions, mechanisms to reduce 
medication errors. In order to comply with this new regulation, 
hospitals may choose to implement automated pharmacy order 
entry systems, include automatic safeguards against harmful 
drug interactions and other adverse side effects built into the 
treatment process, or institute decision-support systems. We 
will not be mandating computerized prescribing and dispensing 
systems as the rule will allow providers the flexibility to 
determine how best to meet the requirements.
    The Administration's Quality Interagency Coordination Task 
Force has addressed the use of decision-support systems and 
information technologies, such as the use of computerized 
prescribing and dispensing systems, as additional strategies to 
promote patient safety. The Task Force's report entitled: 
``Doing What Counts for Patient Safety,'' notes that, 
``although the success of health care informatics models is 
well documented and their applicability to patient safety is 
clear, they have not been widely adopted.'' To address this, 
the Agency for Healthcare Research and Quality (AHRQ) and the 
Center for Disease Control and Prevention will expand research 
efforts in the area of informatics to identify initiatives 
aimed at developing and evaluating electronic systems to 
identify, track, and address patient safety concerns. In 
addition, AHRQ, along with the Veterans' Administration, 
Department of Defense, the Food and Drug Administration and 
other members of the Quality Interagency Coordination Task 
Force will evaluate the effectiveness of automated physician 
order-entry systems in hospitals.
    Q1b: While new technologies have tremendous potential for 
reducing medial errors, I am sensitive to the added costs 
associated with purchasing these products. Does current law 
provide a way for the federal government to help providers with 
the cost of acquiring this new technology?
    A1b: Yes. Most Medicare payment systems are already updated 
annually to reflect changes in practice and new technology. We 
annually update payment systems for hospital inpatient, 
hospital outpatient, physician fee schedule, ambulatory 
surgical centers, and durable medical equipment. These payment 
system updates consider internal, external, and alternative 
sources of data in the decision making process. For example, we 
have an annual process for the physician fee schedule that 
relies on public input through the Federal Register comments 
and through the AMA Practice Expense Advisory Council and the 
Relative Value Update committees. These committees make 
recommendations to us on the appropriate inputs used in 
providing new medical services, in addition to making 
recommendations on refinements of inputs for existing physician 
services.
    By considering the input of these outside sources, in 
combination with our own medical judgement, we adjust payment 
rates to reflect the cost of new medical services that may 
require the use of state of the art technology, such as that to 
reduce medical errors. For example, for inpatient hospitals, 
through an annual adjustment in the productivity factors in the 
operating and capital update frameworks, HCFA considers the 
cost increases and decreases associated with the employment of 
new technologies. Furthermore, HCFA recalculates the diagnosis 
related group (DRG) relative weights annually to reflect 
changes in treatment patterns, technology, and any other 
factors that may change the relative use of hospital resources.
    Q1c: There are concerns that elderly and low-income 
patients in government health insurance programs may be less 
able to benefit from this new technology unless there are 
appropriate incentives to encourage physicians to bear the cost 
of investing in them. What thoughts have you given to the issue 
of providing appropriate incentives to assure that these 
computer systems are adopted?
    A1c: As discussed above, most Medicare payment systems have 
a process to consider payment adjustments to reflect changes in 
practice resulting from new technology. The Department of HHS 
and other organizations such as the Medicare Payment Advisory 
Commission identify and monitor new advances and trends to be 
considered in the update process. Whether specific incentives 
for adoption of technology to reduce medical errors are needed 
is not yet clear, and there is evidence that providers, 
particularly physicians, are adopting this technology as part 
of their office practices without specific Federal incentives. 
There is a Secretarial initiative to improve quality of health 
care and reduce medical errors. At this time we are undertaking 
a number of activities in this area, and the best options for 
reducing medical errors are still being explored. We expect 
that the States also have similar goals for medical error 
reduction for the Medicare population. We have a great interest 
in reducing medical errors, and we look forward to working with 
you to examine this issue further as we continue to monitor the 
situation.
    Q1d: My understanding is that state Medicaid programs pay 
dispensing fees to retail, mail order, or Internet pharmacies 
for filling prescriptions. Is the same fee paid for dispensing 
pre-packaged medication as for those that require special 
preparation or dosing?
    A1d: We do not keep a data base on State drug dispensing 
fees. However, States have the flexibility to pay different 
``reasonable'' dispensing fees based on the complexity of 
dispensing activity, such as compounding. In the State plan 
amendment approval process, we require States to explain and 
document the basis for such ``reasonable'' fees.
    2. I have long been concerned that Medicare beneficiaries 
are not getting access to the best and most appropriate 
technologies and procedures. I understand that there are 
several processes that new technologies and procedures must go 
through in order to be made available to beneficiaries. The 
first process involves making specific coverage determinations 
about which medical procedures and products to make available 
to Medicare beneficiaries. However, I understand that simply 
covering a product or procedure doesn't mean that beneficiaries 
will actually have access to it, but that two other processes 
exist to establish a ``procedure code'' and then the 
appropriate payment category or level for the product. And even 
after coverage, coding and payment issues have been resolved, 
there still remain the basic mechanics of notifying fiscal 
intermediaries and carriers to go ahead and make payment.
    Q2: Please explain how coverage, payment, coding, and 
intermediary/carrier operations are currently organized in 
HCFA. Please explain how HCFA ensures that patients get timely 
access to appropriate technologies, and how management 
coordinates the various offices at HCFA, as well as the central 
and the local carriers who are also involved in many of these 
processes.
    A2: There are three levels of coverage and payment 
determination, each serving important functions in assuring 
that beneficiaries have access to appropriate technology. The 
vast majority of determinations are made on a case-by-case 
basis by our local contractors. Because most new technology 
involves only minor modifications to existing technology, these 
determinations are usually straight forward and rolled into 
existing coding and payment mechanisms. For new technology that 
is significantly different, our coding system includes generic 
``99'' codes in each benefit category which providers can use 
to file claims. Claims with these codes are manually reviewed 
and priced. For new diagnostic and surgical procedures provided 
by hospitals and other facilities paid through prospective 
payment systems (PPS), no coverage determination is generally 
necessary as new technology is automatically folded into the 
appropriate diagnostic related group (DRG) payment category. 
(There is one exception; the new hospital outpatient PPS system 
includes a pass through for new technology.) Under the hospital 
inpatient PPS system, the actual impact of innovations on costs 
are reflected through charges that the facility includes on its 
Medicare claims that drive future classification 
recalibrations. These charges often show that new innovations 
lower overall charges by, for example, decreasing the number of 
days patients must remain in the hospital, even if the new 
technology itself costs more than what it replaced.
    A second, formal level of coverage and payment 
determination is also carried out by local contractors when 
they develop ``local medical review policy.'' These policies, 
developed by contractor medical directors, outline how 
contractors will review claims to ensure that they meet 
Medicare coverage requirements. We require that local policies 
be consistent with national guidance (although they can be more 
detailed or specific), developed with input from medical 
professionals (through advisory committees), and consistent 
with scientific evidence and clinical practice. The use of 
local medical review policy helps avoid situations in which 
claims are paid or denied without a full understanding of why. 
This resource-intensive process is typically reserved for high 
volume/high dollar items or services, and is generally 
conducted quarterly to facilitate orderly changes in systems. 
We expect to soon release guidance to the contractors designed 
to make development of local medical review policy parallel our 
new national coverage determination process, providing more 
notice and opportunity for providers and the public to have 
input and request policies on specific matters. Copies of every 
contractor's local medical review policy can be found at 
www.lmrp.net.
    We substantially improved the National Coverage 
Determinations (NCD) process last year to be much more open, 
accountable, and explicit in every respect, including the right 
of beneficiaries and other members of the public to request 
reconsideration of decisions. The new process establishes clear 
procedures for how national coverage policy decisions are made, 
allows any individual to submit a formal request for a national 
coverage decision or reconsideration, institutes timeliness 
standards and mechanisms for keeping the public informed about 
the status of national coverage issues, and guarantees 
beneficiary input through the open meetings of a new Medicare 
Coverage Advisory Committee. When an NCD is made, the decision 
is immediately posted on our web site and local contractors 
generally can immediately begin payment through mechanisms 
described above. In rare instances, when an NCD reverses an 
earlier national noncoverage policy and requires changes to 
claims processing computer systems, additional time may be 
necessary before payment can begin. We establish an effective 
date by which contractors must provide coverage. Time between 
an NCD and an effective date is used to establish new codes and 
national payment rates, make changes to claims processing 
computer systems, and provide explicit, written instructions on 
how the new policy is to be implemented. We have up to 180 days 
(tied to the next closest quarterly systems update) to complete 
systems changes from the time that instructions are generated, 
which can take up to an additional 60 days. However, we have 
completed this in less than 180 days for all NCDs under the new 
process, and we are continually working to further streamline 
this process. This 180 day time frame compares favorably to 
other businesses making orderly and efficient changes in 
electronic systems like our claims processing systems.
    Within HCFA, NCDs are under the purview of the Office of 
Clinical Standards and Quality. Payment and coding operations 
are the responsibility of the Center for Health Plans and 
Providers. Development of local medical review policy is under 
the direction of the Program Integrity Group in the Office of 
Financial Management. Intermediary and Carrier operations are 
overseen by the Center for Beneficiary Services. These offices 
work together through the Medicare Contractor Oversight Board 
to coordinate coverage and payment for new technologies and to 
ensure clear communication of policies to the contractors.
    3. I understand it can take up to two years for HCFA to 
change payment amounts or categories to a more appropriate 
reimbursement for a new technology. Apparently the first year 
is to evaluate a full year's worth of HCFA's internal data 
set--the Medicare Provider Analysis and Review (MedPAR) file 
and the second year, to finally implement the change.
    Q: Is there any reason in this modern year why HCFA can't 
accept or extrapolate from partial year MedPAR data or accept 
statistically valid, verifiable external data form willing 
companies?
    A: Partial year MedPAR data or external data (used in 
setting inpatient hospital payments) do not take into account 
the impact of total costs on a treatment episode, which is how 
care is paid for under Medicare's prospective payment systems. 
New technologies that in and of themselves may be more 
expensive than what they replace often lower total costs once 
fully implemented into patient care. For example, laparoscopic 
surgical equipment for gall bladder surgery is more expensive 
than the traditional surgical equipment it replaced, but it 
substantially reduced the number of days patients were required 
to remain in the hospital, and thus lowered total costs for 
gall bladder surgery. An accurate assessment of the total 
impact would not have been feasible with only limited data on 
costs of the equipment itself.
    4. There was much discussion about HCFA's current thinking 
on using a ``brand name'' approach rather than a ``category'' 
approach for the devices and technologies eligible for the pass 
through in the new outpatient prospective payment system. The 
industry has expressed a willingness to sit down with you to 
work out a way to devise a category approach.
    Q: Are you willing to sit down with them and Congress to 
devise a system which encourages competition rather than have 
HCFA determine the winners and losers under a brand name 
approach?
    A: We are always willing to sit down and discuss issues 
with providers, Congress, and other key stakeholders, and we 
have been engaged in discussions about the OPD pass-through 
issue with device manufacturers. However, as we have explained 
to them, there are significant problems with the category 
approach they have proposed. To be eligible for a pass-through 
payment, the law requires that, ``payment for the device, drug, 
or biological, as an outpatient hospital service under this 
part was not being made as of December 31, 1996.'' As a result, 
many of the devices we have approved would likely not have 
qualified under the category approach. That is because, under a 
category approach, if any device in the category was being 
reimbursed by Medicare as of December 31, 1996, the entire 
category of devices would not be eligible for pass-through 
payments. I do not believe that this is the result Congress 
intended (nor a result device manufacturers would desire). 
Nevertheless, we have indicated many times our willingness to 
continue to work with device manufacturers and with the 
Congress to address your concerns and to provide technical 
assistance should Congress decide to make revisions to the 
statute.
    5. HCFA's final rule implementing the BBA denies payment 
for telemedicine store and forward applications, which are 
widely accepted as a cost effective way to transmit an image to 
a remote specialist to be reviewed at a later time. Ignoring 
the development of this technology, HCFA arbitrarily ruled that 
in order to qualify as a ``consultation,'' all practitioner/
provider encounters had to occur in real time.
    Q: Why is HCFA preventing the growth of this technology at 
a time when Congress is working to increase access to health 
care at all levels of society?
    A: We are eager to expand the use of telemedicine and want 
to explore in demonstration projects the best way to do so. 
However, the BBA currently limits overall telemedicine coverage 
to consultations for which payment currently may be made under 
Medicare. The American Medical Association's Physicians' 
Current Procedure Terminology defines a consultation as an 
interactive patient encounter. Therefore, for telemedicine 
coverage under current law, the patient must be present at the 
time of the consultation, and a medical examination of the 
patient under the control of the consulting practitioner must 
take place via an interactive audio-video telecommunications 
system.
    We do recognize the potential benefits that additional 
technologies, such as store and forward applications, can have 
on the delivery of health care for beneficiaries in rural 
areas. However, Medicare does not make a separate payment for 
the review of a previous medical examination. Because of the 
importance of this issue, we are examining in a demonstration 
project the effectiveness of store and forward technology as an 
appropriate alternative to an interactive patient encounter. We 
also are looking into whether store and forward technology 
warrants a separate and distinct payment beyond Medicare's 
current scope of services and what kind of legislative 
adjustment would be necessary to authorize such payment.
    6. HCFA has interpreted that BBA telemedicine provisions to 
require the presence of a ``presenting practitioner'' in order 
for the encounter to qualify for telemedicine reimbursement. 
The presenting practitioner must be a health care provider 
eligible for Medicare reimbursement such as a physician, a 
nurse practitioner, or a physician assistant. Registered and 
licensed practical nurses are not permitted to serve as 
presenters. I think this HCFA interpretation is an unfair 
burden on rural areas that would like to use telemedicine to 
expand health care access; the HCFA interpretation artificially 
inflates the cost of telemedicine services.
    Q: Are you planning to change this interpretation?
    A: The BBA states that only physicians or practitioners 
described in section 1842(b)(18)(C) of the Social Security Act 
are permitted to provide teleconsultations. Therefore, 
registered nurses and other medical professionals who are not 
recognized as practitioners under this section of the Medicare 
statute are not authorized by law to receive payment for a 
teleconsultation. We share your concern that this may create an 
additional barrier to specialty services for beneficiaries in 
rural areas. We are currently developing recommendations on 
this issue, and look forward to working with you to address it.
    7. HCFA has interpreted the BBA telemedicine provisions to 
authorize Medicare payments only for those CPT codes which 
include the word ``consultation.'' This interpretation 
eliminates the market for many services that can be provided by 
telemedicine that are not consultative in nature, but rather 
are direct care, such as the important care provided by 
clinical psychologists, clinical social workers, and physical, 
occupational, and speech therapists.
    Q: Why did HCFA interpret this provision so narrowly?
    A: Clinical psychologists, clinical social workers, and 
physical, occupational, or speech therapists are able to 
receive some Medicare payments, but are not specifically listed 
in section 1842(b)(18)(C) of the Social Security Act as 
Medicare providers, and the BBA specifically limits 
teleconsultation payments to providers listed in that section 
of the Medicare statute.

      Congressman Bilirakis' Questions and Answers for the Record

    1. In order to provide an incentive to drug manufacturers 
to invest in the development of drugs for rare diseases and 
conditions, the Orphan Drug Act provides that a specific 
product designated by the FDA as an orphan drug and approved 
before other designees for the same indication is entitled to 
seven years of market exclusivity. However, when a patient 
suffers from an orphan indication, it may occur that the 
physician, instead of prescribing the orphan drug, prescribes a 
competing drug (i.e. the same drug labeled for a non-orphan 
indication) off-label for that patient. This could erode the 
incentive value of the seven year orphan drug exclusivity where 
Medicare is a major payor for the drug (for example, with end 
stage renal disease).
    Q1a: If a Medicare beneficiary has a condition for which an 
orphan drug is approved, but the patient's physician prescribes 
a competing drug (as defined above) off-label in place of the 
orphan drug, does Medicare policy permit payment for the 
competing drug (assuming that the drugs are otherwise covered 
under Medicare and that the orphan drug's seven-year period of 
exclusivity has not expired)?
    A1a: Like any other drug, an orphan drug must be eligible 
for coverage under the Medicare program. Current law severely 
limits drug coverage; nonetheless, for the handful of drugs 
that are now covered, coverage for off-label use is generally 
determined by the Medicare contractors based on guidance in our 
Medicare Carriers Manuel, which states that:
          ``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.''
    We are not aware of restrictions in the law or regulations 
which would require local carriers to deviate from this 
standard process to account for orphan drug status. If a 
generic equivalent of a drug labeled for an orphan indication 
exists, currently, a local carrier would only need to determine 
if it was reasonable and necessary to cover the generic drug 
for the orphan condition. Or, alternatively, the local carrier 
would need to determine whether it was medically reasonable and 
necessary to cover only the trade name drug labeled for the 
orphan indication.
    Q1b: If so, what changes (if any) could be made in Medicare 
claims procedures and systems to implement a prohibition 
against payment for such a competing drug used off-label in 
place of the orphan drug?
    A1b: Under the current law, there is no authority for us or 
our contractors to exclude coverage on this basis. Our coverage 
criteria for an item and service, including drugs is (1) does 
it fall into an explicit benefit category, and (2) is it 
medically reasonable and necessary for the diagnosis or 
treatment in the specific case for which a claim is submitted.
    2. Generally, under HCFA's proposal, Medicare would 
classify virtually all diagnostic imaging procedures based on 
modality. Thus, the same APC amount would be paid regardless of 
whether a contrast agent is used. This payment policy on its 
face will dissuade hospitals from utilizing contrast agents 
even when their use is medically appropriate. HCFA's proposal 
is based on the assumption that cost of the contrast agents 
used in conjunction with various procedures are reflected in 
the proposed APC amounts. However, HCFA appears to have 
sufficiently reliable payment data to estimate the cost and 
utilization of drugs and biologicals for each APC. Rather, 
aggregate drug data were used for calculating APC rates, 
resulting in APC amounts that do not adequately reflect the 
cost of providing contrast-enhanced procedures. Moreover, the 
aggregate drug data utilized by HCFA systematically excluded 
the cost data for the codes that hospitals were directed to use 
for contrast agents. The impact of these data problems were 
compounded by uncertainty among hospitals regarding the codes 
to be used for contrast agents. For example, consider low 
osmolar contrast agents (LOCM), which may be used in 
conjunction with a number of diagnostic imaging services. In 
July 1997, because of significant confusion among hospitals and 
Medicare intermediaries relating to billing and payment for 
LOCM in hospital settings, HCFA issued specific instructions in 
the Hospital Manual (Transmittal 718). However, it is clear 
that 1996 claims--the period that serves as the basis for APC 
calculations--reflect hospital billing for LOCM that was uneven 
and often incorrect. The exclusion of contrast agent cost data 
from the APC calculations has serious financial implications 
for hospitals that provide diagnostic imaging services and has 
serious patient care implications for Medicare beneficiaries 
who require such hospital outpatient services. Congress 
directed the Secretary to develop a classification system and 
establish groups of covered hospital outpatient department 
services so that services classified within each group are 
comparable clinically and with respect to the use of resources 
(BBA 4523, 42 U.S.C. 13951(t)(2)(B)). The final APCs do not 
properly categorize MRI and CT services and procedures into 
groupings that are comparable clinically and with respect to 
resources.
    Q2a: Please explain what data HCFA collected and used to 
develop the APCs for MRI, CT, and ultrasound procedures, which 
use contrast. Specifically, was aggregate drug data used and 
did this aggregate drug data exclude the cost data for the 
codes that hospitals were directed to use for contrast agents?
    A2a: We used more than nine million radiology claims, 
matched to the radiology cost-to-charge ratios of the hospitals 
which submitted each claim, to determine the median costs of 
the radiology APCs. More than two million of the claims were 
for MRI, CT, and ultrasound procedures. We took great care to 
ensure that all related drug costs were captured regardless of 
where and how the hospital billed for them. For example, while 
our instructions call for the codes for low-osmolar contrast 
media to be shown in revenue center 636, which is not one that 
is packaged with radiology APCs, we made sure to include 
charges related to those codes in that revenue center in 
determination of the APC rates. We are confident that we have 
captured all drug costs related to radiology procedures, 
including the cost of contrast media, whether they were coded 
separately or as part of the procedure.
    Q2b: On what basis does HCFA classify contrast agents as 
supplies rather than drugs? Does this determination not ignore 
the fact that most of these agents are approved as drugs by the 
FDA, that some are currently listed in the USP, and that a 
significant number of these agents have been approved by the 
pharmacy and drug therapeutics committees of many hospitals? 
Should HCFA consider reviewing its current treatment of 
contrast agents?
    A2b: Our payment is not affected by the use of the word 
``supply'' nor by the fact that the FDA, U.S.P., and 
formularies identify these products as drugs. Our physician fee 
schedule describes these media as supplies, and we merely 
continued using the same terminology in the development of 
APCs. We would capture and package the same costs whether they 
were called drugs or supplies.
    Q2c: In light of the fact that hospitals get paid the same 
amount for MRI and CT and ultrasound procedures regardless of 
whether contrast was used, how will HCFA ensure that Medicare 
patients are not denied access to diagnostic imaging services 
utilizing contrast agents?
    A2c: We do not believe that hospitals would neglect to 
perform medically appropriate procedures which require the use 
of contrast because of the outpatient prospective payment 
system, any more than they would neglect to perform medically 
appropriate procedures under the inpatient prospective payment 
system that has been in place and well accepted for more than 
15 years.
    In both settings, contrast agents are bundled with these 
imaging procedures and the cost of contrast material is 
captured in an average price. For example, payment for CT scans 
on average was $190 for a scan without contrast media, $236 for 
a scan with contrast media, and $283 for a scan without 
contrast followed by one with contrast and additional films. 
These are all captured in APC 0283, for which payment will be 
$237. Thus, on average, $47 has been captured to represent the 
cost of contrast media. Bundled payment provides an incentive 
to use only those resources reflected in the payment if they 
are medically necessary in each particular case. Over a number 
of cases--only some of which involve using contrast agents--a 
provider's costs for the contrast agent is covered.
    We will, of course, closely monitor the new system as it is 
implemented and make adjustments as necessary to ensure 
appropriate payment and continued beneficiary access to quality 
care. But, based on extensive experience with the hospital 
inpatient prospective payment system, we believe that hospitals 
and physicians will make judicious, medically appropriate use 
of contrast media and other supplies. If we become aware of 
instances in which pressure is being brought to bear to limit 
appropriate use of this or any other service to Medicare 
beneficiaries, we will initiate medical review and take 
corrective action as required.
    3. There are two concerns related to HCFA implementation of 
BBRA Section 401. (1) HCFA's suggestion that it may not permit 
hospitals which redesignate under section 401 to seek 
geographic reclassification through the Medicare Geographic 
Classification Review Board; and (2) the Agency's failure to 
implement this provision and process requests from hospitals 
for the redesignation permitted under the statute. The BBRA 
conference report accompanying Section 401 says, ``Qualifying 
hospitals shall be eligible to apply to the Medicare Geographic 
Reclassification Review Board for geographic reclassifications 
to another area.'' Congress clearly defined its intent in the 
conference report which accompanied the bill. And the President 
signed the bill into law.
    Q3a: Why is HCFA going against Congressional intent and the 
Administration?
    A3a: We resolved these issues in a final regulation, which 
was published on August 1. We expressed concern in the proposed 
rule about the prospect of hospitals who were seeking rural 
designation under Section 401 in order to receive the benefits 
afforded to rural hospitals, and who might also seek 
reclassification through the Medicare Geographic Classification 
Review Board (MGCRB) back to their urban area. We do not 
believe that it was Congressional intent that hospitals be 
allowed to game the system in this way; therefore, in the final 
rule, we precluded hospitals from being able to additionally 
seek reclassification under the MGCRB in order to receive a 
higher wage index or standardized amount, or both.
    Q3b: How many hospitals have sought redesignation under 
Section 401?
    A3b: Before we issued instructions to our regional offices 
to postpone reclassification decisions, we received notices 
from four facilities that were applying for reclassification to 
a rural area under section 401 in order to become critical 
access hospitals.
    With regard to the implementation date, Section 401(c) 
clearly provides that the amendments made by this section 
``shall become effective on January 1, 2000.'' Moreover section 
401(a) requires the Secretary to treat a hospital meeting the 
eligibility criteria as being located in a rural area, within 
60 days after receipt of a request for such redesignation. 
MedCentral Health System of Mansfield, Ohio in Rep. Oxley's 
district submitted a letter to HCFA's regional office in 
Chicago on February 9, 2000 requesting, and demonstrating its 
eligibility for geographic redesignation under Section 401. The 
hospital received a response from the Regional Administrator on 
March 28, 2000 informing them that the regional office will be 
unable to review the request until HCFA publishes final 
implementing instructions. HCFA has processed at least one 
request for urban-to-rural redesignation, and it is my 
understanding that HCFA approved a request from Pawhuska 
Hospital in Osage County, Oklahoma.
    Q3c: Why was HCFA able to take action on the Pawhuska 
request, but not on MedCentral Health System of Mansfield, 
Ohio?
    A3c: We published our final rule on this subject on August 
1. Our final rule provides that if a hospital submits an 
application by September 1, 2000, and qualifies to become rural 
under section 401 of the BBRA, we will deem their application 
to have been filed on January 1, 2000.
    In the case of MedCentral Health System, the hospital is 
seeking both reclassification and rural referral status. Rural 
referral status requires a separate and distinct application 
process from the application for rural designation under 
section 401. If MedCentral is approved for rural referral 
status, their rural designation under Section 401 will be 
effective as of January 1, 2000.
    Pawhuska Hospital was applying to become a critical access 
hospital (CAH), which makes the question of reclassification 
under the MGCRB moot. That is because CAHs are paid based on 
reasonable costs, and are not subject to the hospital inpatient 
and outpatient prospective payment systems (PPS). Thus, CAHs 
would not benefit from receiving a higher standardized rate or 
wage index, as would a PPS hospital, through reclassification. 
Additionally, Pawhuska qualified separately for rural 
designation under the Goldsmith Modification, which defines a 
hospital as rural if it is specifically located in an 
identified census tract. Since we determined that the specific 
nature of Pawhuska's situation precluded them from 
reclassifying under the MGCRB, we were able to process 
Pawhuska's application during our initial stages of 
implementing section 401.
    Q3d: When does HCFA intend to finalize and publish a 
regulation?
    A3d: Regulations implementing section 401 of the BBRA will 
be included in our interim final rule, and our specific policy 
regarding the interactions between section 401 and the MGCRB 
process are included in our final rule. The final rule was 
published on August 1. The interim final rule is scheduled to 
be published later in August.
    4. A critical component of immunosuppression to prevent 
transplant rejection is the ability of the physician to 
determine, with the patient, a particular medication regimen. 
Switching this kind of medication without the knowledge of the 
physician or patient could result in a transplant rejection or 
even the death of the recipient. Often such substitutions are 
contrary to the physician's choice of treatment or prevents 
provision of the treatment deemed medically necessary by the 
physician in providing the best possible care to his or her 
patients.
    Q: What measures or mechanisms of protection has HCFA 
established to overcome automatic substitution of transplant 
drugs, based solely on the cost of these drugs?
    A: Medicare+Choice plans do sometimes limit covered drugs 
to those on a formulary, or list of preferred drugs, and make 
changes to the formulary over time. We share your concern, and 
on June 8, 2000 issued revised marketing guidelines about this 
issue. They require every plan that covers outpatient 
prescription drug benefits to provide notice in pre-enrollment 
marketing materials that it uses a formulary, that the 
formulary can change during the contract year, and a number to 
call for more information. Plans that use formularies must also 
disclose this fact in their Evidence of Coverage statement, 
which details plan benefits and restrictions, including:

 an explanation of what a formulary is and that it may change 
        during the contract year;
 an estimate of how often the plan reviews the contents of the 
        formulary and makes changes based upon that review;
 a description of any process by which a prescribing provider 
        may obtain authorization for a nonformulary or non-preferred 
        list drug to be furnished under the same terms and conditions 
        as drugs on the formulary or preferred list; and
 a statement that members may use grievance and complaint 
        processes if they have complaints about the formulary or its 
        administration.
    In addition, plans that use formularies must disclose 
whether specific drugs are on the formularies when enrollees or 
potential enrollees make telephone or other inquiries. The 
guideline is effective for contracts beginning in 2001.
    5. HCFA's April 27, 1999 notice on Procedures for Making 
National Coverage Determinations states that HCFA will make a 
decision on a request for a national coverage decision within 
90 days. However, it appears that this time frame applies to 
only a subset of coverage determinations--only those requiring 
the most simple of reviews or which are clear up or down 
decisions. HCFA states in the notice that ``most national 
coverage issues . . . require a referral to MCAC or an outside 
assessment of the service.'' The notice goes on to set no time 
cap on items referred to the MCAC or for an assessment. 
Finally, once the MCAC makes a recommendation, the notice says 
it will take an additional 60 days for HCFA to either adopt the 
MCAC recommendation or disagree with it. After a positive 
coverage determination is made, the notice indicates it will 
then take another ``180 days of the first day of the next full 
calendar quarter that follows the date we issue the national 
coverage determination'' to make a payment change.
    Q5b: Please provide a time line delineating both the 
expected minimum and maximum time frames involved for a product 
or procedure which goes through the entire process (i.e. HCFA, 
MCAC/outside technology assessment, coding, and payment 
processes).
    A5b: The process for a national coverage determination 
(NCD) could take less than 90 days when evidence is clear and 
compelling. More complex determinations referred to MCAC or 
outside technology assessment bodies can take longer, depending 
on the amount of research and deliberation these outside 
experts feel is appropriate to accurately assess whether the 
new product or procedure in fact meets the statutory 
requirement of being ``reasonable and necessary.'' Our limited 
experience to date suggests that the independent experts who, 
with industry and consumer representatives, make MCAC 
assessments, can take up to several months to make these 
determinations.
    However, it is important to stress that local claims 
processing contractors can generally make payment for newly 
approved products or procedures immediately after an NCD is 
announced, either through an existing code that may apply or 
through a miscellaneous code that can be used when no existing 
code is appropriate. Payment amounts for claims filed under the 
miscellaneous code are determined by these contractors until a 
new code and any necessary systems changes are implemented and 
a national payment rate is established. In rare instances, when 
an NCD reverses an earlier national noncoverage policy and 
requires changes to claims processing computer systems, 
additional time may be necessary before payment can begin. We 
establish an effective date by which contractors must provide 
coverage. Time between an NCD and an effective date is used to 
establish new codes and national payment rates, make changes to 
claims processing computer systems, and provide explicit, 
written instructions on how the new policy is to be 
implemented. We have up to 180 days (tied to the next closest 
quarterly systems update) to complete systems changes from the 
time that instructions are generated, which can take up to an 
additional 60 days. However, we have completed this in less 
than 180 days for all NCDs under the new process, and we are 
continually working to further streamline this process. This 
180 day time frame compares favorably to other businesses 
making orderly and efficient changes in electronic systems like 
our claims processing systems.
    It also is important to note that the vast majority of 
determinations are made by our local contractors. There have 
only been approximately three hundred NCDs over the life of the 
Medicare program; 15 in the past 12 months. And we have 
substantially improved the NCD process to be more open, 
accountable, and explicit in every respect.
    6. Rep. Stearns raised concerns that the notice on the new 
coverage process allows HCFA an additional 180 days to 
reimburse for a product or procedure after a favorable coverage 
decision.
    Q6a: Is it true that in the intervening 6 to 9 months, 
beneficiaries will be denied access to the covered product or 
procedure?
    A6a: Local contractors can generally begin payment 
immediately after a national coverage determination (NCD) is 
made, either through existing coding and payment mechanisms, or 
through generic ``99'' codes in each benefit category which 
providers can use to file claims that are then manually 
reviewed and priced. In rare instances, when an NCD reverses an 
earlier national noncoverage policy and requires changes to 
claims processing computer systems, additional time may be 
necessary before payment can begin. We establish an effective 
date by which contractors must provide coverage. Time between 
an NCD and an effective date is used to establish new codes and 
national payment rates, make changes to claims processing 
computer systems, and provide explicit, written instructions on 
how the new policy is to be implemented. We have up to 180 days 
(tied to the next closest quarterly systems update) to complete 
systems changes from the time that instructions are generated, 
which can take up to an additional 60 days. However, we have 
completed this in less than 180 days for all NCDs under the new 
process, and we are continually working to further streamline 
this process. This 180 day time frame compares favorably to 
other businesses making orderly and efficient changes in 
electronic systems like our claims processing systems.
    Q6b: In order to assure beneficiary access to the highest 
quality care, please explain why the covered product or 
procedure could not be made immediately available and 
reimbursed retrospectively or why, during the coverage 
determination process, needed coding and reimbursement data 
could not be gathered?
    A6b: The covered product generally can be made immediately 
available. As mentioned above, in rare instances, when an NCD 
reverses an earlier national noncoverage policy and requires 
changes to claims processing computer systems, additional time 
may be necessary before payment can begin. We have completed 
necessary work in such cases in less than 180 days for all NCDs 
under the new process, and we are continually working to 
further streamline this process. However, retrospective 
reimbursement is problematic in three ways. First, the 
effective dates on NCDs reflect when electronic systems will be 
ready to accurately process claims for the NCDs. As a general 
policy, we do not make retroactive adjustments for claims 
submitted before the effective dates of our policies, as it is 
not fiscally prudent. Second, it also raises questions of 
fairness regarding retrospective denial of payment when NCDs 
end coverage for items or services that had been covered. 
Third, this is a resource intensive process and a burden to 
claims processing contractors. Gathering of coding and 
reimbursement data requires a systematic approach to be done 
effectively. This also is a very resource intensive process 
that, given limited resources, is difficult to justify before 
it is known whether an NCD will be favorable.
    7. This Committee worked long and hard debating, 
developing, and passing legislation to modernize the FDA. As a 
result of the legislative emphasis on collaboration, there is 
now much better communication and dialogue between the FDA and 
its stakeholders. I am aware of numerous problems with the 
introduction of new technologies into Medicare, including 
problems with the new OPD PPS. I understand numerous meetings 
have occurred between HCFA and representatives from the medical 
technology industry to try to resolve implementation problems. 
I applaud the Agency for their openness and willingness to meet 
in OPD PPS.
    Q7: Yet I wonder if many of these and other problems could 
have been avoided by a more collaborative effort up front. I 
understand that the hospital industry and HCFA may meet 
regularly. In your view, are there any impediments to extending 
similar meetings to others, such as manufacturers?
    A7: We have and will continue to meet with the medical 
technology industry to resolve implementation issues regarding 
the OPD PPS and other payment issues. The treatment of medical 
devices under OPD PPS--particularly the pass-through provisions 
under BBRA--have been particularly challenging for HCFA, the 
medical devices industry and hospitals. And it is unlikely that 
a new and complex payment system, such as the OPD PPS, could be 
developed and implemented without encountering difficulties 
along the way. Through continued discussions with these groups, 
new methods for resolving outstanding issues and implementing 
these provisions are evolving. We will continue to work with 
these groups to assure that these provisions are implemented in 
a manner that recognizes the competitive nature of the medical 
devices industry and assures access to effective new technology 
for Medicare beneficiaries.

      Congresswoman DeGette's Questions and Answers for the Record

    1. As the Agency continues to work on this rule, 
beneficiaries with diabetes continue to be denied the services 
that would prove so valuable to them.
    Q1a: When can we expect HCFA to finalize the rule it issued 
February 11, 1999 to implement the Medicare Outpatient Diabetes 
Self-management section of the BBA? Why is it taking so long 
for the Agency to finalize these rules?
    A1a: We've been doing everything possible to publish this 
regulation in a timely manner. However, with the large number 
of regulations currently under review due to BBA mandates and 
other factors, the process has not moved as quickly as we would 
have liked. We still expect to publish the final regulation 
late this summer and will keep you advised on our progress.
    Q1b: Also, I understand that the Interim regulation expired 
on June 1, 2000. What steps is HCFA taking to ensure that 
beneficiaries continue to receive these services?
    A1b: We have focused all of our resources on publishing the 
final rule, which will give the greatest relief to the greatest 
number of people. Our operations staff have been monitoring our 
contractors to make sure they still honor the rights of 
providers to bill under the expired program memoranda. However, 
in response to your inquiry, we are reissuing the original 
program memoranda that expired June 1, 2000, to assure that 
beneficiaries continue to receive these services until the 
final rule takes effect. We will also publish new program 
instructions to fully implement the benefit immediately after 
the final rule is published to assure full compliance by 
contractors by the effective date of the final rule.
    Q1c: HCFA has indicated a need to revise the original 
language in the BBA. Can HCFA provide the revised legislative 
language necessary to promulgate a final rule?
    A1c: HCFA's Office of Legislation received a request from 
Representative Nethercutt's office for technical assistance in 
drafting this legislative change. We submitted draft language 
to Rep. Nethercutt's staff on July 14 and asked them to share 
it with Rep. DeGette and other members of the Congressional 
Diabetes Caucus, as appropriate. A copy of the draft language 
follows:

Section 1861(qq)(2) of the Social Security Act (42 U.S.C. 
1395xx(qq)(2)) is amended--
  (1) in subparagraph (A)--
    (A) by striking ``a 'certified provider''' and inserting 
``A `certified provider' ''; and
    (B) by striking ``; and'' and inserting a period; and
  (2) in subparagraph (B)--
    (A) by striking ``a physician, or such other individual'' 
and inserting ``(i) A physician, or such other individual'';
    (B) by inserting ``, or by a program described in clause 
(ii),'' after ``recognized by an organization that represents 
individuals (including individuals under this title) with 
diabetes''; and
    (C) by adding at the end the following:
      ``(ii) Notwithstanding any references to 'a national 
accreditation body' in section 1865(b), for purposes of clause 
(i), a program described in this clause is a program operated 
by a State for the purposes of accrediting diabetes self-
management training programs, if the Secretary determines that 
such State program has established quality standards that meet 
or exceed the standards established by the Secretary under this 
section or the standards originally established by the National 
Diabetes Advisory Board and subsequently revised as described 
in clause (i).''.
    2. The proposed regulation for Medicare outpatient diabetes 
self-management would place significant barriers on community 
retail pharmacy participation as providers of this important 
benefit. For example, the rule would require these same 
pharmacies to employ a certified diabetes educator or nurse 
practitioner to provide covered benefits. Evidence suggests 
that quality pharmacy-based diabetes programs are operating 
without these additional personnel.
    Q2: What steps is HCFA taking to ensure pharmacies that 
provide diabetes self-management services will be able to 
participate in this new benefit?
    A2: We met with representatives of the pharmacy and 
pharmacist industry on March 27. They informed us that the 
proposed requirement to employ dietitians and certified 
diabetic educators or registered nurses could be a significant 
barrier to their qualification as certified providers, 
especially in rural areas. The provision regarding reassignment 
of benefits from the proposed rule would have required that 
educators be employed by a certified provider (including a 
pharmacist) unless the certified provider was on site 
supervising the educators. In response to this concern, we are 
considering whether to make an exception to this requirement 
for rural areas in the final rule.
    3. The Conference Committee Report language to the FY 2000 
federal budget requested that ``the Administrator be prepared 
to testify at the fiscal year 2001 appropriations hearing on 
the steps that have been taken to promote access to'' diabetes 
self management services ``in a variety of settings, including 
those provided by State licensed health care professionals or 
nationally certified nutrition or diabetes educators, as well 
as community retail pharmacies.''
    Q3: Please describe the steps that you are taking to assure 
that Medicare beneficiaries will have maximum access to these 
services in a variety of settings.
    A3: As noted previously, we are drafting the final rule to 
expand the range of providers who will qualify for payment for 
the service. We've also included different ways that certified 
providers can meet the quality standards to better suit 
different settings. One example is the ability to contract with 
(rather than directly employ) diabetes educators in rural 
settings. Other examples would allow a single individual to 
provide the training in rural areas instead of a team, and 
allow the use of locations such as senior citizen centers that 
are approved under local fire protection and safety codes 
instead of limiting services to sites maintained by the 
certified provider. We believe these and other points of 
flexibility in the final regulation will address most access 
concerns. Further flexibility could be provided by a 
legislative change to allow State accredited organizations to 
participate (as discussed above).

       CONGRESSWOMAN CUBIN'S QUESTIONS AND ANSWERS FOR THE RECORD

    1. I am concerned about HCFA's Medicare reimbursement 
policies and how they impact rural areas of the country. The 
Medicare reimbursement rates for hospital services and 
physician services are based on certain components, and an 
adjustment factor is applied to each of these.
    Q: What are the indexes you use to develop the geographic 
adjuster for hospital services and physician services, as they 
relate to fee-for-service, and what are the components of these 
indexes and how do they apply nationwide?
    A: As required by law, payments to hospitals under the 
prospective payment system are adjusted by a wage index to 
reflect regional differences in the costs of labor. Hospitals 
are grouped into labor market areas based on whether the county 
in which they are located in is part of a metropolitan 
statistical area (MSA). A wage index is then calculated for 
each MSA. All of the counties of a state that are not located 
in a MSA are grouped into a statewide rural labor market area, 
and a separate wage index is calculated for those areas. The 
wage index is based on hospitals' labor costs as reported to 
HCFA by hospitals on their Medicare cost reports. The data 
reflect all of the labor categories employed by hospitals that 
are paid for under the inpatient prospective payment system 
(excluding physicians' patient care services). The wage index, 
which is updated every year, is calculated by dividing the 
average hourly wage across all the hospitals of a particular 
labor market area by the national average hourly wage. We 
publish the wage indices for each MSA and rural area as part of 
our regulation for hospital inpatient prospective payment 
rates.
    As required by law, physician services paid under the 
physician fee schedule are divided into three components: 1) 
physician work, 2) practice expense (such as employee wages, 
rents, and medical equipment and supplies), and 3) malpractice 
insurance. On average, physician work represents 54.5 percent 
of the total relative value, practice expenses represent 42.3 
percent, and malpractice represents 3.2 percent. Payments for a 
particular service vary among 89 geographic fee schedule 
payment areas only to the extent that the resource costs of 
providing such services varies. This variation is measured by 
geographic practice cost indices (GPCIs) which, by law, 
compares the local costs in each of the 89 areas to the 
national average for each of the three components.

       CONGRESSMAN STEARNS' QUESTIONS AND ANSWERS FOR THE RECORD

    1. I am troubled that the decision to remove the 
requirement that nurse anesthetists be supervised by a 
physician was made without the necessary data to substantiate 
that this will not put patients at risk. Please provide:

--A complete list of studies and literature reviewed by you and your 
        staff in this regard;
--All analyses of those studies and literature that your staff may have 
        produced summarizing or qualifying those studies;
--A copy of any report or memorandum associated with HCFA's survey of 
        the literature;
--A copy of each of the studies and literature that assisted you in 
        reaching your decision.
    A: First, I want to put in context the overall issue of the 
Federal requirement for physician supervision of CRNAs and 
other non-physician health professionals. Congress has 
specified which non-physician health professionals may receive 
separate payment for their professional services (such as 
CRNAs, nurse practitioners, clinical nurse specialists and 
social workers). Congress left the function of licensing these 
health professionals to the States. Medicare recognizes the 
scope of practice established by the States for these health 
professionals. Medicare's current hospital conditions of 
participation do not have Federal requirements for physicians 
to supervise the practice of a State-licensed health 
professional where there is a statutory provision authorizing 
direct Medicare payment for the services of that professional, 
with the sole exception of the current Federal requirement for 
physician supervision of CRNAs that we have proposed to 
eliminate.
    The December 1997 proposed rule was developed in an effort 
to restructure and focus Medicare's conditions of participation 
for hospitals so that they focus on outcomes rather than on 
process-oriented requirements. We proposed eliminating many 
outdated Federal requirements. Unless there was compelling and 
sound evidence in support of an across-the-board Federal 
requirement for the supervision of one-State licensed health 
professional by another, we proposed to defer to States. We do 
not believe that there is such evidence to necessitate 
maintaining a special requirement for a single national 
standard of physician supervision of CRNAs in every situation. 
Nor is there evidence that States have been negligent in their 
duty to regulate health professional practice or have failed to 
protect the safety of their citizens through that regulation. 
Therefore, we proposed to change Medicare's conditions of 
participation to allow CRNAs to practice without physician 
supervision if allowed by State law, and to practice with 
physician supervision if required by State law.
    We reviewed the literature and found three major 
conclusions. First, there have been significant improvements in 
anesthesia mortality, the anesthesia-related death rate is 
extremely low, and the administration of anesthesia in the 
United States is safe relative to surgical risk. According to 
the 1999 Institute of Medicine Report on medical errors, ``To 
Err Is Human,'' the number of deaths from errors in 
administering anesthesia has dropped from two deaths per 10,000 
anesthetics in the 1980s to about one death per 200,000-300,000 
patients today, a 40 to 60 fold improvement.
    Second, there are no studies published within the last 10 
years that are specific to the issue of the final rule, namely 
provision of anesthesia care by CRNAs practicing without 
physician supervision. The studies we reviewed had significant 
limitations. We found no evidence that an across-the-board 
Federal requirement for physician supervision for CRNAs leads 
to better outcomes.
    Third, there is no evidence that there would be adverse 
outcomes by relying on States and hospitals to regulate the 
appropriate supervision and scope of practice of health 
professionals administering anesthesia. Nor was there evidence 
that States do a poor job in their traditional domain of 
regulating and overseeing health care professional practice or 
that States are not capable of making decisions regarding 
requirements for supervision of one State-licensed independent 
practitioner by another.
    We also reviewed the recently published article by Dr. 
Silber, et al. at the University of Pennsylvania. We do not 
view this article as relevant to the issue of whether Medicare 
should require hospitals to perform anesthesia only under the 
supervision of a physician, because it did not study CRNA 
practice with and without physician supervision. Moreover, it 
does not present evidence of any inadequacy of State oversight 
of health professional practice law, and does not provide sound 
and compelling evidence to maintain the current Federal 
preemption of State law whereby one State-licensed physician 
specialty supervises the practice of another State-licensed 
independent practitioner. In short, there is nothing in this 
study that persuades us to change our decision to move forward 
with the final rule.
    We disagree with the apparent policy conclusion of the 
Silber study that an anesthesiologist should be involved in 
every case, either personally performing anesthesia or 
providing medical direction of CRNAs. Such a policy is much 
more restrictive than current Medicare policy because it would 
prohibit non-anesthesiologist physicians from supervising 
CRNAs. This would make it difficult to perform surgeries in 
many small and rural hospitals because anesthesiologists 
generally do not practice in these hospitals. The result would 
be that many small and rural hospitals could not participate in 
the Medicare program.
    As part of our decision to move forward to finalize the 
proposed rule, we considered the feasibility of conducting a 
study comparing the mortality and adverse outcomes of Medicare 
patients for anesthesia care furnished by CRNAs with and 
without physician supervision. However, we concluded that it 
was not feasible to conduct such a retrospective study. Not 
only would the low overall anesthesia mortality make it 
difficult to develop a sufficient sample, but because of the 
current Medicare rules, there are no cases where CRNAs practice 
without supervision and thus there would be no data for the key 
comparison. We also considered the feasibility of conducting a 
study using data from non-Medicare patients. However, because 
Medicare's current hospital conditions of participation apply 
to all patients, here too there would be no data for the key 
comparison. Because CRNAs practice without physician 
supervision in certain circumstances in Department of Defense 
hospitals, we considered a study using such data, but concluded 
that sample sizes would be too small because of low anesthesia 
mortality, and it would be difficult to establish appropriate 
comparison groups. Finally, we do not believe that it would be 
wise to conduct a prospective demonstration that would waive 
State law and prospectively randomly assign patients to study 
and control groups because it would remove patient choice of 
anesthesia professional. For these reasons, we do not believe 
it is feasible to conduct a study such as would be required in 
several bills that have been introduced.
    Attached is a list of the articles (Attachment A), a review 
and analysis of them (Attachment B) that we considered in 
making our decision for the final rule, and a copy of each 
article (Attachment C).
                              Attachment A

                        LIST OF STUDIES REVIEWED

    We reviewed the following seven studies that were published 
within the last 10 years and we reviewed the abstract of 
another study.
    (1) Abenstein, J.P., & Warner, M.A. (1996). Anesthesia 
providers, patient outcomes, and costs. Anesth. Analg. 62. 
1273-1283.
    (2) Chassin, Mark R. Is Health Care Ready for Six Sigma 
Quality? Milbank Quarterly 764:565-591, 1998
    (3) Kohn, L.T., Corrigan, J., and Donaldson, M., To Err is 
Human. Institute of Medicine. National Academy Press, 
Washington, DC 1999
    (4) Lagasse, R.S., Steinberg, E.S., Katz, R.I., & 
Saubermann, A.J. (1995). Defining quality of perioperative care 
by statistical process control of adverse outcomes. 
Anesthesiology, 82, 1181-1188
    (5) Silber, J.H., Williams, S,.V., Krakauer, H., & 
Schwartz, S. (1992). Hospital and patient characteristics 
associated with death after surgery: a study of adverse 
occurrence and failure to rescue. Medical Care, 30, 615-627
    (6) Silber, J.H., Rosenbaum, P.R., & Ross, R.N. (1995). 
Comparing the contributions of groups of predictors: which 
outcomes vary with hospital rather than patient 
characteristics? Journal of the American Statistical 
Association, 90 (429): 7-18
    (7) Silber, J.H., Rosenbaum, P.R., Williams, S.V., Ross, 
R.N., & Schwartz, J.S. (1997). The relationship between choice 
of outcome measure and hospital rank in general surgical 
procedures: implications for quality assessment. International 
Journal for Quality in Health Care, 9(3): 193-200
    (8) Silber, J.H., Kennedy, S.K., Koziol, L.F., Showan, 
A.M., & Longnecker, D.E. (1998). Do nurse anesthetists need 
medical direction by anesthesiologists? Anesthesiology, 89: 
A1184)

                              Attachment B

                          REVIEW OF LITERATURE

    Summary: We surveyed the literature for studies relating to the 
provision of anesthesia care by certified registered nurse anesthetists 
(CRNAs) and anesthesiologists. We reviewed seven articles that were 
published in the past 10 years. We also reviewed the abstract of 
another study. Of the seven articles, four looked at aspects of 
anesthesia care and one reviewed the literature on a number of aspects 
of anesthesia care. We also reviewed the 1999 Institute of Medicine 
(IOM) Report on medical errors, ``To Err is Human,'' and a study cited 
in that report.
    There are three major conclusions from the literature:

(1) There have been significant improvements in anesthesia mortality, 
        the anesthesia-related death rate is extremely low, and the 
        administration of anesthesia in the United States is safe 
        relative to surgical risk. According to the 1999 Institute of 
        Medicine Report on medical errors, ``To Err Is Human,'' the 
        number of deaths from errors in administering anesthesia has 
        dropped from two deaths per 10,000 anesthetics in the 1980s to 
        about one death per 200,000-300,000 patients today, a 40 to 60 
        fold improvement.
(2) There are no studies published within the last 10 years that are 
        specific to the issue of the final rule, namely provision of 
        anesthesia care by CRNAs practicing without physician 
        supervision. None of the studies we reviewed showed a causal 
        relationship between outcomes and type of professional who 
        furnished anesthesia care. All the studies we reviewed had 
        significant limitations. We found no evidence that an across-
        the-board Federal requirement for physician supervision for 
        CRNAs leads to better outcomes.
(3) There is no evidence that there would be adverse outcomes by 
        relying on States and hospitals to regulate the appropriate 
        supervision and scope of practice of health professionals 
        administering anesthesia. Nor was there evidence that States do 
        a poor job in their traditional domain of regulating and 
        overseeing health care professional practice or that States are 
        not capable of making decisions regarding requirements for 
        supervision of one State-licensed independent practitioner by 
        another.
    Following is a detailed review of the studies.
Abenstein, J.P., & Warner, M.A. (1996). Anesthesia providers, patient 
        outcomes, and costs. Anesth. Analg, 62, 1273-1283.
    This paper describes a number of aspects of anesthesia care and 
reviews studies in several areas. The paper points out that it is 
difficult to attribute an adverse outcome to the three broad categories 
of factors that could be associated with patient death--patient 
disease, surgery and anesthesia--because the factors are interrelated. 
The paper gives the example of a patient who has heart disease and 
while undergoing by-pass surgery their heart becomes ischemic and they 
die on the operating table, despite the medical intervention. The issue 
here is whether the death is most attributable to the patient's 
underlying disease, the surgery or the anesthetic. The paper further 
notes that there is a problem using death as a measure of adverse 
outcome because the most important factor that predicts death is the 
severity of disease comorbidity.
    The paper notes that there has been a dramatic improvement in 
anesthetic deaths in the last 15 years: ``Since 1979, five studies have 
documented a remarkably abrupt decrease in anesthetic-related death 
rates, morbidity, and risk of perioperative deaths.'' The paper 
concludes that: ``For many patients, it is now as safe to be 
anesthetized as to be a passenger in an automobile.''
    The paper notes that ``identifying the cause for the improvement in 
anesthetic outcome is as problematic as determining the cause of 
perioperative death''. The paper indicates that ``huge numbers of 
surgical patients (e.g., >1,000,000) must be enrolled in studies to 
provide the statistical power needed to determine whether these are 
associations between perioperative disability or death and various 
anesthetic techniques, technologies, and practice models.'' The paper 
notes that studies of this size are expensive and may be ethically 
questionable. None of the studies reviewed for this paper meet this 
standard.
    The paper reviewed two studies that compared mortality for 
anesthesia care furnished by anesthesiologists, an anesthesia care team 
and nurse anesthetists supervised by a physician. Both studies are 
flawed. Neither meets the criteria for an adequate study identified in 
the paper. As the authors note, the first study did not provide 
statistical analysis of the data. The second study used data now 25 
years old and found no statistically significant difference between the 
groups. Neither study examined the provision of anesthesia furnished 
independently by CRNAs, the issue of this rule. The paper also reviewed 
the 1992 study by Silber et al. discussed below.
    The paper suggested a number of reasons for improved anesthesia 
care including ``new and improved patient monitoring techniques''. The 
paper also notes that the ``decline in adverse outcomes occurred at the 
same time that the number of American trained physicians entering and 
graduating from anesthesiology residency programs more than doubled 
(1975-1985).'' The paper suggests that ``the increase in the number of 
physicians engaged in the practice of anesthesiology is primarily 
responsible for the dramatic improvement in perioperative outcomes''. 
However, the paper also notes that during roughly the same period of 
time, 1970-1985, the number of active nurse anesthetists doubled.
    On the basis of studies which are flawed methodologically, which do 
not prove causality, and which do not meet the authors own criteria for 
rigorous study, the authors nevertheless conclude that ``the presence 
of board-certified anesthesiologists has been associated with the 
decline in death and disability commonly attributed to adverse 
perioperative events.'' The author's conclusion is not substantiated by 
their own review and analysis of the literature. Finally, the paper 
presents no information regarding the issue in the rule or that States 
are not capable of making decisions regarding requirements for 
supervision of one State-licensed independent practitioner by another.

Silber, J.H., Williams, S.V., Krakauer, H. & Schwartz, S. (1992), 
        Medical Care, 30, 615-627.

    This study examined predictors of three outcomes for age 65 & older 
hospitalized patients for two surgeries (cholecystectomy and 
prostatectomy). Data were obtained on 5,972 cases in 531 hospitals in 7 
states. Patient characteristics used included admission severity of 
illness, age, sex, and history of illnesses such as congestive heart 
failure, diabetes, or COPD. Hospital characteristics used were whether 
the hospitals were low or high technology, number of beds, and percent 
of anesthesiologists who are board certified.
    The outcome measures were: death rate, adverse occurrence rate, and 
failure rate. Death rate was defined as the ratio of the number of 
deaths divided by the number of patients. Adverse occurrence rate was 
the number of patients who developed an adverse occurrence divided by 
the number of patients. Failure rate was the number of deaths in those 
patients who developed an adverse occurrence divided by the total 
number of patients who developed an adverse occurrence. The following 
were considered adverse occurrences: cardiac arrhythmia, congestive 
heart failure, cardiac arrest, pneumonia, pulmonary embolus, 
pneumothorax, renal dysfunction, stroke, would infection, and unplanned 
return to surgery. Multiple logistic regression was used to determine 
the association between the patient and hospital characteristics and 
the three patient outcomes.
    The study found that both hospital and patient characteristics were 
associated with death rates for gall bladder and prostatectomy surgery. 
The study found that higher death rates were associated with low 
technology hospitals and lower rates of board certified physicians 
practicing in the hospital. The study also found that patient 
characteristics such as age, severity of illness and history of 
congestive heart failure primarily were associated with adverse 
occurrence rates. Finally, the study found an association between 
failure rates and two hospital characteristics: the percent of 
anesthesiologists who were board certified (lower failure rates) and 
the presence of surgical house staff (higher failure rates).
    The authors identify several limitations of the study and indicate 
that these limitations need to be recognized. The limitations include: 
there were relatively few deaths, adverse outcomes and failures, and 
relatively few patients per hospital so the rates could only be 
compared for groups of hospitals, not specific facilities. The authors 
indicate that their exclusion of patients admitted through the 
emergency department could have biased their results
    In addition, the study did not address the issue of whether there 
is an association between the patient outcomes and the type of 
professional who furnished the anesthesia care. The study did not 
address the issue of provision of anesthesia care by CRNAs supervised 
and not supervised by physicians, the issue in the rule. The anesthesia 
variable used in the study was not specific to the patient, rather it 
was a variable at the hospital level (i.e., percent of 
anesthesiologists who are board-certified). The anesthesia variable may 
have been a proxy indicator of quality of the hospital: thus, there 
would be lower mortality in the higher quality hospitals and if a 
complication occurred the patient would more likely be rescued. The 
study reports associations, not cause-effect relationships. Finally, 
the paper presents no information that States are not capable of making 
decisions regarding requirements for supervision of one State-licensed 
independent practitioner by another.

Silber, J.H., Rosenbaum, P.R., & Ross, R.N. (1995). Comparing the 
        contributions of groups of predictors: which outcomes vary with 
        hospital rather than patient characteristics? Journal of the 
        American Statistical Association, 90 (429): 7-18

    In a subsequent article to the one summarized above, Silber and 
colleagues found that ``most of the predictable variation in outcome 
rates among hospitals appears to be predicted by differing patient 
characteristics rather than by differing hospital characteristics, that 
is, by who is treated rather than by the resources available for 
treatment.'' The authors found higher proportions of board-certified 
anesthesiologists to be associated with lower death and failure rates, 
but also with higher adverse occurrence rates. The study did not 
address the relationship between the patient outcomes and the type of 
professional who furnished the anesthesia care. The study did not 
address the issue of provision of anesthesia care by CRNAs supervised 
and not supervised by physicians, the issue in the rule. The article 
presents no information that States are not capable of making decisions 
regarding requirements for supervision of one State-licensed 
independent practitioner by another.

Silber, J.H., Rosenbaum, P.R., Williams, S.V., Ross, R.N., & Schwartz, 
        J.S. (1997). The relationship between choice of outcome measure 
        and hospital rank in general surgical procedures: implications 
        for quality assessment. International Journal for Quality in 
        Health Care, 9(3): 193-200

    Silber and his colleagues compared mortality, complication and 
failure-to-rescue rates. They concluded that for the general surgical 
procedures studied, the complication rate is poorly correlated with the 
death and failure rate. The authors suggest that great caution be taken 
when using complication rates and that they should not be used in 
isolation when assessing hospital quality of care. The study did not 
address the relationship between the patient outcomes and the type of 
professional who furnished the anesthesia care. Nor did the study 
address the issue of provision of anesthesia care by CRNAs supervised 
and not supervised by physicians, the issue in the rule. The article 
presents no information that States are not capable of making decisions 
regarding requirements for supervision of one State-licensed 
independent practitioner by another

Silber., J.H., Kennedy, S.K., Koziol, L.F., Showan, A.M., & Longnecker, 
        D.E. (1998). Do nurse anesthetists need medical direction by 
        anesthesiologists? Anesthesiology, 89: A1184

    This is the abstract for a study by Jeffrey Silber et al. Based on 
information in the abstract, the study does not appear to control for 
other relevant factors, such as hospital characteristics. The 
concluding line of the abstract indicates: ``Whether this is a 
caregiver or hospital effect remains to be determined.'' This is an 
important shortcoming since it is not possible to conclude that 
anesthesiologist supervision of the care team caused better outcomes. 
As indicated in the above analysis of prior Silber studies, a 
correlation does not imply causality. It is plausible that hospital 
characteristics caused the better outcome and the observation in the 
abstract maybe incorrect.
    In addition, the abstract provides no evidence that deaths and 
complications that occurred were associated with the competence, skill, 
or performance of the person who actually furnished the anesthesia. 
Information provided in the abstract indicates that the credentials of 
the person actually administering the anesthesia was not studied, but 
rather the credentials of the person doing the supervising was studied.
    Also, it is not clear from the abstract whether like things are 
being compared. For example, it is not clear whether the supervision of 
the anesthesia team applies to anesthesiologist vs. non-
anesthesiologist physician direction of a team of CRNAs (that is, 
medical direction of two, three or four cases concurrently) or if a 
single CRNA was supervised by an anesthesiologist vs. a non-
anesthesiologist physician. If like things are not being compared, then 
it is difficult to draw scientific conclusions about an observed 
effect.
    Moreover, the abstract does not indicate that the study compared 
outcomes where CRNAs were supervised and not supervised by physicians, 
the issue in the rule. Results cannot be inferred to CRNA performance 
without supervision from a study examining supervision by 
anesthesiologists vs. non-anesthesiologists physicians. Finally, the 
abstract contains no information that States are not capable of making 
decisions regarding requirements for supervision of one health care 
professional by another.

Lagasse, R.S., Steinberg, E.S., Katz, R.I., & Sauberman, A.J. (1995). 
        Defining quality or perioperative care by statistical process 
        control or adverse outcomes. Anesthesiology, 82. 1181-1188.

    This study describes the number and type of anesthesia errors 
attributable to system and human factors, when the data base consists 
of cases that were referred to a quality assurance (QA) team. All 
referred cases for peer review at a university hospital in 1992 were 
analyzed. A total of 13,389 anesthetics were performed and the QA team 
reviewed 110 cases. Cases were reviewed if they met at least one of the 
13 criteria recommended by Joint Commission on Accreditation of Health 
Care Organizations (JCAHO), at the time the study was done (e.g., 
cardiac arrest during or within I post procedure day). Approximately 90 
percent of the errors were attributable to the system of care and 
approximately 10 percent were attributable to human error. System error 
included accidental occurrences resulting from performing a technique 
correctly, equipment failure (despite proper use), missed communication 
while following established protocol, inability to correct a disease 
process with current standards of care, inability to detect a disease 
process with current screening and monitoring standards, and inability 
to meet the demand for resources of equipment or personnel. Human error 
included failing to perform a technique properly, misuse of equipment, 
disregarding available data, failing to seek appropriate data and 
responding incorrectly to the data because of a lack of knowledge. The 
findings suggest that there are very few anesthesia errors but this is 
biased by the fact that cases were not reviewed unless a staff member 
reported it as a possible error. Of the cases that were reviewed very 
few were due to human error, such as lack of knowledge. Not only was 
the sample size for this study very small, but also it did not examine 
errors and the type of professional, or arrangement, in which 
anesthesia care was furnished. The study did not examine the issue of 
physician supervision of CRNAs.

Kohn, L.T., Corrigan, J., and Donaldson, M., To Err is Human. Institute 
        of Medicine. National Academy Press, Washington, DC 1999

    The IOM report presents a discussion on various types of medical 
errors, the importance of tracking and reporting on adverse events, and 
recommendations for effective approaches to making improvements in 
health care systems in order to reduce the number of errors. In a 
specific discussion of adverse events (Chapter 2) the report notes 
``anesthesia is an area in which very impressive improvements in safety 
have been made . . . as more and more attention has been focused on 
understanding the factors that contribute to error and on the design of 
safer systems, preventable mishaps have declined.'' The report goes on 
to note that ``today . . . the anesthesia mortality rates are about one 
death per 200,000 to 300,000 anesthetics administered, compared with 
two deaths per 10,000 in the early 1980s. ``The particular example of 
anesthesia adverse events is used to support the notion, contained 
throughout the IOM report, that examining all the processes involved in 
delivering medical care would allow hospitals to begin to make 
significant improvements in quality, better patient outcomes, and fewer 
mistakes. The report cites anesthesia care as an example where focusing 
on the many processes that take place during anesthesia administration 
creates opportunities for multiple interventions aimed at improving 
overall anesthesia quality. There is no specific discussion of the 
issue of physician supervision of CRNAs.

Chassin, Mark R. Is Health Care Ready for Six Sigma Quality? Milbank 
        Quarterly 764: 565-591, 1998

    This article, cited in the IOM report on medical errors, examines 
causes of quality problems and strategies for improving the quality of 
health care delivery systems. The author poses a challenge for the 
health care system to strive for the level of reduction in errors--
``defect rate''--that compares to results achieved in other industries. 
While noting that health care barely stacks up, the one health care 
specialty that has reduced serious defects to rates that are close to 
3.4 per million is surgical anesthesia''. The author does not attribute 
this degree of overall anesthesia safety to any provider type or model 
of care but rather to ``. . . a variety of mechanisms, including 
improved monitoring techniques, the development and widespread adoption 
of practice guidelines, and other systematic approaches to reducing 
errors.'' Adopting such practice standards and systematic approaches is 
fostered by the type of flexibility granted to hospitals as a result of 
this rule change.


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