[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE 
                            HEALTH COVERAGE

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

                             JOINT HEARINGS

                               before the

                         SUBCOMMITTEE ON HEALTH

                                and the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                   MARCH 1, APRIL 4, and MAY 10, 2001

                               __________

                           Serial No. 107-23

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

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_______________________________________________________________________
_______________________________________________________________________





                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                    HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio                RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania     EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma              BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa                    ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia             BART STUPAK, Michigan
BARBARA CUBIN, Wyoming               ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois               TOM SAWYER, Ohio
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING,          KAREN McCARTHY, Missouri
Mississippi                          TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia                  BILL LUTHER, Minnesota
ED BRYANT, Tennessee                 LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland     MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana                 CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California        JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska

                  David V. Marventano, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                  MICHAEL BILIRAKIS, Florida, Chairman

JOE BARTON, Texas                    SHERROD BROWN, Ohio
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     TED STRICKLAND, Ohio
NATHAN DEAL, Georgia                 THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina         LOIS CAPPS, California
ED WHITFIELD, Kentucky               RALPH M. HALL, Texas
GREG GANSKE, Iowa                    EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING,          ALBERT R. WYNN, Maryland
Mississippi                          GENE GREEN, Texas
ED BRYANT, Tennessee                 JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland       (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                  (ii)

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida               BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio                TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma              DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina         CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
  Vice Chairman                      JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire         (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
  (Ex Officio)

                                 (iii)


                            C O N T E N T S

                               __________
                                                                   Page

Hearings held:
    March 1, 2001................................................     1
    April 4, 2001................................................    89
    May 1, 2001..................................................   215
Testimony of:
    Becker, David, on behalf of the Pinellas County Medical 
      Society....................................................   126
    Bradley, Jyl D., Administrator, Dunning Street Ambulatory 
      Care Center, Associates in Surgery and Gastroenterology, on 
      behalf of Medical Group Management Association.............   129
    DeParle, Nancy-Ann, former Administrator, Health Care 
      Financing Administration...................................   244
    Dziuba, Kathleen.............................................    21
    Friedman, Harvey, Vice President, Medicare and Seniors 
      Program, Blue Cross Blue Shield Association................   143
    Goodman, Clifford, Senior Scientist for Medical Technology, 
      The Lewin Group............................................    52
    Kang, Jeffrey, Director, Office of Clinical Standards and 
      Quality, accompanied by Mark Miller, Acting Director, 
      Center for Health Plans and Providers, Health Care 
      Financing Administration...................................    47
    Latulippe, Donald............................................    27
    Linkletter, Art, National Spokesperson, United Seniors 
      Association................................................    11
    Mangano, Michael, Acting Inspector General, Department of 
      Health and Human Services..................................   120
    Miller, Mark, Acting Director, Center for Health Plans and 
      Providers, Health Care Financing Administration............   113
    Popma, Jeffrey J., Director, International Cardiology, 
      Brigham and Women's Hospital...............................    23
    Roper, William A., Dean, School of Public Health, University 
      of North Carolina at Chapel Hill...........................   226
    Ross, Murray N., Executive Director, Medicare Payment 
      Advisory Commission........................................    59
    Shreve, Paul, Director, General Nuclear Imaging Section, 
      University of Michigan Medical Center......................    15
    Vladeck, Bruce C., Senior Vice President for Policy, 
      Institute for Medicare Practice, Mount Sinai School of 
      Medicine...................................................   240
    Wilensky, Gail R., John M. Olin Senior Fellow, Project Hope, 
      Chair, Medpac..............................................   233
    Wood, Douglas L., Vice Chair, Department of Medicine, Mayo 
      Foundation.................................................   136
Material submitted for the record by:
    Advanced Medical Technology Association, prepared statement 
      of.........................................................    80
    American Association for Homecare, prepared statement of.....   192
    Center for Patient Advocacy, prepared statement of...........    81
    Grealy, Mary, President, Healthcare Leadership Council, 
      prepared statement of......................................   196
    New Mexico Association for Home Care, letter dated April 3, 
      2000, to Hon. Heather Wilson...............................   198
    Steinwald, Bruce, prepared statement of......................    83

                                  (v)

  

 
PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE 
                            HEALTH COVERAGE

                              ----------                              


                        THURSDAY, MARCH 1, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                 Subcommittee on Health, joint with the    
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 10:07 a.m., 
in room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman, Subcommittee on Health) and Hon. James C. 
Greenwood (chairman, Subcommittee on Oversight and 
Investigations) presiding.
    Members present Subcommittee on Health: Representatives 
Bilirakis, Upton, Greenwood, Burr, Whitfield, Wilson, Shadegg, 
Bryant, Pitts, Tauzin (ex officio), Brown, Barrett, Capps, 
Deutsch, Eshoo, Stupak, Engel, Wynn, and Green.
    Members present Subcommittee on Oversight and 
Investigations: Greenwood, Bilirakis, Burr, Whitfield, Tauzin 
(ex officio), Stupak, and Rush.
    Staff present: Tom Giles, majority counsel; Marc Wheat, 
majority counsel; Kristi Gillis, legislative clerk; Amy 
Droskoski, minority professional staff; and Bridget Taylor, 
minority professional staff.
    Mr. Bilirakis. Good morning. I now call to order this first 
joint hearing in this 107th Congress of the Health Subcommittee 
and the Oversight Investigation Subcommittee, and I would like 
to start, of course, by welcoming our witnesses and all of the 
members of both subcommittees. I particularly appreciate this 
opportunity to work with the Oversight and Investigations 
Subcommittee and its chairman, Jim Greenwood, as well as the 
ranking member, my Florida colleague, Congressman Peter 
Deutsch.
    Today, along with Mr. Brown, we launch the first hearing in 
a series entitled ``Patients First: A 21st Century Promise to 
Ensure Quality and Affordable Health Coverage.''
    Millions of seniors rely on Medicare for their health care 
needs, but few are familiar with the agency that administers 
this important program, and that is the Health Care Financing 
Administration, or HCFA, as we fondly refer to it. And yet this 
agency has a very real and sometimes negative impact on the 
quality of care delivered to patients through Federal health 
programs.
    Reform of the agency that administers Medicare is a 
critical step in our efforts to protect and strengthen this 
vital program for the future. Too often HCFA is inflexible and 
unresponsive to patient needs.
    A recent report by the Lewin Group indicated that 
beneficiaries have been denied access to some medical 
technologies for up to 5 years or more after approval by the 
Food and Drug Administration.
    HCFA's processes for determining coverage, assigning 
billing codes, and setting payment levels are causing serious 
delays in the availability of these breakthrough treatments for 
patients. These delays cause serious harm to patients in need 
of treatment, and patient care will continue to suffer unless 
HCFA's coverage policies are reformed.
    We will address those issues today while recognizing that 
we must constantly keep the fiscal health of the Medicare 
program at the forefront of all of our efforts. Today, an 
estimated 130,000 pages of laws and regulations govern the 
Medicare program. Many providers are forced to spend as much 
time negotiating the maze of HCFA's bureaucracy as they do 
treating patients.
    To improve the quality of patient care, therefore, we must 
first conduct a top to bottom review of HCFA's structure, 
operations, and regulations. A similar effort by our committee 
to overhaul the Food and Drug Administration led to enactment 
of the Food and Drug Modernization Act in 1997. This critical 
measure removed bureaucratic obstacles which had blocked the 
timely approval of life-saving medications and medical devices 
for patients.
    Under the leadership of our new full committee chairman, 
Congressman Billy Tauzin, we will now tackle an even greater 
challenge: ensuring quality and affordable health coverage for 
patients through Federal health programs. Together, we have 
launched an ambitious initiative to reform HCFA and to put 
patients first.
    On February 13, I had the opportunity to visit HCFA's 
facilities in Baltimore with Chairmen Tauzin, Greenwood, and 
several committee members. The tour underscored the agency's 
complexity and the incredibly broad range of its 
responsibilities. Our discussions with HCFA staff were 
productive, and we did have frank conversations about the 
problems facing the agency.
    Following our visit, Chairman Tauzin, Chairman Greenwood 
and I wrote to Health and Human Services Secretary Tommy 
Thompson to underscore our commitment to improving patients' 
access to quality health care through Federal programs.
    As a former Governor, Secretary Thompson will bring a 
wealth of practical experience to bear in solving this problem, 
and we have solicited his active participation in support of 
this initiative.
    Clearly, patients deserve better access to the most 
technologically-advanced devices and services. This is just one 
example of the many areas in which we will focus over the next 
several months. We will work to ensure patients receive quality 
affordable health care through Federal programs. I am confident 
that we will succeed in our efforts to put patients first.
    The Chair will recognize Mr. Brown, Mr. Greenwood and Mr. 
Deutsch for the usual 5 minute opening statements, and then, 
with unanimous consent, I would like to either limit other 
members' opening statements to 1 minute or else they may choose 
to defer their opening statements until after we have completed 
this first panel. That being the case, the Chair now recognizes 
Mr. Brown for an opening statement.
    Mr. Brown. I thank the chairman. I am pleased to welcome 
our witnesses this morning. This is an important hearing 
because there are questions about certain aspects of Medicare 
coverage and payment rules. If these rules are inappropriately 
delaying or restricting access to certain medical devices, we 
must do something about it.
    This hearing is also important because it is the first of 
several focusing on HCFA operations, and it happens to be 
taking place at a critical point in the history of Medicare. 
Before we get started, I believe it is important to clarify our 
intentions for this and for future HCFA hearings and place our 
review of HCFA operations in the proper context. Otherwise, our 
decision to focus on the details of HCFA's current operations 
could be misperceived as a statement for or against complete 
overhaul of HCFA or as a statement for or against Medicare 
privatization. As I understand it, that is not what these 
hearings are about.
    Last year, the chairman and I along with other subcommittee 
members met with then acting HCFA Administrator Mike Hash. We 
asked him to tell us what HCFA could do and what Congress could 
do to improve program operations and ensure that beneficiaries 
are protected. As I see it, identifying what Congress can do 
and what HCFA can do to improve program operations and keep our 
promises to seniors is the sole purpose of these hearings.
    The goal is not today, should not be today, to demonize 
HCFA. If we are going to dole out blame for incremental 
problems in the Medicare program, Congress, not HCFA, should 
bear the brunt of it. The goal is to make sure that the program 
is running as smoothly as possible. That means looking at each 
of the major variables that influence operations.
    Last Friday, four HCFA administrators representing both 
Democratic and Republican administrations participated in a 
roundtable discussion about HCFA. All four administrators 
agreed on two points: the Health Care Financing Administration 
is severely overburdened and chronically underfunded.
    When managed care plans were asked to share data on how 
they spend the billions of Trust Fund dollars that Medicare 
pays them each year, they screamed too complicated, too much 
work, overregulation. HCFA is not allowed to scream when we 
codify arcane details about how providers are to be paid 
without regard to the operational requirements of those payment 
systems, without regard to the resources and time needed to 
fulfil those requirements, and sometimes frankly without regard 
to logic.
    When over a 3-year period, Medicare Plus Choice plans 
systematically and unceremoniously dropped 1.7 million Medicare 
beneficiaries from coverage instead of cross-subsidizing 
between more and less profitable counties and staying in, 
remaining in those counties and serving those seniors, when 
they underprojected the cost of providing supplemental 
benefits, made bad business decisions, under projected the cost 
of providing supplemental benefits like prescription drugs, and 
then they blamed their missed profit goals on a shortfall on 
reimbursement for basic benefits, what did Congress do? 
Nothing.
    Did we discuss overhauling the Plus Choice program or 
abandoning it in favor of the more stable and reliable Medicare 
fee-for-service program? No. In the great old big government 
tradition, this government, this Congress, threw money at the 
Plus Choice plans. We did not even require that they address 
beneficiary concerns as a condition of receiving the money.
    As we scrutinize HCFA's overtaxed and underfunded 
operations, maybe, just maybe, we should think about giving 
HCFA the resources it needs to do its job. Maybe we should see 
about removing statutory constraints that hold the agency back. 
This is not to say that HCFA is perfect and could not benefit 
from close evaluation of its practices. But in doing so, HCFA 
and Congress must work together to perform a better balancing 
act, making sure beneficiaries are getting quality care, 
protecting the program from fraud, and ensuring that the 
program is responsive and responsible. In this context, Mr. 
Chairman, this hearing is a positive step. I thank the 
chairman.
    Mr. Bilirakis. I thank the gentleman. Chairman Greenwood.
    Mr. Greenwood. Thank you, Mr. Chairman. I would ask 
unanimous consent to submit my written statement for the 
record.
    Mr. Bilirakis. Without objection, the written statements of 
all members of the two subcommittees may be made a part of the 
record.
    Mr. Greenwood. And I would like to forgo my written 
statement, in part, to respond to Mr. Brown's comments, if I 
may.
    Mr. Bilirakis. Yes.
    Mr. Greenwood. In part to set the tone for what is going to 
be a series of these hearings on the Health Care Financing 
Agency. I hope none of us or none of the witnesses demonize 
HCFA, nor the extraordinary people who work for HCFA. That 
would be a mistake. They have had, I think, 17 directors in 23 
years, and frankly it has been the senior staff of HCFA that 
has been trying to make a go of it.
    And what we are all about here is trying to figure out in 
the interest of the 70 some million Medicare and Medicaid 
beneficiaries and the kids in the CHIP program whether there is 
a better way after 23 years of HCFA to structure it, to 
organize it to make it respond to the needs of the seniors and 
kids and the others and the disabled in the country. And that 
is what we ought to be about, particularly as a health 
subcommittee and as an oversight subcommittee.
    I think it is equally destructive and nonproductive to 
demonize the Medicare Plus Choice plans, and, frankly, I think 
that is what you are doing a little bit there, Mr. Brown.
    We should not demonize HCFA. We should not demonize the 
plans. I do agree with you that the reason the Medicare Plus 
Choice plans have not functioned very well is our fault. It is 
the Congress' fault. We did not give them enough money. We 
should not expect them to provide a service that we are not 
willing to pay for. So I am hopeful that in this hearing today 
and in the hearings that follow, let us not demonize anybody. 
Let us not demonize HCFA. Let us not demonize the Medicare Plus 
Choice plans. Let us do what we get paid to do, and that is to 
constructively oversee this agency and see if we can come up 
with a better result. I yield back, Mr. Chairman.
    Mr. Bilirakis. And amen to those comments. Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. Mr. Chairman, today's 
hearing is about how to bring certain reforms to the Health 
Care Financing Administration's efforts to bring new medical 
technologies to market. While I do not dispute the importance 
of today's topic, and I fully believe that you and the rest of 
the committee members on this panel appreciate its importance 
as well, I am concerned that it is somewhat premature for the 
Oversight and Investigations Subcommittee to be holding this 
hearing at this time.
    As you know, the oversight panel is an investigatory body. 
We do investigations. We are set up to conduct lengthy 
examinations designed to explore not only what is dysfunctional 
about a particular government program, but also to explore what 
possible solutions might be used to address whatever 
shortcomings are uncovered.
    But we generally do our investigation first, then hold a 
hearing to report what we have found. What is somewhat 
frustrating about today's meeting is that we have not yet 
completed or even really begun a cursory investigation into 
this matter.
    Instead, what we are doing in this room is really a process 
of opinion gathering. But it should not be construed as a 
presentation of the subcommittee's investigative findings. 
Consider the resources or lack thereof that we have dedicated 
to the investigating of this matter thus far.
    To my knowledge, there has not even been a single 
bipartisan staff interview with HCFA officials in an attempt to 
examine what is broken at the agency as it relates to today's 
topic. Moreover, we are at this hearing with virtually no 
agency documents because thus far we haven't sent out a request 
to HCFA for such information.
    That information is critical if we are going to 
independently assess whether the agency is doing a competent 
job or incompetent job at bringing new technologies to Medicare 
beneficiaries. In virtually every other investigation conducted 
by this subcommittee involving the previous administration, we 
made numerous document requests, often highly burdensome ones 
at that, but why not here?
    Is it because we are just starting out with investigation 
or is it because we already know the conclusions of the 
inquiry? I do not know, but it leaves me and I would guess some 
of my colleagues in a rather awkward position. It is awkward 
because we have not conducted our own careful analysis of these 
matters. Instead, we have spent much of this last week 
scrambling to find last minute information to pull together 
this hearing, which is not a very satisfying process.
    Mr. Chairman, please do not think I am trying to be 
partisan or even unconstructive here. That is not my intent. I 
am indeed committed to working with you on this and other 
important issues, but what I do not want to see is a 
continuation of a practice that sometimes occurred in the last 
Congress, which was to hold an oversight hearing prematurely 
before an investigation was complete or noteworthy findings 
made.
    In other words, if you want support from our side, we 
should work together to conduct a detailed subcommittee 
investigation. Then, put our heads together to determine if we 
are ready to schedule a hearing.
    Let me give you an example of what I mean. The last hearing 
involving the oversight investigation staff examined whether TV 
networks deliberately biased the coverage of the 2000 
Presidential elections. That investigation alone involved 
hundreds of subcommittee staff hours and took several months' 
work.
    It also required document reviews and countless staff 
interviews, many of which required staff travel. It was not 
until considerable work was undertaken and significant analysis 
expended that this hearing was even scheduled. I would only 
hope that if this subcommittee now finds this subject as 
important, it will dedicate the same amount of resources and 
attention.
    Mr. Chairman, let me underscore again that I am willing to 
support you in making all necessary document requests to HCFA 
or the providers regarding the subject. To that end, let me 
also say that I will support you in conducting whatever 
meetings are necessary at the staff level with HCFA or industry 
officials.
    I will even support you in requesting that the General 
Accounting Office assist us should we find it necessary. But if 
we are going to investigate the processes and procedures HCFA 
uses to approve or reject certain medical technologies for 
Medicare beneficiaries, a highly complex and technical matter, 
then we need to spend significantly more time behind the scenes 
before we gather in this room.
    That being said, Mr. Chairman, let me conclude by saying 
the following: I do want to stress the importance of improving 
access to medical technologies for our seniors. Overall, our 
country's health care system has gone from one of intervention 
to one of prevention. The entrance of new medical technologies 
into the health care arena is allowing millions of Americans to 
live longer, healthier lives.
    It is imperative that our seniors have access to these same 
innovations in a timely fashion. We in Congress must ensure 
that the system designed to provide this access works in the 
most expedient and efficient manner possible. I look forward to 
learning more about HCFA's role in this process and ways in 
which we can better the system to take advantage and give 
advantage to the nation's seniors.
    Again, Mr. Chairman, I look forward to working with you 
constructively in the future and I hope you will take my 
concerns into consideration. With that, I welcome our witnesses 
and I thank them in advance for their thoughtful testimony.
    Mr. Bilirakis. The Chair thanks the gentleman and 
recognizes the chairman of the full committee, Mr. Tauzin, for 
an opening statement.
    Chairman Tauzin. Thank you, Mr. Chairman. Mr. Bilirakis and 
Mr. Greenwood, let me congratulate you on this, the first of, I 
hope, what will be many efforts of joint O&I and substantive 
subcommittee work at examining the problems that the Federal 
agencies which do govern some of the most important programs 
that provide health care services to patients across America.
    Let me comment quickly on what I know and what I hope this 
effort will achieve. Let me first indicate that we could wait 
until we do a great deal more investigation on a staff level. 
We could have many meetings with HCFA. We could have many 
exchanges of letters. We could do a lot of things, but the 
first and most important thing we do is gather, as members of 
these two subcommittees, and begin to take testimony on the 
record so that we can get into these subject matters as quickly 
as possible.
    I want to commend you for not waiting but moving. This 
committee has waited too long. There have been too many months 
and too many years where this committee has not engaged the 
serious concerns of Americans as we have heard them in letters 
and calls to this committee regarding the administration of 
these vital programs.
    And I am pleased that the focus is going to be on patients 
first. I am pleased that you are going to put a human face on 
this question: how well are patients in America being served by 
the Federal bureaucracies that manage these critical programs 
that are critical to their lives, that make a great difference 
in how long and what kind of quality of life Americans enjoy?
    And this objective, to make sure that seniors will have 
access to the best technologies that our country can offer, 
that the government is not standing in the way but always 
assisting in moving new technologies out into the marketplace 
where they have been properly tested and properly prepared to 
save lives and extend the quality of life, and I want to again 
commend you for not waiting but for moving.
    And I want to commend all of you on the two committees for 
taking this as seriously as I know you are. This is serious 
business, and it is not, I hope, going to bog down in partisan 
concerns and complaints or fingerpointings. We are not here to 
score points at each other's expense. We are here to learn, to 
learn what is wrong with the system, what is right with it, and 
then to fix those things that are wrong, not in the interest 
again of politics, but in the interest of patients, and the 
fact that you have put patients first in this inquiry, in this 
project, is something I know Americans will appreciate.
    And the fact that the two of you can cooperate in this 
inquiry, because there will be many hearings before we are 
through--a lot of cooperation is going to be required between 
O&I and the committee you chair, Mr. Bilirakis--as chairman of 
the full committee, I want to thank you.
    The full committee will appreciate the work you do. We look 
forward to the results of your hearings of what you find out. 
We do not come with preconceived notions about what is right 
and what is wrong and what can be fixed and what cannot be 
fixed. We come with a very open mind and open inquiry, and I 
hope that is the way all of us approach it on both sides of the 
aisle.
    This committee, as I said in the first organizational 
meeting, is going to be a very key and active player in the 
very important health care decisions that are being made in the 
Congress in the next 2 years. This set of inquiries will set 
the stage for us, will tell us what we in Washington can do to 
make sure that the best health care delivery system in the 
world is even better because we have put patients first. Thank 
you, Mr. Chairman.
    Mr. Bilirakis. And I thank you very much, Mr. Chairman, and 
I would like to suggest that it is not just the two of us, but 
the four of us in terms of working together and, of course, the 
members of both subcommittees on both sides of the aisle.
    Mr. Linkletter will have to leave at 11 o'clock, we are 
advised. That being the case, I have already received unanimous 
consent that members can have the choice of either limiting 
their opening statement to 1 minute now, if they choose to do 
so, or else deferring their opening statement until after this 
first panel has been completed.
    That being the case, I will go right on down the aisle. Mr. 
Bryant, what is your choice?
    Mr. Bryant. Mr. Chairman, I will defer.
    Mr. Bilirakis. Defer. Ms. Capps?
    Ms. Capps. Defer.
    Mr. Bilirakis. You will defer. Mr. Shadegg?
    Mr. Shadegg. Defer.
    Mr. Bilirakis. You will defer. Let us see who is next here. 
Mr. Rush?
    Mr. Rush. Defer.
    Mr. Bilirakis. You will defer. Mr. Pitts? One minute now or 
defer your opening statement until later?
    Mr. Pitts. Thank you, Mr. Chairman. I will submit my 
written statement for the record, but, first of all, Chairman 
Bilirakis and Chairman Greenwood, I would like to than you for 
undertaking----
    Mr. Bilirakis. One minute, please, sir.
    Mr. Pitts. I understand--such in-depth review of HCFA's 
major programs, policies, and operations. I think the review is 
long overdue, but with your strong leadership, I think that 
will start us on the path of improving the quality of care for 
our nation's beneficiaries.
    I am pleased with the topic of the first year, which will 
look into the complexities of the Medicare system. I look 
forward to learning more about the processes for reimbursement 
for medical devices and new technologies, and how these 
processes will affect patient care.
    I have one company, Centocor, in my district that has had a 
lot of experience with a drug called ReoPro through the years. 
It was approved by FDA in 1994. There have been problems, 
roadblocks that have delayed access, so I am looking forward to 
the information we receive in the hearing. Thank you.
    Mr. Bilirakis. And I thank the gentleman. Mr. Engel, 1 
minute now or defer?
    Mr. Engel. I will take the minute now, Mr. Chairman.
    Mr. Bilirakis. Take the minute now.
    Mr. Engel. Thank you, Mr. Chairman. There are so many areas 
in which we need to improve how we care for our nation's 
seniors, one of which is to provide beneficiaries with the most 
advanced medical technologies when they become available. The 
fact that many are suffering simply because of the lengthy 
Medicare approval process is just not tolerable.
    New technologies are emerging everyday that enhance the 
quality of life for so many. New medical treatments and devices 
are eliminating the need for intrusive surgery or painful 
procedures. However, many seniors do not have access to these 
new methods even though they have been approved by FDA because 
Medicare will not pay for them.
    We will hear testimony today illustrating the fact that 
many seniors are denied access to specific treatments, for 
several years in some instances, due to the lengthy Medicare 
approval process. In some cases, physicians may not offer new 
services despite the benefit to patients because of the 
administrative burden in dealing with HCFA.
    Without an improved process that allows companies to get 
their new devices on the market in a timely manner, we run the 
risk of discouraging research and development into new 
technology. So I am glad we are doing this today. I welcome the 
panel, particularly Mr. Linkletter, who has been a hero of mine 
for so many years. I want to thank the panel for coming and I 
thank you, Mr. Chairman.
    Mr. Bilirakis. And I thank the gentleman. Mr. Upton?
    Mr. Upton. Defer.
    Mr. Bilirakis. Defer. Mr. Stupak?
    Mr. Stupak. Defer.
    Mr. Bilirakis. Defer. Mr. Whitfield?
    Mr. Whitfield. Defer.
    Mr. Bilirakis. Defer. Mr. Green?
    Mr. Green. Mr. Chairman, I will take my 1 minute and I will 
submit my total statement. Like my colleagues, I want to 
welcome, Mr. Linkletter. I rode over on the train with you or 
walked over with you and it is good to have you here.
    Mr. Bilirakis. The gentleman has 1 minute.
    Mr. Green. I agree with Mr. Greenwood that hopefully our 
effort is to modernize HCFA and to provide the resources for 
HCFA to be able to put these technologies on the market 
quicker, provide not only resources, but also I noticed, and if 
the witnesses will address it, it is not just with Medicare, it 
is also with third-party reimbursement, but also private 
insurance for some of the new technologies, and so it is not 
just HCFA that is a problem. I think it is lots of third 
parties. Thank you, Mr. Chairman. I yield back.
    [Additional statements submitted for the record follow:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Mr. Speaker: Thank you for holding a hearing on the need to create 
a stronger and more efficient Health Care Finance Administration. I 
have heard from a number of doctors in my district about the problems 
they have encountered with the agency, and am eager to discuss ways to 
resolve those problems.
    HCFA approval and coverage for new technologies is a timely issue. 
Congress has debated for years the need to modernize Medicare to 
include a prescription drug benefit. But we cannot stop there. The 
program must be modernized to utilize the best of all technologies--not 
just prescription drugs.
    Health care technologies have improved the quality of our health 
care for all Americans. Advancements in medical technology have had 
many benefits, from providing information systems that monitor patient 
treatment data, to new diagnostics tests that detect diseases at 
earlier stages, when they are less expensive to treat, and more likely 
to be cured.
    I am troubled by reports that new technologies are taking too long 
to approve. None of us would want to wait 3 to 5 years for a life-
saving technological advancement, and we don't want our seniors to wait 
that long either.
    Like my colleagues, I am committed to streamlining HCFA's process. 
This hearing presents an excellent opportunity to examine the problems 
that exist and discuss solutions for them.
    I look forward to the testimony of our witnesses, especially our 
physicians who are working with new technologies. Houston Medical 
Center is near my district, and I am constantly amazed by the work that 
they are doing at the various hospitals there.
                                 ______
                                 
    Prepared Statement of Hon. Joseph R. Pitts, a Representative in 
                Congress from the State of Pennsylvania
    Thank you Mr. Chairmen.
    Chairman Bilirakis and Chairman Greenwood, I would like to thank 
you for undertaking such an in depth review of HCFA's major programs, 
policies, and operations. This review is long overdue; but with your 
strong leadership, will start us on the path of finally improving the 
quality of care for our nation's beneficiaries.
    I am pleased with the topic of the first hearing in this series, 
which will look into specific complexities in the Medicare system. I 
look forward to learning more about Medicare's processes for 
reimbursement of medical devices and new technologies, and how these 
processes affect patient care.
    In fact, Centocor, an innovative biotechnology company based in 
Chester County, Pennsylvania, has a perfect example of how frustrating 
it is to have new drugs and technologies adopted and reimbursed by 
HCFA.
    Centocor manufactures the drug ReoPro, part of a class of platelet 
inhibitors. ReoPro was approved by the FDA in 1994, and its clinical 
effectiveness is unquestioned.
    However, it seemed that HCFA consistently created roadblocks that 
delayed access to this breakthrough therapy.
    Over a period of years, HCFA insisted that it would not create a 
tracking code for platelet inhibitors. This means that costs for 
angioplasty cases in which ReoPro was administered could not be tracked 
for purposes of assessing the appropriate diagnostic related group 
(``DRG'') these cases should be in for payment purposes. After 
significant Congressional pressure, HCFA finally began to grant 
tracking codes for these drugs. ReoPro's code was effective October 1, 
1998--three years after it should have been, had HCFA responded more 
reasonably.
    Even with a tracking code, it takes HCFA at least two years before 
making a DRG reclassification based on its own data. Therefore, 
pursuant to its own policy, HCFA would not make a reclassification for 
angioplasties with platelet inhibitor therapy until FY 2001 at the 
earliest. This is a six-year delay for a drug approved in 1994.
    Because HCFA's originally failed to grant tracking codes for drugs, 
and because of the extended delay as HCFA waited for its own data on 
use of these codes, Congress twice urged HCFA to consider outside data 
in making DRG reclassifications. (First in BBA 97 Report Language and 
second in the FY 1999 Senate HHS-Labor Appropriations report.)
    Centocor was one of the first to submit outside data to HCFA under 
this authority. The data showed that Medicare beneficiaries are 15 
percent less likely to get the drug, and charges for Reopro cases are 
consistent with charges in DRG 116 and not its current DRG 112.
    Nonetheless, HCFA rejected the data submitted to them.
    To this day, if ReoPro is used during angioplasty in a hospital 
inpatient setting, hospitals are not receiving the extra payment for 
it. This seems to mean, Mr. Chairman, that hospitals have a 
``disincentive'' to use ReoPro, as they won't receive proper payment 
from Medicare.
    Further, failure to resolve this issue in FY 2000 seems to sends a 
message that HCFA will not utilize outside data.
    Chairman Greenwood and Chairman Bilirakis, this is only one small 
example from my district--but I fear that many other new drugs and 
technologies are experiencing similar delays as they move through 
HCFA's coverage, coding, and payment processes.
    This causes me to question how many years HCFA will be content to 
delay Medicare beneficiaries' access to new technologies.
    Again, Mr. Chairman, thank you for holding this hearing. And I 
thank the witnesses for sharing with us today. I look forward hearing 
your testimony.

    Mr. Greenwood I believe everyone has either been recognized 
or deferred; is that correct? Okay. For those of you who are 
witnesses and wondering why the chairman and I just changed 
places, I am the chairman of the Oversight and Investigations 
Subcommittee, and I think you are aware that the committee is 
holding an investigative hearing and that when doing so has had 
the practice of taking testimony under oath. Do any of you have 
objections to testifying under oath?
    [No response.]
    Mr. Greenwood. Let me introduce to the audience, first, who 
our witnesses are before I swear them in. Mr. Art Linkletter is 
the national spokesperson for United Seniors Association and a 
hero to all of us who grew up watching him on television. I was 
going to say ``Subcommittee chairmen say the darndest things'' 
this morning, but I chose not to.
    Dr. Paul Shreve is the Director of General Nuclear Imaging 
Section at the University of Michigan Medial Center in Ann 
Arbor. He is accompanied by Ms. Kathleen Dziuba.
    And Dr. Jeffrey Popma is the Director of Interventional 
Cardiology at Brigham and Women's Hospital in Boston, 
Massachusetts, accompanied by Mr. Donald Latulippe.
    Mr. Latulippe. Latulippe.
    Mr. Greenwood. Latulippe. Okay. And do we swear in all five 
of these witnesses, as they may all be testifying? Okay. The 
Chair then advises you that under the rules of the House and 
the rules of the committee, you are entitled to be advised by 
counsel. Do you desire to be advised by counsel during your 
testimony today?
    [No response.]
    Mr. Greenwood. I will take that silence as a no.
    In that case, if you would please rise and raise your right 
hand, I will swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. Very well. You are now under oath and you 
may give a 5-minute summary of your written statement. I will 
excuse myself while I go introduce my Governor at another 
hearing and turn the meeting back to the chairman.
    Mr. Bilirakis. Your written testimony is already a part of 
the record, so we would hope that you would complement that. I 
will set the clock at 5 minutes, but obviously if it looks like 
you are rolling pretty well and will not take too much very 
much longer, we will let you go a little while longer. Mr. 
Linkletter, you are first in our hearts and first here this 
morning. So please proceed, sir. Make sure you have that mike 
close to you and on. I guess it is on. Is it on?

  TESTIMONY OF ART LINKLETTER, NATIONAL SPOKESPERSON, UNITED 
  SENIORS ASSOCIATION; PAUL SHREVE, DIRECTOR, GENERAL NUCLEAR 
    IMAGING SECTION, UNIVERSITY OF MICHIGAN MEDICAL CENTER, 
ACCOMPANIED BY KATHLEEN DZIUBA; AND JEFFREY J. POPMA, DIRECTOR, 
    INTERNATIONAL CARDIOLOGY, BRIGHAM AND WOMEN'S HOSPITAL, 
                ACCOMPANIED BY DONALD LATULIPPE

    Mr. Linkletter. I have had a little experience with these.
    Mr. Bilirakis. Yes, you have had.
    Mr. Linkletter. Since 1933. Mr. Chairman and members of the 
committee, thank you very much for inviting me to be here with 
you today to testify on behalf of the United Seniors 
Association. It is a nationwide grassroots senior advocacy 
group. We have over 550,000 members.
    I have struck out already?
    As we were saying earlier in the program, I am Art 
Linkletter and I am the National Spokesman for United Seniors. 
It was founded in 1991, and, as a matter of fact, I was with 
Senator Murphy at the Bohemian Club in San Francisco before he 
even began to think of founding USA, which is for the purpose 
for letting the seniors of America, a large and growing group, 
to express their opinions. And now our present president and 
CEO, Charlie Jarvis, is a powerful voice in Washington and 
across the Nation to bring hope and prosperity and health and 
freedom for all Americans who believe in lower taxes, smaller 
government, a strong free enterprise system, and the power of 
united generations, not just old, but old and young.
    And I might add I am not here only as a spokesman and a 
member of the USA, but I am past president of the Center on 
Aging at the UCLA Geriatric School. I am the chairman of the 
board of the John Douglas French Alzheimer's Research 
Foundation, an international fundraising group for the 
Alzheimer's group. I have been a spokesman for Humana, a large 
HMO, and a PPO called PAP Care, and I lecture across the 
country at senior citizen places, bringing information and 
asking questions of seniors across the United States.
    I am also a Medicare beneficiary, and like all other 
members of USA, we are concerned about the long-term solvency 
of the program. But USA members are not only worried about the 
fiscal health of the program. According to the Mayo foundation, 
this taxpayer-funded program has now amassed over 130,000 pages 
of laws, rules, regulations, guidelines and paperwork. And this 
crushing regulatory burden makes care more costly and delays 
patient access to the new diagnostic tests and treatments.
    I am very pleased today that this committee is reviewing 
the policy and procedures which govern how the new and 
innovative medical technologies are adopted by Medicare. USA 
members appreciate your attention to these processes, and as a 
person who has been witnessing a lot of them lately at our 
advanced technical places at UCLA, I can assure you that we are 
at a gigantic revolutionary moment in the history of medicine.
    Just a week ago, 2000 scientists met in San Francisco to 
discuss how the gene program is going to revolutionize medicine 
in the next few years, and it is so startling that I can't even 
believe what I heard.
    But we are concerned that today's Medicare program remains 
a structure made for another time and an earlier understanding 
of Medicine. The program has changed little in the 35 years 
since it began and it has not kept pace with profound 
advancements. It couldn't. It is impossible. And yet these very 
advances will play an important role in keeping Medicare 
solvent.
    Think of DNA-based tests to detect diseases before they 
even appear in the body, take the tissue engineered 
technologies to replace failing hearts and livers, the less 
invasive surgeries that let people get back to work, and palm-
held computers to reduce medical errors and information 
technologies to streamline administration.
    Now, ladies and gentlemen, seniors are aware of these new 
technologies, like the PET scan, the Positron Emission 
Tomography, which I have seen work, and which can detect 
diseases earlier when they are cheaper and more effective to 
treat. And then new devices like pacemakers, neural brain 
stimulators, allowing seniors to live productive, happy 
retirement days. Progress in surgical options like angioplasty, 
being coupled with new devices like stents, which allow doctors 
to address a deadly blocked artery through a very tiny 
incision. Now, these advances are not only amazing, they are 
less invasive, less painful, less expensive, staving off long 
hospital stays.
    I am not an expert on the coverage and coding process for 
the new medical technologies and treatments, but over my TV and 
radio days and in writing my many books, one thing I know 
something about is people, especially seniors. In writing my 
most recent best seller, Old Age is Not for Sissies, I travel 
all over the country with focus groups, trying to understand 
the world in which we seniors live today, and I know that 
seniors greatly appreciate the Medicare program, but they worry 
about a myriad of Medicare-related issues, especially coverage 
issues.
    Now, as Members of Congress, who have probably gotten 
dozens of calls from concerned seniors, you here at the 
committee could probably help me put together a new television 
special called ``HICF Does the Darndest Things.''
    I have read briefly through the summary of the Lewin Report 
that Mr. Goodman will testify about in the panel today, and I 
while I have not memorized the complexities of the coding 
systems or the various steps in the coverage program, I am 
struck by the fact that it can take 15 months to 5 years or 
longer for HCFA to integrate new medical technologies.
    As a matter of fact, as an owner and a partner in a new 
chain of new ideas on curing incontinence, I just went through 
the bankruptcy of our program 2 months ago due to problems we 
had with payments and okays and delays by Medicare, so I am 
speaking from the purse now, not from the mind.
    Truth be told, it is not all HCFA's fault that the system 
has difficulties in deciding how to handle all this new stuff. 
Some of these technologies not only did not exist when the 
program began, they were not even imagined. It is not 
unimaginable that the current processes for reviewing these 
miracles of science and medicine need to be updated to allow 
the hardworking people at HCFA to integrate them into the 
Medicare program.
    Now, I know that the oversight plan for this committee for 
the year outlines how you will all continue efforts to identify 
and expose instances or patterns of waste, fraud, and abuse in 
the Medicare and Medicaid programs, or opportunities for 
activities due to inadequate policies or procedures or 
controls.
    The coverage, coding and payment process system is ripe for 
review, and USA, our group, thanks all members of the committee 
who are working to make the process and the program overall 
more efficient and effective for America's 39 million Medicare 
beneficiaries.
    One more word on behalf of all of us seniors that I would 
like to have you remember: it is better to be over the hill 
than under it.
    Thank you.
    Mr. Bilirakis. Some of us need to be reminded of that, Mr. 
Linkletter. Thank you, sir. Thank you for testifying and, of 
course, for having served all of us in so many happy ways over 
the years. You are continuing to do so now in your later years, 
and may God bless you for it.
    [The prepared statement of Art Linkletter follows:]
 Prepared Statement of Art Linkletter on Behalf of the United Seniors 
                              Association
    Mr. Chairmen, Ranking Members, and Members of the Committee, thank 
you very much for inviting me to be here with you today to testify on 
behalf of the United Seniors Association, a nationwide grassroots 
Senior advocacy group with over 550,000 members.
    I am Art Linkletter and I am the National Spokesman for United 
Seniors Association (USA). USA was founded in 1991, and under the 
leadership of President and CEO Charles W. Jarvis, provides a powerful 
voice in Washington, D.C. and across the nation to bring hope, 
prosperity, and health freedom for all Americans who believe in lower 
taxes, smaller government, a strong free enterprise system, and the 
power of united generations.
    But I am here today not only as the spokesman and member of USA. As 
a senior American, I am also a Medicare beneficiary myself. Like all 
other members of USA, we are concerned about the long-term solvency of 
the program, as well as patient choice and access within the system.
    USA members are not only worried about the fiscal health of the 
program. According to the Mayo Foundation, this tax-payer funded 
program has amassed over 130,000 pages of laws, rules, regulations, 
guidelines and paperwork. This crushing regulatory burden makes care 
more costly for everyone, and frequently delays patient access to 
important new diagnostic tests and treatments.
    I am pleased that today the Committee is reviewing the policies and 
procedures which govern how new, innovative medical technologies are 
adopted by Medicare. USA members appreciate your attention to these 
processes, because we believe that seniors should have timely access to 
many of the lifesaving and life-enhancing advances that are being 
developed today.
    We are concerned that today's Medicare program remains a structure 
made for another time and an earlier understanding of medicine. The 
program has changed little in the 35 years since its inception and has 
not kept pace with profound advancements in health care technology or 
delivery.
    Yet these very advances will play an important role in keeping 
Medicare solvent. A host of exciting new breakthroughs will improve the 
efficiency and effectiveness of our health care system:

 Technologies like DNA-based tests to detect diseases before 
        they even appear,
 tissue-engineered technologies to replace failing hearts and 
        livers,
 less-invasive surgeries that allow people to return to work 
        quickly, and
 palm-held computers to reduce medical errors, information 
        technologies to streamline health care administration.
    Seniors are aware of the new technologies--like the PET scan 
discussed here today, which can detect diseases earlier, when they are 
cheaper and more effective to treat. New devices, like pacemakers and 
neural brain stimulators, are allowing seniors to live productive, 
happy retirement days. Progress in surgical options, like angioplasty, 
are being coupled with new devices like stents and allow doctors to 
address a deadly blocked artery through a small incision! These 
advances are not only amazing--they are less invasive, less painful, 
and often less expensive to the overall health care system by staving 
off long hospital stays and rehabilitations.
    I am not an expert on the coverage and coding process for new 
medical technologies and treatments, but over my television and radio 
days, and in writing my many books, one thing I do know about is 
people--including seniors. In writing my most recent best seller, ``Old 
Age is Not for Sissies,'' I spent a lot of time trying to understand 
the world in which we seniors live today. I know that seniors greatly 
appreciate the Medicare program, but do worry about a myriad of 
Medicare-related issues, especially coverage issues.
    As Members of Congress who have probably gotten dozens of calls 
from concerned seniors and baffled health care providers trying to 
navigate the Medicare system, you could probably help me put together a 
television special entitled ``HCFA Says the Darndest Things.''
    I've read briefly through the summary of the Lewin Report that Mr. 
Goodman will testify about in the next panel today. While I have not 
memorized the complexities of the coding systems or the various steps 
in the coverage process, I am struck by the fact that it can take 15 
months to 5 years--or longer--for the Health Care Financing 
Administration (HCFA) to integrate new medical technologies into 
Medicare. As major consumers of health care services, it is 
disconcerting that a senior may have to wait 5 years to have access to 
a technology that is already saving lives in other healthcare settings.
    As we stand at the forefront of amazing advances in health care, we 
cannot even imagine what medical miracles will emerge in the coming 
years. But we do know that money spent researching and developing all 
the latest advances is money well spent--whether it helps find a drug 
to cure Alzheimer's, track medications to prevent a patient from mixing 
deadly combinations for differing ailments, or a mechanical heart to 
save the life of someone on a transplant list.
    And, truth be told, it's not all HCFA's fault that the system often 
has difficulties in deciding how best to handle new technologies. Some 
of these technologies not only didn't exist when the program began, 
they weren't even imagined! It is not unimaginable that the current 
processes for reviewing these miracles of science and medicine need to 
be updated to allow the hardworking people at HCFA to effectively 
integrate them into the Medicare program.
    I know that the oversight plan for this committee for the year 
outlines how you will all continue efforts to identify and expose 
instances or patterns of waste, fraud, and abuse in the Medicare and 
Medicaid programs, or opportunities for such activities due to 
inadequate policies, procedures, or controls. The coverage, coding and 
payment process seem ripe for review and USA thanks all members of this 
Committee who are working to make the process, and the program overall, 
more efficient and effective for Americas 39 million Medicare 
beneficiaries.
    Again, thank you for your work on these important issues, and for 
inviting me to speak on behalf of USA today.

    Mr. Bilirakis. Dr. Shreve and Ms. Dziuba. Please proceed, 
Doctor.

                    TESTIMONY OF PAUL SHREVE

    Mr. Shreve. Thank you. It is a pleasure to be here this 
morning. I did not realize I would have a hard act to follow 
here, but I am certainly pleased to be here. My name is Dr. 
Paul Shreve, and I am a diagnostic radiologist at the 
University of Michigan Health System.
    This morning I would like to discuss a medical imaging 
technology known as Positron Emission Tomography, or PET. In 
the last decade, this technology has become an indispensable 
tool in medical diagnostic imaging, yet it remains unavailable 
to Medicare patients for many key indications still.
    All of us here this morning are well aware of the 
remarkable advances in medical technology. This U.S. Congress 
continues a long and noble tradition of medical research 
funding that has made our nation the world leader in medicine. 
I am sure that we can all agree that our goal is to bring these 
lifesaving medical advancements to patients as quickly and 
efficiently as possible.
    PET is an example of a major advancement in medical 
technology, an outgrowth of federally supported medical 
research, that has been kept from our patients for too long due 
to disorganized and indifferent Federal agencies. PET scans 
like CAT scans are cross-sectional images of the body. Unlike 
the CAT scans and MRI scans you may be familiar with, however, 
PET scans are images not just of the body's internal anatomy 
but of tissue, organ and biochemistry. PET images are literally 
slices of life.
    This is the molecular imaging for the era of molecular 
medicine. With PET we can identify cancer earlier and with 
greater certainty than any other imaging technology. We can 
determine when a cancer is responding to therapy before the 
tumor shrinks. We can even diagnose Alzheimer's disease before 
it can be done by clinical exam.
    PET is a prime example of what is right about Federal 
support of research. We have taken a basic understanding of the 
molecular basis of disease in the laboratory at the bench and 
moved it to the patient at the bedside, something we refer to 
as from bench to bedside.
    Yet for the past 10 years, PET has largely been on hold due 
to regulatory and reimbursement issues centered largely here in 
Washington. While private insurance carriers began paying for 
PET scans over 10 years ago, consideration of payment by HCFA 
remains stalled.
    First, it was not clear which government agency should 
regulate the production and compounding of the molecular probes 
known as positron radiopharmaceuticals used in the PET scans 
and exactly how the production and use of these agents would be 
regulated.
    Without FDA approval, a positron radiopharmaceutical use 
for PET imaging was considered experimental by HCFA and not 
eligible for reimbursement consideration. A single very limited 
indication of heart disease made it through the regulatory 
morass only by the mid-'90's. It literally took an act of 
Congress, the Food and Drug Administration Modernization and 
Accountability Act of 1997 to clear this impasse.
    Repeated efforts to bring PET to Medicare beneficiaries 
have been met with delay and indifference from HCFA. Each small 
increment in coverage has required pressure from Congress. In 
1998, we finally received limited coverage for lung cancer. 
Three more cancers were introduced a year later after continued 
pressure from Congress. This past fall, a massive document 
requesting broad coverage of PET for cancer diagnoses of all 
cancers and for coverage of such important diseases as 
Alzheimer's disease was submitted to HCFA.
    This included analyses of over 400 published articles in 
some 15,000 patients that underwent PET scans. The request for 
broad coverage was strongly supported by the National Cancer 
Institute of the NIH. The FDA itself had concluded broad 
indications for FDG used with PET scans were justified. Some 19 
senators from both political parties urged broad coverage by 
HCFA in a letter to Secretary Shalala.
    The final coverage decision announced in December provided 
additional coverage for two more cancers, limited coverage for 
refractory seizures and myocardial viability under certain 
circumstances. Coverage of breast cancer and Alzheimer's 
disease was referred to the MCAC Diagnostic Imaging Panel for 
review this May.
    We find ourselves now in a disturbing situation. While 
Medicare coverage for several cancers now exists--a total of 
six actually--no cancers uniquely affecting women are covered. 
Breast cancer is not covered. Ovarian cancer is not covered. 
Cervical cancer is not covered nor is uterine cancer. 
Alzheimer's disease is not covered. How many iterations must we 
go through with HCFA to get coverage for these important 
diseases? How long will this take? How many more years will 
women covered by Medicare have to wait before they can add PET 
to their battle with diseases they must fight?
    HCFA has not established clear standards which new 
technologies must meet for reimbursement so decisions become 
arbitrary and painfully slow. I believe we all want to ensure 
quality and affordable health care for all Americans. We should 
not fear new technology, reflexively seeing such as expensive.
    As a practicing physician, I can assure you that it is 
mistakes that are expensive. It is the missed diagnosis and the 
missed diagnoses that end up costing everyone. All Americans 
should benefit from the knowledge and technology our federally 
supported medical research provides. Everyday now at our 
medical center we are avoiding unnecessary surgery, invasive 
procedures, and useless treatments due to the improved accuracy 
possible with PET.
    We are more accurately directing therapies using PET. 
Medicare patients should not have to wait 10 years to have 
access to PET. Women today should not have to wait additional 
years for HCFA coverage of diseases they must battle. The road 
from the laboratory research bench to the patient's bedside 
should not be filled with potholes, detours and dead ends. 
Technology as groundbreaking and useful as PET should not be 
held back for years because HCFA has not established standards 
which new technologies must meet and consequently must resort 
to decisions which are often arbitrary.
    We must untangle the web of regulations and agency 
infighting and establish a clear intent within our Federal 
Government to improve patient access to new technologies in the 
Medicare program. I should like to urge the committee today to 
take steps to require HCFA to integrate PET and other new life 
saving technologies into Medicare on a timely basis. Thank you.
    [The prepared statement of Paul Shreve follows:]
 Prepared Statement of Paul Shreve, Director, General Nuclear Imaging 
             Section, University of Michigan Medical Center
    Thank you for inviting me to testify before The Committee on Energy 
and Commerce of the U.S. House of Representatives. My name is Dr. Paul 
Shreve, and I am a diagnostic radiologist at The University of Michigan 
Health System, where I am Associate Professor of Radiology and Director 
of the Clinical PET Imaging Service. I am trained in both diagnostic 
radiology and nuclear medicine, and have been in practice for nearly 10 
years. This morning I should like to discuss a medical imaging 
technology known as Positron Emission Tomography, or PET. In the last 
decade this technology has become an indispensable tool in medical 
diagnostic imaging, yet it remains unavailable to Medicare patients for 
many key indications due to regulatory overlap among government 
agencies and lack of clear standards and standardized mechanisms 
governing coverage decisions in the Health Care Financing 
Administration.
    All of us here this morning are well aware of the remarkable 
advances in medical technology. Many of these advances originated in 
academic laboratories here in the United States supported by federal 
research funding over the years. This U.S. Congress continues a long 
and noble tradition of medical research funding that has made our 
nation the world leader in medicine. I am sure we can all agree that 
our goal is to bring these life saving medical advancements to patients 
as quickly and efficiently as possible.
    PET is an example of a major advance in medical technology, an 
outgrowth of federally supported medical research, that has been kept 
from our patients far too long due to disorganized and indifferent 
federal agencies such as HCFA. First allow me to explain what PET is, 
and why it represents a major advance in medice. I am sure most of you 
are familiar with a CAT scan. This is a type of X-ray machine that 
makes pictures of the body's internal anatomy, which are not unlike a 
series of slices of bread. This technology has become common in medical 
practice today, as are other methods of medical imaging such as 
ultrasound and magnetic resonance imaging (MRI). All of these methods 
largely depict only the internal anatomy of the body and have become 
immensely useful in medical practice. Prior to such cross-sectional 
imaging technology, we were often left with only the option of surgery; 
literally cutting people open to see what was going on inside. These 
methods of making pictures of the body's internal anatomy began with 
Roentgen's discover of the X-ray, and served us well in the last 
century given our crude understanding of biology and human health and 
disease. I say crude because we are now on the verge of a revolution in 
biology and medicine, the beginning of an era of molecular medicine. 
Health and disease in the post human genome project era will be 
assessed, diagnosed and treated at the molecular level. PET is a method 
of molecular imaging, a medical technology for 21st century medicine.
    PET scans of the body actually look somewhat like CAT scans, except 
the PET scans depict the body's tissue metabolism, not just the 
anatomy. The images are literally ``slices of life''. Images of the 
biochemical and fundamental molecular events of organs and tissues 
reveal disease at their earliest, and hence, most curable stages. 
Equally important, there are numerous abnormalities inside our bodies 
detected by conventional medical imaging, which are inconsequential, 
but often indistinguishable from serious disease. A significant 
contribution to accelerating health care expenditures is the 
``diagnostic detour'' frequently pursued as a consequence of the 
exquisitely depicted, but frequently non-specific abnormalities we find 
when we put patients in a CT or MRI machine. PET allows us to avoid 
many of these expensive detours because PET directly depicts the 
underlying biological basis of disease.
    This ``biological imaging'' has been under development for over 
twenty-five years. The ability to perform the ``molecular assays'' of 
the research laboratory in a living human subject safely and non-
invasively using short lived positron radioisotopes began in the 1970s 
with the construction of full ring PET scan devices and the application 
of molecular imaging probes such as fluorodeoxyglucose (FDG). This 
early work occurred almost exclusively in U.S. government and academic 
research laboratories, funded by federal research grants from agencies 
such as the NIH and DOE. As one would expect, the initial focus of PET 
imaging was scientific research. PET allowed us to answer many 
fundamental questions regarding the true nature of human health and 
disease by looking directly at the molecular events as they occurred in 
the patient. By the 1980s, it became increasingly clear to physicians 
and scientists this molecular imaging approach would be a powerful 
diagnostic tool in the clinic, allowing for earlier and more accurate 
imaging diagnosis of cancer, heart disease and neurologic diseases.
    By the early 1990s, clinical research studies using PET, many again 
funded by federal research dollars, had shown remarkable advantages 
over conventional medical imaging in the detection of cancer, 
reversible heart failure and even Alzheimer's disease. For example, our 
medical imaging approach to cancer in the chest and abdomen until then 
had been essentially based on size. If something is abnormally enlarged 
on CAT scan, it may be bad, maybe even cancer, while if it is small, it 
more likely is not cancer. It sounds crude because it is, and 
consequently limited. Cancer starts out small--nothing abnormal on 
conventional medical imaging--but that is precisely when it is most 
curable. Further, we all have things in our bodies that get a bit out 
of proportion as we age--but by and large we live with this. By making 
images of the fundamental biochemical abnormalities that underlie most 
cancers, PET allows us to diagnosis cancer very early, before it 
becomes an identifiable mass. Further, PET allows us to determine which 
of those masses we may have inside our bodies really are serious, and 
which are best left alone. Another example is Alzheimer's disease. CAT 
scans and MRI scans of the brain show us remarkable anatomic detail, 
yet these images of the brain of a normal patient and a patient with 
Alzheimer's disease of roughly the same age are indistinguishable at 
any given time. Changes in the biochemistry of the brain occur very 
early in Alzheimer's disease in a predictable pattern; this has been 
known for nearly twenty years now. We now also know these changes can 
be clearly depicted by PET. PET can detect the disease up to 3 years 
before diagnosis by any other means.
    In many ways PET represents what is right and what is wrong with 
our federal government's involvement in medicine. PET embodies a 
central principal of modern medical research, pioneered in this 
country, known as the ``from the bench to the bedside'' Basic medical 
research performed at the laboratory bench is eventually transferred to 
patient care, to the bedside. Federally supported basic research has 
given us extraordinary insights into the molecular basis of disease, 
and a tool, PET, to bring this insight to patient care. Yet due to 
regulatory overlap and uncertainty, a lack of clear standards and 
standardized mechanisms governing coverage, and an absence of timely 
decisions, many Medicare patients have been denied access to PET for a 
decade.
    For the past 10 years, however, PET has largely been on hold due to 
regulatory and reimbursement issues, centered largely here in 
Washington. While private insurance carriers began paying for PET scans 
over 10 years ago, consideration of payment by HCFA remained stalled. 
First it was not clear what government agency should regulate the 
production and compounding of the molecular probes known as positron 
radiopharmaceuticals used for PET scans, and exactly how the production 
and use of these agents would be regulated. Without FDA approval, a 
positron radiopharmaceutical used for PET imaging was considered 
experimental by HCFA, and not eligible for reimbursement consideration. 
In a single very limited indication of heart disease made it through 
the regulatory morass by the mid 1990s. It literally took an act of 
Congress, The Food and Drug Administration Modernization and 
Accountability Act (FDAMA) of 1997, to clear this impasse. Once 
directed to understand the unique nature of PET and the positron 
radiopharmaceuticals used in PET imaging, the FDA made rapid progress 
in its regulatory oversight duties. Indeed, after a recent review of 
the world's scientific peer-reviewed literature covering the clinical 
use of PET, FDG, presently the most important radiopharmaceutical used 
for PET imaging, has been broadly approved for all cancers, as well as 
certain cardiovascular and neurologic disorders.
    Despite FDAMA, HCFA, there was an addition reluctance for HCFA to 
approve reimbursement for PET. PET was viewed as ``high tech'' medical 
imaging, perceived as expensive and likely to further drive up health 
care costs. HCFA had been criticized for what, in retrospect, appeared 
to be a pre-mature approval for payment for MRI scans in the 1980s, and 
did not want to repeat such a scenario. Finally, with increasing 
coverage by private insurance carriers, particularly for lung cancer, 
and pressure from members of the U.S. Congress, HCFA developed coverage 
policies for two limited indications in cancer: the evaluation of the 
solitary pulmonary nodule, and the initial staging of non-small cell 
lung cancer, effective January 1998.
    The broad use of FDG PET in cancer diagnosis, staging, and re-
staging for several major cancers was already widely established in the 
medical literature. Ironically, due to the slow movement of PET from 
the ``bench to the bedside'' here in the U.S., a good deal of the 
application of PET to routine patient care in the later 1990s was 
occurring in Europe and Asia. Motivated by the need to bring the 
advantages of PET to their patients, various medical and surgical 
specialties presented data in support of reimbursement of additional 
indications in oncology and for Alzheimer's disease at a HCFA Town Hall 
Meeting held in Baltimore, Maryland in January of 1999. In July of 
1999, HCFA did finally develop coverage policies for three additional 
limited indications: the detection of colorectal cancer with rising 
serum CEA, detection of recurrent melanoma, and the staging and re-
staging of lymphoma.
    Still, so many other cancers where PET was making a difference in 
patient's lives remained not covered. For example, while some women 
fighting breast or ovarian cancer could get PET scans paid by private 
insurance, Medicare beneficiaries would have to pay out of pocket or 
forgo the advantages of an earlier and more accurate diagnosis using 
PET. Early memory problems common to both Alzheimer's disease and 
depression could be sorted out using PET for those with the money to 
pay for the scans (about the same cost as an MRI), but not those 
covered by Medicare. Again, various medical and surgical specialties 
made a case to HCFA to expand the coverage of PET, and bring the full 
benefits of this technology to those covered by the Medicare. A massive 
document requesting broad coverage of PET for oncology, cardiovascular 
disease, epilepsy and Alzheimer's disease was assembled which included 
analysis of approximately 450 scientific articles involving studies of 
16,000 (now 27,000) patients. Among the findings overall, for cancer 
diagnosis in general FDG PET is 8 to 43% more accurate than CT or MRI, 
and depending on the clinical question, PET changes treatment decisions 
in 15-50% of patients over existing diagnostic imaging methods. It is 
also notable that neither CT nor MRI, used and reimbursed routinely for 
evaluation of a patient suspected of Alzheimer's disease, can provide a 
diagnosis; these anatomy based methods can only rule out a mass or 
bleed as a source of a patient's cognitive problems. In contrast, FDG 
PET has a 93% accuracy 3 years before the clinical diagnosis of 
Alzheimer's can be established. A town hall meeting was again convened 
by HCFA in Baltimore on November 7, 2000 and included many 
representatives from both physician and patient advocacy groups as well 
as representatives from HCFA and the Executive Committee of HCFA's 
Medicare Coverage Advisory Committee.
    This request for broad coverage was additionally strongly supported 
by NCI of the NIH. Indeed, the NCI has identified molecular imaging as 
an area of ``extraordinary opportunity'' warranting special funding. 
Committed to moving medical discoveries from the bench to the bedside, 
the physicians and scientists of NCI strongly supported the broad 
coverage request for PET scans of all cancers. The FDA had concluded 
broad indications for FDG used with PET scans were justified. Some 19 
U.S. Senators from both political parties urged broad coverage by HCFA 
in a letter to Secretary Shalala dated December 5, 2000. The final 
coverage decision, announced December 15, 2000 provided coverage of for 
diagnosis, staging, and re-staging of six cancers, including non-small 
cell lung cancer, esophageal cancer, colorectal cancer, lymphoma, 
melanoma, and head and neck cancers excluding thyroid and CNS. 
Refractory seizure and myocardial viability assessment were also 
included. Coverage of breast cancer and Alzheimer's disease were 
deferred to the MCAC Diagnostic Imaging Panel for review in May 2001.
    Because broad coverage, the same coverage we have had for years for 
CAT scans and MRI scans, for example, was not given, for all cancer and 
the evaluation of Alzheimer's disease, we find ourselves in a 
disturbing situation. While Medicare coverage for several cancers now 
exists, no cancers uniquely afflicting women are covered. Breast cancer 
is not covered, ovarian cancer is not covered, cervical cancer is not 
covered, nor is uterine cancer covered. Too, Alzheimer's disease 
afflicts women much more commonly than men owing to their longer 
average lifespan, and women are disproportionately burdened by the care 
of relatives with this devastating disease. Alzheimer's disease is not 
covered. How many iterations must we go through with HCFA to get 
coverage? How long will this take? How many more years will women 
covered by Medicare have to wait before they can add PET to the battle 
with diseases they must fight? HCFA has not established clear standards 
which new technologies must meet for reimbursement, so decisions can 
become arbitrary and painfully slow.
    I fully understand HCFA's concern over payment for new and 
``expensive'' technologies, and the need to fully access such before 
payment decisions. There is endless talk of technology assessment and 
cost effectiveness analysis as if these were mature, fool-proof 
disaplines. They are not. Different ``experts'' routinely come to 
different conclusions. For example this past fall, a group of 
``technology assessment experts'' hired by HCFA to analyze the broad 
coverage request document came to a completely different conclusion as 
the FDA technology assessment team and the NCI technology assessment 
experts. Perhaps even more important, and frequently overlooked, is the 
reality that in the five years or so that a comprehensive multi-center 
evaluation of a medical technology is completed and published, the 
technology in question has changed to such a degree, and the 
applications expanded or shifted, that the conclusion of the study 
becomes largely irrelevant. In the meantime, our Medicare patients have 
been waiting 10 years for PET. It is noteworthy that currently one the 
biggest purchasers of PET scanners is U.S. Oncology, a private 
capitated provider of cancer treatment that is convinced by its own 
analysis that PET is an essential cost-effective tool in the overall 
delivery of care to cancer patients.
    I believe we all want to insure quality and affordable health 
coverage for all Americans. We should not fear new technology, 
reflexively seeing such as expensive. As a practicing physician, I can 
assure you that it is mistakes that are expensive. It is the 
misdiagnosis, and the missed diagnosis that end up costing everyone. 
All Americans should benefit from the knowledge and technology our 
federally supported medical research provides. Everyday now at our 
medical center we are avoiding unnecessary surgery, invasive proceeds, 
and useless treatments due to the improved accuracy of PET. We are more 
accurately directing treatments by using PET. Medicare patients should 
not have had to wait 10 years to have access to PET. Women today should 
not have to wait for more years for HCFA coverage of the diseases they 
must battle. The road from the bench to the bedside should not be 
filled with potholes, detours and dead ends. Technology as 
groundbreaking and useful as PET should not be held back for years 
because HCFA has not established standards which new technologies must 
meet and consequently must resort to decisions which are often 
arbitrary. We must untangle the web of regulations and agency 
infighting, and establish a clear intent within our federal government 
to improve patient access to new technologies in the Medicare program. 
I should like today to urge this Committee to take steps to require 
HCFA to integrate PET and other new, life saving technologies into 
Medicare on a timely basis.

    Mr. Bilirakis. Thank you very much, Dr. Shreve.
    Mr. Bilirakis. Dr. Popma. Well, Ms. Dziuba, do you have a 
very brief supplementary statement to the doctor's?
    Ms. Dziuba. Yes.
    Mr. Bilirakis. Please make it brief, though, because the 
intent was it would be a 5-minute total for the both of you.

                   TESTIMONY OF KATLEEN DZIUBA

    Ms. Dziuba. Good morning.
    Mr. Bilirakis. Good morning.
    Ms. Dziuba. My name is Kathy Dziuba. I live in Rochester 
Hills, Michigan.
    Mr. Bilirakis. Please pull that closer.
    Ms. Dziuba. And I am a breast cancer survivor. I feel 
honored to speak to you this morning. I ask that as you listen 
to my testimony, you keep in mind that this is more than a one 
woman's story with breast cancer. There are thousands of women, 
young or old, perhaps your wife or daughter, who will be 
diagnosed with breast cancer this year alone.
    What is even more frightening is that there are women who 
have cancer and don't yet know it. I hope that by sharing my 
experiences with you, that you will be able to soften the blow 
and decrease the pain of which these women will experience in 
their life long battle with breast cancer.
    In 1992, I was diagnosed with breast cancer. My treatment 
consisted of a bilateral mastectomy. My doctors and I hoped at 
that time that I had been cured. Unfortunately, that was not to 
be. In 1998, I discovered a lump in my breast in the same area 
where my previous cancer had resided. A biopsy proved this to 
be a recurrence of the cancer. A more intensive treatment 
program of chemotherapy and radiation was recommended.
    At that point, I chose to pursue my care at the University 
of Michigan. My oncologist utilized PET scanning at the outset, 
as his primary diagnostic tool, to determine the extent and 
spread of my cancer. My doctor explained to me that PET 
scanning displayed images of the biology of the disease rather 
than pictures of my anatomy. It guided him in selecting the 
best treatment and protocol for me.
    I then undertook a series of chemotherapy and radiation 
therapy sessions lasting 8 long months. During this process, 
PET scanning was used to monitor the effectiveness of my 
treatments. There is nothing experimental regarding the use of 
PET scanning in my care. It has been integral, valuable and 
vital.
    It continues that way through today. In the summer of 2000, 
I had an MRI scan which revealed abnormalities in my right 
lung. It was a real concern that the cancer had metastasized. 
The conventional approach, I was told, was to have a thoracic 
surgeon perform an exploratory operation and biopsy. This is a 
painful, expensive procedure, which requires a long 
recuperation period. My doctors at the University of Michigan 
were able to utilize PET scanning to identify that my lung 
abnormality was due to my radiation treatment and not a spread 
of my cancer. I did not have to undergo surgery, which would 
have disabled me from my work and removed me from my family.
    The inaccurate results of my MRI have continued to cause 
great anxiety and doubt in my mind. I will continue to be 
forever grateful for my physicians who possess the savvy, 
foresight and belief in the diagnostic capability of PET 
scanning to accurately identify my state of remission. I am 
currently on medication and considered cancer free. I have no 
guarantees about my future. I have been told that I am in a 
phase of my illness where I am at high risk for return of 
cancer. PET scanning is now used in my treatment to monitor for 
recurrence and metastasis.
    In my opinion, breast cancer is not simple, common or 
predictable. It does not necessarily respond logically to 
treatment. There is not yet a blueprint for women to follow to 
assure that they will remain cancer free in their lifetime. 
Sure, we talk about healthy diet and exercise, not smoking, and 
just living a healthy lifestyle. Unfortunately, many breast 
cancer survivors who have followed these guidelines are asking 
themselves where did I go wrong? What did I do to receive a 
diagnosis of breast cancer?
    Until we have answers to these vital questions, this 
disease will continue to haunt us. It is because of the 
uncertainty of the disease, and having asked myself these same 
questions, that I again ask that Medicare provide reimbursement 
for advanced diagnostic testing, including PET scans, in the 
standard treatment of breast cancer patients. My hope is that 
from today forward, you will put your faith in the physicians 
we call upon when encountering life threatening illnesses such 
as cancer and allow them to use the skills and knowledge they 
possess to effectively treat all women's cancers regardless of 
insurance. Thank you.
    Mr. Bilirakis. Thank you very much, Dziuba. I am very happy 
and pleased that we allowed you to give your statement.
    Ms. Dziuba. Thank you.
    [The prepared statement of Kathleen Dziuba follows:]
                   Prepared Statement of Kathy Dziuba
    Good morning, my name is Kathy Dziuba and I live in Rochester 
Hills, Michigan. I am a breast cancer survivor, and I feel honored to 
speak to this committee on how PET scanning, continues to play a life 
saving role, in my battle with breast cancer. I ask that as you listen 
to my testimony, you keep in mind that this is more then a one woman's 
story with breast cancer. There are thousands of women, young and old, 
perhaps your wife or daughter, who will be diagnosed with breast cancer 
this year alone. What is even more frightening, is that there are women 
who have cancer, and don't yet know it. I hope that by sharing my 
experiences with you, that you will be able to soften the blow and 
decrease the pain, of which these women will experience, in their 
lifelong battle with breast cancer.
    In 1992, I was diagnosed with breast cancer. My treatment consisted 
of a bilateral mastectomy. My doctors and I hoped at that time that I 
had been cured. Unfortunately, that was not to be. In 1998, I 
discovered a lump in my breast in the same area where my previous 
cancer had resided. A biopsy proved this to be a recurrence of the 
cancer. A more intensive treatment program of chemotherapy and 
radiation was recommended.
    At that point, I chose to pursue my care at The University of 
Michigan. My oncologist utilized PET scanning, at the outset, as his 
primary diagnostic tool, to determine the extent and spread of my 
cancer. My doctor explained to me that PET scanning displayed images of 
the biology of the disease, rather than just pictures of my anatomy. It 
guided him in selecting the best treatment protocol for me. I then 
undertook a series of chemotherapy and radiation therapy sessions 
lasting eight long months. During this process, PET scanning was used 
to monitor the effectiveness of my treatments. There is nothing 
experimental regarding the use of PET scanning in my care. It has been 
integral, valuable and vital. It continues that way through today.
    In the summer of 2000, I had a MRI scan which revealed 
abnormalities in my right lung. There was a real concern that the 
cancer had metastasized. The conventional approach, I was told, was to 
have a thoracic surgeon perform an exploratory operation and biopsy. 
This is a painful, expensive procedure, which requires a long 
recuperation period. My doctors, at the University of Michigan, were 
able to utilize PET scanning to identify that my lung abnormality was 
due to my radiation treatment and not a spread of my cancer. I did not 
have to undergo surgery which would have disabled me from work and 
removed me from my family.
    The inaccurate results of my MRI have continued to cause great 
anxiety and doubt in my mind. I will continue to be forever grateful 
for my physicians, who possess the savvy, foresight and belief in the 
diagnostic capability of PET scanning, to accurately identify my state 
of remission.
    I am currently on medication and considered ``cancer free''. I have 
no guarantees about my future. I have been told that I am in a phase of 
my illness where I am at high risk for another return of cancer. PET 
scanning is now used in my treatment, to monitor for recurrence and 
metastasis.
    In my opinion, breast cancer is not simple, common or predictable. 
It does not necessarily respond logically to treatment. There is not 
yet a blueprint for women to follow, to assure that they will remain 
cancer free, in their lifetime. Sure we talk about healthy diet and 
exercise, not smoking, and just living a healthy life style. 
Unfortunately, many breast cancer survivors, who have followed these 
guidelines, are asking themselves where did I go wrong? What did I do 
to receive a diagnosis of breast cancer? Until we have answers to these 
vital questions, this disease will continue to haunt us. It is because 
of the uncertainty of the disease, and having asked myself these same 
questions, that I again ask that Medicare provide reimbursement for 
advanced diagnostic testing, including PET scans, in the standard 
treatment of breast cancer patients.
    My hope is that from today forward, you will put your faith in the 
physicians we call upon when encountering life threatening illnesses, 
such as cancer, and allow them to use the skills and knowledge they 
possess, to effectively treat all women's cancers regardless of 
insurance.
    Thank you

    Mr. Bilirakis. This is very helpful.
    Dr. Popma.

                  TESTIMONY OF JEFFREY J. POPMA

    Mr. Popma. Thank you, Mr. Chairman, and I appreciate the 
opportunity to speak before this committee about the need for 
governmental and third-party payers, and in particular 
Medicare, to fund proven life saving medical procedures that 
have become available as a result of advances in new 
technology.
    I have submitted an extensive written statement. I will be 
very brief in my summary comments and I will use some specific 
examples here, if I may?
    Mr. Bilirakis. Please do.
    [Chart shown.]
    Mr. Popma. I would like to focus on one new technology, 
that is the use of radiation therapy for the patients who fail 
stent implantation, as one therapy that is approved by the Food 
and Drug Administration, but is not currently funded under the 
Medicare system.
    This year we will perform 750,000 angioplasty procedures in 
this country to relieve obstructive disease that causes 
patients to have symptoms of heart disease. Of these, 70 to 80 
percent of the patients will receive a new coronary stent.
    The left panel shows the regulatory and reimbursement 
process that has resulted as a result of new stents. We 
received, based on randomized clinical trials, FDA approval in 
1994 to implant stents in patients. There was a series that 
lasted over 3 years, during which time a code was developed and 
a differential reimbursement was developed for the stenting 
procedures which average between three and $5,000 a procedure.
    During this period of time, hospitals were strapped for 
finances. They were strapped for finances because these 
incremental costs were not reimbursed under the Medicare 
system. Now stents have worked and they have worked extremely 
well in our patients, but they sometimes fail. And in the 20 
percent of patients or so that develop a failure of a stent due 
to scar tissue formation within the stent, we need other 
therapies. We have used balloon angioplasties. We have used 
drills. We have used a variety of different techniques, none of 
which have been effective in reducing the recurrence in the 
subset of patients who develop a failure of their stents.
    We now have five randomized trials performed, presented to 
the FDA, and performed and resulted in the approval of two of 
these devices that have demonstrated that radiation therapy for 
patients that have stent restenosis is effective in reducing 
the recurrence rate by 30 to 50 percent.
    [Chart shown.]
    Mr. Popma. On the right panel shows a diagrammatic example 
of the radiation catheter that is inserted into the coronary 
artery and delivers radiation over a three to 20 minute period 
of time, and then this catheter is removed from the body. This 
therapy works. We use it now in our patients. It is not 
reimbursed under the Medicare system.
    In the table that I provided in my table outlines the 
incremental costs that our radiation oncology group has put 
together for our costs for doing these procedures. It ranges, 
depending upon the estimates, between three and $5,000. These 
numbers are summarized on the panel.
    This is not reimbursed under the current systems and the 
hospitals are expected to take the loss. Now, I am very 
fortunate to be at the Brigham and Women's Hospital. We are a 
tertiary referral center, we are a teaching hospital for 
Harvard system, we have not turned away therapy at our hospital 
as a result of not being reimbursed by Medicare.
    But what is assumed is that we will not be reimbursed and 
we have to bury these costs in the rest of our operational 
expenses. And while we can do that in our individual teaching 
hospital, this is not smart fiscal policy and certainly cannot 
expand. And you will hear in just a moment Mr. Donald 
Latulippe, one of my patients, who has experienced this from a 
personal level.
    I would like to summarize. I do think that the dedicated 
staff at HCFA are working on this problem, and I agree with all 
the comments that say this is not something that we should be 
ascribing blame to one area or the other. I think the staff at 
HCFA is working on this, but the time delay is too long. It 
allows us to lose money, to not be able to effectively care for 
patients today, when the reimbursement processes may last up to 
2 or 3 years more until we get adequate reimbursement.
    I would have three suggestions for how this process might 
be improved. There needs to be better communication between the 
Food and Drug Administration and HCFA and there needs to be a 
better identification of which therapies are truly advances, 
truly things that will differentiate how we care for patients 
in the future. Those therapies need an expedited process.
    Today, we need to have newer codes. We need to utilize the 
codes that are currently in place to allow there to be 
reimbursement for these newer therapies, and this is going to 
take some innovative work on the part of HCFA. And finally, 
wearing my teaching institution hat, I am just pleading to you 
that we are already operating on very marginal budgets, and to 
ask the teaching institutions and other tertiary referral 
centers at this point to bear the cost of the new technology I 
think is something that we cannot have for the long term, and 
with that, I would like to turn this over to my patient, Mr. 
Donald Latulippe.
    [The prepared statement of Jeffrey J. Popma follows:]
   Prepared Statement of Jeffrey J. Popma, Director, Interventional 
                Cardiology, Brigham and Women's Hospital
    I appreciate the opportunity to speak briefly with you this morning 
about a critical aspect of health care, namely the need for 
governmental and third-party payers, and in particular, Medicare, to 
fund proven, life-saving medical procedures that have become available 
as a result of new technological advances. As an cardiologist who 
performs angioplasty and stenting in patients on a daily basis, I can 
tell you that it is critically important for Medicare to streamline its 
procedures for reimbursing hospitals and physicians for new technology 
that is available to treat patients with heart disease. I hope that 
after hearing my testimony today that you will share my sense of 
urgency about this problem.
    To focus my discussion, I would like to provide you with one brief 
example of a new FDA approved technology that is not currently covered 
by HCFA, that is, radiation therapy for the treatment of patients who 
have failed a coronary stent procedure, but I should note that there 
are also other new technologies that should also undergo expedited 
reimbursement review by Medicare. I would hope that the current process 
for HCFA reimbursement for new technologies could be carefully 
examined, and that the reimbursement process for truly life saving 
therapies would be accelerated. I hope that this testimony will provide 
you with the understanding that this accelerated process is extremely 
important for patients and for the hospitals and physicians who care 
for them. The discussion will also focus on the reimbursement process 
for the technical aspects of the procedure--I would also state a review 
of the professional reimbursements for the physician who provide these 
highly specialized services will also be needed.
    The State of Coronary Angioplasty. Cardiovascular disease is the 
major cause of death in this country. We have made many advances of the 
past decade--we have better medicine, more prevention, and we have 
developed newer methods to treated blocked coronary arteries. As a 
result, the mortality rate for coronary angioplasty has dropped 20% 
over the past 10 years.
    One of these methods is called coronary angioplasty, or PTCA. Over 
three-quarters of a million patients in this country will undergo a 
coronary angioplasty this year, 50% more that the number of who will 
undergo coronary bypass surgery. Coronary angioplasty now often 
involves the use of coronary stents, which are small metal sleeves the 
are placed inside the artery and keep the artery wall from collapsing 
over time. Coronary stents are beneficial in preventing the chest pain 
and heart attacks that result from blocked coronary arteries. Through 
stenting, we have cut in half the number or patients whose arteries 
reclose after being opened with balloon angioplasty.
    I should note that hospitals went through a similar reimbursement 
``crisis'' when coronary stents became available in 1994. On average, 
the use of coronary stents cost the hospitals $3,000-5,000 more per 
procedure than a conventional balloon angioplasty. Because physicians 
felt that stents were so beneficial, they used the stents in patients, 
and one Midwest hospital reported that approximately $2 million was 
lost one year because of inadequate reimbursement for the use of 
coronary stents. This ultimately resulted in the creation of a new DRG 
code, DRG 116, which provides higher reimbursement for patients who 
receive a coronary stent.
    Despite their benefit, the stents form scar tissue inside the metal 
sleeve in approximately 20% of patients, and when this occurs, it 
requires re-treatment with another angioplasty or with coronary bypass 
surgery. The recurrence rate with so called ``in-stent'' restenosis is 
higher than after the first time stent placement, and may occur in 30-
80% of patients, depending on the degree of the scar tissue within the 
stent. Thus far, we have been unable to lower this recurrence rate with 
medicine, drilling devices, or additional stents. The impact on the 
lives of those patients who develop ``stent'' restenosis is profound 
and you will hear the testimony of one of my patients, Mr. Donald 
Latulippe, in just a moment.
    Over the past 3 years, a new therapy has been developed for 
patients whose stents have failed. The therapy involves the use of 
delivering a small plastic tube into the coronary artery from the leg, 
and treating the artery with a brief exposure to radiation. To date, 
there have been five randomized clinical trials that have each 
demonstrated that this therapy reduces the recurrence rate by 30-50% in 
patients with this disease. Patient treated with this therapy require 
less repeat angioplasty, less hospitalization, less bypass surgery than 
if they are not treated with the radiation. These are real benefits to 
patients. Radiation therapy, or brachytherapy as it is know as, is 
different than a standard angioplasty procedure, as it involves 
additional specialized equipment and personnel, including the radiation 
source, a radiation oncologist, a radiation physicist, and a radiation 
safety officer to make certain that our personnel are not exposed to 
radiation. These impressive clinical results with radiation therapy 
resulted in the approval by the Food and Drug Administration this fall 
of two radiation systems. Currently at the Brigham and Women's 
hospital, we are treating between 5 and 10 patients per week with this 
radiation brachytherapy for in-stent restenosis.
    Our problem is the following. Despite more intensive personnel 
requirement, catheters costs, and the specialized training that is 
needed to provide this therapy, there is no additional reimbursement by 
HCFA for this therapy. The hospital currently bill under DRG 112, which 
is the one used for a standard coronary angioplasty. We have estimated 
the approximate costs of the radiation procedure in Table 1. These 
estimates have also been validated in a randomized trial of radiation 
brachytherapy. At the current time, the hospital is simply expected to 
absorb these costs.
    We have been fortunate so far in that the Brigham and Women's 
Hospital, as tertiary referral center and teaching hospital for Harvard 
Medical School, has allowed us to more forward with this program, 
despite its impact on the hospital's ``bottom line''. But it is clear 
that continuing to perform under-reimbursed procedures is not a healthy 
fiscal policy for the hospitals. We very much need to have 
reimbursement by HCFA and other third party payers for the costs 
associated with this type of programs. We believe that our patients 
deserve this in our health care system.

                  Table 1: Vascular Brachytherapy Costs
                     (Estimates Five Cases Per Week)
------------------------------------------------------------------------
                                                                 Amount
------------------------------------------------------------------------
Salaries and Fringe Benefits
Physician Salary.............................................    $32,000
Physicist Salaries...........................................      1,200
Technical Physics............................................     21,000
Nursing......................................................     14,400
Brachy Coordinator/Scheduling................................      8,000
Admin Exp (Chief of Physics, Admin Director).................     13,750
Fringe Benefits..............................................     28,884
                                                              ----------
  Total Salary & Fringe Benefits per Year....................   $149,234
Other Expenses
Catheters ($2,500 per case)..................................   $650,000
Isotope Sources (Beta & Gamma)...............................     72,000
Miscellaneous (chambers, jigs, etc...........................      2,000
Overhead.....................................................     52,232
                                                              ----------
  Total Other Expenses.......................................   $776,232
                                                              ----------
  Total Expenses.............................................   $925,466
                                                              ----------
Total Cases per Year.........................................        260
                                                              ----------
  Cost per Case..............................................     $3,559
------------------------------------------------------------------------

    There is no question in my mind that the dedicated staff at HCFA 
are working diligently on this process right now, but the current cycle 
of review for financial reimbursement of these new therapies is long, 
and as you know, and it may take up to two more years before this 
reimbursement is available to hospitals. Yet our patients need the 
therapy today. I urge you to make certain that this remains a high 
priority for them.
    I would emphasize that it is these kind of technologies that will 
support a continued decline in the death rate for heart disease, that 
improve the health care productivity, and enable patients to live 
active productive lives. As a practicing physician, I believe that we 
can't afford NOT to make these therapies available to patients who need 
them.
    I have three suggestions for you to expedite this process. First, 
there needs to be effective pathways for HCFA to interact with the FDA 
to understand earlier about the cost-effectiveness and potential 
benefits of new technologies early in the process. Not all new approved 
FDA approved therapies are major advances in medicine. Some are small 
steps, but others, like radiation therapy in this example, are big 
steps forward and need to be available to patients. Second, Medicare 
needs to issue codes for new technologies in a more timely fashion. 
Temporary reimbursement should also be provided to cover the costs of 
important new advances in medicine. Finally, you no doubt understand 
that there are simply no margins left in the hospital budgets, 
particularly for teaching hospitals. We are doing our best to provide 
high quality, state of the art care for our patients--care that they 
deserve for living in this country. It is difficult, if not impossible 
for us to do so if there are not sufficient funds, particularly for our 
elderly population. We truly need your help.
    Thank you for your attention.

                              References:

    1. Fischman DL, Leon MB, Baim DS, et al. A randomized comparison of 
coronary-stent placement and balloon angioplasty in the treatment of 
coronary artery disease. Stent Restenosis Study Investigators. N Engl J 
Med 1994;331(8):p496-501.
    2. Serruys PW, de Jaegere P, Kiemeneij F, et al. A comparison of 
balloon-expandable-stent implantation with balloon angioplasty in 
patients with coronary artery disease. Benestent Study Group. N Engl J 
Med 1994;331(8):p489-95.
    3. Erbel R, Haude M, Hopp H, Franzen D, et al. Coronary-artery 
stenting compared with balloon angioplasty for restenosis after initial 
balloon angioplasty. N Engl J Med 1998;339:1672-8.
    4. Simes PA, Golf S, Myreno Y, et al. Sustained benefit of stenting 
chronic coronary occlusion: long-term clinical follow-up of the 
Stenting in Chronic Coronary Occlusion (SICCO) study. J Am Coll Cardiol 
1998;32(2):p305-10.
    5. Savage MP, Douglas JS, Jr., Fischman DL, et al. Stent placement 
compared with balloon angioplasty for obstructed coronary bypass 
grafts. Saphenous Vein De Novo Trial Investigators. N Engl J Med 
1997;337(11):p740-7.
    6. Grines C, Cox D, Stone G, et al. Coronary angioplasty with or 
without stent implantation for acute myocardial infarction. N Engl J 
Med 1999;341:1949-1956.
    10. vom Dahl J, Dietz U, Silber S, et al. Angioplasty versus 
rotational atherectomy for treatment of diffuse in-stent restenosis: 
Clinical and angiographic results from a randomized multicenter trial 
(ARTIST Study) (abstr). J Am Coll Cardiol 2000;35:7A.
    11. Leon M, Teirstein P, Moses J, et al. Localized intracoronary 
gamma radiation therapy to inhibit the recurrence of restenosis after 
stenting. N Engl J Med 2001;344:250-256.
    12. Teirstein PS, Massullo V, Jani S, et al. Catheter-based 
radiotherapy to inhibit restenosis after coronary stenting. N Engl J 
Med 1997;336(24):p1697-703.
    13. Waksman R, White R, Chan R, et al. Intracoronary gamma-
radiation therapy after angioplasty inhibits recurrence in patients 
with in-stent restenosis. Circulation 2000;101:2130-2133.
    14. Waksman R, Bhargava B, Chan RC, et al. Late total occlusions 
following intracoronary radiation therapy for patients with in-stent 
restenosis. Circulation 1999;100(18):1-222.
    15. Erbel R, Verin V, Popowski Y, et al. Intracoronary beta-
irradiation to reduce restenosis after balloon angioplasty: Results of 
a multicenter European dose-finding study (abstr). Circulation 
1999;100:1-154.

                  TESTIMONY OF DONALD LATULIPPE

    Mr. Latulippe. Good morning. I am very honored and thrilled 
to be here. I really am honored because I have never been in 
such a situation. I saw the McCarthy hearings when I was 18 
years old, and that was it.
    But, however, and I am thrilled because I am alive. I will 
give a quick history and I won't take a long time. When I was 
53 years old, I had my first bypass operation at Massachusetts 
General Hospital. I thought that was it. My father died at age 
55 of this disease, my brother at 43, and my grandfather at 41. 
So I fully expected by the age 60 not to be here.
    And I have been through three bypass operations, one 7 
years after the first, and the last 5 years ago. After these 
operations, there is not much more they can do except what 
doctor just told you, to put in these graph stents, which I 
have five of them, and also if they get scar tissue, which they 
have, there is not much they can do, until just recently.
    Now, the past year, I have been through five angioplasties 
at New England Medical Center. My only salvation was to go 
through the therapy that doctor talked about with the 
radiation. I am very happy to say that by this time, since my 
last treatment with the radiation, I would have known if they 
were filling up again, and I am very happy to say that I outdid 
him walking here today. And I am feeling great and I am feeling 
just marvelous.
    This suit that I am wearing, ladies and gentlemen--I don't 
want to be dramatic--I bought a year ago for my burial, and I 
am wearing it today never expecting to wear it in Washington, 
DC.
    I have grandchildren that I love very dearly and I am 
trying to tell all my children, my own children and my 
grandchildren, about their diet and so forth because most of my 
problem is heredity. And you know a year ago, I was hoping to 
live to see the year 2000 and the Millennium. I saw it. I saw 
my birthday. That was the next goal. In July I turned 70. I 
can't believe I am 70, but here I am, and talking to you fine 
folk. I thank the government. I thank Medicare for its help 
because without it I would have been dead long ago.
    And I am very happy to live in the Boston area because we 
have great medical facilities there, and I am very proud and 
happy again to be here this morning. Thank you.
    [The prepared statement of Donald Latulippe follows:]
                  Prepared Statement of Don Latulippe
    I am a 70 year old male and have been in perfect health all my life 
except for plugged arteries to my heart. I have been very careful about 
my diet thru the years and doctors have discovered that my problems are 
created by my self. My Grandfather died at age 41, my father at age 55 
and my younger brother at 43, all of the same thing. In 1983 I went 
through my first by-pass operation at the Massachusetts General 
Hospital in Boston. I had a second by-pass operation in 1990 at the 
same hospital. The third by-pass operation was performed at the New 
England Medical Center in 1995. Two years ago I volunteered for a new 
research procedure being done at the New England Medical Center by Dr. 
James Udelson, head of cardiology at the hospital. It was the growing 
of new veins around the heart with the introduction of some sort of 
stimulant. When the doctors were giving me the angioplasty that would 
lead to the injection of this substance they all agreed that the stints 
were the way to go for me. The study said that if there was any other 
way, then they had to go that way. So they performed angioplasty. Since 
that time I have been in the hospital 4 or 5 times to have further 
stints put in or the cleaning out of what is in there. I now have five 
stints. Up until recently I would start to have slight angina about a 
month after the angioplasty procedure. I really didn't think I was 
going to see the year 2000. I was hoping to live that long. I am 
totally resigned to my passing and have made all arrangements so that 
my family will not have to be concerned with that. I have also told my 
doctors that if my body can be of use in further research than its all 
theirs after my passing. My family know this. I had as many angioplasty 
procedures that I think are safe for me and my doctor at New England 
Medical Center suggested I go through the radiation treatment at 
Brigham and Women's Hospital in Boston. I did that and it was a 
wonderful experience.
    By this time I should have felt some angina, slight at least, but 
haven't. So I am convinced that this new procedure has given me more 
time and a new outlook on life. My brother in Naples, Florida has asked 
me to visit him and I have decided to do that next week. Under ordinary 
conditions I wouldn't think of it because I didn't want to be that far 
away from my doctors in Boston. With this new treatment I feel very 
confident and I am going next week for ten days. My doctors know all 
about this and have given me the okay. I do want to thank Medicare for 
all the help I have received. I waited until I was 65 to take Social 
Security and Medicare and worked up until the day I received it. I am 
still working part time, on call and weekends at a Boston Radio 
station. I do an interview program in Boston and hope to have the 
doctors in this project on my program very soon. They are busy people. 
I also do a cable tv show in the Boston area that is seen in about 30 
communities. This keeps me busy as I live alone, my wife passed on a 
few years ago of cancer. I don't want to marry again, so being busy is 
sweet. This new radiation procedure has given me a new outlook on life 
and with their help and God's will I now expect a few more years to my 
life. I will do anything to further their cause because it may help 
others, including my own children and Grandchildren.

    Mr. Bilirakis. Thank you, sir. That was good.
    Well, I am going to start off the questioning. Dr. Shreve, 
you stated that women under Medicare still do not have access 
to PET scans for many uses. So what exactly are the women's 
health uses for which PET scans are not covered that are 
covered by private plans? I assume many of them are covered by 
private plans but not covered by Medicare. What are some of 
those?
    Mr. Shreve. Currently, Medicare covers, they have approved 
six cancers: lung cancer, esophageal cancer, colon cancer, 
melanoma, lymphoma, and head and neck cancer, with certain 
restrictions. They have not approved breast cancer, cervical 
cancer, uterine cancer or ovarian cancer. Both breast and 
ovarian, we do quite frequently on patients that have private 
insurance, and find it very useful, and increasingly with 
cervical cancer.
    What was requested was broad coverage so that PET would be 
covered just like MRI and CT, and what has happened is we have 
had to nitpick disease by disease and that is how we got to 
where we are where only certain cancers are covered and not 
others.
    Now, the arguments are, well, we don't have a huge 
convincing body of scientific literature. That is debatable, 
but the point is that you never can break it down disease for 
disease, indication for indication, and have complete 
comprehensive literature. There is some point where you make a 
broad coverage decision. You certainly don't make it at the 
onset when you have just shown you can make nice pictures.
    But by the time you have four or 500 scientific articles 
predominantly covering cancer applications of PET, and I think 
in the latest revision, we have 20 some thousand patients in 
our review, you really are at that point of making a broad 
coverage decision. And the problem has been HCFA really doesn't 
have a guideline or a road map on how to do this, and so things 
have been touch and go, back and forth, and helter-skelter, and 
that is very frustrating when a patient comes in with ovarian 
cancer and we know that PET works just as good for that as it 
does for melanoma or colon cancer, why is this not covered by 
Medicare?
    Mr. Bilirakis. And can it get covered by many private 
plans?
    Mr. Shreve. Depending on the private carrier. Sometimes it 
is a case by case. Sometimes flatly covering. Some of our 
carriers now flatly cover breast cancer for any indication. As 
you know, there is an interplay between HCFA and the private 
carriers. Some of them simply say, well, when HCFA pays for it, 
we will. That is an easy out.
    Mr. Bilirakis. Yes. Ordinarily it is that way.
    Mr. Shreve. Yes. In other cases, Blue Cross/Blue Shield was 
always about a year ahead of HCFA in approving these 
indications.
    Mr. Bilirakis. With this process that is taking place, do 
you have----
    Mr. Shreve. About 10 years.
    Mr. Bilirakis. [continuing] any idea how long women may 
have to wait before that coverage is available?
    Mr. Shreve. That was my question. I don't know. We look at 
that it took 10 years to get here. I would imagine it is going 
to be more than 6 months. It could be years depending on 
whether they say, well, we need more papers and more outcome 
studies.
    Another thing to keep in mind is it is very fashionable to 
talk about outcome studies and technology assessment, but in 
many areas of medicine, No. 1, that is not an exact science, 
and No. 2, the technology evolves so fast that by the time you 
do a comprehensive technology assessment, the technology has 
changed so much, it becomes irrelevant, and as we heard 
earlier, we really need a way to look at true advances, true 
fundamental advances and get them in an expedited means of 
reimbursement and dissemination in the population or we can be 
waiting.
    The PET scanners haven't changed in 10 years. I mean they 
are just as capable now as they were 10 years ago. Now with 
some evolving reimbursement, that technology is starting to 
advance so we can find smaller cancers earlier, study more 
cancers and so on. That is really what we want is to move that 
technology forward, as I said from the bench to the bedside.
    We have an explosion of molecular knowledge coming out now. 
PET is just one of the tools to apply that from patients, but 
we can't wait 10 years to apply that knowledge.
    Mr. Bilirakis. When we finish up here, we will ask all of 
you to feel free, in fact, we would encourage you, to submit to 
us suggestions in writing as to what we can do to streamline 
the process. Hopefully you will take advantage of that, all of 
you, and submit it to us.
    Dr. Popma, regarding the cardiac procedure that you shared 
with us, is there pressure building to cut back on the 
performance of the procedure because of its inadequate 
reimbursement?
    Mr. Popma. Mr. Chairman, it would probably be in the 
opposite way. As these new therapies become available, they 
begin to roll out into the community, and the cost 
considerations are definitely a factor in providing this 
therapy to further patients. They begin in a small circle of 
sites that did the investigative studies, and they slowly begin 
to move out into the community. And I think it is fair to say 
that there is a hesitation to adopt these in the community.
    It simply means that patients are treated in a conventional 
way, and in that sense, they are denied the access to that.
    Mr. Bilirakis. And because they are treated in a 
conventional way and because maybe they are not caught early 
enough and additional problems develop, might it not be costing 
Medicare a lot more than it would cost if the program had 
covered it initially?
    Mr. Popma. Mr. Chairman, that is an excellent point because 
the cost effectiveness analyses have suggested that by avoiding 
the repeat procedures in the future that these therapies are 
truly cost effective and would save Medicare less in the 
future.
    Mr. Bilirakis. There you go. All right. I am now going to 
yield to Mr. Brown for questions. I would just say that I know 
that the sounding of these buzzers seems very rude, but it 
means there is a vote on the floor. So right after Mr. Brown 
finishes his inquiry, we are going to break for a few minutes 
to run over to cast our votes and then return. Please proceed, 
sir.
    Mr. Brown. Thank you very much. Both Ms. Dziuba and Mr. 
Latulippe, thank you for your very, very moving testimony. Mr. 
Latulippe compared--I think he compared this panel to his 
younger days of watching McCarthy. I wonder if you have no 
decency saying such a thing, Mr. Latulippe?
    Mr. Latulippe. No.
    Mr. Brown. Those of you who don't remember the McCarthy 
hearings----
    Mr. Latulippe. It was my first experience in Washington.
    Mr. Brown. No. I understand.
    Mr. Latulippe. I am very lucky. At 18, I got a job in a 
radio station, like Mr. Linkletter, in Quincy, Massachusetts, 
and the owner wanted me to carry his tape recorder, and we came 
during the Eisenhower administration to Washington, and I was 
thrilled--18 years old, come on. And staying at the Mayflower 
Hotel and all that jazz; it was great. I met John Cameron 
Swayzie. Hey. And I was very impressed, and we popped into the 
hearings. And Joe Welch was there, and, you know, he used, Mr. 
Senator, can you--you know, it was a wonderful experience.
    I have had a great life. I am 70 years old. I have been all 
around the world with radio.
    Mr. Brown. I knew I shouldn't have asked you about this.
    Mr. Latulippe. You know I have had a great life. And so I 
just--no, no mention of the committee compared to this one.
    Mr. Brown. No, I know.
    Mr. Latulippe. I am just saying it was a great experience.
    Mr. Brown. We are not nearly as powerful either.
    Mr. Bilirakis. The gentleman's time has expired.
    Mr. Brown. For asking such a stupid question. Never give a 
guy from Boston that opportunity with an open mike; right, sir?
    No. Thank you very much for your testimony. I appreciate 
what you said about the role of government and the role of 
Medicare because some people in this Congress want to see this 
program privatized. They want to turn it over to insurance 
companies. Some of them didn't believe in Medicare when it 
passed in 1965 and don't believe the government can do things 
well, and I think that your testimony really did illustrate how 
important a program like that is.
    I want to make one other comment before asking the two 
physicians a question. My friend from Pennsylvania, the 
chairman of Oversight and Investigations, made a comment about 
demonizing HCFA, demonizing Medicare Plus Choice, and my role 
is to do neither, as is his isn't. But I support the oversight 
and the examination of HCFA because I think the two physicians 
and the two patients brought up very real problems where HCFA 
does need to improve its operations. There is no doubt. I hope, 
though, we go over with the same fine-tooth comb an examination 
of managed care and Medicare Plus Choice where Congress threw 
$11 billion in Medicare Plus Choice without real oversight on 
what we are getting back for that $11 billion.
    If we had thrown $11 billion, just a little extra here, for 
HCFA to run its programs, I think this Congress would have been 
looking at HCFA doing oversight after oversight after 
oversight. So I just hope we apply the same standards, not to 
demonize either, but to learn something from them, and maybe 
not make some of the mistakes we have made in all cases, in 
both parties, and all of that for managed care and for 
traditional fee for service.
    Dr. Shreve and Dr. Popma, I would like to hear your 
comments on both. You are advocating specific changes in 
coverage or payment with respect to a very particular procedure 
or service. What exactly at HCFA is broken regarding the issue 
of new technology approval? How do we make this better? Tell us 
that.
    Mr. Shreve. I think there is two issues. One is, as we 
mentioned earlier, and I don't mean to demonize HCFA either, 
that they are overburdened and there are no clear guidelines, 
and so it is difficult for them to put together a 
straightforward and consistent mechanism. There also are other 
agencies in the government, the FDA, for example, that approve 
both drugs and devices and analyze the data.
    And there there are branches of the National Institutes of 
Health. As I mentioned, the National Cancer Institute was quite 
enthusiastic that PET be approved broadly for cancer to 
expedite its use in a variety of cancers as well as more 
clinical research.
    So there are two things. One is there has to be a degree of 
reorganization or clearly defined areas of expertise. When we 
presented our document to HCFA, they farmed out an analysis of 
our analysis by a private group out of Boston, I think it was, 
and they came to completely different conclusions than the NCI 
did or the FDA did. So when you go to these experts, you get 
different answers, and sometimes you can kind of pick the 
experts and get the answer you want.
    There has to be a consistent way of evaluating new 
technologies, and as we mentioned earlier, the second point is 
you have to make a distinction of some slightly new gizmo, some 
variation on a theme, and technologies that really are 
revolutionary, really are significant and a substantial 
departing from existing technologies, and those need to be 
pushed and encouraged.
    The National Institutes of Health has been actually very 
responsive and very good at this. They have identified areas 
for research which they consider areas of extraordinary 
opportunity and they have been very good at pinpointing those 
areas and supporting those. Molecular imaging such as PET is 
one of those, but there are many others.
    So some agencies in government have really come to grips 
with the pace and the dynamic range of medical research that is 
accelerating right now, and have been able to identify true 
advances and target those. And so that is the other thing that 
needs to be done.
    Mr. Brown. Yes, Dr. Popma.
    Mr. Popma. I will just give you a very brief answer, and 
that is that there is a time lag between the statement this 
therapy is safe and effective and then when we say this therapy 
has a mechanism for payment. And that time lag between the Food 
and Drug Administration accepting as safe and effective the 
therapy and the time that the governmental agencies will 
recommend payment for that can be up to 3 years.
    I would certainly hope that with any kind of reform of HCFA 
that the questions about safe and effective and how are we 
going to pay for this are done simultaneously, which I think is 
a critical piece of the process.
    Mr. Brown. Thank you.
    Mr. Bilirakis. All right. We are going to break now to cast 
these votes.
    [Brief recess.]
    Mr. Greenwood. We'll reconvene the hearing now, please. The 
witnesses could return to the witness table, and the spectators 
could return to their seats, members to their seats. And I 
believe that where we are in the process is that Mr. Brown has 
completed his questioning, and the Chair will now take his 5 
minutes, and I would like to direct my questions to Dr. Shreve, 
if I could.
    In your testimony, you talk about PET imaging technology, 
which is Positron Emission Tomography. It is called PET. My 
understanding is that that was developed as a direct result of 
work at the National Institutes of Health; is that correct, 
sir?
    Mr. Shreve. Yes. And at Malinkrat Institute under federally 
sponsored research.
    Mr. Greenwood. So we in the Congress can take some pride in 
the fact that our funding of NIH has paid off in this respect 
and we have produced some pretty good technology that is 
instrumental--I think you called it indispensable medical 
tool--in medical diagnostic imaging?
    Mr. Shreve. Yes, and you can take credit for more than 
that. I mean the revolution in medicine and biology is largely 
because of this and preceding congresses' support of basic 
research, and PET is one facet of this revolution of molecular 
medicine that is now upon us. It is the way we look inside the 
body now at molecular processes rather than the old way which 
is to basically look at lump and bumps inside.
    Mr. Greenwood. Dr. Shreve, for how long have you considered 
PET imaging technology to be state-of-the-art important, 
critical that you would use it on your patients with whom you 
practice?
    Mr. Shreve. I have been in practice, in academic practice, 
now about 10 years, and I would say beginning about 5 or 6 
years ago, it became very clear that this was what we needed to 
make up for the shortcomings in CT and MR in certain given 
indications, but increasingly more and more and more 
indications.
    Mr. Greenwood. And have you found, sir, that most of the 
private insurers covering your patients have covered the use of 
this technology?
    Mr. Shreve. It depends on the insurer. They have 
increasingly been covering. Some cover without question. Some 
cover on a case by case. Some look to HCFA, quite frankly, in 
their coverage. Blue Cross/Blue Shield's advisory board 
nationally has generally been a year ahead of HCFA in terms of 
reviewing indications. We have some private insurers now that 
pay for just about any indication.
    It is variable. As you know, there are many insurers, and 
that is one of the complexities we have to deal with. We have a 
full-time staffer who just takes care of reimbursement, that 
gets the request for the scan, calls the insurance company to 
figure out if it is really covered or not, and if it is not, we 
send them a letter, and usually they will cover it.
    Probably one of the most telling things, I think, is a 
major provider of oncology services, a company called U.S. 
Oncology, is right now one of the biggest purchasers of PET 
scans. Now they operate on a capitated basis. They contract to 
take care of patients for a fixed price. They have become 
convinced that it is such an advantage in managing their cancer 
patients that it actually saves them money. They have just 
unilaterally made the investment. They are one of the largest 
purchasers of scanners right now.
    Mr. Greenwood. Okay. Now, as you know, the central purpose 
for these hearings is to try to figure out how we can create a 
new paradigm, modernize the Health Care Financing Agency, and 
so this is a case example that causes us to wonder, causes me 
to wonder, why it is that you have known for 5 or 6 years and a 
number of insurers have known that is it not only the best 
state-of-the-art technology to diagnose the patient, avoid 
surgical procedures, basic procedures, and, as you just 
indicated, it has become obvious to certain insurers that it is 
in their economic interest.
    We expect HCFA to have a fiduciary responsibility. We 
expect them not to carte blanche approve every technology 
because it may not be the most cost effective, and that is not 
prudent for the taxpayers, but, in your view, what is it about 
the way that HCFA operates that has caused this delay so that, 
in essence, the outcome is that Medicare patients have second-
class health care compared to your patients who are able to 
have access to this technology?
    Why has it taken them so long? And do you have any 
suggestions about how they could speed up the process?
    Mr. Shreve. Well, I don't pretend to understand the mind of 
HCFA, but one of the problems is the role of different 
agencies. You know, as was mentioned earlier, when the FDA 
approves something safe and effective, that really doesn't mean 
much to HCFA in terms of reimbursement. HCFA has increasingly 
taken on the task by itself of evaluating technology as to 
whether not only is it reasonable to use, but beyond that is it 
cost effective?
    Now there are two problems with that. That is a complicated 
thing to do and, as I mentioned earlier, it is not an exact 
science, the notion that you can give a panel of experts a 
problem and they will tell you, yes, it is cost effective or 
not cost effective. It is a lot like economics. It is kind of a 
dismal science, I am afraid.
    So, in many cases, I think it comes down to a political 
decision, look, this might cost us money; we can't really 
divine whether it is going to save us money by eliminating 
other procedures; we just don't want to pay for it. And I 
understand that. I understand there is a fiscal responsibility, 
but, surely, we have a great deal of problems with fraud and 
abuse, with self-referral, where new technologies are kind of 
ordered by the doctors that do them, and you suddenly see an 
explosion in utilization.
    We don't want those problems to hold back technology that 
really is better for the patient and ultimately saves money in 
the long run in patient care. That is really the dilemma, and I 
don't propose to have a blueprint for that, but we have to have 
a clear delineation of what branches of government do what. And 
when, for example, the National Cancer Institute tells HCFA, 
look, you should pay for this for all cancers, don't nickel and 
dime for cancer, that should have some weight. And HCFA should 
say, well, you guys are the cancer experts; Okay.
    I am not sure exactly how that works, but there has to be 
clear delineations of who does what and there has to be a 
notion that there are new breakthrough technologies that are 
fundamentally different that have extraordinary promise, and 
those have to be put in a separate track versus something that 
is, say, a little bit better CAT scan or a little bit better 
surgical instrument.
    Mr. Greenwood. Thank you, sir. My time has expired, and the 
Chair recognizes the gentleman from Florida, the ranking member 
of the Oversight and Investigations Committee, Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. For each of the 
witnesses, if you could respond do you believe that HCFA has 
enough money to obtain the necessary resources to properly run 
the agency, and if no, what should they have, and if yes, what 
are you basing that conclusion on? Let me just go down the 
panel. Dr. Shreve.
    Mr. Shreve. You ask some pretty tough questions, sir. 
Again, I do not know. I am not intimately familiar with HCFA, 
but my guess is they are underfunded to do what they are being 
asked to do. I don't know what the numbers should be. I do know 
that they need some direction from Congress as to exactly what 
their role is. And is it a technology assessment agency? Is it 
a health insurance agency? Just what is their role? And then 
the proper funding to carry out that role needs to be provided.
    Ms. Dziuba. May I?
    Mr. Deutsch. Yes.
    Ms. Dziuba. My thought is do they have the money? I think 
they do. My other thought----
    Mr. Greenwood. Excuse me. Could you pull your microphone 
forward and make sure it is turned on, please?
    Ms. Dziuba. I am sorry. My other thought would be that not 
to open it up carte blanche to have all hospitals, all 
physicians doing PET scans, because it is advanced technology, 
and I certainly would not want my internist to be recommending 
a PET scan for me.
    However, when we are dealing with life threatening 
illnesses such as cancer, it is a totally different situation, 
and that is why I switched to the University of Michigan, which 
is, you know, an accredited cancer center, and I have to put my 
trust in what they say. I mean obviously they have given me 
options, but my question is, and it would be the same to you, 
if your wife, mother, daughter had cancer, wouldn't you want 
her to have the best in terms of a diagnostic technology?
    Would you want to send her for a CAT scan when really what 
she needs is a PET scan? Would you want to send her for a 
mammogram when really what she needs is a PET scan? Would you 
want her to have exploratory surgery when you can tell if she 
had cancer if she had a PET scan and then maybe we would move 
forward with that?
    So, I guess, again, certainly not being a physician, but 
from a personal experience, I would not agree that all 
hospitals, all institutes, should be able, should have PET 
scans, or should be able to receive reimbursement for them. But 
I do think that these type hospitals should.
    Mr. Deutsch. Dr. Popma, in response to the HCFA financing?
    Mr. Popma. I have a puzzled look on my face here because I 
actually don't know what the right answer to your question is. 
I certainly think that every agency that has identified 
problems with efficiency and expedited process needs more 
money. But I am not sure--I think my statement would be that I 
am not sure it is solely a money problem. I think it may be a 
process problem, and I am not sure that you can solve the 
solutions that we are talking about today simply by just upping 
the budget for the whole HCFA agency, although that certainly 
would help, I am sure.
    What we need to do is reexamine the process. We need to 
reexamine exactly what interactions occur early within the 
stage of the cycle. When does the FDA begin to speak with HCFA 
about the potential benefits of this therapy? When do we begin 
discussions about reimbursements for these techniques that are 
clearly safe and effective benefits to patients?
    And so I think in addition to money, which everything 
always comes down to, you can do more with more money than what 
you currently have, much more important is going to be a 
fundamental change in the process. And I hope that would be as 
result of this hearing.
    Mr. Deutsch. Did you want to respond as well?
    Mr. Latulippe. I can't add much to that, but all I can say 
is that the radiation therapy works. I am a living example of 
it, and if I can help in future funding of it through my fine 
doctor and so forth, I am all for it. I wouldn't be here now if 
it wasn't for that treatment.
    Mr. Greenwood. The time of the gentleman has expired.
    Mr. Deutsch. Okay.
    Mr. Greenwood. The Chair recognizes the gentleman from 
Pennsylvania, Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman. Dr. Shreve, setting 
aside the funding issue, in your testimony you state: ``Once 
directed to understand the unique nature of PET and the 
positron radiopharmaceuticals used in PET imaging, the FDA made 
rapid progress in its regulatory oversight duties.'' Could you 
please expand on that? How can we bring such efficiencies which 
did not previously exist in FDA to HCFA?
    Mr. Shreve. Just to clarify, what I was talking about 
there, prior to the modernization act, the FDA had to approve 
these radiopharmaceuticals we use in PET, in particular, FDG, 
fluorodeoxyglucose. The FDA saw that as a drug, did not 
understand exactly what was involved in making these. These are 
made locally and compounded and used regionally, not sent out 
over the whole country. And so there was a big battle over 
whether the FDA had jurisdiction or it was considered the 
practice of pharmacy regulated by states.
    With the act, and I think it was 1997, the FDA was forced 
to actually talk to the PET community and find out exactly what 
we were doing. They visited our facilities. They saw just 
exactly what the technology was and what we were using, and 
that changed everything. They said, oh, now we understand what 
you are doing and why you said it was absurd to handle these as 
conventional drugs.
    And we are still working with the FDA right now to write 
down the regulations for PET radiopharmaceuticals. They have 
had a 4-year period under the law to do that. And it is not a 
perfect process, but without that, we would have gotten nowhere 
because they would have just said, well, this is a drug, you 
got to handle it just like a drug.
    Now, how that can be applied to HCFA, I am not sure, but I 
think there has to be a distinction, as I mentioned earlier, 
between evolutionary technologies that cost more money, say, 
and major revolutionary changes in the way we do things, 
because those things are going to be happening more and more 
rapidly with this revolution that this Congress has brought us 
with post-genomic medicine in the next 20 years.
    And we really have to have a mechanism to look at things 
that are new and different and fundamentally revolutionary and 
get that through the regulatory process so that technology can 
evolve, and it doesn't evolve until it gets into practice and 
industry starts making investments and so on. And that is when 
the real benefit comes to patients.
    Mr. Pitts. You also indicated that PET can actually reduce 
health care costs. Can you elaborate on how it does that?
    Mr. Shreve. Well, there are many publications referenced in 
the document we sent to HCFA. Basically, as I say in my written 
testimony, and as I said in my oral testimony, it is mistakes 
that are expensive. As a radiologist, I am always finding 
things on CAT scans that really aren't a problem, it is not 
cancer, but I can't be sure, and so we have to do a biopsy or 
do surgery, and so we go on these diagnostic detours, which are 
very expensive, because our technology is imperfect.
    The more accurate your diagnostic technology, the fewer of 
those detours and mistakes you make. This saves a lot of money. 
In the last week, we found metastacies in a patient with 
esophageal cancer that would have made major surgery fruitless 
and we prevented that surgery and that expense from happening.
    Another patient with colon cancer, with rising serum 
markers, we found a single metastasis in one part of the liver, 
completely not seen on CT, that allows us to take that little 
part out and substantially prolong that patient's life. Had the 
metastasis been elsewhere, it would be a waste of time. So that 
increment--and PET isn't perfect; it has limitations, too, like 
anything--those increments in accuracy have an enormous effect 
on the downstream costs and on patient's lives. So it is not 
perfect, but each major increment can make a substantial 
difference in cost.
    Mr. Pitts. Thank you, Mr. Chairman.
    Mr. Greenwood. Thank the gentleman. I believe we should 
next recognize the gentlelady, Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman, and I want to thank our 
witnesses for their testimony today, and you, Chairman 
Bilirakis, for holding this hearing. The relationship between 
HCFA's policies and new medical technologies is indeed a very 
important one. Medicare is a sacred program to many seniors and 
people with disabilities, counting on Medicare for their health 
care, and we want them to be able to do that.
    Administering Medicare involves HCFA in a delicate 
balancing act. We don't want HCFA to compromise patient care or 
medical advances with excessive regulation, but we also want to 
make sure that the agency preserves the high level of program 
integrity and works to reduce fraud, waste and abuse.
    That being said, I know there are many areas that need 
improvement when it comes to Medicare's management, and am 
particularly concerned, as you are, about patient access to 
medical technologies. I have heard so often from device 
manufacturers who are unhappy with HCFA's coding and payment 
system. These systems make it difficult for beneficiaries to 
gain access to innovative technologies and procedures, even if 
Medicare covers these therapies. The concern is that 
technologies are reaching Medicare patients much too slowly.
    This really troubles me. I believe we are standing in the 
way of lifesaving treatments that are already available being 
able to be used. Everyday new technologies come along. Many 
companies have already spent years navigating the rigorous FDA 
approval process. Then to be subjected to long and unnecessary 
waiting periods by HCFA for administrative reasons, to me, 
seems wasteful, at the least, and potentially irresponsible in 
terms of health care.
    Sadly, by the time they are registered or given approval, 
many of these devices and technologies are already out of date 
and have been superseded. Overregulation hurts the 
manufacturers, but in the end it really does hurt patients. I 
am committed to working closely with HCFA to create an 
environment in which medical device manufacturers and 
entrepreneurs can bring safe and effective devices to the 
public.
    We have to keep pace with innovation. Not to do that is to 
shortchange patients across this country. But I want to see if 
you will--I know you have been responding already to many 
concerns--but the very topics that you brought up, the PET 
scan, and my own daughter's experience with lung cancer, and 
then to see it being denied, I can't stress enough, also the 
devices used in the cardiovascular arena, that these are often 
cost-saving devices. The very mechanism put in place by HCFA to 
prevent waste is a barricade to saving, to not just saving 
lives but saving costs, too.
    You were eloquent, both of you, in your testimony, and I 
want to see if you would explore for me just briefly how you 
see Medicare's denial affecting other health care providers, 
the effect, the trigger effect that it has on that? I have had 
some impressions on it myself, but if you would answer, please.
    Mr. Popma. We would certainly encourage all the third-party 
payers to understand the cost effectiveness of these new 
therapies, and ultimately I suspect that they will understand 
the cost effectiveness of the new therapies, particularly if it 
truly prevents subsequent procedures for us, whether they be 
diagnostic procedures or whether they be invasive procedures.
    It is a slow process and I have to say that HCFA really 
leads the way with a lot of these things, and I think the 
example that you can set in place by helping HCFA reform and 
expedite that will clearly have secondary benefits to the other 
managed care payers.
    You would certainly not want to have a competitive 
framework at least in our Boston environment where the coverage 
was better for Medicare patients than it was for the third-
party premium payers, and I think that they will follow an 
example that you would provide for them with what happens with 
HCFA.
    So I would agree with your statement that these therapies 
oftentimes are cost effective, if not cost savings, although 
that is always a risky word.
    Ms. Capps. Yes.
    Mr. Popma. But they could potentially be cost savings for 
the health care payers, and we would hope that they would 
follow the example of what is put in place here with HCFA.
    Ms. Capps. In other words, do you see HCFA or Medicare 
reimbursement as being a standard then? That the third-party 
payers are watching to see if HCFA will cover it, and if they 
don't, then they won't either?
    Mr. Popma. I can't speak for that in a specific example of 
our radiation therapy programs per se. Certainly, there has 
been no third-party payer that has come forth today and said we 
are going to pay an incremental cost for these. We are hopeful 
that--this is new therapy--this will evolve. But I think the 
example can be put in place with HCFA.
    Ms. Capps. Okay. Thank you.
    Mr. Greenwood. The Chair recognizes the gentleman from 
North Carolina, Mr. Burr.
    Mr. Burr. I thank the chairman. I apologize to the panel 
for my tardiness, but I have had an opportunity to go over 
testimonies. Let me ask you, Dr. Shreve, what impact do you 
think technology will ultimately have on health care, 
especially as it relates to medical devices? Where do you see 
this going? Where is the endpoint?
    Mr. Shreve. Could you repeat that just one more time, a 
little more specific?
    Mr. Burr. What impact is technology going to have on health 
care in general and technology specifically as it relates to 
medical devices? Where is the endpoint? What are we ultimately 
going to see?
    Mr. Shreve. We are going to see far less hospitalization, 
far less morbidity, that is people that can't function in their 
daily lives be it because of a bad joint or severe ischemic 
heart disease or even Alzheimer's disease. I mean the goal, as 
we understand it in the medical community, of the continued 
funding for medical research is to have people live very 
healthy lives late into their expected lifetime and then die 
and not spend a lot of time dying slowly of chronic diseases. 
That is the ultimate goal.
    Mr. Burr. Layman's terms of what you said is that the 
quality of care will be better, and because there is less 
hospitalization, the cost will be significantly less?
    Mr. Shreve. The key word is understanding diseases at a 
fundamental level allows us to treat diseases at a fundamental 
level. So understanding them and detecting them early, if you 
detect cancer early enough, you can cure it. That saves a lot 
of money and it makes lives better.
    If you can prevent atherosclerotic disease, you can prevent 
coronary heart/ischemic heart disease, and if you can prevent 
degenerative diseases of the brain, if you understand it, you 
can prevent Alzheimer's disease. So that is our goal is to 
prevent these diseases or cure them in a very early state, 
treat them at a very early state, even before they become 
apparent.
    As I said earlier, we can see the metabolic profile of 
Alzheimer's disease on a PET scan before it is really obvious 
clinically.
    Mr. Burr. Dr. Popma--is it Popma?
    Mr. Popma. Yes.
    Mr. Burr. Is it safe to say that the culture within our 
reimbursement system today cannot evaluate long-term savings 
versus initial costs as it relates to devices?
    Mr. Popma. If I understand your question, is it fair to say 
that the long term--over the period that we see long term in 
our trials is 1 year to 2 years, and you may be thinking about 
long-term in terms of decades--we certainly know that over the 
past 10 years, there has been a 20 percent drop in the 
cardiovascular mortality rate, that we know that that has a 
long-term benefit for patients because they are living longer.
    We attribute those better mortality rates over the long 
term to two factors. One factor is early detection and 
treatment. So we want to support new technologies that will 
allow us to detect disease, particularly atherosclerotic 
disease, at an early stage.
    Mr. Burr. Do you ever envision possibly a non-invasive way 
to remove artery blockage?
    Mr. Popma. I do think that these therapies are certainly 
being developed; they are being discussed. There is a whole new 
industry that is being created around the vulnerable 
atherosclerotic plaque. People, not patients, who are in their 
20's and 30's begin to have these atherosclerotic narrowings, 
and there is an industry that is developing about detecting 
these in their early stage.
    Mr. Burr. If that were developed and we were able to 
eliminate the hospitalization of bypass surgery or 
catheterization, and we were able to eliminate the recovery 
time, from a quality of care standpoint, would one not have to 
assess the initial cost of that non-invasive procedure in 
relation to what the savings are----
    Mr. Popma. Absolutely.
    Mr. Burr. [continuing] per incident rate?
    Mr. Popma. We have a specific example of that, and that is 
a cholesterol lowering therapy in patients who have heart 
disease, and that therapy is likely beneficial in an absolute 
level at age 20 or 30, just to lower the cholesterol as low as 
we can to prevent the heart disease.
    But its highest cost effectiveness ratio, where it really 
benefits people the most, are in people who have established 
disease and you are describing a gradient of threshold about 
how much we put in at this point in time with how much we will 
gain in the future, and there are numbers for that.
    Mr. Burr. Is the culture such that that assessment can be 
made today in the process that they go through at the Health 
Care Financing Administration?
    Mr. Popma. I think the answer to your question is yes, that 
there are models that can be created. If you are asking me are 
there specific data----
    Mr. Burr. Could be, but does the model exist today?
    Mr. Popma. Most of our models now, most of our clinical 
trials now, when we evaluate the safety and efficacy of our new 
therapies, incorporate a cost effectiveness limb to that, where 
the hospital bills, the true hospital costs, the utilization of 
resources are collected prospectively as part of the clinical 
trials. And one of the radiation trials that was done was done 
with very effective, if you will, cost effectiveness analysis 
that was done prospectively.
    So the short answer to your question is, yes, I think this 
data is available. We certainly will be able to understand the 
short-term costs, the costs over 1 to 3 years. It is a little 
bit more difficult to predict what our costs are going to be 
like 10 to 20 years later.
    Mr. Burr. My time has run out and I guess my question 
should have been do they use that data to go through the 
calculations at HCFA that they do today? I just want to read 
for the record--Mr. Chairman, I had the opportunity to talk to 
a number of physicians before this hearing in North Carolina. I 
want to read one of their quotes. I won't tell you who it was. 
And it dealt with Medicare reimbursements, device 
reimbursements.
    And it said, ``Medicare might as well put an asterisk by 
reimbursement, and the asterisk will read if you hold your 
breath, stand on the moon on Monday, you will be reimbursed.''
    And the purpose for reading that is to say that if we are 
to enjoy the benefits that technology can bring to devices or 
pharmaceuticals or to any area of the health care industry, 
there has to be a belief within the ranks of the individuals 
who will discover that new technology that they will go through 
a predictable approval process, that their products will be 
reimbursed fairly, and that as long as we put an asterisk by it 
that you have to hold your breath and stand on the moon on 
Monday and hope for reimbursement, we will not have the type of 
effort that we could have in health care developing new 
technologies that do save us money and do increase the quality 
of care.
    Mr. Popma. I agree.
    Mr. Burr. If you disagree with that, I would be glad for 
you to state it.
    Mr. Popma. No.
    Mr. Burr. Thank you, Mr. Chairman.
    Mr. Greenwood. The gentleman's time has expired and the 
Chair recognizes the gentlelady from California, Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman. Let me start out by 
congratulating you on chairing this very important 
subcommittee. You know I respect you, we are friends, and I 
wish you every success in your leadership here. Together with 
our distinguished ranking member, Sherrod Brown, we can really 
make a difference in some areas, given the jurisdiction and the 
role of this subcommittee.
    So thank you for holding this hearing. I think it is a very 
important one. As the co-chair of the Medical Technology Caucus 
here in the House of Representatives, I have a strong interest 
in medical technology issues, and I am committed to improving 
patient access to the marvels of modern medicine, as we know 
them today. Of course, several members have made reference to 
several parts of our health care system, and the breakthroughs 
in technology that represent the high end of our health care 
system and make us second to none in the world today.
    Over the past couple of years, I have repeatedly expressed 
my concern that bureaucratic barriers at HCFA are inhibiting 
access to new technologies. According to the Lewin Group, it 
often takes as long as 5 years for a product to make its way 
through the HCFA maze, yet it only takes now 18 months to get 
FDA approval.
    The Federal Government can determine whether a product is 
safe and effective in 18 months, but it takes 5 years to decide 
whether we are going to pay for it. And delays are really not 
the only problem. Illogical coding decisions are commonplace. 
Over the last handful of months alone, I have had to intervene 
repeatedly at HCFA to address coverage decisions that didn't 
make sense and inhibited access.
    One example was the pass-through payment list. In putting 
together the list, HCFA listed specific product brands rather 
than categories. And they really got themselves into a mess by 
doing it this way. The result was that one company got lucky 
because their product got reimbursed while their competitor's 
product was not.
    In another example, HCFA mistakenly crosswalked a test for 
preterm labor to the wrong code, which resulted in an 
unreasonably low reimbursement rate. My staff and I have spent, 
again, an inordinate amount of time calling and writing HCFA 
about these kinds of problems, and rather than continuing to 
micromanage the agency, what I think we should be doing is 
addressing the structural inefficiencies that produce what I 
just described.
    I led the effort in this committee last year to include in 
the BBA give-back package two provisions aimed at streamlining 
the coverage process at HCFA. I am very pleased that we were 
successful in that effort, but it wasn't enough obviously. More 
work needs to be done. I am committed to taking a comprehensive 
approach to streamlining HCFA in much the same way that we did 
with FDA in 1997.
    It is a source of pride to me the work that not only the 
Commerce Committee did, the work I was able to achieve as the 
Democratic lead on the FDA reform bill along with Joe Barton 
and many other members of the committee. Prior to that 
legislation, FDA had many of the same problems that HCFA 
currently suffers from. By modernizing the agency in a very 
comprehensive way, we were able to dramatically improve the 
approval times.
    So, again, this is a source of pride. For those that say it 
can't be done, it can. There are fiscal funding problems with 
HCFA which we need to recognize, but I don't think the money 
should come first. I think that we should streamline and 
modernize the agency and then look at what that streamlining 
actually is going to cost. Then the Congress needs to step up 
to homeplate to provide the funding. I don't think it should be 
done the other way around.
    I don't think that we can continue to allow a two-tiered 
system of health care where senior citizens are concerned. They 
just shouldn't be subjected to that in the autumn of their 
lives. The technologies that are coming out today are really 
quite revolutionary. So if, in fact, they are not paid for, 
they are not quote ``reimbursed,'' it is a double whammy for 
them.
    So I think that we have a ways to go. I have spent a lot of 
legislative time and energy on these issues, and I really think 
that this hearing and whatever else the I&O Subcommittee can 
do, Mr. Chairman, in this area is going to serve the full 
committee and its members really very well. I look forward to 
working with you, our ranking member, and all the members here, 
on this. I think this is an exciting time to be on the 
committee and to move ahead with this. I think we are ready for 
prime time on it. Thank you.
    Mr. Greenwood. I thank the gentlelady for her comments and 
for her general good nature, and the Chair recognizes the 
gentlelady from New Mexico, Mrs. Wilson.
    Mrs. Wilson. Thank you, Mr. Chairman. I also wanted to 
thank you for holding this hearing, and while I was not able to 
be here the first hour, I have read your testimony, which I 
find interesting and also troubling, but the sad thing to me is 
that the examples that you give of PET scans and radiation 
therapy are not the exceptions. They are the rule, and I see it 
in my own district.
    I recently visited Rio Grande Medical Technologies, which 
had developed detection technology for glucometers, for people 
who have diabetes, and there are 7 million diabetics in this 
country, more and more instances of juvenile diabetes and Type 
II diabetes at younger ages. At least in my State of New 
Mexico, with a high percentage of Hispanic Americans and Native 
Americans, we are disproportionately affected by diabetes in 
New Mexico.
    That is 7 million people who are pricking their fingers 
everyday when they don't need to, and maybe for adults that is 
not a big deal, but if you have a child with diabetes, that 
daily or twice daily or even three times daily pricking of your 
fingers, to find one that doesn't hurt today so that you can 
take that blood sample, matters. And it matters financially as 
well.
    The cost of diabetes in this country is astronomical, and 
yet it takes forever to get a non-invasive infrared scanner 
that looks through the tissue with an infrared beam that has 
been approved by the FDA, to get a code from HCFA to be able to 
use it. People spend $400 a year just on those little glucose 
strips that you have to put the blood on. We should be able to 
do this.
    And the same is true for other technologies that are just 
on the cusp and being developed even in my district in Sandia 
National Laboratories and being transferred to the private 
sector. We are about to be able to have smart scalpels that 
will be able to detect cancerous cells from non-cancerous cells 
while the surgeon is doing his surgery. What a marvelous 
advance in health care, but we can't get HCFA to move fast 
enough to give us the codes.
    [Chart shown.]
    Mrs. Wilson. There is a chart I think the staff has, and 
the thing that concerns me about this is that HCFA and Champus 
seem to use one of the same organizations--it is called TEC--to 
evaluate the effectiveness of certain medical technologies, and 
it is also used, interestingly, by private industry, Blue 
Cross/Blue Shield, Prudential, Humana, all the major health 
insurance companies, and they also use the same studies to 
decide whether to cover it in private insurance.
    Certainly, this will be a question for HCFA, but from your 
perspective why is it--why is it--that HCFA takes so much 
longer to approve a new technology than its counterparts in the 
private sector? I mean from your perspective in working with 
these folks, why?
    Mr. Shreve. I think part of the answer is they haven't been 
told they have to do that, that Congress has to tell them, 
look, this is important, this is important for Americans on 
Medicare, you have to come up with a streamlined way of doing 
this and you have to make it work. If you are not told to do 
it, you are not compelled to do it. It is not simple; this 
business of technology assessment, as I said, is not an exact 
science, and it is in evolution. But if there is a mechanism of 
recognizing new technologies, in moving that through, similar 
to what was done with FDA, and the FDA reform. I mean it was 
done there. HCFA may be more complicated. I don't know. But we 
know we can do this and we know we can streamline and get 
technology and drugs to the market faster, to the patients 
faster.
    Mr. Popma. I am risking being at odds with some of the 
members with this because I actually think that the process is 
a quantitative process that was based on sound reason about why 
one would establish a code, accumulate what physicians are 
doing and what the incremental costs of hospitals are, and then 
prospectively reimbursing that.
    I don't disagree personally with that concept of paying the 
hospitals back for the codes based on their incremental 
benefit. Where I think we would all agree the problem has been 
is in how rapidly the codes are established, how rapidly there 
is a provisional reimbursement for codes based on our best 
guess, and whether or not there can be a reevaluation system as 
time goes on about whether that truly reflects the incremental 
costs that the hospitals are actually bearing.
    So I think, to answer your question, there is a delay, and 
it can't go on for--my opinion--and it has to be expedited in a 
very, very rapid way, and there are some temporary measures 
that I think we would all like to propose to do that.
    But the process has been a quantitative one that has been 
based on the real hospital expenditures, not on the value of 
the agents, but what has been spent with that money. And I 
think it would be not correct to criticize HCFA for what they 
have done in the past because that process has been set up to 
be fair and to be quantitative and to reimburse the hospitals 
exactly what they spent.
    I think the only criticism that I could personally make is 
that the time lag has been entirely too long, and we need some 
immediate relief, almost within the timeframe of the FDA 
approval, to provide reimbursement, but I think a reevaluation 
process almost similar to what HCFA has established is not 
necessarily a bad thing.
    Mrs. Wilson. Thank you.
    Mr. Greenwood. The Chair recognizes the gentleman, Mr. 
Whitfield, for questions.
    Mr. Whitfield. Thank you very much, Mr. Chairman. This 
question is for Dr. Shreve regarding PET. Now, it is my 
understanding that utilizing PET in helping to diagnose certain 
women-exclusive diseases like breast cancer, ovarian cancer, 
cervical cancer, so forth, is not covered by Medicare; is that 
correct?
    Mr. Shreve. Not by Medicare, yes.
    Mr. Whitfield. But there are certain diseases that both men 
and women contract that is covered?
    Mr. Shreve. Yes, there are currently six cancers that are 
covered which are relatively common cancers to both men and 
women.
    Mr. Whitfield. Okay.
    Mr. Shreve. They are major cancers, and for that reason, 
there is more data on those cancers. By major, I mean they----
    Mr. Whitfield. And I notice that you say that HCFA has 
deferred to the MCAC Diagnostic Imaging Panel for review in May 
of 2001 the use of this for Alzheimer's disease only? Is that 
right?
    Mr. Shreve. And breast cancer.
    Mr. Whitfield. And breast cancer.
    Mr. Shreve. They picked two out. We asked for broad 
coverage for cancer, for example.
    Mr. Whitfield. Right.
    Mr. Shreve. And we are still on this path of cancer by 
cancer. So let us say they approve breast cancer in the spring 
of 2001, we will not really have coverage probably toward the 
end of the year. It usually takes them awhile to get to the 
point, okay, reimbursement starts. Then how long is it going to 
take for ovarian cancer?
    You see the biological principle of PET is the same. I mean 
these are different cancers from different parts of the body, 
but the aberrations in metabolism are the same. So in practice, 
I mean I use PET for ovarian cancer all the time.
    Mr. Whitfield. Right.
    Mr. Shreve. Just like I do for colon cancer so this doesn't 
make sense that we have all of this information dating back 
over two decades of the basis of metabolism changes in cancer. 
We have a technology that detects that. So there is this 
commonality to these cancers, and we proposed that to HCFA. We 
said, look, we can't spend 10 years going disease by disease by 
disease by disease. We have to reach a point somewhere, not 
when you make the first picture, not when you do the first 
hundred patients, but somewhere, and we thought 15 to 20,000 
patients was a pretty reasonable number, where we say, look, 
the general underlying principles here indicate this should be 
used for all the cancers.
    Now, it doesn't work in every cancer. I already know that. 
There are certain cancers that PET doesn't work very well, at 
least with FDG. But we already know where that principle 
applies with FDG. And another thing is with reimbursement, the 
technology starts to evolve. The scanners get better. We have 
tracers now that are better for breast cancer than FDG that we 
are working on. All of this is accelerated, and instead of 
waiting 10 years for an improvement in diagnosing breast 
cancer, it could be 3 years.
    So that is the real problem. These breakthrough 
technologies, we cannot wait for this slow process. This road 
from bench to bedside cannot be curvy with detours and 
potholes. We got to get there because this really changes 
people's lives.
    Mr. Whitfield. Well, in these co-called breakthrough 
technologies that you and Dr. Popma have both referred to, 
while it may be breakthrough technology, it is relatively old 
now in both instances, I assume. I mean PET has been used--
what--10 years or so?
    Mr. Shreve. Well, yes and no. I mean the principle is old. 
The principles of biochemistry we have understood for quite 
awhile. The scanner technology has been basically going nowhere 
for 10 years. The scanners have not changed much because 
industry didn't feel like it was worth investing.
    Mr. Whitfield. Right.
    Mr. Shreve. Now, already with some reimbursement, 
investments are being made and the capability of these devices 
will move to much higher levels and give us much more accuracy. 
Furthermore, at least with PET, because it is a molecular form 
of imaging, it is not just FDG, this one tracer, that we are 
using in general for cancer. We can look at virtually any 
metabolic pathway, and so with investment there are other 
tracers and other things we can look at in other diseases.
    For example, Parkinson's disease, we can detect it very 
early and detect the effective treatment. So, again, a 
breakthrough technology is something that is a fundamentally 
new principle. And once you have identified that, you have 
identified there is tremendous potential. The National 
Institutes of Health has said molecular imaging such as PET is 
an area of extraordinary potential, and so they set aside a lot 
of money for research.
    The NIH has been able to do this. And if HCFA could do this 
and streamline this process, there would be tremendous benefits 
for the whole country.
    Mr. Whitfield. Like we said, a lot of private insurance 
companies reimburse for the use of this technology. So I would 
not be oversimplistic in saying that perhaps one reason HCFA is 
not doing it is simply cost?
    Mr. Shreve. That is probably a reasonable assumption. As I 
said in my written statement, there is a problem of we view 
anything ``new'' expensive, as something that will cost more, 
and I can understand that, because there is what we call the 
``woodwork effect'': when something new comes out, everybody 
wants it. And there is a piling on effect, at least in my 
specialty, where we tend to do one thing and add something on 
and add something on, and sometimes it doesn't make sense.
    But there are bigger problems in self-referral and fraud in 
terms of costs. Please don't slow down the movement of new 
technology into patient care just because it is perceived as 
being expensive. There are other places where there is an awful 
lot money to be saved.
    Mr. Whitfield. Did you want to say something, Dr. Popma?
    Mr. Popma. I was just going to note that the radiation 
brachytherapy piece is relatively new technology in terms of 
its advancement. The stents that we have been using now, we 
have really only had available for the last couple of years, 
and this therapy has been only available for 6 months.
    We do need immediate relief for this therapy because before 
it is implemented within programs outside of the initial sites 
that did this as investigation, it has to make sense 
financially for the hospitals to invest in this program and 
currently right now it doesn't make sense to do that.
    Mr. Whitfield. Yes.
    Mr. Popma. So I think patients are, in fact, being denied 
care because the institution of these programs has not been 
forthcoming. So I think that they may be two technologies that 
are different, PET versus radiation brachytherapy. Radiation 
brachytherapy is new and I think that we do need immediate 
relief for that.
    Mr. Whitfield. Thank you.
    Mr. Greenwood. The Chair thanks the gentleman. The Chair 
thanks the panelists for your testimony and hope that you feel 
assured that we will use the testimony that you have offered 
today and the answers to the questions you have provided to 
helpfully improve HCFA. And you are dismissed.
    And we would call forward the second panel. It consists of 
Dr. Jeffrey Kang, Director of the Office of Clinical Standards 
and Quality at the Health Care Financing Administration; Murray 
N. Ross, Ph.D., Executive Director of Medicare Payment Advisory 
Commission; and Clifford Goodman, Ph.D., Senior Scientist for 
Medical Technology at the Lewin Group.
    Good afternoon, gentlemen. Thank you for your presence. I 
am assuming that you are aware that the committee is holding an 
investigative hearing and in doing so has had the practice of 
taking testimony under oath. Do any of you have objections to 
testifying under oath?
    [No response.]
    Mr. Greenwood. And I notice, Dr. Kang that you have with 
you Dr. Miller who is not on the witness list. Dr. Miller, will 
you be testifying as well?
    Mr. Miller. I will be taking questions, yes.
    Mr. Greenwood. You will be taking questions. Then you have 
no objection to being sworn in as well.
    Mr. Miller. No, I don't have an objection.
    Mr. Greenwood. The Chair advises you that under the rules 
of the House and the rules of the committee, you are entitled 
to be advised by counsel. Now do you desire to be advised by 
counsel during your testimony today?
    [No response.]
    Mr. Greenwood. I take that as a negative. In that case, 
would you please rise and raise your right hand and I will 
swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. Thank you. You are now under oath and you 
may now give your 5 minute summary of your written statement, 
and we will begin by Dr. Kang. Thank you for being here.

    TESTIMONY OF JEFFREY KANG, DIRECTOR, OFFICE OF CLINICAL 
   STANDARDS AND QUALITY, ACCOMPANIED BY MARK MILLER, ACTING 
 DIRECTOR, CENTER FOR HEALTH PLANS AND PROVIDERS, HEALTH CARE 
 FINANCING ADMINISTRATION; CLIFFORD GOODMAN, SENIOR SCIENTIST 
 FOR MEDICAL TECHNOLOGY, THE LEWIN GROUP; AND MURRAY N. ROSS, 
    EXECUTIVE DIRECTOR, MEDICARE PAYMENT ADVISORY COMMISSION

    Mr. Kang. Chairman Greenwood, Chairman Bilirakis, Mr. 
Brown, Mr. Deutsch, distinguished committee members, thank you 
very much for inviting us here today to discuss Medicare 
coverage issues. Ensuring beneficiaries have access to high 
quality health care including access to new, proven, medically 
beneficial technologies is a key goal for our agency.
    And I want to assure you that we at the Health Care 
Financing Administration care deeply about our beneficiaries. 
On a personal note, that is especially true for me as a 
practicing geriatrician of 10 years from Boston at the Harvard 
Medical School at Beth Israel Hospital.
    We know that as we have heard from the previous testimonies 
that there is very real impact to every decision that we make, 
and I want to thank each of them for personally sharing their 
stories.
    Our goal in the Medicare coverage process is that it is 
evidence-based, as well as more open, understandable and 
predictable for beneficiaries, providers, manufacturers, 
Congress and the public. We are proud of the success that we 
have achieved thus far in achieving that innovations in health 
care are readily available for our more than 39 million 
Medicare beneficiaries, and we look forward to working 
cooperatively with Congress as we implement important 
modifications to the Medicare coverage process that were 
recently enacted in the Benefits Improvement and Protection Act 
last year.
    We face a difficult challenge as we strive to assure high 
quality health care for our beneficiaries. We must balance 
multiple and sometimes competing interests as we work toward 
this goal. We must act as a prudent purchaser on behalf of our 
beneficiaries and hundreds and millions of taxpayers. We must 
pay providers adequately and fairly under the law while 
protecting the Medicare trust funds and ensuring quality care 
for the Medicare beneficiaries.
    We also must consider and incorporate the views and 
interests of many stakeholders. At the same time, we must 
carefully assess the potential impact of our coverage 
decisions. For example, we must ensure that decisions do not 
discourage the use of valuable new technology or, on the other 
hand, encourage the use of technologies that are unproven, 
ineffective or harmful. And we must be careful to ensure that 
decisions do not create unique advantages or financial 
incentives that encourage the use of a particular technology 
simply because it is new.
    We firmly believe that Medicare's coverage process must be 
clear and understandable to beneficiaries, providers, 
manufacturers and the public, and we have taken a number of 
positive steps in the last 2 years in achieving this shared 
goal. They include creating new administrative procedures, 
allowing any member of the public to request a national 
coverage policy decision, and instructing our contractors to do 
the same.
    I have attached for the committee's consideration a list of 
the 23 national coverage decisions that we have made under this 
new process that has been in existence for the last 1\1/2\ 
years.
    We also established a Medicare Coverage Advisory Committee 
consisting of 100 members including nationally recognized 
experts in a broad range of medical, scientific and 
professional disciplines as well as consumer and industry 
representatives. The committee helps us facilitate public input 
as well as scientific and medical expertise into our national 
coverage decisions, particularly on very complex issues.
    Finally, we created an internet website where the public 
can get updated information on the status of any pending 
national coverage decision including information when a 
determination is expected and the rationale behind every 
coverage decision.
    We firmly believe that Medicare coverage process must be 
clear, understandable and predictable for all those involved. 
We continue to make important progress toward this goal and we 
look forward to continuing to work cooperatively with all of 
you on this critical issue.
    We thank you for holding this hearing, and we are happy to 
answer any of your questions. I will answer the coverage and 
clinical questions, and Dr. Mark Miller, the Acting Director of 
our Center for Health Plans and Providers, will answer 
questions related to coding and payment.
    [The prepared statement of Jeffrey Kang follows:]
Prepared Statement of Jeff Kang, Director, Office of Clinical Standards 
           and Quality, Health Care Financing Administration
    Chairman Bilirakis, Chairman Greenwood, Ranking Member Brown, 
Ranking Member Deutsch, thank you for inviting me here today to discuss 
Medicare coverage policy. I appreciate the opportunity to discuss with 
you this critically important aspect of the Medicare program. Ensuring 
beneficiaries have access to high quality health care, including access 
to new, proven, medically beneficial technologies, is a key goal for 
our Agency.
    Many medical device manufacturers and providers have complained 
that our coverage process has failed them and we are preventing 
beneficiaries from getting the best care available. They see it as 
being slow, unresponsive, and full of unnecessary barriers. We 
recognize that our process is not perfect and in the past we have, at 
times, been slower than necessary to incorporate new technology into 
the Medicare program. We also know that our contractors' involvement in 
the coverage process has been closed, confusing, and contradictory. We 
have listened to these criticisms from the provider community and 
Members of Congress. As a response to these critics, we evaluated where 
the coverage process was difficult to understand or unpredictable and 
have taken appropriate steps to address these criticisms.
    Our goal is a Medicare coverage process that is evidence-based, as 
well as more open, understandable, and predictable for beneficiaries, 
providers, manufacturers, Congress, and the public. We are proud of the 
success we have achieved thus far in assuring that innovations in 
health care are readily available for our more than 39 million Medicare 
beneficiaries. In addition, we will be implementing important 
modifications to the Medicare coverage process that were included in 
the recently enacted Medicare, Medicaid, and State Children's Health 
Insurance Benefits Improvement and Protection Act of 2000 (BIPA). We 
look forward to working cooperatively with the Congress as we implement 
these improvements.
                               background
    Medicare law provides for broad coverage of many medical and health 
care services. Rather than providing an all-inclusive list of covered 
medical devices, surgical procedures, or diagnostic services or those 
that are excluded from coverage, the law generally provides for broad 
coverage of categories of services and excludes only those items or 
services that are ``not reasonable and necessary'' for the diagnosis 
and treatment of illness or injury for Medicare beneficiaries.
    In most instances, new medical technologies are integrated 
seamlessly into existing Medicare payment systems as soon as the 
technologies are approved by the Food and Drug Administration and 
available in the marketplace. Most new technologies are similar to 
existing technologies, or are considered integral to existing 
procedures and, therefore, do not require new coverage decisions or new 
coding mechanisms for payment. Providers use already established codes 
to bill for the item or, under Medicare's prospective payment systems, 
the cost of the technology is simply accounted for in the bundled 
payment amount made to the provider. Bundling of services provides 
flexibility to practitioners and other providers in choosing the most 
appropriate technology based on the patient's needs within the payment 
amount. And it encourages practitioners and providers to use the most 
efficient technology available when the available clinical options 
might similarly benefit the patient.
    For a small number of new technologies, the item or service may be 
a ``breakthrough technology'' and be clinically different from existing 
treatment options. There are certain limited instances when these 
breakthrough technologies are subject to our coverage, coding, and 
payment determination processes. Generally, this more thorough review 
occurs when there are clinical questions about these technologies that 
are of particular significance to the Medicare population, and warrant 
a more careful evaluation. However, these questions are usually raised 
only if there is a need for a new code for the technology or there is a 
question as to whether the cost of the new technology exceeds the 
payment provided under the existing coding structure.
                balancing interests and ensuring access
    We face a difficult challenge as we strive to assure high quality 
health care for our beneficiaries. We must balance multiple, and 
sometimes competing, interests as we work towards this goal. We must 
act as a prudent purchaser on behalf of our beneficiaries and hundreds 
of millions of taxpayers. We must pay providers adequately and fairly 
under the law while protecting the Medicare trust funds and ensuring 
quality care for Medicare beneficiaries. We also must consider and 
incorporate the views and interests of many stakeholders, including 
beneficiaries, providers, manufacturers, private health plans, 
taxpayers, Congress, and others.
    At the same time, we must carefully assess the potential impact of 
coverage decisions. For example, we must ensure that decisions do not 
discourage the use of valuable new technology or, on the other hand, 
encourage the use of technologies that are unproven, ineffective, or 
harmful. Furthermore, we must be careful to ensure that decisions do 
not create unique advantages or financial incentives that encourage the 
use of a particular technology simply because it is new.
                      incorporating new technology
    To the extent that the incorporation of a new technology or service 
requires a coverage decision under Medicare, the vast majority of these 
decisions regarding coverage are made locally by our contractors--the 
private companies that, by law, process and pay Medicare claims. New 
technologies flow easily into the Medicare system through the 
flexibility the coverage process affords to the local contractor 
medical directors. In the absence of a national coverage determination, 
these local medical directors have the discretion to make local 
coverage decisions about particular technologies. Local coverage 
policies are developed and set by the contractor's medical directors 
with the support and input of provider and supplier representatives. 
They may result in approval of individual claims for new technologies 
or the establishment of a local coverage policy. In November 2000, we 
issued instructions to our contractors standardizing the process for 
making local coverage policies and ensuring that the process is open 
and includes input from the public.
    We also have the authority to set national Medicare coverage 
policies, but the actual number of these decisions is quite small. 
National coverage decisions can be conclusive and cover or not cover 
medical items or services. Alternatively, they can leave coverage 
decisions for medical items or services to local contractors. Finally, 
they also can put evidence-based limits on coverage, for example, 
limiting coverage to particular clinical conditions or situations. When 
a national decision is issued, it is binding on all Medicare 
contractors, Medicare+Choice plans, peer review organizations, and 
Administrative Law Judges. Importantly, the locally based decision-
making process allows payment for new technologies to continue at the 
local level, while decisions are being considered or implemented for a 
particular technology or service at the national level.
                  ensuring appropriate coding systems
    The vast majority of new technologies are incorporated into 
Medicare's existing coding structure. However, in some instances, 
either as a result of a national or local coverage policy for a new 
technology or because the cost of a covered new technology is not 
adequately captured in the existing codes, the creation of new codes is 
necessary. We recognize the desire of manufacturers to receive more 
rapid assignment of codes for emerging technologies, but it is equally 
important to recognize that many other stakeholders are involved in 
assigning national codes and computing national payments.
    The need for more rapid assignment of permanent codes must be 
carefully balanced with the interests of our provider partners, 
particularly hospitals and physicians offices, which seek stability in 
coding and payment. Frequent changes and updates to codes can disrupt 
claims processing systems, raise potential compliance issues for 
providers and claims processors, increase costs to physician offices 
and hospitals for re-training and system maintenance, and create 
general uncertainty in overall payment levels. In addition, we must 
ensure that coding systems used by providers are clinically coherent 
and appropriate. We also must be certain that the private and public 
insurers, who have historically relied on shared systems for coding and 
payment, have an appropriate level of stability in coding and payment.
    These multiple interests prevent us from unilaterally assigning 
permanent codes for new technologies and require that we work 
cooperatively with the many stakeholders as coding changes are made. 
Moreover, the Health Insurance Portability and Accountability Act will, 
in the near future, require greater standardization and consultation 
across the health care industry. Therefore, we must be careful to 
develop processes that meet these future requirements, as well as the 
ongoing needs of our beneficiaries and health care partners.
                     improving the coverage process
    We firmly believe that Medicare's coverage processes must be 
transparent and understandable to beneficiaries, providers, 
manufacturers, and the public. We have taken a number of positive 
steps, over the last several years, in achieving this shared goal. And 
we are making solid progress, including:

 Creating a Clear and Open Process. In April 1999, we 
        established new administrative procedures that allow any member 
        of the public to request a national coverage policy decision. 
        Action is taken on most requests for a national coverage 
        determination within 90 days of the request and the public is 
        kept informed of progress in making determinations through our 
        coverage website. In November 2000, we instructed our 
        contractors to institute a similarly open process for 
        developing local coverage policies. A list of the 23 national 
        coverage decisions we have made under this new process is 
        attached to my testimony.
 Establishing the Medicare Coverage Advisory Committee (MCAC). 
        The committee, established in June 1999, is made up of over 100 
        members, including nationally recognized experts in a broad 
        range of medical, scientific, and professional disciplines, as 
        well as consumer and industry representatives, who serve a 
        vital role in making the coverage process more open and 
        accountable. Through open meetings, information sharing, and 
        dialogue, the committee helps facilitate public input, as well 
        as scientific and medical expertise, into national coverage 
        policy determinations on particularly complex issues.
 Creating an Internet Website. Our new coverage website 
        (www.hcfa.gov/coverage) gives all members of the public, 
        including beneficiaries, providers, and manufacturers, ready 
        access to up-to-date information on the status of any pending 
        national coverage decision, including information such as when 
        a determination is expected, as well as the rationale behind 
        each coverage decision. The website also provides detailed 
        records of the issues considered for each coverage decision, 
        including all of the evidence and the major steps taken in the 
        review process.
 Developing New Coverage Criteria. Working with the public, we 
        are developing new criteria that will serve as a framework for 
        health care sector-specific guidance on Medicare coverage 
        policy. These criteria will help providers and our contractors 
        more easily determine whether a given treatment or service is 
        ``reasonable and necessary'' and, therefore, covered under 
        Medicare. In May 2000, we published a Notice of Intent 
        regarding a proposed regulation on the new criteria. And, in 
        September 2000, we held a Town Hall meeting for providers to 
        share opinions, information, and advice with us. Taking the 
        valuable suggestions we have received, we are continuing to 
        work on a proposed regulation, on which we will again invite 
        public comment, before we issue the final criteria.
                       recent legislative changes
    The recently enacted BIPA, includes important changes to the 
Medicare coverage process for beneficiaries, manufacturers and 
providers. For example, it enhances the fee-for-service appeals process 
for beneficiaries and provides an avenue to appeal both local and 
national coverage decisions. In addition, BIPA modifies the outpatient 
prospective payment system pass-through mechanism for devices, a 
mechanism that was created in the Medicare, Medicaid, and State 
Children's Health Insurance Program Balanced Budget Refinement Act of 
1999 (BBRA). BIPA changes the ``device-specific'' pass-through, as 
called for in BBRA, to one based on ``categories'' of devices. We are 
currently consulting with the device industry and providers on drafting 
the initial list of device categories, and we expect to meet the April 
1 deadline for finalizing this list. We are aware of Congress' concerns 
regarding the operational difficulties of the pass-through and look 
forward to working with you to address any needed changes.
                               conclusion
    We recognize that there is considerable concern regarding the way 
in which HCFA and its contractors oversee the coverage process. Many of 
these concerns are well founded. However, we hope that our new 
processes and provisions of the new BIPA legislation will improve our 
administration of this critical part of the Medicare program. And of 
course, as we begin the process of modernizing Medicare, we are going 
to carefully examine ways to make the program more responsive to 
advances in technology and medical practice, to ensure beneficiaries 
get the highest quality care.
    A clear, understandable, and predictable Medicare coverage process 
for beneficiaries, providers, manufacturers, Congress, and the public 
is critically important. We continue to make important progress towards 
this goal and we look forward to continuing to work cooperatively with 
all of you on this critical issue. We thank you for holding this 
hearing, and we are happy to answer your questions.

    Mr. Greenwood. Dr. Kang, thank you for your testimony.
    Dr. Goodman, please.

                  TESTIMONY OF CLIFFORD GOODMAN

    Mr. Goodman. My name is Cliff Goodman, and I am with the 
Lewin Group, a health care policy and management consulting 
firm, based on Falls Church, Virginia.
    The Medicare program exerts significant influence on 
patient access to new medical technologies. Contrary to common 
perception, approval of a new technology by the FDA does not 
guarantee that it will be available to Medicare beneficiaries. 
By controlling coverage--that is whether or not payment will be 
made--and reimbursement, which is the level of payment, 
Medicare can facilitate or impede patient access to new 
technology.
    Figure 1, seen to your right, only hints at the complexity 
of the process. Gaining market approval for these technologies 
from the FDA requires meeting that agency's generally stringent 
criteria for safety and efficacy. Now, the FDA may be the 
toughest regulatory agency around, but there is only one FDA. 
In contrast, new technologies face many government and private 
sector payers who make largely independent payment decisions.
    Now, Medicare is not a single entity. In fact, most 
coverage decisions are made by local Medicare contractors 
including about 36 Part A Fiscal Intermediaries and about 42 
Medicare Part B Carriers.
    HCFA makes certain national coverage decisions that 
supersede any local coverage decisions. HCFA may elect to make 
a national coverage decision when a technology is costly and/or 
has a large impact on the Medicare program, or when there is 
significant variation in local Medicare coverage policies.
    As shown in Figure 2, to your right, the pathway to market 
can be time consuming as well. For the premarket approval, or 
PMA, devices which typically include the more advanced ones, 
the time from product to concept to FDA market approval can 
take several years or more. Following that, securing Medicare 
payment involves really three types of steps: coverage, coding, 
and reimbursement.
    Now, for many devices that resemble existing ones, for 
which appropriate codes do exist that are adequately 
reimbursed, these steps can be perfunctory. But it is just 
those more advanced technologies that offer greater benefits 
and that don't fit existing molds that are more likely to 
encounter the higher hurdles to patient access and adequate 
payment.
    With Medicare, the systems for making decisions about 
coverage, coding and reimbursement are separate and really 
largely uncoordinated, and as a result, yes, it can take 15 
months to 5 years, and in some cases longer to add new 
technologies to Medicare.
    It is important to note that some of the coding systems 
used in Medicare that you have heard about today are managed 
fully or in part by organizations outside of HCFA, for example, 
the CPT codes for medical procedures that are developed by the 
American Medical Association. Coding matters. It is a dry 
subject, but it matters.
    Assigning an effective technology to a code whose payment 
is less than the cost of providing the technology in the first 
place can discourage the use of the technology and discourage 
further innovation. When this arises for a technology, for 
instance, in the inpatient prospective payment system, we call 
it a DRG loser.
    There are reasons why, and there are truly reasons why FDA 
approval is not necessarily accepted as sufficient for payment 
by Medicare or other payers. For example, the technology may 
not fall under a covered benefit such as when screen 
technologies in general aren't covered by quite a few payers, 
or the beneficiary population, for example, the elderly and 
Medicare in this case, may not have been adequate represented 
in existing clinical studies on the technology. Also, any 
health benefit of a new technology might not be worth its 
additional cost in the view of the payer.
    Now, here are four overarching observations of the current 
Medicare process:
    (1) The Medicare process for coverage, coding and payment 
for many medical technologies can be inefficient and 
unnecessarily time consuming, particularly for the novel or 
more breakthrough technologies.
    (2) HCFA's redesigned national coverage process does offer 
some important and welcomed improvements in transparency and 
responsiveness, and the gentleman to my left, Dr. Kang, has had 
much to do with these improvements. However, the process 
including the function and reporting of the Medicare Coverage 
Advisory Committee, or the MCAC, is really still under 
construction and remains unpredictable.
    (3) Medicare evidence requirements and coverage criteria 
are increasing in general and remain unpredictable or ambiguous 
in certain important ways. Now, evidence-based coverage policy 
is--is--absolutely necessary, but the current ground rules, 
including as provided by HCFA in the notice of intent issued 
last May, are insufficient.
    (4) While its transparency and openness could be improved, 
the local coverage process by the Part A Fiscal Intermediaries 
and the Part B carriers that I mentioned still remains a 
critical avenue for obtaining coverage, particularly given the 
uncertainty about the national coverage process as it now 
stands.
    Let us be clear about it. Evidence-based decisionmaking for 
medical technology can be complex. You cannot make responsible 
coverage policy overnight for, say, use of PET scans for 
diagnosing multiple types of cancer, at different potential 
levels of severity, in diverse patient populations, and for 
which the existing clinical evidence may be, in fact, weak or 
inconclusive.
    Nevertheless, it remains incumbent upon payers, including 
Medicare, to establish evidence requirements and related 
coverage criteria that are appropriate for different types of 
technology, and transparent, and implemented consistently in a 
timely manner. Now that is a tall order. But it is your order 
if you are responsible for health care coverage for nearly 40 
million people at nearly $260 billion a year. It is also our 
responsibility.
    There are in place--this is the good news--certain building 
blocks or models for a smoother, more predictable transition of 
new technology from investigational to covered status.
    One is the 1995 Interagency Agreement between FDA and HCFA 
that makes certain Category B investigational devices eligible 
for Medicare payment during clinical trials. Good move.
    A recently implemented executive order provides Medicare 
payment for the routine patient care costs of beneficiaries 
enrolled in clinical trials of new technologies.
    Third, the BBRA of 1999 established temporary pass-through 
payments for certain new technologies under the outpatient 
prospective payment system.
    And four, the Benefits Improvement and Protection Act, or 
BIPA, 2000 requires HCFA to establish a mechanism to adopt new 
medical services and technologies under the inpatient 
prospective payment system.
    What do these have in common? They all provide conditional 
or temporary payment for promising health care technologies 
while evidence can be collected to support well-founded 
coverage coding and reimbursement policies.
    In closing, here are five ways to buildupon ongoing efforts 
to improve the Medicare coverage process in the way it 
deserves.
    First, FDA and HCFA should work closely on better alignment 
of the evidence requirements for market approval by the FDA and 
payment by Medicare. This greater alignment can reduce costs 
and the time line for making new technologies available to 
patients.
    Two, HCFA and its MCAC should work with industry and others 
to develop evidence requirements and coverage criteria that are 
appropriate for different types of technologies.
    Three, HCFA and the MCAC, and this is very important, 
should move promptly to establish clear and accountable lines 
of authority and review tracks.
    Four, the process for assigning and updating codes should 
be made more frequent and adaptive to the diversity and costs 
of new technologies. Remember, HCFA cannot do this alone.
    And five, HCFA should devote sufficient resources and 
expertise to technology assessment for the big job of 
assembling and interpreting evidence in support of Medicare 
coverage decisions.
    Well, the Health Care Financing Administration is the 
world's single largest payer for health care--the world's. 
Recent improvements notwithstanding, this most influential 
gatekeeper for new technology must strengthen and streamline 
its process on behalf of its beneficiaries and the nation. 
Thank you.
    [The prepared statement of Clifford Goodman follows:]
        Prepared Statement of Clifford Goodman, The Lewin Group
    Good afternoon, Chairmen Bilirakis and Greenwood, Ranking Members 
Brown and Deutsch, and other Members of the Committee. My name is Cliff 
Goodman, and I'm a senior scientist at The Lewin Group, a health care 
policy and management consulting firm based in Falls Church, Virginia.
Complex and Time-Consuming Pathway to Patient Access
    As the nation's largest health care payer, the Medicare program 
exerts significant influence on patient access to new medical 
technologies. Contrary to common perception, approval of a new 
technology by the Food and Drug Administration (FDA) does not guarantee 
that it will be available to Medicare beneficiaries. By controlling 
coverage (whether or not payment will be made) and reimbursement (the 
level of payment), Medicare can facilitate or impede patient access to 
new technology.
    Continued growth in demand for health care and for cutting-edge 
technologies in particular are focusing national attention on the 
pathway to patient access. Figure 1, attached, only hints at the 
complexity of this process. Gaining market approval for these 
technologies from the FDA requires meeting that agency's generally 
stringent criteria for safety and efficacy. The FDA is one of the 
toughest regulatory agencies around, but there is only one FDA. After 
overcoming that regulatory hurdle, new technologies face not one, but 
many government and private sector payers who make largely independent 
coverage and reimbursement decisions affecting access.
    Of course, Medicare is not a single entity. In fact, most coverage 
decisions are made by local Medicare contractors, including about 36 
Part A Fiscal Intermediaries (FIs) and about 42 Part B Carriers, 
including four Durable Medical Equipment Regional Carriers (DMERCs).
    National coverage decisions are made by HCFA and must be observed 
by all Medicare Carriers and FIs. National coverage decisions supersede 
any local coverage decisions. HCFA may elect to make a national 
coverage decision when a given technology is costly and has a 
significant impact on the Medicare program, or when there is 
significant variation in local Medicare coverage policies.
    As shown in Figure 2, the pathway to market can be time consuming. 
For Premarket Approval (PMA) devices, which typically include the more 
advanced ones, the time from product concept to FDA market approval can 
take several years or more. Following that, securing Medicare payment 
involves three types of actions: coverage, coding, and reimbursement. 
For a new device that resembles an existing one for which an 
appropriate code exists that is adequately reimbursed, these actions 
can be perfunctory. But it is those more advanced technologies that 
offer greater benefits and don't fit existing molds that are more 
likely to encounter higher hurdles to patient access and adequate 
payment. Within Medicare, the systems for making decisions about 
coverage, coding, and reimbursement are separate and largely 
uncoordinated. As a result, it can take 15 months to 5 years, and in 
some cases longer, to add new technologies to Medicare.
    A complicating twist here is that some of the coding systems used 
in Medicare are managed fully or in part by organizations outside of 
HCFA, for example, the Common Procedure Terminology (CPT) codes for 
medical procedures that are developed and maintained by the American 
Medical Association.
    Whether it be CPT codes for physician services, diagnosis related 
groups (DRGs) for the inpatient Prospective Payment System (PPS), or 
ambulatory payment classification groups (APCs) for the outpatient PPS, 
coding matters. Assigning an effective technology to an inappropriate 
code, or to a code whose payment is less than the cost of providing the 
technology, can discourage use of the technology, limit patient access, 
and discourage further innovation. In fact, when this arises for a 
technology in the inpatient PPS, we call that technology a ``DRG 
loser.''
FDA Approval Not Sufficient for Payment
    To be sure, there are reasons why FDA approval is not accepted as 
sufficient for payment by Medicare or other payers. These may include 
the following.

 The technology may not fall under a covered benefit (e.g., 
        screening procedures may not be covered).
 Payers care not just about efficacy (``Can it work under ideal 
        circumstances?'') but about effectiveness (``Does it work in 
        actual clinical settings?'').
 The beneficiary population may not have been adequately 
        represented in existing clinical studies.
 Clinical studies done for FDA approval may have compared the 
        new technology to placebo (or no intervention), instead of to 
        the existing standard of care.
 Follow-up times may not have been sufficient to capture 
        natural disease episodes and potential adverse events.
 Any additional health benefit of a technology might not be 
        worth its additional cost.
 Even if covered, a technology might not be medically necessary 
        for particular patients.
Overarching Observations of the Medicare Coverage Process
    Based in part on a study that we conducted recently at the request 
of AdvaMed, here are five overarching observations of the Medicare 
coverage process.1
---------------------------------------------------------------------------
    \1\ The Lewin Group. Outlook for Medical Technology Innovation. The 
Medicare Payment Process and Patient Access to Technology. Washington, 
DC: AdvaMed, 2000.
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    1. The Medicare process for coverage, coding, and payment for many 
medical technologies can be inefficient and time-consuming, 
particularly for novel or ``breakthrough'' technologies.
    2. HCFA's redesigned national coverage process offers some 
important and welcomed improvements in transparency and responsiveness. 
However, the process, including the function and reporting of the 
Medicare Coverage Advisory Committee (MCAC), is still under 
construction and remains unpredictable and time-consuming.
    3. Medicare evidence requirements and coverage criteria are 
increasing in general, and remain unpredictable or ambiguous in certain 
important ways. Evidence-based coverage policy is absolutely necessary, 
but the ground rules, including as provided by HCFA in the Notice of 
Intent issued in May 2000, are unclear and insufficient for the 
diversity of new technology.
    4. While its transparency and openness could be improved, the local 
coverage process by Part A FIs and Part B Carriers remains a critical 
avenue for obtaining coverage, particularly given uncertainty about the 
national coverage process.
    5. Problems inherent in the Medicare coverage, coding, and payment 
systems can influence provider behavior, impede patient access to 
health care technology, and affect the course of innovation.
    Let's be clear about it; evidence-based decision making for medical 
technology can be complex. Even setting the matter of cost aside, you 
don't make responsible coverage policy overnight for, say, the use of 
PET scans for diagnosing multiple possible types of cancer, at 
different sites in the body, at different potential levels of severity, 
in diverse patient populations, and for which the existing clinical 
evidence may be weak or inconclusive. Then consider that many of the 
PET scans will generate the need for more invasive tests, and that 
treatments for these cancers may have limited effectiveness and severe 
side effects.
    Nevertheless, it remains incumbent upon payers to establish 
evidence requirements and related coverage criteria that are 
appropriate for different types of technology, transparent, and 
implemented consistently in a timely manner. That is a tall order. But 
if you're responsible for health care coverage for nearly 40 million 
people at $257 billion per year, it's yours. And ours.
Build Upon Encouraging Developments
    Historically, the coverage of new technologies has been, at least 
officially, characterized by a great binary divide: coverage or non-
coverage. The Catch-22 has been that payers would not cover a new 
technology until there was enough patient data on which to base an 
informed coverage policy; however, it is difficult to accumulate such 
data unless a payer is covering the technology. The good news is that 
there are now in place certain building blocks or models for a 
smoother, more predictable transition for new technologies across that 
binary divide.

 The 1995 Interagency Agreement of FDA and HCFA makes certain 
        ``Category B'' investigational devices eligible for Medicare 
        payment during clinical trials being conducted toward FDA 
        approval.
 There are selected instances of conditional coverage, in which 
        research organizations and payers coordinate and pay for 
        clinical trials of new technology, such as the National 
        Emphysema Treatment Trial involving the National Heart, Lung 
        and Blood Institute, HCFA, and the Agency for Healthcare 
        Research and Quality (AHRQ).
 The recently implemented Executive Order for HCFA provides for 
        Medicare to pay for routine patient care costs of beneficiaries 
        enrolled in clinical trials of new technologies.
 The Balanced Budget Refinement Act of 1999 (BBRA) established 
        temporary pass-through payments for certain new technologies 
        under the outpatient PPS.
 The Benefits Improvement and Protection Act of 2000 (BIPA) 
        requires HCFA to establish a mechanism to adopt new medical 
        services and technologies under the inpatient PPS.
    All of these have one thing in common: they provide conditional or 
temporary payment for promising health care technologies, while 
evidence can be collected to support well-founded coverage, coding, and 
reimbursement policies.
    It should be noted that conditional coverage at a national level 
that allows payment only to specified providers can override local 
coverage that provided access to some patients. As these arrangements 
evolve, policy makers and industry should closely monitor their 
implications for access.
Avenues for Improvement
    Building upon ongoing efforts, HCFA and Congress should consider 
the full process, leading up to and including coverage, coding, and 
reimbursement. Here are some approaches.
    1. FDA and HCFA should work closely on better alignment of evidence 
requirements for market approval and payment for new technology. 
Without compromising the respective missions of these agencies, greater 
alignment will reduce the costs and timeline for making new 
technologies available to patients.
    2. HCFA and its MCAC should work with industry and others to 
develop evidence requirements and coverage criteria that are 
appropriate for different types of technology. It is impractical and 
inefficient to apply the same types of evidence requirements to 
technologies used in prevention, screening, diagnosis, and treatment.
    3. HCFA and the MCAC should move promptly to establish clear and 
accountable review tracks and lines of authority involving HCFA, MCAC 
and its components, and any outside review groups.
    4. The processes for assigning and updating codes should be made 
more frequent and adaptive to the diversity and costs of new 
technologies. HCFA cannot do this alone; it must work with the 
organizations that manage these systems.
    5. HCFA should devote sufficient resources, expertise, and 
organizational cooperation to technology assessment for assembling and 
interpreting evidence in support of Medicare coverage decisions. Aside 
from continuing to strengthen its capacity from within, HCFA should 
establish efficient, timely relationships with AHRQ, other federal 
agencies, and qualified technology assessment organizations in the 
private sector.
    The Health Care Financing Administration is the world's single 
largest payer for health care. Recent improvements notwithstanding, 
this most influential gatekeeper for new technology must strengthen and 
streamline its process on behalf of its beneficiaries and the nation.
[GRAPHIC] [TIFF OMITTED] T1492.037

    Mr. Greenwood. Thank you, Dr. Goodman, for your statement.
    Dr. Ross, your statement, please.

                   TESTIMONY OF MURRAY N. ROSS

    Mr. Ross. Good afternoon, Chairman Greenwood, Chairman 
Bilirakis, Mr. Brown, Mr. Deutsch, members of the 
subcommittees. I am Murray Ross, Executive Director of the 
Medicare Payment Advisory Commission, and I am pleased to be 
here at this joint hearing, to discuss access to new technology 
and the role of Medicare payment policy. My written testimony 
draws heavily on a chapter from MedPAC's newly released March 
2001 report to the Congress.
    Medicare handles new technology in two broad steps. The 
first step, of course, is deciding what to cover and we have 
heard a lot about that this morning. The second step is seeing 
to it that Medicare's payment policies provide sufficient 
resources for health care providers to adopt new technologies 
without spending more than necessary and without introducing 
unnecessary complexity into the program.
    The second step is the focus of my testimony. Medicare now 
pays prospectively for most services provided in hospitals. 
This raises questions about whether the program recognizes the 
introduction of new technologies quickly enough to ensure 
needed access for beneficiaries and whether the payment systems 
account adequately for new technologies.
    In looking at both the inpatient and the outpatient 
prospective payment systems, MedPAC has concluded that the 
Secretary should develop formal procedures for assigning codes, 
updating relative weights and investigating the need for 
service classification changes to recognize the costs of new 
and substantially improved technologies.
    To avoid unnecessary spending and complexity in these 
payment systems, additional or pass-through payments should be 
both budget neutral and limited to technologies that are new or 
substantially improved and that it adds significantly to the 
cost of care.
    Prospective payment was adopted by Medicare to promote 
efficiency in the provision of services and thus protect 
beneficiaries and taxpayers from unnecessary treatments and 
spending.
    By setting payment rates in advance, Medicare gives 
hospitals a fixed payment that ideally reflects an efficient 
provider's costs. Hospitals are placed at financial risks for 
the costs above the payment amount and rewarded if they keep 
their costs below it.
    By its nature, prospective payment provides financial 
incentives to adopt new technologies that lower costs. However, 
the payment system should also provide mechanisms to account 
for the cost of new technologies that enhance quality even if 
they increase costs. The payment system should maintain 
neutrality regarding clinical decisionmaking including adoption 
of new technology.
    It should not favor the use of one procedure or technology 
over clinically appropriate substitutes, but pay the cost of an 
efficient provider for all options, leaving clinicians to make 
decisions given individual circumstances. A balancing process 
is needed to ensure that payments are sufficient to maintain 
access to needed services, but without spending more than 
necessary.
    Further, payment mechanisms should be administratively 
feasible from both the perspective of HCFA and hospitals using 
the most reliable data sources available.
    The outpatient system pays for new technology in two ways: 
by defining new technology, ambulatory payment classification, 
or APC groups, and by making pass-through payments to provide 
additional funds for specific drugs, biologicals and medical 
devices. The new APC groups aim to ensure timely payment for 
technologies that represent new services distinct from the 
existing groups.
    HCFA established 15 new groups with cost ranges from zero 
to $50 to between $5,000 and $6,000; payment rates for these 
groups will be at the midpoint within each group. This approach 
is most applicable to a system with a narrow unit of payment 
and limited bundling, as is the case in the outpatient payment 
system.
    One difficulty with this approach, however, is that it uses 
a temporary payment rate, the new technology APC group rate, 
while data on costs are being collected to set a permanent 
rate. Data derived in this way are not easily verified and may 
not represent hospitals' operational costs.
    The pass-through payments seem to ensure adequate payment 
for new technology is used as inputs to an outpatient service 
rather than as distinct services themselves. Pass-throughs for 
certain drugs, biologicals and medical devices were authorized 
under the Balanced Budget Refinement Act in response to 
concerns that the 1996 data used to calculate base payment 
rates did not adequately reflect costs in 2000.
    However, the Benefit Improvement and Protection Act of 2000 
removed the criterion that technologies be underrepresented in 
the 1996 data. All medical devices described by A Category will 
receive pass-through payments regardless of when they were 
first used in the outpatient setting.
    By paying hospitals' incremental costs for new devices at 
the claim level, these pass-through payments encourage their 
adoption and diffusion. However, they also dilute the ability 
of the outpatient payment system to provide incentives for 
efficiency and cost control. In effect, this provision will 
result in unbundling payments and providing cost-based pass-
through payments for most medical devices.
    Introducing cost-based pass-through payments gives 
manufacturers and hospitals an incentive to increase prices for 
them. Pass-through payments for drugs and biologicals will be 
based on average wholesale prices with similar incentives for 
manufacturers to increase prices. These inflationary trends 
will also increase future payments as the pass-through costs 
are incorporated into the base.
    MedPAC recommends that in the outpatient payment system 
pass-through payments for specific technologies be made only 
when technologies are new and substantially improved to avoid 
double counting those costs that are already in the base, and 
only when they add substantially to the cost of care in an 
ambulatory payment classification group to avoid introducing 
unnecessary complexity to the payment system.
    We recommend that pass-through payments be made on a 
budget-neutral basis, but that the aggregate costs of new or 
substantially improved technologies be factored into the update 
to the outpatient conversion factor. This gives policymakers 
control over how much to increase payments.
    I would like to touch briefly, even though in it is in a 
different jurisdiction, on inpatient. Prospective payment for 
inpatient services has been in effect since 1984. BIPA changed 
Medicare's payment approach to new technology by formalizing 
methods that HCFA already had in place and requiring additional 
payments for the cost of new technologies.
    We support having HCFA formalize its procedures and offer 
some guidelines for implementing these additional payments.
    The additional payments for new technologies on the 
inpatient side are essentially pass-throughs, but several 
reasons make them less appropriate there than they are in the 
outpatient setting. First, new drugs, devices or services make 
up a much smaller share of cost for a discharge than for an 
outpatient service.
    Second, neither patients' classification nor recalibration 
of payment weights depends on assigning new codes.
    Third, we lack reliable data on which to base payments.
    Fourth, we face difficulty in predicting how often new 
technology will be used, and thus the reduction in the base 
payment rates needed to make the pass-through funding budget 
neutral.
    And, finally, the adjustments will introduce administrative 
complexity, again for HCFA and for hospitals alike.
    Our recommendations on the inpatient side combine aspects 
of the previous system and the provisions of the Benefit 
Improvement and Protection Act. First, the Secretary should 
develop formal procedures for expeditiously assigning codes, 
updating relative payment weights, and exploring the need for 
changes in patient classification.
    Second, additional payments should be limited to new or 
substantially improved technologies that add significantly to 
the cost of care in a diagnosis-related group and should be 
made on a budget neutral basis. And again, we would recommend 
accounting for the aggregate impact of new technologies through 
the update.
    That concludes my testimony and I will be happy to answer 
any questions.
    [The prepared statement of Murray N. Ross follows:]
  Prepared Statement of Murray N. Ross, Executive Director, Medicare 
                      Payment Advisory Commission
    Chairman Bilirakis, Chairman Greenwood, Members of the 
Subcommittees. I am Murray Ross, executive director of the Medicare 
Payment Advisory Commission. I am pleased to be here this morning to 
discuss Medicare beneficiaries' access to new technology and how 
Medicare payment policy can help to continue ensuring access. My 
testimony draws heavily on a chapter from MedPAC's March 2001 report to 
the Congress.
    Medicare needs to take two steps in ensuring beneficiaries' access 
to new technology. The first step is determining what to cover. The 
second step is seeing to it that Medicare's payment policies provide 
both incentives for health care providers to adopt new technologies and 
sufficient resources for them to do so. This second step is the focus 
of this testimony.
    Most services provided in hospitals are now paid for prospectively. 
Recently, concerns have arisen regarding the treatment of new 
technology under prospective payment. Does Medicare recognize the 
introduction of new technologies quickly enough to ensure access for 
beneficiaries? Do payment rates adequately reflect the costs of new 
technologies? The Balanced Budget Refinement Act (BBRA) of 1999 
addressed this issue for the outpatient prospective payment system 
(PPS) by establishing pass-through payments for certain types of new 
technology. The recently enacted Benefits Improvement and Protection 
Act (BIPA) of 2000 requires HCFA to develop new mechanisms to pay for 
technological advances under the inpatient PPS.
    We conclude that under both the inpatient and the outpatient 
prospective payment systems, the Secretary should develop formalized 
procedures for expeditiously assigning codes, updating relative 
weights, and investigating the need for service classification changes 
to recognize the costs of new and substantially improved technologies. 
Also, to avoid unnecessary spending and complexity in these payment 
systems, additional or pass-through payments should be both budget-
neutral and limited to technologies that are new or substantially 
improved and that add significantly to the cost of care.
    In support of these conclusions, this testimony considers how new 
technology should be defined, what payment principles should apply to 
the treatment of it, and how prospective payment systems for hospital 
services should account for new technologies.
                        defining new technology
    In the most basic sense, technology is the practical application of 
knowledge. In the health sector, this may include: drugs; devices, 
equipment, and supplies; medical and surgical procedures; support 
systems; and organizational and managerial systems. Some of these 
technologies, such as drugs or surgical procedures, affect identifiable 
services and individual patients. Others, such as new diagnostic 
equipment, may be used for an array of services and multiple patients. 
Still others, such as information systems or improved management 
techniques, affect all services provided in a hospital.
    When defining new technologies, both new types of technology and 
substantial improvements to older technologies may be considered. 
Within a payment system, a technological advancement might be 
application of an existing technology to new clinical situations, such 
the broadening use of PET scans. Although the overall effect of 
technology has been to increase costs, specific new technologies may 
increase or decrease costs.
    The mechanisms used to account for the costs of new technology in a 
payment system depend, in part, on the kind of technology considered. 
Recognition of the costs of a device used in a particular procedure, 
such as coronary stents used in angioplasty, may be reflected in the 
relative weight assigned that procedure or through an additional 
payment. The costs of broader technologies, such as capital equipment 
or information systems, however, are more easily treated through 
updates to the base payment rate. In some cases, such as the inpatient 
PPS, changes in relative weights are made in a budget-neutral fashion. 
In that case, the payment system still needs to account for the cost-
increasing nature of technology through the update process.
        prospective payment and the treatment of new technology
    Prospective payment was adopted by Medicare to promote efficiency 
in the provision of services and thus protect taxpayers and 
beneficiaries from unnecessary treatments and spending. By setting 
payment rates in advance, Medicare gives hospitals a fixed payment that 
ideally reflects an efficient provider's costs. Hospitals paid 
prospectively are placed at financial risk for costs above the payment 
amount and rewarded if they keep their costs below it.
    By its nature, prospective payment provides financial incentives to 
adopt new technologies that lower costs. However, the payment system 
should also provide mechanisms to account for the costs of new 
technologies that are enhance quality, even if they increase costs.
    A PPS should maintain neutrality regarding clinical decisionmaking, 
including adoption of new technology. The payment system should not 
favor the use of one procedure or technology over clinically 
appropriate substitutes, but pay the costs of an efficient provider for 
all options, leaving medical personnel to choose what is clinically 
optimal given individual circumstances. Payment rates are set for a 
given output, but the number and mix of inputs used to create the 
output is left to the clinical judgment of the provider.
    A balancing process is needed to ensure that payments are 
sufficient to maintain access to needed services without spending more 
than necessary. The calculation of adequate payment rates must be 
administratively feasible, using the most reliable data sources 
available. Limited data and predictable variations in costs across 
providers also imply that payment adequacy be determined at a broad 
level, with payment adjustments such as those given to teaching 
hospitals used to account for predictable variations in costs among 
types of providers.
               components of prospective payment systems
    PPSs have certain common elements, including a patient or service 
classification system and a unit of payment. They also have a process 
for updating both the relative payment weights and base payment 
amounts. The way these elements are treated has implications for the 
treatment of new technology under a given PPS.
Classification system
    The classification system, which groups services for payment, may 
influence how technology is defined and how new technology is treated. 
A narrow payment system--such as the outpatient PPS which groups 
services based on a single service or small bundle of services--may 
target a specific device or drug by using additional payments or other 
mechanisms. Basing the classification system on diagnosis--as is done 
in the inpatient PPS--can make it more difficult to tie a specific 
technology to a given case.
Unit of payment
    The unit of payment determines which services are bundled for 
payment purposes. The outpatient PPS relies on a limited bundle: 
payment is for the inputs required for a narrowly defined procedure, 
such as a diagnostic test, an outpatient surgical procedure, or a 
clinic visit. In contrast, the inpatient PPS encompasses a broad 
bundle: all services provided during a hospital stay. In general, the 
broader the bundle, the more room for efficiency enhancements at the 
provider level, but the greater the opportunity for withholding 
services.
    The unit of payment influences how a payment system captures the 
costs of new technologies. If the unit of payment incorporates a large 
bundle, increased costs in one area, such as a new-generation medical 
device, may decrease costs in another area, such as length of stay, 
causing total payment for the bundle to stay the same or decline. For a 
narrow bundle, however, there is less scope for offsetting 
efficiencies, and the costs of new technologies may need to be taken 
into account more explicitly.
Updating relative payment weights
    Updating codes and payment weights (which account for differences 
in the resources needed to furnish care) provides another way to 
account for the costs of new technology. Introducing new codes can help 
account for the cost of innovative procedures. Recalibrating payment 
weights for services takes into account how new technologies, increased 
productivity, and other factors change the costs of services in 
relation to one another. The frequency with which codes and weights are 
revised affects the length of time before appropriate payments are made 
for new technologies. However, multiple priorities must be balanced, 
including the integrity of the coding and payment systems, disruption 
to providers from revising their billing processes to reflect new codes 
and new weights, data availability, and administrative requirements.
Payment updates
    Finally, updates to base payment rates, which account for changes 
over time in the efficient costs of providing care, may also reflect 
the cost impacts of new technology. Some updating approaches--such as 
the update framework MedPAC developed for updates for the inpatient PPS 
and other fee-for-service settings--explicitly consider the effect of 
quality-enhancing but cost-increasing technologies on costs, and 
increase payments accordingly. Of course, when new technologies 
increase efficiency and decrease costs, payment updates should also 
reflect those trends. For the inpatient PPS, the Congress legislates 
the update annually, with guidance from MedPAC and Secretary of Health 
and Human Services. For the outpatient PPS, the Congress has set the 
update to the conversion factor through 2002. The updating process for 
future years has not been fully developed by the Health Care Financing 
Administration (HCFA). For the present, no explicit mechanism accounts 
for the cost impacts of new technology in updating the outpatient 
conversion factor.
      treatment of new technology in the outpatient payment system
    The implementation of the outpatient PPS on August 1, 2000, marked 
a move away from primarily cost-based payment for services provided in 
hospital outpatient departments. This section describes the outpatient 
PPS and MedPAC's recommendations for improving how the system pays for 
new technology.
Structure of the outpatient payment system
    The outpatient PPS classifies services based on their HCFA Common 
Procedure Coding System (HCPCS) code into ambulatory payment 
classification (APC) groups. The unit of payment for the outpatient PPS 
is the individual service. Payment for a service in an APC group 
includes limited bundling of ancillary services and supplies considered 
incident to the primary service. The most extensive bundling occurs for 
outpatient surgery. Payment for outpatient surgery covers the 
hospital's costs for the operating and recovery rooms, anesthesia, most 
drugs, and most surgical supplies used during the surgery.
Responding to technology costs
    The outpatient PPS pays for new technologies in two ways: by 
defining new technology APC groups and by making pass-through payments 
that provide additional reimbursement for specific drugs, biologicals, 
and medical devices. The new technology APC groups aim to ensure timely 
payment for technologies that represent new services, distinct from the 
existing groups. The pass-through payments aim to ensure adequate 
payment for new technologies that are inputs to an outpatient service, 
rather than a distinct service. A pass-through payment is a cost-based 
payment that supplements the standard APC payment when a specific 
technology is used.
Coding and classification issues
    Industry has expressed concern that delays in the coding and 
classification processes hamper the diffusion of new technologies, 
although there is no clear evidence of access problems. In the 
outpatient PPS, the process for handling new technologies includes 
assigning codes to new services and procedures, updating the 
classification (APC) weights, and investigating the need for new or 
restructured service classification groups. MedPAC recommends that the 
Secretary develop formalized procedures to expedite this process.
    Timely development of payment codes is especially important in the 
outpatient sector, where payment bundles are small and most procedures 
require a code for hospitals to be reimbursed. New outpatient codes are 
assigned by HCFA and/or the CPT Editorial Panel. In addition, to 
implement the outpatient technology provisions of the BBRA, HCFA has 
developed a system for assigning codes for pass-through payments, 
including setting aside a block of temporary codes to be assigned 
quickly.
    In addition to assigning codes, HCFA must also review the 
outpatient payment weights on an annual basis and restructure the APCs 
as needed, although the process for doing so has not been fully 
detailed beyond establishing an external advisory committee.
New technology ambulatory payment classification groups
    In developing the outpatient PPS, HCFA created separate APC groups 
to classify new technology services that do not qualify for pass-
through payments. These groups contain services that are similar in 
cost, but are not necessarily clinically similar. The agency 
established 15 new technology groups, with cost ranges from $0-$50 to 
$5,000-$6,000. The payment rate for all the services or items within a 
particular group will be the midpoint of the group's cost range.
    To qualify for classification within a new technology APC, a 
service must be covered by Medicare, be underrepresented in the 1996 
data used to set payment rates, have a HCPCS code, and be deemed 
reasonable and necessary for treating an illness or improving an 
impaired function. HCFA will group qualifying new technologies or 
services within new technology APC groups for at least two but no more 
than three years before assigning the services to an existing or new 
standard APC group. This mechanism will allow HCFA to pay for new 
technologies shortly after they become available and qualify for 
Medicare payments. It also allows the agency to collect clinical and 
cost data to refine and update the APC classification system.
    This approach to accounting for new technology is most applicable 
to a PPS with a narrow unit of payment and limited bundling, as is the 
case in the outpatient PPS. One of the difficulties with this approach, 
however, is that it uses a temporary payment rate--the new technology 
APC group rate--while data on hospital costs are being collected to set 
a permanent rate. HCFA uses an application process to gather cost data 
to place services within the new technology APC groups, but data 
derived in this way are not easily verified and may not be 
representative of hospitals' operational costs.
Pass-through payments
    Pass-through payments for certain drugs, biologicals, and medical 
devices were authorized under the BBRA to ensure that payments under 
the outpatient PPS adequately accounted for the costs of new 
technologies. The policy responded to concerns that the 1996 data used 
to calculate base payment rates did not adequately reflect the costs of 
certain new technologies. However, BIPA removed the criterion that 
technologies be under-represented in the 1996 data. All medical devices 
described by a category will now receive pass-through payments, 
regardless of when they were first used in the outpatient setting. In 
effect, this provision will result in unbundling payments and providing 
cost-based pass-through payments for most medical devices.
    By paying hospitals' incremental costs for new devices at the claim 
level, pass-through payments encourage their adoption and diffusion. 
For drugs and biologicals, additional payments are set at 95 percent of 
average wholesale price. For medical devices, pass-through payments are 
based on each hospital's costs (as determined by adjusting charges 
using a cost-to-charge ratio). For example, when a pacemaker is 
implanted, a hospital receives a base payment for costs associated with 
performing the procedure and a pass-through payment based on the costs 
of the device. In principle, the amount of the pass-through payment 
will be offset by subtracting the estimated cost of the device it 
replaces from the base payment rate. However, HCFA has not yet been 
able to identify the cost of most devices in the underlying payment 
rates.
    Pass-through payments will be paid for two to three years until 
standard payment rates can be modified to incorporate the costs of new 
devices. Data collected during the transition will be used to modify 
the standard payment rates. Total payments under the pass-through 
provision are limited to 2.5 percent of total program payments through 
2003, and 2 percent thereafter. If this limit is exceeded, all pass-
through payments are to be reduced. Additionally, total payments must 
remain budget neutral, meaning that the conversion factor will be 
reduced to account for the cost of the pass-through payments. In 
effect, the provision redistributes payments among services.
    In our June 2000 report, MedPAC noted that although transitional 
pass-through payments may help to ensure access to new and innovative 
technologies, they may also dilute the ability of the outpatient PPS to 
provide incentives for efficiency and cost control. Introducing cost-
based pass-through payments gives manufacturers and hospitals an 
incentive to increase prices for these items. Pass-through payments for 
drugs and biologicals will be based on average wholesale prices, which 
are also subject to manipulation. Inflationary trends in the pass-
through payments will also increase future standard payment rates as 
the pass-through costs are incorporated into the base.
    The cap on total payments--2.5 percent of total program payments 
through 2003 and 2 percent thereafter--and proportional reductions of 
all pass-through payments if the cap is exceeded is meant to prevent 
increases in overall spending due to the pass-through payments. 
However, the cap will not be applied in 2000 and 2001, and program 
spending will increase despite the cap. Whether or not the limit will 
be exceeded in the future depends, in large measure, on the definition 
of what qualifies for pass-through payments. HCFA has expanded its 
definition numerous times since releasing the final rule--more than 
1,000 items were eligible on January 1, 2001--and BIPA will lead to 
further expansions.
    In considering pass-through payments, two principles should be kept 
in mind: minimizing interference with in clinical decision-making, and 
ensuring that mechanisms are in place to limit the program's exposure 
to cost-based payment. Balancing these potentially conflicting notions 
requires consideration of the eligibility criteria for pass-through 
payments. MedPAC recommends that in the outpatient payment system, 
pass-through payments for specific technologies should be made only 
when a technology is new or substantially improved and adds 
substantially to the cost of care in an ambulatory payment 
classification group. We also recommend that pass-through payments be 
made on a budget-neutral basis and the costs of new or substantially 
improved technologies should be factored into the update to the 
outpatient conversion factor.
    Limiting pass-through payments to new and substantially improved 
technologies protects the program and beneficiaries against unnecessary 
exposure to cost-based payments. It also eliminates the potential to 
pay for technologies twice: once in setting the initial payment rates 
(which include older technologies) and again through a pass-through 
payment. For this reason, the definition of ``new'' should not include 
items whose costs were reflected in the 1996 data used to set payment 
rates. Limiting pass-through payments to those new or substantially 
improved technologies that add substantially to the cost of care limits 
the program's exposure to the administrative burden of special payment 
provisions and the introduction of cost-based payment for technologies 
that compose a small part of overall payment.
    Budget neutrality--when implemented--will protect against the 
inflationary pressures of cost-based pass-through payments. This 
mechanism will reimburse hospitals for the increased costs of specific 
technologies when they are used, but will not account for the overall 
cost-increasing nature of new and substantially improved technologies. 
Therefore, in a manner similar to the inpatient PPS, the costs of these 
new technologies should be brought into the system through the update 
to the conversion factor. However, any increase to the update for new 
technology should not include the costs of technologies in use prior to 
1997 because their costs are already accounted for in the base. 
Similarly, the update should not factor in the costs of new procedures 
that are part of the new technology APC groups. The costs of these 
services are covered directly as each unit is paid for, leading to 
increases in total spending.
      treatment of new technology in the inpatient payment system
    Medicare's PPS for acute inpatient services has been in effect 
since 1984. The process for annually changing its payment rates already 
includes a set of largely informal procedures for responding to the 
costs of new technology. BIPA enacted a method to account directly for 
the costs of new services and technology, patterned somewhat after the 
outpatient technology pass-through provision discussed above.
Structure of the inpatient payment system
    The unit of payment in the hospital inpatient payment system is the 
case, or inpatient discharge, as classified by diagnosis related group 
(DRG). This unit of payment is broader than that of the outpatient APC 
system, encompassing all routine nursing, support service, and 
ancillary costs incurred in patients' stays. The payment system 
comprises:

 operating and capital base payment rates, which reflect the 
        national average costliness of Medicare cases, adjusted for the 
        relative input prices of the hospital's local area;
 case weights, which account for the relative costliness of 
        each DRG compared with the national average Medicare case; and
 special adjustments, such as outlier payments for unusually 
        costly cases.
Responding to technology costs
    The BIPA changed Medicare's approach to new technology in the 
inpatient PPS by formalizing some methods already in use by HCFA and 
mandating new payment adjustments for inpatient care. We support having 
HCFA formalize its procedures for responding to new and substantially 
improved technologies and offer guidelines for implementing the 
technology pass through mandated by BIPA.
Previous methods
    Technology has been addressed in Medicare's inpatient PPS in four 
ways. The first component of HCFA's system is a technical advisory 
panel that assigns ICD-9-CM codes to new technologies and deletes codes 
for outdated procedures.1 The process of assigning codes has 
no fixed timetable, but generally takes at least a year.
---------------------------------------------------------------------------
    \1\ The ICD-9-CM acronym stands for International Classification of 
Diseases, 9th Revision, for Clinical Management.
---------------------------------------------------------------------------
    Second, HCFA staff analyze variation in the costliness of cases 
within DRGs, primarily in response to suggestions by industry 
representatives that the costs of certain types of cases are 
systematically higher than the applicable DRG average. Based on these 
analyses, HCFA periodically reassigns certain types of cases to a 
different DRG or splits DRGs into two or more new groupings and 
modifies the case weights accordingly.
    The third way in which HCFA responds to new technology is by 
recalibrating the DRG case weights. Recalibration is done annually and 
reflects the relative costliness of cases in the most recent year's 
claims file. Although annual recalibration plays an important role in 
maintaining accurate payment relatives, it can only reflect the current 
degree of dissemination. If only a few hospitals are using a new 
technology, their charges will have only a small effect on the DRG rate 
and they may continue to be underpaid pending the next recalibration.
    The final mechanism for responding to technology changes is the 
annual update to the base payment rates. Since the early years of the 
inpatient PPS, Congress has legislated updates for operating payments, 
while HCFA has set the updates for capital payments through an annual 
rulemaking process. Congress rarely indicates the factors it has taken 
into account in making an update decision, but both MedPAC and HCFA 
develop recommendations on the basis of an update framework. MedPAC's 
framework specifically addresses technology costs through a scientific 
and technological advancement factor, which is intended to account for 
the impact of quality-enhancing but cost-increasing new technologies 
and is offset at least partially by a negative productivity adjustment, 
which captures the effects of cost-decreasing new technologies.
Provisions of the Benefits Improvement and Protection Act of 2000
    BIPA mandated that HCFA develop a process to incorporate new 
medical services and technologies expeditiously into the clinical 
coding system for inpatient hospital services; collect data on the 
costs of new technologies for a period of 2 to 3 years and assign cases 
using the technologies into new or existing DRGs that have case weights 
derived from the new data; and provide for additional payment to cover 
the costs of each new technology during the study period. This payment 
could be in the form of new technology groups or it could be an add-on 
or adjustment to the normal DRG payment for cases where the technology 
is used.
    The first two provisions serve to formalize, and perhaps expedite, 
procedures that HCFA already uses. The third provision, implementing 
what amounts to an interim payment for specific new technologies, 
represents a sharp departure from current policy. Like the outpatient 
technology pass through, the Secretary is expected to implement the 
provision on a budget-neutral basis. This means the effect of the 
additional payments for specific new technologies would be entirely 
distributional; the provision would not affect the need to account for 
the cost-increasing impact of new technology in annual payment updates.
    The additional payments for new technologies are pass-throughs in 
the sense that HCFA must establish rates that cover the estimated cost 
of each technology. However, the inpatient pass-through provision 
differs from the outpatient one in that it is based the average cost of 
a technology rather than each hospital's costs. Thus, hospitals will 
benefit financially if they can negotiate a purchase price that is 
beneath the national average, and vice versa.
    The reason for a technology pass-through for acute inpatient care 
is ensuring that inadequate payment for specific DRGs or cases within 
DRGs does not provide a significant disincentive for hospitals to adopt 
new services and technologies. However, two reasons make this advantage 
less compelling for inpatient care than for outpatient services. First 
is the broader construct of DRGs, such that a new drug, device, or 
service is likely to make up a much smaller portion of overall costs. 
The second reason is that, unlike in the outpatient PPS, neither 
patients' DRG classification nor the process for recalibrating the DRG 
weights is dependent on HCFA assigning codes to new services or 
procedures. New codes serve only to facilitate analyses that might lead 
HCFA to restructure DRGs.
    Several other problems cited above for the outpatient technology 
pass through will also likely apply to an inpatient pass through. These 
include a lack of reliable data on which HCFA can base an appropriate 
interim payment adjustment for a technology before hospitals have much 
experience in providing it, the difficulty of predicting how frequently 
new technology will be used and thus the reduction in base payment 
rates needed to make pass-through funding budget-neutral, and the 
administrative complexity of the process for HCFA and hospitals alike.
    Our recommendations envision taking the best aspects of the 
previous system and the provisions of BIPA to develop a system that 
accounts for the costs of new technology for inpatient hospital 
services. First, the Secretary should develop formalized procedures for 
expeditiously assigning codes, updating relative weights, and 
investigating the need for patient classification changes to recognize 
the costs of new and substantially improved technologies. Second, 
additional payments should be limited to new or substantially improved 
technologies that add significantly to the cost of care in a diagnosis 
related group and should made on a budget-neutral basis.
    Although annual recalibration of inpatient payments has an 
established track record, the other two processes--code assignment and 
patient classification changes--are somewhat informal and perhaps not 
completed as quickly as they could be. For example, the ICD-9-CM 
Coordination and Maintenance Committee only meets twice per year to 
consider potential code changes. In addition, there are no established 
procedures for affected parties to request DRG restructuring, and no 
fixed process or timetable for HCFA staff to respond to such requests.
    With these changes to formalize the system for assigning codes to 
new services and procedures and investigating the need for DRG changes, 
we believe that the inpatient payment system would have responded 
adequately to the costs of new technology. In contrast to the 
procedure-based system for outpatient payment--which makes it difficult 
to respond to the introduction of new technologies without using pass-
through payments--the inpatient PPS makes it easier to ensure an 
appropriate distribution of payments while accommodating technological 
advances.
    BIPA, however, requires that a payment adjustment be made. The 
``substantial impact'' provision would provide a temporary boost in 
payments when the impact of a new technology on its early users is the 
most severe, while minimizing interference with clinical decisionmaking 
at the local level. Budget neutrality would limit the pass through to 
influencing the distribution of payments, leaving decisions regarding 
changes in the overall level of payments to the annual updating 
process.

    Mr. Greenwood. Thank you, Dr. Ross, for your very thorough 
testimony.
    The Chair recognizes himself for 5 minutes for questioning 
and would direct a question to Mr. Kang for starters. Mr. Kang, 
today is, I believe, March 1, and my understanding of the 
practices at HCFA are that if today HCFA decided to approve a 
particular technology or device for coverage, that pursuant to 
its procedures the reimbursement would not be available until 
180 days following the next quarter. That would take us to July 
1 plus 6 months so the end of the year. So you could decide 
today that PET imaging technology should be covered. It 
wouldn't be reimbursed for 9 months till the beginning of next 
year.
    No. 1, in fact, have I accurately described your process? 
If no, please correct me. If so, please explain why such an 
arbitrary system is utilized.
    Mr. Kang. Mr. Chairman, what you are actually asking me is 
when my office has already made the coverage decision, and then 
about assigning the coding and payment, and that is actually 
Dr. Miller's area so I will let him respond to that.
    Mr. Greenwood. Very well.
    Mr. Miller. Is this one on?
    Mr. Greenwood. Yes.
    Mr. Miller. There are a couple of things going on there 
that explain the 180 days. The first thing that comes into play 
here is that HCFA makes system changes, and these are 
legislative changes, coding changes, and any changes in policy 
that it makes, go into its computer system on a quarterly 
basis. These are large quarterly updates of any changes, that 
is how they get into the system, and there are sort of four 
major changes in the system.
    Mr. Greenwood. Let me interrupt you there. I am not a 
computer expert. What I am trying to understand is if you 
made--what you are telling me is if you have made a coverage 
decision today on March 1, that would be entered in on July 1, 
and if made a coverage decision on June 30, that would also be 
entered on July 1?
    Mr. Miller. No. It is 180 days from when the decision is 
made and what is happening is that you have quarterly updates 
and you are trying to catch the next quarter update or the next 
quarterly update after that. We set the 180 days as a goal. 
Now, generally we make that. Sometimes we make it sooner. 
Sometimes it is a little bit after that.
    But what is happening, so that you understand why it cannot 
happen instantaneously, is that a code needs to be created and 
a payment needs to be created. Then that needs to be 
communicated to the carrier so that they can do the 
programming. Then you need to educate the providers, ``here is 
how you change your payment,''--I mean, ``here is how you 
submit bills under the new form,'' and then the system goes 
into effect in the computer system so that people can bill for 
it. I also am not a computer expert.
    The other thing I will say about this is when a national 
coverage decision is made, at the local carrier level, 
decisions can be made to say in the interim I will give you a 
temporary code and a payment during this period if the carrier 
medical director so chooses.
    But the direct answer to your question is fundamentally 
there are four periods where we try and make all the system 
updates on an orderly basis, and that is why the 180 days.
    Mr. Greenwood. Okay. But I am trying to understand why it 
is not done on a constant rolling basis as opposed to these 
quarterly demarcations?
    Mr. Miller. That is a fair question, and I think there are 
fundamentally two answers to that question. The first answer is 
that, as I said, it is not just there is one code, let us make 
this change. What is happening, for example, what is happening 
in the agency right now is the provisions that were passed as 
part of the Benefits Improvement and Protection Act, the BBRA, 
the BBA, those provisions are all being programmed and put into 
the system, so there is all kinds of changes that occur, and it 
is a fairly complex problem to define the policy, define the 
computer code. And so on a quarterly basis, that is how we try 
and do it to make sure that the systems don't just come down 
around us.
    The second reason is I think if you made these changes on, 
let us say, a daily basis every time a new technology, a new 
code--and let us say we could move that fast--I think you also 
have to be conscious of the burden on providers. Every time we 
change a code, hospitals, physicians' offices, suppliers have 
to change their computer systems, have to change their billing 
practices, have to educate their coders and billers, and that, 
you know, we try and have some regimen to that so that we 
change the code and educate people in an orderly fashion.
    Mr. Greenwood. Dr. Kang, you wanted to comment?
    Mr. Kang. Mr. Chairman, just one other observation. 
Actually when I was up in Boston, I was the medical director of 
a couple of managed care organizations or insurance 
organizations, and this issue of periodic updates of the 
system's changes and the time it takes to do this is actually 
reasonably consistent with what happens in the rest of the 
insurance industry. It takes time to get all this done.
    Mr. Greenwood. If I may, of course, it takes time, and no 
one is arguing that. What we are trying to find out if there is 
something that arbitrarily adds to the timeframe, and, for 
instance, just from the top of my head, if I were a hospital 
administrator, and I had to upgrade my computer, it would seem 
to me I would have--if, in fact, I was getting daily data from 
HCFA instead of quarterly data, I could make a decision. I 
could choose to do that on a quarterly basis. I could let it 
mount and then do it on a quarterly basis, or I could do it on 
a daily basis at my option rather than have only the one 
choice. But if you want to quickly respond, Dr. Miller, you 
may, but my time has expired.
    Mr. Miller. No, that is fine.
    Mr. Greenwood. And with that, the Chair recognizes and 
turns the Chair over to Mr. Bilirakis.
    Mr. Bilirakis. Thank you. And the Chair now recognizes Mr. 
Brown to inquire.
    Mr. Brown. Thank the chairman. Dr. Goodman, we have heard 
different people talk about making sure that HCFA has adequate 
resources to do its job. How does HCFA compare to other 
industrialized countries in terms of resources available for 
payment and coverage functions for making some of these 
decisions?
    Mr. Goodman. Yes, let me think for a moment. I guess the 
answer is a bit surprising. If you look at United Kingdom, for 
instance, United Kingdom, on the coverage question, this 
coverage function, has a special agency just devoted to it. It 
is called the National Institute for Clinical Excellence, 
interestingly enough the NICE. They just upped their budget 
this year to the equivalent of about maybe $16 or $18 million. 
That is for the UK. It is a smaller country than ours, and I 
believe the Coverage and Analysis Group, which has the similar 
function at HCFA, may be $3 million. I will say $3 million. Is 
that about right? Or I would say at the outside maybe $4 
million, but it is a few million dollars.
    And then I am familiar with in the country of Sweden, 
Sweden has got 9 million people. They devote almost as much as 
Dr. Kang does to coverage questions and related technology 
assessment as HCFA. So much smaller country spends about what 
we do, what Medicare does.
    And finally, if you look in the United States, the big 
payers, some of the big Blue Cross/Blue Shield plans, United 
Health, some of the other bigger payers, they spend $4 or $5 
million or more on this function. So, again, as I said before, 
if you are responsible for 40 million beneficiaries and, you 
know, $270 billion a year, you might want to spend more than $3 
million on the coverage function.
    Mr. Brown. So the question that my friend from New Mexico 
asked of the first panel, why does the private sector do it so 
much more quickly, implying that they always do--I don't think 
they do--but why they would do it more quickly than HCFA might 
be that the private sector spends more money in carrying out 
these functions; correct?
    Mr. Goodman. Yes, sir. In part, it is because they have 
just as much or more money. It is also in part because when you 
are making a coverage decision in the private sector, you don't 
have to do everything in public and you don't have to have a 
committee of 120 people kind of trying to manage things with 
you. So they have that advantage.
    The other thing is that sometimes private sector payers can 
cover something, say that we will pay for a certain procedure, 
but they have more utilization review at the time a procedure 
is offered for a given patient, and so it is at that later step 
that they might be able to deny coverage. Even if they cover it 
in general, they might not think that the patient's indications 
meet the situation for that person.
    Mr. Brown. I am just intrigued by your answer because I 
have been on this subcommittee for 8 years, and I have heard 
members of this, and we have had a significant number of 
hearings, particularly in the last 6 years, critical of HCFA, 
and we blame HCFA for all, not all, many of the problems that 
Medicare faces as some strive to privatize Medicare, and then 
we don't appropriate HCFA enough money to do its job when 
Congress is ultimately responsible, and I am just sort of 
intrigued by that.
    Dr. Kang, Medicare decides what to cover. Insurance 
companies privately decide. Private insurers decide what to 
cover. When a new drug or device is approved by FDA, do either 
insurance companies or Medicare automatically approve them? I 
mean is that sort of an automatic kind of thing?
    Mr. Kang. The answer is no. The quick answer is no.
    Mr. Brown. When would it not be? Give me some examples of 
when they would not automatically cover something. This morning 
in the earlier panel, obviously there is something that those 
are pretty useful medical devices and medical procedures, but 
when would they not?
    Mr. Kang. There are several places. One very good example 
actually is when, in fact, it is not a benefit. So, for 
example, in the Medicare program, oral drugs are not a benefit. 
It has been approved by the FDA, but Medicare has no authority 
to cover that.
    The second would be many times the FDA approval is based on 
what we call efficacy. The lab test, for example, tells you 
what the selenium level is. What we have to ask as an insurer 
is, ``is that clinically useful information? Do we care? Does 
that help the beneficiary's health outcome?''
    It may be nice to know the test measures the selenium 
level, and I am just making this up, you know, but the question 
really for us as an insurer is that useful information and does 
that improve the patient's care?
    And then the third major area really is the FDA does not 
look at what is called comparative effectiveness; so they 
compare versus placebo. What we are very interested in is, ``is 
the new technology better than what we are currently 
covering?'' So there may be a new technology, but, let us say, 
for example, it is inferior to what we are currently covering, 
I would imagine as a prudent purchaser, I am not sure why we 
would want to cover that. So those would be three quick 
reasons. And there are many others.
    Mr. Miller. Could I also respond to that? The one other 
aspect of this that I just think we should focus on--I think 
what Jeff is referring to--is breakthrough technology. I 
believe that the overwhelming majority of technology when it is 
approved gets into the payment systems. They are prospective 
payment systems. It is a covered benefit. Payment is there for 
it. It moves right in. HCFA is not involved in the 
decisionmaking process at all.
    The clinicians on the ground, in the hospital or whatever 
the provider settings are make the decision to use it or not. I 
think what we are talking about here is when this is something 
brand new, not covered, no code, or something like that.
    Mr. Bilirakis. What happened to the gentleman from North 
Carolina, the vice chairman of the committee? Well, he is not 
here. Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman. Dr. Goodman, as you may 
know, Congress twice has urged HCFA to consider outside data in 
making DRG reclassifications, first in the BBA 1997 report 
language, second in the fiscal year 1999 Senate Labor HHS 
Approps Report.
    My question is can you relate your understanding of HCFA's 
use of non-MedPAR data in the adoption and adequate payment of 
new drugs and technologies in the hospital inpatient system?
    Mr. Goodman. That was for me? Yes. I am not the world's 
expert on MedPAR, but what I do know is this: for many new 
technologies the evidence is somewhat limited and it is often 
difficult to conduct strong clinical trials to get data, and I 
think that it is probably a mistake to be very narrow in the 
sorts of data selected to help support a DRG decision. I think 
we need to look outside to experience among other payers 
elsewhere in the country, similar populations, in order to pull 
together as much data as we can on some of these new 
technologies so that we will have a strong enough evidence base 
upon which to base a DRG update decision. Being too narrowly 
focused on any particular data base may be shortsighted.
    Mr. Pitts. Anyone else like to add to that? Dr. Kang, do 
you agree?
    Mr. Kang. I think this would actually be more Dr. Miller's 
area.
    Mr. Miller. I don't have a lot to add to it. My 
understanding is that since the Congress has encouraged us to 
consider outside data, we have not had many instances where 
people have asked us to consider it, and the kinds of things 
beyond using additional data are, you know, sample sizes to 
assure that it actually represents something that is happening 
in the population, and whether the population it is being drawn 
from is representative of the population that would actually 
end up using the service. But I don't necessarily have anything 
to add to his comment.
    Mr. Pitts. All right. In its proposed fiscal year 2000 
Inpatient PPS Rule, HCFA outlined criteria for the submission 
and use of third-party data to allow for quicker access of new 
technologies for Medicare patients. To your knowledge, is this 
criteria reasonable, especially for smaller companies?
    And second, have you had any knowledge that third-party 
data has been successfully submitted to HCFA, then actually 
used by the agency to recalibrate the DRG payments?
    Mr. Miller. I think I would like to answer your question 
for the record because I don't think I have the specific answer 
to whether, how data has been collected and used in that 
instance. I believe we have only received a couple of 
submissions from outside data. And they have generally--I 
believe they have not been used to make the decision, and that 
is either because the sample size wasn't large enough or some 
characteristic of the data. But I would rather answer your 
question for the record because I think I don't necessarily 
have this in detail in front of me.
    [The following was received for the record:]

    I believe the criteria for the submission and use of third-party 
data are reasonable for small and all other sizes of companies. As 
indicated in the FY 2000 Inpatient PPS rule, we remain open to 
considering third-party data in the diagnosis-related group (DRG) 
reclassification and recalibration process as long as the data are 
reliable and validated.
    We also established and published a timetable for submitting data. 
We request at least a representative sample of data by the August, and 
a complete database by the December prior to the publication of the 
proposed Inpatient PPS rule in the spring. The Medicare Payment 
Advisory Commission agreed that this timetable is ``a valid basis for 
assessing the feasibility and appropriateness of using outside data.'' 
Additionally, we are open to receiving data in various formats, as long 
as we are able to verify and validate the data, consistent with the 
language of the Conference Report that accompanied the Balanced Budget 
Act of 1997.
    This past summer, we met with individuals representing four 
different new drugs or technologies, and discussed issues pertaining to 
inpatient payment, including the submission of outside data. We 
received data from one of the four representatives this past December. 
Although we reviewed the data, they were not submitted in time for us 
to verify the Medicare discharges prior to the upcoming publication of 
the FY 2002 proposed Inpatient PPS rule.
    We remain open to working with representatives of the medical 
device and pharmaceutical manufacturing community to receive and 
analyze third-party data. We are committed to expediting the 
introduction of new technology, while continuing to uphold our 
obligation to pay appropriately for all DRGs.

    Mr. Pitts. Dr. Goodman.
    Mr. Goodman. Yes. Adding to what Dr. Miller said, one of 
the aspects of medical devices in some populations is that a 
device that can be very, very effective may only be useful in 
small numbers of people, small populations, and it makes it 
that much more difficult to gain, as Dr. Miller said, a big 
enough sample size upon which to draw conclusive findings, but 
my point is this: that the sorts of criteria used to evaluate 
technologies and to make these kinds of decisions or updates 
need to be adapted to the technology at hand and the population 
at hand.
    It is not enough to say, well, the population is so small, 
we can't get good data. We need a better answer than that, 
which is we need to adapt and be flexible with these criteria 
to get the best data we can and make the most informed decision 
that we can.
    Mr. Pitts. All right. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. The vice chairman of 
the full committee, Mr. Burr.
    Mr. Burr. Thank you, Mr. Chairman. Let me just direct this 
to HCFA and Dr. Goodman and Dr. Ross. I will give you a 
scenario and just tell me whether this is possible to happen 
under the current system of approval.
    This is from a doctor at New Hanover Hospital, a 
cardiovascular surgeon. He said there is new vascular stent 
technology. He used it in radiology and trauma cases. The first 
38 cases, he lost $14,000 per case because of inadequate 
reimbursements. The only factor that changed was the device he 
used. Medicare reimburses the vascular stent with the regular 
stent payment. Trauma cases left the hospital with this new 
stent within 24 hours with the vascular stent. Without the 
vascular stent, they spent 3 to 5 days. He has since stopped 
using the stent because he can't afford what he is losing in 
the procedure.
    Dr. Kang, can that be an accurate statement of a new 
technology?
    Mr. Miller. I think I will take this one.
    Mr. Burr. Dr. Miller.
    Mr. Miller. Payment.
    Mr. Burr. Sorry you missed Monday.
    Mr. Miller. Yes, I heard you were there. I was getting 
ready for this.
    To answer your question, and I was listening also when you 
were asking your other questions because I think this kind of 
cuts into the cost issue, prospective payment systems are 
designed to put a dollar amount out, let the clinicians decide 
how to mix the services that they provide to help the patient, 
whether it is technology, numbers of days in the hospital, 
nursing, whatever the case may be.
    That issue that you have raised and the issue that Dr. 
Popma was talking about is the issue that when something is new 
and introduced, the actual DRG, you can get reimbursed for it, 
but the incremental difference may not fully cover the cost of 
the new device, in this instance, the stent.
    The other part of your point I think is relevant here 
because what is also happening in that case, if I followed your 
point, is that a length of stay was being reduced as a result 
of that. In the DRG system, both of those behaviors should be 
reflected, the bump up for the technology and the collapsing in 
the length of stay. And as we collect cost data, that is 
precisely what happens to the calibration of the DRG. It does 
get adjusted. It does take time and that is your point.
    Mr. Burr. Yes, how much data are you going to be able to 
collect given that he did 38 and stopped? I mean there is a 
point where in his surroundings, a decision was made I can't 
lose money anymore. Now, to the next developer of the next 
generation of stents that may make the procedure easier, 
faster, more effective, what incentive have we given the person 
who is going to lay on the line the capital that it takes to 
develop that that it is worthwhile, that there is some point 
where they will be rewarded for their investment?
    Mr. Miller. And your point is taken. The philosophy behind 
the prospective payment systems are that those decisions are 
not only case specific, but what we are doing is paying for all 
admissions on an average basis. On some, they get money. On 
some they lose money, and the ideal situation is they make 
those economic decisions across a series of admissions. But 
that is not--your point is still taken. There is a specific 
case and on a specific case basis, it may be that the DRG has 
not caught up.
    If I could just make one other point on this, there is--the 
system contemplates situations where, when the cost exceeds by 
a large margin the amount that the DRG pays, it does fall and 
begins to get outlier payments where additional payments can be 
made. But I fully acknowledge that there is a threshold there 
and sometimes cases don't make it up to it.
    Mr. Kang. Mr. Burr, if I may, just because maybe I am not 
sure I am understanding the example, but if we are paying a 
hospital a DRG, and this device actually saves 2 or 3 days on 
the admission, in fact, the saved cost on the hospital side 
more than usually offsets the actual technology or device. And 
that is actually what the----
    Mr. Burr. That is certainly the assumption that HCFA works 
under. I am not certain that that is the reality of the real 
world. But I think that is what we are here to uncover, and 
before Dr. Goodman and Dr. Ross have an opportunity to respond 
to this, in the culture of this model that we have got that we 
go through to determine reimbursements, you make numerous 
references that if it is like a previous product, we just put 
it into that category. We put it into that code. Forget the 
fact that it may be substantially different in the cost of that 
particular product for its usage.
    So the system that we have does not evaluate it necessarily 
based upon the technology that has gone into it. I question 
whether it evaluates it based upon the long-term savings per 
incident, as well, but we tend to hide under the DRG. That it 
is for a broad sense and if you go outside on this side or if 
you stay under it on this side, you make a little bit here, you 
lose a little bit over here. As we head into the age of where 
technology is going to play in devices and pharmaceuticals, 
when you go outside of the umbrella, you are losing a lot.
    The net result is that people stop using it, that the 
quality of care goes down, but more importantly, and this is 
the point I want to make, the cost to us for health care 
continues to go up. We don't reap the benefits of any of the 
technological breakthroughs. We can't reverse this and 
ultimately find----
    Mr. Bilirakis. The gentleman's time has long expired.
    Mr. Burr. Can I allow Dr. Goodman to----
    Mr. Bilirakis. Only if you have a very few words' in 
response to that.
    Mr. Ross. Yes, I would like to respond actually very 
quickly, if I could.
    Mr. Bilirakis. Quickly.
    Mr. Ross. Not to the larger question of technology in the 
future. The first is it is hard to respond to any specific 
instance or any specific DRG, but if we want to be assured that 
we always pay for everything, we had a system that did that. It 
was called cost-based reimbursement. It had unsustainable 
spending growth and we very deliberately chose to move to 
prospective payment, and that gets us to a fundamental tradeoff 
between trying to accommodate quality-enhancing, cost-
increasing new technology while at the same time making sure 
that they are fiscally prudent.
    We typically as a commission recommend putting funds into 
the base with each coming year to try and adapt for 
technologies we see coming down the pike. I would also add that 
Medicare as a program makes a number of payments over and above 
what it costs for basic patient, the so-called indirect medical 
education adjustment for inpatient care, pumps a fair amount of 
money to recognize the higher cost in teaching hospitals where 
a lot of the investigational work is done and where a lot of 
the new technology is being adopted and diffused.
    It is not showing up at the basic DRG rate, but it is 
definitely showing up in their payments for discharges.
    Mr. Bilirakis. Mr. Whitfield to inquire.
    Mr. Whitfield. Mr. Chairman, thank you. In the question and 
answer series with Mr. Brown, there was some discussion that in 
Great Britain and in Sweden, the amount of money available for 
coverage determination is much larger than in the U.S. per 
person, but it is my understanding, and you all correct me if I 
am wrong, that HCFA like Blue Cross/Blue Shield and a lot of 
other private companies used the same, in fact, used the 
Technology Evaluation Center under contract to make the 
coverage determination. Is that correct or is that not correct?
    Mr. Goodman. Yes, sir. HCFA as well as payers in other 
countries do look to outside sources and organizations for 
support and technology assessment. But even if you add all that 
up, I believe we would find that the resources available to 
HCFA to do the work internally as well as externally would fall 
short of those other countries.
    Mr. Whitfield. Okay. Because I was sort of under the 
impression that you all were making the argument that the 
coverage determination was being delayed because of lack of 
funds, but I guess what really is happening is making the 
coverage effective is what is being delayed.
    Mr. Goodman. Well, yes, sir, I believe, as Ms. Eshoo said 
before earlier today, the first thing to do is get the thing 
streamlined, get the coding situation straightened out, get the 
relationship with the MCAC straight with the reporting 
relationship and so forth. If you don't do that, additional 
funds aren't going to help at all.
    However, and this concerns me, the new technology pipeline 
is as busy and as full as it has ever been in history and it is 
going to get more so. Whether it is HCFA, for that matter, or 
the FDA, we need the expertise and resources to accommodate the 
new technology pipeline. Without those resources and expertise, 
we just will not be able to process these technologies fast 
enough, and just in answering Mr. Brown's question, it is 
interesting that other countries who are industrialized spend 
more than we do. It is just an interesting point of resource 
allocation.
    Mr. Whitfield. But the private companies in the U.S. would 
just have more resources and expertise than what is available 
at HCFA?
    Mr. Goodman. Interesting point. The outside organizations 
can provide analyses in support of a coverage decision. It is 
still the payer's responsibility, whether it is HCFA or another 
payer, to look at that information and say how does that apply 
to my Medicare beneficiary population? You still have to make 
the policy, interpret the data, and make the policy, even when 
you get good support from outside sources.
    Mr. Whitfield. Because I was given an example that in the 
transplantation procedure relating to liver, that the year that 
it was approved by Blue Cross/Blue Shield Technology Evaluation 
Center was 1986. It was approved by Blue Cross/Blue Shield the 
same as the coverage determination was made by the Technology 
Center, and yet it was first covered by Medicare in 1992, 6 
years later. And that would be because of?
    Mr. Goodman. Well, I am sure the information was available 
to all parties. There may be multiple reasons why HCFA took 
longer. One may have been that HCFA had to understand how the 
available information about liver transplantation applied not 
just to anybody, but to elderly people, and it may not have 
been as good a match, and perhaps HCFA may have been wanting to 
wait for data to support that, because there is a downside to 
providing technologies for people in whom they have not been 
adequately tested to date. I would hope not in this situation, 
and it wasn't borne out that way, but that is a caution that a 
prudent purchaser of health care has to consider.
    Mr. Whitfield. Right. Now, it is my understanding that 
someone testified that Part A had 36 contractors nationwide and 
Part B 42?
    Mr. Goodman. Yes, sir.
    Mr. Whitfield. And if HCFA makes a national determination 
for coverage, then every contractor is subject to that 
decision. They must honor that decision?
    Mr. Goodman. Yes, sir.
    Mr. Whitfield. Okay. And then there is a statement in here 
that says that in the absence of a national coverage 
determination, local medical directors, I guess of the 
contractors, have the discretion to make local coverage or not; 
is that correct?
    Mr. Goodman. Yes, sir.
    Mr. Whitfield. So if you have not made a national coverage 
determination, any local contractor can approve it on their 
own?
    Mr. Goodman. That often happens, and there is an advantage 
to that for technology diffusion.
    Mr. Whitfield. Okay.
    Mr. Bilirakis. The gentleman's time has expired. Very 
quickly, Ed, go ahead.
    Mr. Whitfield. One other question. I mean that creates a 
lot of disparity around the country, though; right?
    Mr. Goodman. It does, but, sir, it may be helpful because 
in the absence of a national coverage decision, technology can 
be used in certain regions of the country by choice of those 
medical directors, which is well-founded, and we accumulate 
data and evidence that may be used subsequently to put in place 
a national coverage decision. That is an important avenue for 
technology evaluation and diffusion.
    Mr. Whitfield. Thank you.
    Mr. Bilirakis. Thank you. The Chair now will inquire and 
yield 30 seconds of his time to Mr. Burr.
    Mr. Burr. I thank the chairman for that generous 
opportunity. Dr. Kang, I just wanted to clarify one thing that 
you said in your opening statement that I couldn't find in your 
written testimony. You were referring to assessing new 
technologies and you went on to say that you had to make sure 
that they weren't unproven, ineffective or harmful. Did I 
understand that correctly?
    Mr. Kang. That is correct.
    Mr. Burr. Is that not the process that the FDA goes through 
when they approve a device or pharmaceutical for their approval 
process?
    Mr. Kang. In some situations, yes. In some situations, no.
    Mr. Burr. There are some situations where the FDA does not 
approve the safety and efficacy of a device or pharmaceutical?
    Mr. Kang. That is correct.
    Mr. Burr. Can you give an example of that?
    Mr. Kang. Frequently in the 510(k) process for devices, 
what they are really looking at is whether it is similar to a 
predicate device or not. That would be the first example. The 
other example is----
    Mr. Burr. And under a 510(k), you feel that they have not 
given a stamp of approval to safety and efficacy?
    Mr. Kang. Actually, though under the B, IDE devices, we are 
okay with those, and we end up covering those. It would be the 
A's.
    Mr. Miller. Category A.
    Mr. Kang. It is Category A's.
    Mr. Miller. Which are the more novel technologies.
    Mr. Kang. Which are the more novel ones. The other place is 
many times the FDA approval is for specific indication. What 
they are asking for is what in the parlance would be called an 
off-label indication, and they have not then looked at that 
issue.
    Mr. Burr. I thank the chairman.
    Mr. Bilirakis. Well, I appreciate the gentleman raising 
that point. I have always felt that is the particular function 
of FDA, and once it reaches your point, the efficacy and the 
safety has already been decided. With the exception, I suppose, 
of applying those particular devices or drugs to seniors, I can 
see where there might be a little bit of a difference there.
    You know, we visited Baltimore the other day, and Dr. 
Miller and others were very kind and helpful. We emphasized 
then, and we try to emphasize today, that we are not trying to 
demonize HCFA. We are trying to help, and I can't imagine that 
Dr. Miller or any of the good civil servants at HCFA who have 
been there for years and have been faced with problems of 
turnover at the top, I can't imagine that they are happy with 
taking 3\1/2\ years longer than Blue Cross/Blue Shield for new 
transplant procedures, 5 years or more in some instances.
    So we have to talk here. I have heard all kinds of reasons 
why these problems exist and why the delays take place. But let 
us see if we can reduce the delays. Let us see if we can 
improve the process. That is the idea. It is not to demonize. 
It is trying to improve the process. And what we asked of you 
all the other day up there is to help us help you, so that we 
can help the people that really count, the patients.
    And Mr. Brown has made a lot out of the funding. I don't 
know that I can recall many, if any, instances over the years 
that HCFA has come here and testified and said, we need more 
money, and if you assure us that we will receive more money, we 
are going to do a better job, speed up the process, and speed 
up the coding.
    So, let's get back to the point that Dr. Shreve was making 
in the first panel, the women's health uses, the use of the PET 
scan. In some cases the PET scan is covered, the reimbursement 
is covered for some diseases and for women, and some diseases 
it is not, in spite of the fact that there is coverage for 
those using the PET scan for those diseases by private plans. 
What is the reason for something like that? Can you tell us? I 
can't imagine.
    One of you all made the comment earlier--certainly you are 
right--HCFA is kind of looked upon as the leader by the private 
sector in terms of coverage. Ordinarily that is the way it 
takes place, and yet here we have cases where private plans 
cover and HCFA does not. Explanation?
    Mr. Kang. I actually think that----
    Mr. Bilirakis. I say explanation and I hope we are not 
talking about rationale.
    Mr. Kang. I think that we appreciate being here because 
there does need to be improvements and I would like to point to 
the improvements that we have made in the last 2 years that you 
heard in my testimony that were very welcomed.
    Some of the other things that we are working on, and in 
part precipitated by the PET issue, for example, we have 
published recently a guidance document on criteria and 
standards for diagnostic imaging and that I think is something 
that was definitely needed. That will help in the future for 
future innovators to really understand what sort of information 
we are looking for for diagnostic imaging.
    The other thing that we are doing with NCI and the FDA is a 
special bio-imaging panel which really is trying to look at 
frontloading all of the questions that we are asking for at the 
initial design of trials. So, for example, let us see----
    Mr. Bilirakis. So they could be taken care during that 
process before they----
    Mr. Kang. That is right.
    Mr. Bilirakis. Okay.
    Mr. Kang. Instead of answering the NIH question first, then 
the FDA question, then the HCFA coverage or other insurers'--
quite frankly, this is the same as other insurers--question 
third, we actually say can we design a trial that answers those 
questions for all three parties? And we are doing this with the 
industry. It is the National Electronic Manufacturers 
Association, FDA, NCI and HCFA. And it has been very welcomed. 
And these are the kinds of processes that I heard referred to 
this morning that we need to work on.
    Mr. Bilirakis. You know much of the problems that we have 
here legislating, besides a lack of bipartisanship and things 
of that nature, is these turf fights over jurisdiction. Do you 
run into that also, vis-a-vis FDA, for instance?
    Mr. Kang. I don't want to--it is human nature.
    Mr. Bilirakis. You are under oath, I guess.
    Mr. Kang. I mean I think I don't want to point fingers, but 
this is human nature.
    Mr. Bilirakis. Yes, it is.
    Mr. Kang. But I think that over the last 2 years, we have 
made significant inroads, all three of our agencies, and in 
large part because we really want to serve the beneficiaries 
and improve their care and make sure the technology diffuses. 
So there have been significant inroads.
    Mr. Bilirakis. Okay. Well, one of the things that we are 
going to certainly concentrate on is trying to improve the 
coordination and the relationship. I appreciate your having 
told me what you just did, because I feel that in the process, 
the FDA process, much of the testing, the analysis that you all 
do, has got to be pretty duplicative, and can be done during 
that particular FDA process.
    My time has really expired. Dr. Goodman, you look like you 
want to say something, but please keep it brief.
    Mr. Goodman. I would prefer to emphasize the building 
blocks that we have in place rather than the divisive ones. The 
FDA-HCFA Interagency Agreement of 1995 is a great example of 
the alignment we need. The current relationship between the 
National Heart, Lung and Blood Institute and HCFA on funding a 
clinical trial of a highly advanced left ventricular cyst 
device--it is called the rematch trial--is a great example of 
interagency collaboration that will speed up getting 
information about technology that will make a more definitive 
coverage decision. We can build on things that we know already 
work.
    Mr. Bilirakis. All right. Well, let us hope so. The hearing 
is now over. I do want to ask you if you would be willing to 
respond to written questions? You know we usually have some 
after the hearing concerned is over. We are trying to work 
together, and you have given us a lot of ideas. There are 
plenty more I am sure you can give us.
    To our HCFA witnesses, we have constantly over the years 
asked your agency for help, help us to help you to make your 
job easier. Some things you can do to improve the process, you 
have the authority to do it. Some things you don't have the 
authority and you need some legislation. We have asked for 
those ideas, and frankly we have not been receiving them.
    Thank you very much. Thank you, Mr. Brown.
    [Whereupon, at 1:20 p.m., the subcommittees were 
adjourned.]
    [Additional material submitted for the record follows:]
     Prepared Statement of Advanced Medical Technology Association
    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.
    AdvaMed strongly believes that Medicare should be encouraged to 
capitalize on advanced technologies, which have revolutionized the U.S. 
economy and driven productivity to new heights and new possibilities in 
many other sectors. Significant advances in health care technologies--
from health information systems that monitor patient treatment data to 
innovative diagnostics tests that detect diseases early and lifesaving 
implantable devices--improve the productivity level of the health care 
delivery system itself and vastly improve the quality of the health 
care delivered. New technologies can reduce medical errors, make the 
system more efficient and effective by catching diseases earlier--when 
they are easier and less expensive to treat, allowing procedures to be 
done in less expensive settings, and reducing hospital lengths of stays 
and rehabilitation times.
    AdvaMed applauds Congress for the steps it took in the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Benefits Improvement and 
Protection Act (BIPA) of 2000 to begin to make the Medicare coverage, 
coding and payment systems more effective and efficient. In addition, 
the Health Care Financing Administration (HCFA) has recently made some 
changes to modernize its coverage and payment systems.
    Despite these efforts, however, current policies still fail to keep 
up with the pace of new medical technology. Serious delays continue to 
plague the amount of time it takes Medicare to make new medical 
technologies and procedures available to beneficiaries in all treatment 
settings.
    As Cliff Goodman from the Lewin Group will explain today, Medicare 
delays can total from 15 months to five years or more because of the 
program's complex, bureaucratic procedures for adopting new 
technologies. Keep in mind that all this is after the two to six years 
it takes to develop a product and the year or more it takes to go 
through the Food and Drug Administration (FDA) review. In addition, 
these delays are even more pronounced when you consider that the 
average life span of a new technology can be 18 months.
    The impact on patients has been dramatic. As witnesses today will 
explain, cancer patients have had to fight for years to get Medicare to 
cover positron emission tomography, a potentially lifesaving scanning 
technology that has been broadly available to people under private 
health insurance for a decade. Tens of thousands of seniors and people 
with disabilities have not been able to receive advanced technologies 
like coronary stents (which reopen blocked arteries), cochlear implants 
(which restore hearing) and heart assist devices (which keep patients 
alive while waiting for a heat transplant).
    These delays stem from the fact that for a new technology to become 
fully available to Medicare patients, it must go through three separate 
review processes to obtain coverage, receive a billing code and have a 
payment level set. Serious delays in all three of these areas create 
significant barriers to patient access.
    While HCFA has improved the transparency for making national 
coverage decisions and attempted to instill timeframes within the 
process, timeliness is still a major problem. Under the current 
national coverage process framework, HCFA has 90 days to determine 
whether it will make a coverage decision or refer the request to either 
the Medicare Coverage Advisory Committee (MCAC) or an outside health 
technology assessment (HTA) group--or sometimes even to both. These 
outside assessments take between 3 and 12 months each. HCFA then has 60 
days to review the recommendations of the MCAC or HTA, and should a 
positive coverage determination be made, it takes 180 days from the 
first day of the next calendar quarter to issue a code and set a 
payment level.
    The coverage process should be streamlined and made more 
accountable, timely and transparent. Steps should be taken to reduce 
redundancies in the MCAC panel and HTA reviews. In addition, the focus 
of the MCAC panels should be directed toward gaining practical clinical 
advice from the medical experts on its panels.
    After coverage is approved, there are three separate coding 
processes that determine how a device or procedure is identified and to 
which payment bundle it is assigned. Each of these coding systems have 
significant time-lags in assigning and updating codes. Under the new 
hospital outpatient perspective payment system (PPS), HCFA now assigns 
and updates codes on a quarterly basis. To reduce coding delays of 15-
27 months, HCFA should use the outpatient PPS system as a model for 
applying similar systems to other settings, such as the inpatient 
hospital setting and doctors' offices.
    Coverage and codes mean very little, however, if the associated 
payment level is inadequate. HCFA's procedures for updating relative 
payment weights and reassigning technologies and procedures are 
informal and infrequent. For example, it took HCFA 5 years to 
ultimately decide that the applicable diagnosis related group (DRG) 
should be split into two DRGs for angioplasty with and without stent. 
During those 5 years, hospitals took significant losses on each stent 
procedure and the diffusion of this cost-saving technology was 
hampered.
    As required by BIPA, HCFA should develop formalized procedures for 
expeditiously assigning codes, updating relative weights and 
reassigning technologies to recognize the value of new and 
substantially improved technologies. HCFA should also fully implement 
the BIPA requirement to provide a transitional payment mechanism for 
new technologies where the DRG payment is inadequate.
    Again, AdvaMed applauds Congress for recognizing the value of 
technology in improving the quality and efficiency of the health care 
system, and taking steps to reduce the barriers patients face to 
accessing these innovations. Recent reforms continue to improve the 
system and AdvaMed encourages additional changes to make coverage, 
coding and payment decisions more predictable, transparent and timely.
                                 ______
                                 
         Prepared Statement of The Center for Patient Advocacy
    The Center for Patient Advocacy is pleased to submit written 
testimony to the House Energy and Commerce Subcommittee on Health and 
the Subcommittee on Oversight and Investigations as you seek to improve 
seniors' access to quality health care in this country. We commend the 
subcommittees for conducting this hearing and for demonstrating an 
early commitment in the 107th Congress to ensure that our nation's 
seniors continue to have access to top quality health care.
    Founded in 1995, the Center for Patient Advocacy is a private, non-
profit, grassroots organization representing the interests of patients 
nationwide and dedicated to ensuring that patients have timely access 
to state of the art, quality health care. With a grassroots coalition 
of thousands of ``citizen lobbyists'' across the nation, the Center has 
brought the patient's perspective to a number of critical issues that 
Congress has considered in recent years, including managed care reform, 
biomaterials reform, and FDA modernization. In all of our endeavors, 
our goal has been and continues to be to ensure that health care 
policymakers recognize and address patients' needs and concerns.
    Too often, economic, administrative, or other concerns dominate 
health care policy discussions, and patients, many times, become an 
afterthought. We must constantly remind ourselves that all health care 
begins and ends at a single point--the patient. To a sick patient and 
his family, access to life-saving and life-enhancing therapies is all 
that matters. The title of your investigation--``Patients First: A 21st 
Century Promise to Ensure Quality and Affordable Health Coverage''--
demonstrates that you understand the real challenge of health care 
reform--insuring patient access to high-quality care. By keeping the 
focus on patients, this committee has great potential to achieve their 
goals. You are off to a great start by considering ways in which the 
Federal Government can improve access to new treatments and 
technologies for Medicare beneficiaries.
    Since its enactment as part of the Social Security Amendments of 
1965, the Federal Government has provided health care coverage for 
senior citizens and the disabled through the Medicare program. The 
program is administered by the Health Care Financing Administration 
(HCFA), which is also responsible for administering the federal portion 
of Medicaid and the State Children's Health Insurance Program (SCHIP). 
Currently, Medicare serves approximately 40 million beneficiaries at a 
cost to the taxpayer of about $300 billion each year.
    In spite of the best efforts of Congress and HCFA, it has become 
increasingly clear to patients and patient advocates that the Medicare 
system and the HCFA infrastructure on which it relies for 
administration have lost step with the dramatic pace of medical 
discovery and treatment options now available to patients. Though many 
of HCFA's current guidelines represent good faith efforts by the agency 
to meet the needs of Medicare patients, to follow the law, and to 
reflect accurately congressional intent, the unfortunate end result for 
many Medicare patients is the denial of needed care.
    A telling example of Medicare's problems with which many of the 
committee members are already familiar relates to the establishment of 
the prospective payment system (PPS) for Medicare outpatient care. One 
way that Congress has sought to keep down Medicare costs is by 
reimbursing providers a predetermined amount for all patients having a 
particular diagnosis or treatment regimen rather than reimbursing 
providers according to their costs. While the PPS appears to be a 
reasonable approach to controlling costs and has succeeded to some 
degree in the inpatient setting, the outpatient PPS has failed to meet 
its first responsibility--providing Medicare patients with timely 
access to top quality care.
    The bureaucratic outpatient PPS processes established by HCFA as a 
result of the Balanced Budget Act of 1997 exemplify the way HCFA's 
policies and procedures have delayed access to treatment and hurt 
patients. Under the original PPS rule, after an outpatient therapy was 
approved by the FDA, HCFA would then determine if it would be included 
in the Medicare coverage portfolio. Sometimes this process was 
conducted quickly at the local level, resulting in unequal coverage 
across the country (some jurisdictions providing coverage while others 
did not). Alternatively, sometimes a national determination was 
required, and these coverage decisions could take as long as 3 years. 
Next, the therapy would be assigned a procedure code for providers to 
use in billing Medicare. This would often take another year or more. 
Finally, HCFA would determine how much it would pay for the procedure 
by placing into an ambulatory payment classification (APC), a system by 
which similar procedures with similar costs are categorized. A single 
price is set for each category, rather than for each specific 
procedure. All told, however, the lag time between the FDA approving a 
therapy and Medicare providing access to it was sometimes as long as 3-
5 years. Unfortunately, Medicare patients do not have 3-5 years to wait 
for an effective treatment.
    Recognizing the difficulties and delays caused by the outpatient 
PPS, Congress went back to the drawing board and created a 
transitional, cost-based, ``pass-through'' payment system for newer 
therapies. Under the pass-through system, newer therapies (mostly those 
approved after 1996) are reimbursed at 95% of the average wholesale 
price (AWP). This system was put in place to guarantee Medicare 
patients access to new therapies while HCFA completed the coding and 
payment processes. Full pass-through payments were initially to 
continue through 2001. HCFA, however, moved late last year to reduce 
pass-though payments by 50%, again threatening Medicare patients' 
access to care. Such a reduction would render it financially infeasible 
for providers to continue to provide new therapies to their patients, 
as the costs of providing treatment would far exceed reimbursement 
levels. Thankfully, with the help of Congress and the pressure of 
thousands of citizen lobbyists from around the country, HCFA finally 
agreed to maintain pass-through payments through 2001, allowing both 
Congress and the Bush Administration time to reconsider the problem in 
hopes of developing a more workable payment methodology for emerging 
therapies.
    Medicare patients with cancer have been particularly vulnerable to 
flaws in the outpatient PPS, as many cancer therapies are now 
frequently provided in outpatient facilities rather than in hospitals. 
Now that new and more effective cancer therapies are receiving quicker 
approvals from the FDA (thanks to the previous work of the Commerce 
Committee and the Congress), we must make every effort to streamline 
the processes by which these therapies are made available to Medicare 
patients with cancer. Furthermore, we must insure that once a therapy 
is added to the Medicare coverage portfolio, reimbursement levels are 
sufficient to allow providers to use it and, therefore, allow patients 
to access it. Recognizing that cancer patients are often have the most 
difficulty accessing the treatments they need, in 1999 the Center for 
Patient Advocacy launched a new division of the Center, the Access to 
Cancer Care Alliance (ACCA), which is actively addressing access and 
quality care issues for cancer patients.
    Finally, it is vital that Congress and HCFA approach this new 
reform effort with an eye to simplifying the Medicare system. Doctors 
now must contend with over 130,000 pages of Medicare and Medicaid 
regulations. That is about 6 times the size of the confusing and 
unwieldy Internal Revenue Code that Congress is now trying to simplify. 
Not only does compliance with these regulations cost physicians 
valuable time and money, but it also costs Medicare patients access to 
care as doctors choose no longer to participate in the Medicare system. 
And when physicians or their staffs make honest mistakes in complying 
with Medicare coding or claims, they are suddenly treated as criminals. 
It's time for Congress and HCFA to remove these dangerous disincentives 
to providing care to Medicare patients.
    Thank you again for the opportunity to provide testimony today. The 
Center for Patient Advocacy looks forward to continuing to work with 
Members of Congress, the administration, and the members of the 
healthcare community to ensure that our nations Medicare program is 
responsive to the patients it serves, and that it provides patients 
with timely, state-of-the art care that they need and deserve. 
Advancements such as the mapping of the human genome promise to 
accelerate scientific research even further, and it is imperative that 
Congress act now to insure Medicare patients full access to state-of-
the-art care.
                                 ______
                                 
 Prepared Statement of Bruce Steinwald, Member, Committee on Medicare 
  Payment Methodology for Clinical Laboratory Services, Institute of 
  Medicine/National Academy of Sciences and Independent Consultant in 
                            Health Economics
    Good morning, Chairman Greenwood, Chairman Bilirakis and members of 
the Subcommittees. My name is Bruce Steinwald and I am an independent 
consultant in health economics in Washington, DC. I served as a member 
of the Institute of Medicine (IOM) Committee on Medicare Payment 
Methodology for Clinical Laboratory Services. The IOM is an arm of the 
National Academy of Sciences, chartered by Congress in 1863 to advise 
the government on matters of science and technology.
Background:
    Recognizing that Medicare's payment system for clinical laboratory 
services may have to be modernized, Congress mandated in the Balanced 
Budget Act of 1997 that the Secretary of the Department of Health and 
Human Services arrange for the IOM to review the current Medicare 
payment methodology for outpatient clinical laboratory services and 
make recommendations to improve the system. The Department's Health 
Care Financing Administration (HCFA) contracted with the Institute of 
Medicine in 1999 to conduct the study. To meet this charge, the IOM put 
together a 12-member panel of experts composed of laboratorians, 
physicians, economists, and health care policy and management experts. 
We met five times between January and August 2000 to gather 
information, deliberate over findings, and formulate recommendations. 
As a result of the study, the IOM released our report, Medicare 
Laboratory Payment Policy: Now and in the Future, in December 2000.
    The focus of the IOM study was different from the current hearing. 
We examined a wide range of issues related to the Medicare payment 
methodology in addition to new technology, but our focus was limited to 
the Medicare Part B fee schedule for outpatient clinical laboratory 
services only and did not include other types of services or providers. 
When examining any health services payment methodology, however, one 
must consider how it incorporates new technology, since that is a 
crucial factor that affects the adaptability of the payment methodology 
for the future. In this statement I will briefly put Medicare clinical 
laboratory payments in context and summarize the key findings and 
recommendations of the Committee's report, particularly as they relate 
to new technology. In addition, I will include a copy of the full 
report and a short summary of it.
Background:
    Clinical laboratory tests are a key component of modern health 
care. Laboratory tests represent a small share of total health care 
spending, but play a complementary and an integral role in good medical 
care by helping physicians to diagnose and treat patients. 
Technological changes in laboratory testing, both those in the pipeline 
and those anticipated in the near future, offer the prospect of new 
opportunities for diagnostic, monitoring, and screening improvements.
    Medicare is the largest payer of clinical laboratory services. It 
pays 29 percent of the nation's laboratory bill of $30 to $35 billion 
for inpatient and outpatient laboratory services. The Medicare Part B 
fee schedule for outpatient clinical laboratory services, the subject 
of our study, accounts for approximately one-third of what Medicare 
spent for laboratory services, or 1.6 percent of its total annual 
budget, in 1998. While this is a small proportion of overall Medicare 
spending, maintaining beneficiary access to laboratory services is 
essential. In addition, there is evidence that Medicare payment policy 
influences other payers' policies for laboratory services.
    The incentive for manufacturers to develop new laboratory 
technologies and the ability of Medicare beneficiaries to have access 
to them are affected by Medicare's payment policy. Medicare's current 
system of payment for laboratory services in outpatient settings was 
designed in the early 1980s. Although specific payment rates have 
changed over the past 20 years, the basic payment methodology has not. 
The introduction of new technologies and changes in regulations and the 
laboratory marketplace have had a significant impact on the structure 
of the laboratory industry during the past 20 years. Even in the face 
of these changes, the committee did not find a lack of interest in or 
adoption of innovation, up to this point in time. It did conclude, 
however, that current Medicare payment policy for outpatient clinical 
laboratory services seems not only outdated, but also irrational. 
Unless it is changed, the committee was concerned that the current 
payment system could eventually inhibit innovation and reduce 
beneficiary access to care. Inadequate payment rates could slow the 
industry's ability to develop and disseminate new technology and 
laboratories' willingness to adopt valuable but more expensive 
technologies.
Technology Trends:
    The laboratory environment has been characterized by ongoing rapid 
and dramatic innovation since the 1980s. There has been remarkable 
growth in the range and complexity of available tests and services, 
which is expected to continue. Laboratory technology is often at the 
forefront of medical advances. In some cases, testing techniques to 
diagnose or screen for a particular condition are available before 
effective treatment. Innovation in laboratory technology, which 
includes both new tests and advances in equipment and testing 
techniques, has made testing more efficient and automated. Information 
technology has revolutionized the transfer of data by decreasing the 
time it takes to order and receive test results and by creating 
opportunities for research on large datasets. New technology is 
positively associated with increased efficiency, reduction in errors, 
and improved quality in the delivery of health care services.
    While efforts to automate central laboratories are likely to 
continue, trends appear to indicate that much routine testing in the 
future could be delivered through point-of-care testing at the 
patient's bedside and home-based testing. Centralized laboratories are 
likely to concentrate more on rare and complex tests. The mapping of 
the human genome and other scientific advances lead laboratory experts 
to expect major advances in clinical tests and methodologies in the 
near future, particularly in the areas of genetic testing, surface 
markers to identify specific types of cancers, pharmacogenomics to 
individualize drug treatments, and molecular-level tests. Whether new 
technologies are implemented may depend on their impact on laboratory 
costs and, if they are more costly, on payers' willingness to pay for 
them.
Current Medicare payment system:
    Medicare currently pays for outpatient clinical laboratory tests 
using a prospective payment system established in 1984. Payments for 
1,100 tests are set separately in fee schedules for each of 56 
geographic jurisdictions, limited by national fee caps called National 
Limitation Amounts. Payments are based on what laboratories charged in 
1983, updated periodically for inflation. For each test, the median of 
the 56 fees is taken and reduced by 26 percent to calculate the 
National Limitation Amount. Most fees currently are constrained by the 
National Limitation Amount. Laboratories accept Medicare fees as full 
payment; there is no beneficiary cost sharing. The Health Care 
Financing Administration, which administers the Medicare program, and 
its private contractors, known as carriers and fiscal intermediaries, 
make and interpret policy, set prices, and process claims.
    Many tests resulting from new technological developments have been 
added to the fee schedule since 1983. Decisions about how much to pay 
for new tests are made both by the carriers and by HCFA. There are two 
different procedures to set the fees for new tests called cross-walking 
and gap-filling. Cross-walking is designed for new tests that are 
similar to existing tests, and gap-filling is designed for breakthrough 
technology. The choice of which procedure to follow is made by HCFA, 
based largely on how the new technology is handled by the American 
Medical Association's panel that assigns Current Procedural Terminology 
codes for new tests.
    When a new technology is similar to an existing test, it is 
assigned an existing identifying code and the payment amount that is 
attached to that code will apply to the new technology. Alternatively, 
if HCFA determines that the new technology is similar to ``old'' 
technologies described under two or more existing codes, it may average 
the existing payment amounts for those codes and apply it to the new 
test.
    The determination of which new tests can be cross-walked to which 
existing codes is made internally by HCFA, based on AMA advice about 
CPT codes. There are no published criteria guiding this process, no 
public description of the process, and generally no participation by 
the public or stakeholders other than medical organizations. There is 
no official process for stakeholders to challenge these decisions.
    When a testing product is so radically new that there is little 
relevant experience upon which to base payment, the payment amount for 
the test is determined through gap-filling. There is no standard data 
source to provide comparison prices when creating the base fee for such 
new tests. HCFA relies on the carriers to set their own fees for the 
first year after the new test has been approved for coverage. HCFA 
specifies which new CPT codes are to be gap-filled by the carrier 
(usually more than a dozen new codes) with the issuance of the new 
annual fee schedule, but it does not tell the carriers how to calculate 
the payment amount. There is much flexibility in the way each carrier 
collects information and sets its fees. All 56 carriers go through the 
gap-fill exercise separately in order to develop their area-specific 
fee for the test.
    There are two distinct problems with gap-filling that can sometimes 
lead to setting inappropriate payment levels. First, carriers set their 
fees based on historical experience, current cost data, and analysis, 
but unless they inflate the fees before the National Limitation Amount 
is applied, the cap could create payments that are substantially below 
costs. This occurs because of the nature of the mandated payment 
formula, which sets the level of the national cap at 74 percent of the 
median of the carriers' fees. We understand that legislation passed 
after our report was released, the Benefits Improvement and Protection 
Act of 2000, eliminates this reduction of the median for setting the 
National Limitation Amount for new tests and services. The second 
problem is that there is no mechanism for reassessing the 
appropriateness of the new fees and cap once they have been set. Even 
if the cost of the new test drops significantly after it comes into 
common use and may become easier to conduct, or even if the gap-fill 
fee is so low it could limit beneficiary access, there is no routine 
and practical method for changing it. Hence, neither HCFA nor the 
carriers regularly look back at fees to see if they are still 
reasonable.
Assessment of the current Medicare payment system:
    The committee defined goals that we believe should guide payment 
policy. Then we conducted an extensive examination of the current 
Medicare payment system for outpatient clinical laboratory services and 
assessed the methodology according to those goals. We examined:
    Beneficiary access--The committee found no evidence that 
beneficiaries currently have difficulty obtaining outpatient clinical 
laboratory services, including STAT tests.
    Flexibility--The committee concluded that existing mechanisms for 
keeping payments up to date are inadequate. The existing methodology 
does not provide adjustments to accommodate changes needed in payment 
levels for specific, individual tests. The process for integrating new 
technologies into the payment system, including determinations of 
coverage, assignment of CPT billing codes, and development of 
appropriate prices, is slow, administratively inefficient, and closed 
to stakeholder participation. These problems are likely to become 
increasingly important with the anticipated changes in laboratory 
technology and medical practice.
    Transparency--We concluded that the current payment system lacks 
``openness'' and adequate procedures for stakeholder involvement. Clear 
and consistent information on how the system works and opportunities 
for the public and stakeholders to have input into decision processes 
are limited.
    Value--The committee found it had little data with which to judge 
whether Medicare spending in aggregate is too high or low, whether 
Medicare is paying reasonable amounts for individual tests and 
services, or whether physicians are ordering tests appropriately.
    Administrative simplicity and efficiency--We concluded that the 
system, with 56 separate fee schedules and 56 separate processes for 
coverage determination, is unnecessarily complex and inefficient, 
particularly in the way the system incorporates new technologies and 
determines whether or not a laboratory's claim should be paid.
Recommendations:
    Based on our analysis of the current payment method and alternative 
approaches, the committee reached consensus on 12 recommendations for 
improving Medicare's payment system for outpatient clinical laboratory 
services. Our choices were guided by the previously stated goals. 
Because many of the changes could require new legislation, 
implementation of the committee's recommendations will entail 
congressional action. The committee recommended that HCFA, the 
administration, and the Congress work together to develop the necessary 
enabling authority and support.
    The committee's first six recommendations are interrelated, focus 
specifically on payment methodology, and broadly define the preferred 
payment system and specific elements of the system and its 
implementation. The final six recommendations focus on problems in the 
current system and can be implemented independently or concurrently 
with the first six. I will not go into detail here on all the 
recommendations, since they are included in the committee's report that 
I have submitted along with this statement, but I will call attention 
to the key ones relating to new technology.
    The committee's key recommendation was that Medicare payments for 
outpatient clinical laboratory services should be based on a single, 
rational, national fee schedule. In effect, there is already a national 
fee schedule, since most services are paid at the National Limitation 
Amounts rather than by carrier-specific fees. A national fee schedule 
means a single set of payments (instead of 56 fees), with adjustments 
for differences in local labor costs, prices for goods and services the 
laboratory purchases, and other relevant factors. The long-term goal of 
a national fee schedule is to establish relative payment amounts that 
accurately reflect the relative resource requirements of providing 
services, minimizing the financial incentives to overuse or underuse 
services. The committee considered this important for promoting the 
clinically appropriate use of all laboratory services, both new and old 
technologies, and ensuring that beneficiaries continue to have access 
to services.
    We recommended that, on an interim basis, relative payments for 
Medicare outpatient clinical laboratory services should be based on the 
current National Limitation Amounts. This is an appropriate starting 
point for the national fee schedule because it formalizes current, de 
facto Medicare payments and should minimize dislocations and 
disruptions for laboratories, beneficiaries, and contractors. 
Nevertheless, HCFA should move quickly to refine the fees, based on a 
data-driven consensus process. The fee schedule should be updated 
periodically. HCFA should explore alternative methods for gathering 
data to be used in the process.
    We recommended that, to incorporate new tests into the Medicare 
laboratory fee schedule, there should be an open, timely, and 
accessible process that is subject to challenge. The process and fees 
produced should not impede clinical decision making that is essential 
to providing appropriate care. The committee concluded that a 
consistent, public process for developing interim values for new 
laboratory services is essential for an effective payment system. HCFA 
should create a committee of laboratorians, pathologists, other 
physicians and scientific experts, health care policymakers, and 
economists to advise on setting interim relative values or national 
fees for new technologies. After interim relative values or fees for 
new services have been established, Medicare should allow time for 
diffusion of the new technology and stabilization of costs. The interim 
relative values for these new services should be reviewed and revised 
as necessary. Once they are ``official,'' these services would be 
included in the periodic review of relative values for the full fee 
schedule.
    The committee recommended that HCFA should review alternatives to 
the current system for coding outpatient clinical laboratory services 
for claims processing. More accurate, open, and timely coding processes 
for new technologies as well as tests and services should be sought. 
The committee heard testimony form several sources that the application 
process for a new Current Procedural Terminology (CPT) code often adds 
to the time required to incorporate new technologies into the Medicare 
laboratory payment system. There are also problems with the inadequate 
specificity of the codes. Coding, the Medicare coverage process, and 
payment determinations are closely intertwined; tend to lack 
transparency; and can add considerably to the time required to 
incorporate a new test, new equipment, or a new testing methodology. 
The rapid development of anticipated new technologies will exacerbate 
this problem. HCFA should examine how to reduce coding delays within 
the current system and should explore alternative coding systems.
    As we seek to reform payment policy for clinical laboratory 
services, it is important to assess the impact these changes have, 
particularly on both beneficiary access and the diffusion of new 
technologies. The committee, therefore, also recommended that HCFA 
collect data to monitor and assess the impact of new policies as they 
are implemented.
Conclusion:
    We believe Congress and HCFA have the opportunity to fix the 
current payment system for clinical laboratory services, averting the 
possibility of a crisis in the future. Payments for some individual 
tests likely do not reflect the cost of providing services and 
anticipated advances in laboratory technology will exacerbate the flaws 
in the current system. Problems with the outdated payment system could 
threaten beneficiary access to care and the use of enhanced testing 
methodologies in the future, however, the committee found no evidence 
of this now. Although radical changes are not called for at this time, 
implementing the committee's recommendations will likely improve the 
efficiency of the system and ensure that Medicare beneficiaries 
continue to have access to high-quality laboratory services.
    Thank you for the opportunity to testify and I would be glad to 
answer any questions you might have.


PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE 
                            HEALTH COVERAGE

                              ----------                              


                        WEDNESDAY, APRIL 4, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                 Subcommittee on Health, joint with the    
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman, Subcommittee on Health) presiding.
    Members present, Subcommittee on Health: Representatives 
Bilirakis, Greenwood, Deal, Burr, Norwood, Wilson, Shadegg, 
Bryant, Ehrlich, Brown, Strickland, Barrett, Capps, Deutsch, 
Stupak, and Green.
    Members present, Subcommittee on Oversight and 
Investigations: Representatives Greenwood, Bilirakis, Stearns, 
Burr, Bass, Deutsch, Stupak, Strickland, and DeGette.
    Staff present: Tom Giles, majority counsel; Joe Greenman, 
majority professional staff; Kristi Gillis, legislative clerk; 
Chris Knauer, minority professional staff; and Bridget Taylor, 
minority professional staff.
    Mr. Bilirakis. We are going to start. Generally, I don't 
like to do it unless we have a member of the minority in the 
room, but we are already running late, and we have a vote 
coming up in just a few minutes on the floor, I am advised. So, 
hopefully we can get two or three opening statements in before 
then.
    Today, I am pleased to convene this second hearing in our 
ongoing Patients First initiative. Along with Chairman 
Greenwood, of the Oversight and Investigations Subcommittee, I 
am pleased to continue our review of the Health Care Financing 
Administration and administrative issues surrounding the 
Medicare, Medicaid, and SCHIP programs.
    Today's hearing will focus on how HCFA interacts with 
providers regarding the rules and regulations that guide the 
Medicare program. Our Patients First initiative builds on a 
hearing and subsequent roundtable discussion held last year by 
the then Health and Environment Subcommittee. And as I said 
last year, this project, and I quote myself, ``is especially 
significant, because any effort to reform Medicare must include 
a careful review of the agency that administers the program.''
    ``I don't intend to bash HCFA;'' we have made that point, I 
think, many times so far this year. ``But rather we want to 
conduct a thorough examination of the Health Care Financing 
Administration, its regulations, policies, and interactions 
with stakeholders, as well as the impact of congressional 
mandates.''
    So it is important that all Medicare providers understand 
the rules of the road within the Medicare system. I have heard 
often and forcefully from constituents that honest, law-abiding 
providers have a difficult time understanding the rules, let 
alone following them. I know other members have heard similar 
views from providers in their districts.
    Today's hearing provides an opportunity for us all to 
better understand the nature and source of these concerns. At 
the same time, I want to emphasize that this committee supports 
the efforts underway to curtail fraud and abuse in government 
health care programs. Providers who knowingly attempt to 
defraud the Federal Government through the Medicare Program 
should be identified and punished. However, there are many 
instances of honest providers trying to make a living 
practicing medicine who don't fully understand the coding 
process or specific rules and regulations that govern the 
Medicare Program. Sometimes these honest mistakes cause undue 
suffering and hardship. The intent of this hearing is to find 
out how the information flow occurs and how it can be improved.
    I am pleased that Dr. David Becker, a gastroenterologist 
from Clearwater, Florida, is able to join us today. As I said, 
I have heard often from providers in the 9th Congressional 
District of Florida, most notably from the Pinellas County 
Medical Society, which is represented today by Dr. Becker, and 
the Pinellas County Osteopathic Medical Society, under the 
leadership of Dr. Ken Webster.
    As we will hear from Dr. Becker, providers want a system 
that they can understand, as well as clear explanations and 
training for coding and documentation. I have heard from 
providers back home who feel strongly that communication and 
education will do more to improve the system than regulation 
and retribution. And I hope that this hearing and the testimony 
of Dr. Becker and the others will help us to understand the 
flow of information and how to improve the administration of 
the Medicare Program.
    I do want to thank all of our witnesses for their time and 
effort in joining us today. I am hopeful, as I think all of us 
are, that this hearing will lead to improvements in operations 
of the Medicare Program and ultimately to improvements in the 
quality of care for Medicare beneficiaries. That should be our 
focus and I would like to think our shared objective.
    The Chair now yields to Mr. Brown.
    Mr. Brown. I thank the chairman. I apologize for being 
late. For some reason, I had 2218 as the room, and I don't know 
why that would be, but anyway, I apologize.
    Mr. Bilirakis. There must be some Greek in your genes, 
because Greeks are known to always be late.
    Mr. Brown. You can always have an excuse.
    Thank you. I thank the chairman, and thank the witnesses 
for joining us this morning.
    I am pleased we are focusing our attention today on 
provider concerns and recommendations that can help us improve 
the traditional Medicare Program. I read the testimony of the 
witnesses last night, and there clearly are issues that we in 
Congress have a responsibility to address.
    There is a number of fundamental issues, I think, we in 
this room can all agree on. Communications among HCFA, its 
contractors, providers, and beneficiaries can and must be 
improved. Providers and administrators should receive fair 
notice about new policies and procedures, along with clear 
instructions on how to implement them. And providers should not 
have to wait for months before mistakes made by a contractor or 
by HCFA are resolved. And they certainly should not have to 
struggle just to find out whom they are to talk to about it.
    I hope it hits home that the time providers and their 
staffs spend on administration is not a throw-away commodity. 
It is valuable. Every effort should be made to eliminate 
extraneous, time-consuming paperwork.
    Mr. Chairman, I have several goals for this hearing. First, 
we need to listen carefully to providers' concerns and uncover 
where the breakdown in communication and education is 
occurring. Second, we need to figure out how to fix the 
problems that we identify. Is the problem an administrative 
issue? Is it a legislative issue? Is it a resource issue? Or is 
it some combination of the three? And most important, third, is 
that we do what it takes to make sure that traditional Medicare 
remains a viable and important program that both providers and 
seniors can depend on.
    One thing that we will hear today is that this is, in part, 
a resource issue. I want to submit two documents for the 
record, Mr. Chairman. The first is a letter that Chairman 
Dingell, Mr. Waxman, and Mr. Stark and I sent to Chairman 
Regula and Ranking Member Obey, advocating a substantial 
increase in HCFA's administrative budget.
    Mr. Bilirakis. Without objection.
    Mr. Brown. Thank you. The second is an open letter to 
Congress written by a bipartisan group of health care experts.
    Mr. Bilirakis. Without objection.
    Mr. Brown. In that letter they, too, make the case for a 
significant increase in HCFA funding. Congress just can't be 
focusing, as we have in the last 2 or 3 years, on increases to 
HMOs. We have to pay attention to the needs of the fee-for-
service side of the program too.
    HCFA and its contractors have experienced a dramatic 
increase in workload over the last 4 years. The BBA in 1997 
alone added 350 new Medicare and Medicaid policies, many of 
which were complex, and many of which required a significant 
effort to implement in a short time period, like the hospital 
outpatient department prospective payment system, home health 
prospective payment system, and skilled nursing facility 
prospective payment system, just to name three of the many. Yet 
over the last decade, increases in HCFA's administrative budget 
have been essentially flat during this period of significant 
work growth. With just over 4,400 employees, HCFA's workforce 
is smaller today than it was 20 years ago. Contractors, too, 
must meet these increased demands, and they, too, have seen 
their budgets remain essentially constant over this period of 
time.
    There are many consequences of this underfunding. The 
agency has not been able to finance vitally needed customer 
service and provider and beneficiary education improvements; 
survey and certification of providers has lagged; and timely 
responses to patient and family complaints have been 
compromised. Lack of investments and information systems due to 
resource constraints has prevented increased efficiency in 
service improvements and constraints on funding for new staff 
erode morale and make the agency less competitive in a tight 
labor market. No insurer, whether it is HCFA, whether it is a 
HCFA contractor or whether it is employer-sponsored health plan 
can run on fumes.
    HCFA's administrative budget is roughly 1.8 percent of 
benefits. Compare this to Blue Cross Blue Shield plans that 
have administrative costs, on average, of 12 percent of 
benefits, or other commercial providers that have 
administrative costs upwards of 25 percent. With such a limited 
budget, the agency must make choices about how to allocate 
resources. HCFA cannot make the choice to insure fewer 
beneficiaries, to process fewer claims or to inspect fewer 
nursing facilities. When funding is limited or reduced, the 
agency and its contractors must make tough choices about where 
to devote resources. If we believe that the concerns we raise 
here today are serious and merit our attention, if we want to 
listen to providers and make the traditional Medicare Program 
work better for them and for seniors, then one of the things 
that we need to is put our money where our mouth is, and give 
HCFA and the contractors the resources they need to manage the 
program effectively.
    Earlier this year, at a public forum on the future of HCFA, 
two former HCFA administrators--two Democrats and two 
Republicans--were unanimous in a call for significant increases 
in the agency's budget. I am working with the chairman to bring 
these administrators before the subcommittee to further 
underscore that point.
    Again, I thank Chairman Bilirakis for holding today's 
timely hearing. I look forward to working with the providers, 
the agencies, and my colleagues across the aisle to find ways 
to address the issues we will hear about today and improve 
Medicare for beneficiaries and especially for the providers and 
especially the beneficiaries.
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    Mr. Bilirakis. I thank the gentleman. The Chair now 
recognizes the co-chairman of this hearing and the chairman of 
the Oversight and Investigations Subcommittee, Mr. Greenwood.
    Mr. Greenwood. Thank you, Mr. Chairman. Chairman Bilirakis, 
I am pleased to co-Chair this very important joint hearing of 
the Health and Oversight and Investigations Subcommittees with 
you today. Like many of my colleagues on both sides of the 
aisle, I am concerned about ensuring that Medicare providers 
are receiving clear and concise guidelines and information on 
how to properly submit claims to Medicare.
    Medicare is an essential program to the millions of seniors 
and disabled who are served by it. It provides its 
beneficiaries with the medical services and treatments 
necessary for ensuring quality of life. The Medicare Program 
relies on thousands of our country's highly trained and 
extremely qualified medical providers to administer these 
medical services and treatments. We are grateful to them for 
participating, and we should do everything in our power, as 
Members of Congress, to make serving Medicare beneficiaries an 
opportunity for health care providers to spend with patients on 
this important task of improving the quality of their lives.
    Medicare's rules and guidelines should provide clear 
directives to its contractors and providers on how to provide 
an efficient health care delivery system. Clear and 
understandable rules and guidelines are an absolute necessity 
for guaranteeing accountability within the system. The better 
that providers understand Medicare's rules and the better they 
are crafted so that providers can consistently follow them, the 
more accountability will be brought into their transactions 
with the program.
    Increased clarity will turn fears of being investigated 
into clearer understandings of what is and what is not 
allowable under Medicare rules and regulations. Today, we will 
evaluate areas where Medicare is unclear or not easily 
understandable for its providers and explore ways to improve 
this process.
    With these goals in mind, we should be mindful of the 
progress that has been made over the last 5 years in curtailing 
improper Medicare payments. The Department of Health and Human 
Services Office of Inspector General has estimated that the 
amount of improper Medicare payments has fallen from $23.2 
billion in fiscal year 1996, down to $11.9 billion in fiscal 
year 2000. To put it another way, the estimated amount in 
improper Medicare payments has been cut by almost half.
    This is a direct benefit to the current and future Medicare 
beneficiaries. We have seen the estimated insolvency date of 
the Medicare Trust Fund as recently reported by Medicare 
trustees, pushed back another 4 years. The trustees cited 
continuing efforts to combat fraud, waste, and abuse in the 
Medicare Program as one of the main components that has slowed 
Medicare spending.
    It is my opinion that decreasing improper billing of the 
Medicare Program and effective outreach to Medicare's providers 
must go hand in hand. As I have already stated, increased 
vigilance in monitoring fraud, waste, and abuse has had a 
significant impact in reducing the rate of improper payments 
made by Medicare. It may very well be the case that we are also 
need to increase our diligence with regard to reaching out to 
providers in an effort to alleviate areas of confusion or 
misunderstanding regarding everyday compliance with Medicare 
regulations. To that end, we are holding this hearing today.
    In recent months, physicians have been voicing their 
concerns regarding the complexity of dealing with the Medicare 
Program. In a general sense, they are expressing their 
frustration with a lack of clear and consistence guidance from 
the Health Care Financing Administration and its contractors. 
In many cases, this frustration has led to a fear on the part 
of many providers that they could be unfairly penalized for 
innocent mistakes in billing Medicare claims.
    The Health Care Financing Administration is the Government 
agency charged with administering the payment of Medicare 
claims. In this capacity, it contracts with fiscal 
intermediaries who process Part A claims and carriers who 
process Part B claims. Providers get much of their information 
on Medicare's guidelines and regulations from HCFA's 
contractors.
    Today, we will be examining how HCFA promulgates 
information and guidelines from its headquarters in Baltimore, 
Maryland to its regional offices, down through its contractors 
and ultimately to Medicare providers. In the process, we will 
get perspectives from various stakeholders on Medicare's 
provider outreach process.
    I would also like to thank Ranking Members Brown and 
Deutsch for working with us on this issue in a bipartisan way. 
I look forward to working with you and Chairman Bilirakis to 
address the concerns of Medicare providers, find the 
inefficiencies within the system, as it now exists, and work 
with HCFA and others to fashion the solutions. And I thank in 
advance all of the witnesses for their testimony today.
    Mr. Bilirakis. The Chair thanks the gentleman. We are going 
to try to go through here without having to take a break. The 
Chair now recognizes Mr. Deutsch for an opening statement, and 
then hopefully Mr. Norwood or Mr. Greenwood or I will be back 
before--after we cast a vote. Maybe we can continue on. 
Otherwise, we will have to recess. Mr. Deutsch.
    Mr. Deutsch. Thank you, Mr. Chairman. And, again, I 
appreciate the fact this is the second hearing designated to 
focus on HCFA reform, and I am committed to working with you on 
this project.
    We ask that we make sure, though, that we get very precise 
and specific information which details how management of the 
Medicare Program is failing and then what must be done to 
correct whatever is uncovered.
    Mr. Chairman, it is critical that we proceed with this and 
other related hearings, that we determine exactly what, if 
anything, is broken at either HCFA, the carriers or the 
providers themselves. We must get specifics. Mr. Chairman, we 
also need to determine what specifically Congress can do to 
address whatever shortcomings are identified by the witnesses 
that are testifying today. Whatever we determine is broken, is 
it fixable through legislation or is it a problem with 
resources? Is it a combination of the two? I hope our 
respective subcommittees intend to dig deep enough to determine 
the answer to that question.
    Is it not necessarily clear, however, that the problem 
which will be voiced today by our witnesses can necessarily be 
addressed through legislation alone. If these hearings are 
going to be productive, then I believe it is critical that we, 
as a committee, be responsive. That means we must not only 
verify whether the problems do exist, as claimed by some, but 
we must also analyze the root cause of these problems so we can 
determine where corrective action is needed.
    Then, provided that we agree that certain problems are in 
fact evident, we must determine what we need to do to address 
them. I am looking forward to the witnesses' testimony to hear 
if they have specific ideas about what changes they will 
suggest that HCFA make administratively or we make 
legislatively. Thank you, and I yield back.
    Mr. Bilirakis. I thank the gentleman. Ms. Capps, for an 
opening statement.
    Ms. Capps. Thank you. Thank you, Mr. Chairman, for holding 
this important hearing today to discuss the relationship 
between HCFA and the providers and carriers of Medicare.
    Medicare is a sacred program to many of today's seniors. 
They count on this program for their health care and should be 
able to do so in the future. Managing Medicare is an enormous 
challenge, and HCFA must engage in a delicate balancing act. 
While we don't want to compromise patient care with excessive 
regulation, we also need to make sure that the agency preserves 
a high level of program integrity and works to prevent fraud, 
waste, and abuse. If we don't do this, we won't be able to 
guarantee Medicare's continued solvency.
    That being said, I believe there are many areas that need 
improvement when it comes to Medicare's management. I am afraid 
the Congress has occasionally made this task harder, and so I 
look forward to hearing specific ways we can help fix this 
system. I know from my own district some of the difficulties 
that have arisen.
    Last December, I was contacted by a doctor in San Luis 
Obispo, California who was having difficulty getting reimbursed 
by the Medicare carrier for southern California. He had gone 
for a month without receiving any payment or any 
acknowledgement of his effort to be paid. This posed a serious 
threat to his ability to treat patients and to health care 
access for my constituents.
    Dr. Palchek, the doctor in question, is the only medical 
oncologist in the southern part of San Luis Obispo County. 
Because of this failure on the part of the carrier, he was 
unable to purchase chemotherapy, hormonaltherapy or 
immunotherapy for his patients and was forced to send them to 
the local community hospital. I soon discovered this problem 
was not limited to Dr. Palchek and that many other providers in 
my district were experiencing similar difficulties. Some of the 
doctors offices that were affected were even forced to seek 
bank loans to stay open and to stay in business.
    I am pleased to say that after I intervened with the 
carrier and with HCFA, this carrier has worked diligently to 
resolve these problems. And since that time, the system has 
been working better.
    But the reason I raise this example is not to point a 
finger at any particular person or entity but to illustrate the 
consequences of the problems that can and do arise and to 
remind us of what is at stake. Constituents, mine or anyone 
else's, should never have to deal with this, and we on this 
committee need to see that they and people like them across 
this country do not have to face this kind of situation in the 
future.
    I am looking forward to hearing from witnesses today about 
the particular difficulties they see in the way Medicare is 
managed and the ways that we can work together to address them. 
I hope we, as a committee, will take the time to really listen 
to dig into what they have to say, to discover what we need to 
do to improve on the current situation.
    I suspect that we are going to discover that some of the 
problems we see are due to HCFA's limited resources and that 
some are due to the operation of carriers and that some are 
even due to provider practices. When we have determined the 
specific difficulties in our system that it faces, we can then 
have a reasonable and bipartisan effort to correct the 
situation without emasculating the Medicare Program or 
disrupting the services it provides so well.
    I believe in Medicare. I think we must commit ourselves to 
the improvement of administering this program. We need to work 
with HCFA to help them in their task of preserving program 
integrity while ensuring adequate care. And so I look forward 
to working with you, Mr. Chairman, with our colleagues on this 
committee to do this in a very fair and sound way.
    I yield back the balance of my time.
    Mr. Bilirakis. Well said, and the Chair thanks the 
gentlelady. We have run out of members of the subcommittee, so 
I guess we are going to have to recess. Possibly we can ask the 
witnesses to sort of take their positions while we are gone. 
And as soon as either Mr. Greenwood or Norwood returns, we will 
get started again. Thank you.
    [Brief recess.]
    Mr. Greenwood. We will reconvene, and the Chair recognizes, 
for 3 minutes, for the purposes of making an opening statement, 
the gentleman from North Carolina, Mr. Burr.
    Mr. Burr. I thank the chairman. I thank my colleagues, and 
I welcome our panel of witnesses. Mr. Chairman, I will try to 
be brief. I want to take this opportunity to show the 
bipartisan spirit I have always tried to approach O&I 
investigations as well as Health Subcommittee investigations.
    And to say that, as I prepared for this hearing yesterday, 
there was only one testimony that we didn't have. That was the 
testimony of HCFA. It came in after six last night. They have 
had 10 days notice for this hearing. When there was a different 
administration in, I was very quick on this committee to note 
late testimony. We have changed administrations. I want to 
continue to note late testimony, testimony that does not allow 
us to prepare, testimony that is a great example of what many 
of the people in this panel will explain as less than the best 
from an agency that claims to have changed.
    Let me read, if I could, Mr. Chairman, some of Mr. Miller's 
testimony. ``We are continuing to pursue an open process as we 
implement these new programs and policy changes seeking insight 
and recommendations from physicians and providers, their 
associations and other members of the public. This is far 
different from the way many private insurers conduct their 
business and greatly benefits everyone as we incorporate 
stakeholder recommendations into our new policies and 
regulations.''
    Mr. Chairman, I won't be here for the whole hearing, but 
let me highlight some of the testimony of three of our 
witnesses. First is David Becker, County Medical Society, and 
he says in his testimony, ``We need a system everyone can 
understand. We need training from our HCFA carriers for correct 
coding documentation. Communication and education, as opposed 
to regulation and retribution will greatly improve today's 
Medicare Program.''
    Jyl Bradley, ``Not only did this communication breakdown 
between HCFA, the carriers, and ultimately the providers result 
in physician practices around the country having to submit 
thousands of denied claims billed from October 30, 2000 to 
February 8, 2001, it undermined the trust and credibility 
necessary to preserve a good working relationship between 
practices and carriers.''
    Mr. Wood from the Mayo Foundation, ``The work of the staff 
has been very gratifying, and it is clear from this example 
that staff can make changes that are helpful not only to 
physicians but beneficiaries. Field testing or simplified ABN 
found better beneficiary response to new, simpler forms. 
However, it is difficult for me to understand why it has taken 
a decade to resolve an issue that required only a year of 
development and testing. We should be able to make faster 
progress than solving one problem every 10 years.''
    ``Unfortunately, HCFA staff members have informed PPAC 
members that at least two of the issues important to physicians 
and included on the PRIT physicians' issues list are nearly 
impossible to resolve, notably, claims, resubmissions, and the 
requirement for prior hospitalization for skilled nursing 
facility placement.''
    I am going to miss a lot of the testimony, so I wanted to 
make sure that everybody here heard the quotes that you made 
that I think fly in the face of some of the statements that 
HCFA will make throughout this testimony about the 
transformation they have gone through of openness, 
communication, listening, reality. It is right in the opening 
part of it: ``Our goal is to ensure that beneficiaries get the 
care they need without imposing unnecessary burdens on 
beneficiaries, physicians, and providers.'' That is their goal. 
Clearly, that is not happening today. The purpose of this 
meeting is to get us on the road to where we determine whether 
statutorily they can do it or legislatively we have to do it.
    Mr. Chairman, let me just share for the members, I hold in 
front of me the list of forms required to be filled out on the 
first home care visit. Let me restate that: This is the entire 
packet of forms that must be filled out on the first home care 
visit. I think this is a great place for us to start to figure 
out how we reduce some of the burden that we have placed on 
providers, and then we can start on dealing with the other 
realities that we know, which may lead us to 130,000 pages of 
regulations that we, in fact, deserve some credit for creating. 
And I hope, in fact, we will deserve some credit for solving.
    I thank the chairman. I yield back.
    Mr. Greenwood. Chair recognizes the gentleman from Georgia, 
Mr. Norwood, for 3 minutes, for an opening statement.
    Mr. Norwood. Thank you, Mr. Chairman. In the interest of 
getting to our witnesses, I will be brief, but I am going to be 
to the point.
    There is something very, very wrong with a system that is 
so bureaucratic that it takes 130,000 pages of rules and forces 
the doctor to spend more time and effort working for HCFA in 
fear of going to jail than working for their patients. Now, if 
you can't manage a system with less rules and regulations than 
that, we are going down the wrong road with training, because 
training is not the solution until we reduce the amount of 
paperwork, as Mr. Burr just showed, and the amount of rules 
these people have to deal with. That is if you want well 
patients. There isn't a doctor in this country that deals with 
Medicare that doesn't have some form of horror story about the 
complexities of this process. These stories are very painful to 
the providers and to the patients.
    Now, I have not yet read the GAO report that praises the 
work of the Department of Justice in implementing the False 
Claims Act for Medicare, but it is strange credibility to say 
that it is making things any easier for the providers of the 
patients so that the patient may get well. Some may argue that 
efforts to stop improper payments have saved the Government 
money. And someone earlier pointed out how much money. But it 
has also increased the level of anxiety amongst the Medicare 
providers to the point that many either want to retire as quick 
as they can or they want to stop seeing Medicare patients.
    The question is, is the money that the Justice Department 
says it is saving really, really from improper payments? With 
130,000 pages of rules and regulations governing Medicare, my 
suspicion is, and I am pretty sure it is more than just a 
suspicion, that the providers are downcoding to save themselves 
from ever hearing from the Justice Department or the Inspector 
General.
    Providers are forced to charge themselves less for fear of 
the IRS, the FBI, and OSHA. There is something wrong with that 
system, particularly in a system that pays fees typically at 
cost and in some cases below cost, and the provider is forced 
to downcode in order to keep them off their back.
    Now, I didn't come here today to lay blame or point fingers 
for the problems that providers face in dealing with Medicare. 
Is it HCFA? Is it the carriers? Is it the providers themselves? 
Have we constructed a Medicare system that necessarily breeds 
this type of adversarial arrangement on purpose? I don't know 
the answer today, but I do know this committee is going to find 
the answer. Mr. Chairman, I believe we are going to make 
changes in the way this system works so that these horror 
stories are rare instead of regular, every day.
    I thank you, Mr. Chairman, for having this hearing, and I 
yield back the balance of my time.
    Mr. Greenwood. Chair thanks the gentleman and recognizes 
the gentlelady from Colorado for 3 minutes.
    Ms. DeGette. Thank you, Mr. Chairman. Provider education 
and training are key components of a strong, efficient, and 
financially sound Medicare Program. If providers and 
beneficiaries are properly educated, fewer mistakes will be 
made, precious resources will be appropriately allocated, and 
beneficiaries will be well-served. I think that that is a basis 
we can all agree on.
    What is more difficult to find agreement on, I think, is 
the extent to which providers are not adequately educated, what 
types of problems exist with regard to inadequate education and 
training, who is to blame, and what could and should be done to 
address those issues? For example, according to the testimony 
we will hear from the Office of Inspector General this morning, 
93 percent of all payments to providers were error-free. This 
suggests, as the IG concludes, in part, that providers are 
fairly well-educated about Medicare's rules.
    However, many of the providers' representatives testifying 
here today do not concur with that conclusion. Providers will 
report that the current system does not offer the level of 
education required to properly navigate the Medicare coverage 
and billing maze, that they are frequently and consistently 
left in the dark by HCFA and the contractors, and as a result, 
fear criminal prosecution if they make honest mistakes. 
Undoubtedly, there is disagreement about these matters, because 
Medicare's rules are complex, and its administration is 
complicated. There are a variety of reasons for the 
complexities, including the fact that our Nation's health care 
system is complex.
    With regard to the Medicare Program, I don't think we can 
underestimate the role that Congress has played in increasing 
the program's complexity. Over the past few years, from the 
passage of the Balanced Budget Act to changes in the law in 
1999 and 2000, Congress has enacted hundreds of provisions 
dealing with Medicare which in turn require the promulgation of 
hundreds of regulatory rules. While much of what we did 
strengthened the program's benefits and its financial health, 
quite often we provided very little time to implement and test 
the changes. This, I think, also contributes to confusion and 
uncertainty around the laws and regulations. In addition, 
HCFA's interpretation and its surrogates' application of the 
laws and providers' willingness and ability to understand the 
rules are factors in the equation.
    It is my hope that in this and future hearings, we will be 
able to identify specific problems and solutions to further our 
understanding of the Medicare administration process and that 
we examine the experience of the participants and the issues 
before we rush to legislative solutions.
    And I yield back the balance of my time.
    Mr. Greenwood. Chair thanks the gentlelady and recognizes, 
for purposes of an opening statement, the gentleman from 
Tennessee, Mr. Bryant.
    Mr. Bryant. Thank the chairman for yielding me time and for 
holding this hearing. Recently, I was back in my district and 
visited the University of Tennessee Medical School in Memphis 
and one of the departments there, the School of Allied 
Sciences, had a briefing that included the information that 
many of their problems there are caused by a shortage of 
students willing to go into these areas of study. Many of these 
areas, including the laboratory technicians, are short. And one 
of the reasons, I am told, is that the pay has gone down so 
much or has not kept pace with other professions, largely due 
to the low reimbursement rates that are available through the 
Medicare Program.
    Yesterday, I had a doctor in my office, also from the 
laboratory side of medicine, and he provided me with a payment 
policy and several recommendations that his association would 
like to make to HCFA.
    As Mr. Burr said, many of us are in and out today because 
of different commitments and different hearings and so forth. I 
want to ensure that I can provide these recommendations to Dr. 
Miller on behalf of HCFA. And I will have this copied and given 
to him, and I would like to make it a part of the record, if I 
could, also. It is four pages, and it contains some 12 
recommendations from that particular laboratory association of 
doctors and so forth on how they view improvement could be made 
to HCFA in the way business is conducted. I would like to ask 
Dr. Miller, if you could, as a late filed exhibit to your 
testimony today, if you could respond to these 12 
recommendations and discuss those for me.
    And with that, I would yield back the balance of my time. 
Thank you.
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    Mr. Greenwood. Chair thanks the gentleman and recognizes 
for 3 minutes the gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and I will submit my 
total opening statement. But following a lot of my colleagues, 
we know the frustration with providers, with HCFA, and 
sometimes with the slow payment schedule, and not only the 
amount of dollars but the slowness in responding. We have to 
keep in mind that HCFA covers 39 million beneficiaries, and 
they contract with 50 different intermediaries. And most of the 
contractors do a pretty good job.
    But there are a number of concerns, and HCFA can and should 
provide more guidance to the contractors, improve the provider 
education and simply existing forms and procedures and 
streamline the communication. And I certainly heard from 
providers, like my colleagues have, in my district who have 
experienced difficulty with the system and feel they are 
spending more time filling out paperwork than treating their 
patients.
    If there are problems in the current system, we need to 
address it. And like my colleague said before, there have been 
a great many additional burdens placed on--or responsibilities 
placed on the Health Care Financing Administration in the last 
few years, and it is amazing that in this time of surplus the 
HCFA's budget was $2.2 billion in fiscal year 1995, and yet in 
fiscal year 2000 it is actually $2.1 billion. So we need to 
provide the resources to HCFA to be able to do that. Hopefully 
have a speedy response to our providers.
    And I yield back my time, Mr. Chairman.
    [The prepared statement of Hon. Gene Green follows:]
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas
    Mr. Chairman: Thank you for holding this second hearing on the 
Health Care Finance Administration and its relationship with providers 
and contractors.
    HCFA has the unenviable task of administering the Medicare program 
to over 39 million beneficiaries.
    It is responsible for educating tens of thousands of health care 
providers, processing claims, conducting audits for program integrity, 
and ensuring the health and well being of Medicare beneficiaries.
    For the most part, HCFA contracts most of these responsibilities to 
fifty different fiscal intermediaries and carriers who are responsible 
for the day to day operation of the Medicare program.
    While most of these contractors do a good job administering the 
Medicare program, there are a number of concerns that HCFA can and 
should do more to guide contractors, improve provider education, 
simplify existing forms and procedures, and streamline communication.
    I have certainly heard from providers in my district who experience 
difficulty with the system, and feel they are spending more time 
filling out paperwork than they are treating patients.
    If there are problems within the existing system, than we should 
address them.
    But I'd like to point out what I think is a rather obvious problem.
    Since 1996, the Congress has passed many laws changing Medicare 
payment policies.
    This has resulted in a considerably larger workload for both HCFA 
and the private contractors.
    But there has been no corresponding increase in resources for HCFA 
or its providers to execute those changes.
    In FY 95, before passage of HIPAA, creation of the State Children's 
Health Insurance Plan, or passage of the Balanced Budget Act, HCFA's 
administrative budget was $2.2 billion.
    In FY 2000, however, HCFA was appropriated even less money--only 
$2.1 billion.
    Mr. Chairman, I am very concerned that providers are experiencing 
difficulty with HCFA.
    But I fear that we in Congress are as much to blame about some of 
the problems that exist as the agency is.
    I look forward to the testimony of the witnesses, and really hope 
that we are able to identify some problems within the agency, and reach 
consensus on how to resolve them.
    Thank you and I yield back the balance of my time.

    Mr. Greenwood. Chair thanks the gentleman, and recognizes 
for 3 minutes the gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. I thank you and 
Chairman Bilirakis for convening this joint hearing. I think 
like in any bureaucracy, HCFA is so complex, and because of its 
complexity, a lot of people inside and outside are having 
trouble understanding all the regulations. And perhaps what we 
need here is new, clear, and consistent guidance from HCFA so 
that this perception can be cleared up. Because I think, like 
many members hearing from doctors and others, they feel they 
are unfairly penalized for innocent billing mistakes, and it is 
causing a lot of the providers, particularly in central 
Florida, to reconsider treating Medicare patients.
    So I think this hearing is timely and hopefully we can 
receive a response from the witnesses into how we can make HCFA 
more effective and some of the subcontractors they use can be 
more in line with the customers' attitude and response. And so 
I think it is worthwhile to analyze HCFA.
    I welcome this hearing, Mr. Chairman. I yield back the 
balance of my time.
    Mr. Greenwood. Chair thanks the gentleman and recognizes 
for 3 minutes the gentleman from New Hampshire, Mr. Bass.
    Mr. Bass. I thank the chairman, and I would like to 
associate my remarks with those individuals who preceded me 
about the importance of this hearing in providing a perspective 
of the various stakeholders and the issue of delivery of 
important health care services to Medicare recipients.
    As a Member of Congress, I can't tell you how many issues 
that we have internally, within my district, from folks who 
have problems interacting with HCFA of one sort or another; 
everybody from the insurance providers through some of the 
folks who are testifying here today. And we have a pretty good 
relationship with the agency in trying to ferret through 
problems that occur. It is a very timely hearing, though, and 
it is important, as we face the whole issue of reform, of 
Medicare, preserving Medicare, that we address issues of 
delivery of important health care services.
    I also want to take a second to recognize one of my 
constituents from Sullivan County, from Claremont, Jyl Bradley, 
who is here today representing the Medical Group Management 
Association. She has wonderful qualifications, not the least of 
which having gotten a Master's Degree at Dartmouth College, 
which is the finest college in the country. And I think that 
her testimony will be very interesting and helpful to the 
business of this committee.
    And with, Mr. Chairman, I will yield back.
    Mr. Greenwood. Chair thanks the gentleman and recognizes 
for 3 minutes the gentleman from Michigan, Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. I believe it is the 
duty of this subcommittee to monitor and take necessary action 
to improve Medicare and ensure its viability well into the 
future. No one argues that the fact of the job of administering 
Medicare is a tedious, thankless one. The Health Care Financing 
Administration, HCFA, and its providers are responsible for 
ensuring that Medicare runs smoothly, and in an ideal world, 
Medicare would run smoothly. However, we are not in an ideal 
world. And so we have this hearing today to ask HCFA and 
private contractors to shed light on how to improve their 
interdependent system.
    I am pleased that HCFA has taken steps in the past few 
years to improve their provider education, namely, installing a 
toll-free hotline for provider inquiries, issuing handbooks on 
the basics of Medicare for providers, satellite broadcasts of 
seminars, and a medical resident and training program. I 
believe that provider education is absolutely essential to 
preventing possible costly mistakes. And it is certainly true 
for provider education that an ounce of prevention is worth a 
pound of cure.
    At the heart of providing the optimum level of provider 
education is the issue of resource allocation. In the interest 
of making HCFA and Medicare run ever more smoothly, Congress 
has heaped mandate after mandate upon HCFA, and at the same 
time asked it to respond in a meaningful way, while keeping 
their administrative budgets static. Although I do not 
necessarily think throwing money at a problem is always the 
cure, I do think that it is somewhat unreasonable to ask HCFA 
to operate with a 2 percent administrative budget. In 1995, 
prior to major program changes mandated by Congress and HIPAA, 
HCFA's administrative budget was $2.2 billion. In 2000, HCFA's 
administrative budget was only $2.1 billion.
    I look forward to hearing from our distinguished panel of 
guests and hearing their input on how and where to find to 
address problems currently found within the Medicare system.
    Mr. Chairman, thank you for holding this hearing. I yield 
back any time I may have left.
    Mr. Greenwood. Chair thanks the gentleman, and recognizes 
for 3 minutes the gentleman from Maryland, Mr. Ehrlich.
    Mr. Ehrlich. I will pass, Mr. Chairman.
    Mr. Greenwood. Chair recognizes for 3 minutes the gentleman 
from Georgia, Mr. Deal, who also passes.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Chairman Bilirakis and Chairman Greenwood, thank you for holding 
this important hearing. This is the second in a series of hearings this 
Committee is holding on the reform and modernization of Federal health 
care programs.
    At this morning's hearing, we will focus our attention on how the 
Health Care Financing Administration informs and educates health care 
providers about the regulations it promulgates. Specifically, I am most 
interested in hearing how HCFA currently provides educational materials 
to its regional offices, how that information is disseminated to 
contractors and eventually to providers--those on the front lines in 
providing care to patients. To the extent problems exist in that flow 
of information, we must identify the problem, and work to find a 
responsible solution, be it administrative or legislative.
    For example, I have heard that an individual can call HCFA with a 
question, and that answer may vary depending upon who answers the 
phone. Is that possible? Is that what we want?
    I have also heard that this is not a HCFA issue, but a contractor 
issue. That is something we need to explore. But if I contract with 
somebody to do work on my behalf, I am ultimately responsible. If 
Congress has tied the hands of HCFA in terms of its ability to contract 
to do this work, then we need to see how we can improve that process. 
HCFA is ultimately responsible for ensuring that educational materials 
are disseminated to providers and that providers know the ``rules of 
the road.''
    Education is critical. I would think that HCFA would consider it of 
utmost importance. Unfortunately, I must question HCFA's stated 
emphasis on education when I read in the October 31, 2000 Federal 
Register a notice entitled ``Medicare Program; Criteria and Standards 
for Evaluating Intermediary and Carrier Performance During Fiscal Year 
2000.'' That notice states that the carrier's ``conduct of educational 
and outreach efforts'' are functions that MAY be evaluated under the 
criterion. Why would we not want this to be a mandatory criterion for 
evaluation?
    The need for guidance from HCFA to help providers understand the 
rules of the road was made clear to me after reading the February 19, 
2001 USA Today article entitled ``Rejections Rise for Medicare 
Patients. Crisis Feared as More Urban Doctors Refuse Insurance Plan.'' 
The article is about physician dissatisfaction with the Medicare 
program and points out that as a result, in part, of HCFA's burdensome 
and confusing regulations, physicians across the country are beginning 
to discontinue seeing Medicare Fee-For-Service Medicare patients. If 
true, this is a serious problem that needs to be remedied quickly.
    In addition, Dr. Becker, a constituent of Chairman Bilirakis and a 
practicing physician before us today, stated in his testimony that 
``Some doctors are limiting or no longer seeing Medicare patients for 
fear of retribution in a system they don't understand. Doctors fear 
legal liability for errors as simple as a keystroke mistake on a 
computer that will miscode a charge or a diagnosis.''
    I am concerned when I hear that physicians' fear of prosecution and 
their inability to obtain adequate assistance from HCFA are causing 
them to reconsider their commitment to Medicare patients. I am glad to 
see the Office of Inspector General is here to clarify the type of 
cases they pursue. However, the Committee needs to explore ways to 
reduce the complexities of the Medicare program and identify ways to 
educate providers about complying with existing rules and regulations.
    As is the case with all of the hearings we will have on this topic, 
I want to work to find solutions. I am not here to demonize any agency 
or any party. I stand ready to work with anyone interested in rolling 
up their sleeves and working hard to ensure that our Federal Health 
care programs are providing quality, affordable health care to 
patients. As I stated at the first hearing in this series, I pledge we 
will do this together, on a bipartisan basis--not to score points at 
one another's expense but to improve the lives of patients.
    Chairman Bilirakis and Chairman Greenwood, thank you again for 
holding this hearing. I look forward to hearing from the witnesses.
                                 ______
                                 
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress 
                       from the State of New York
    Chairman Bilirakis, Chairman Greenwood, I appreciate your efforts 
in holding this hearing today. We are here to take a close look at HCFA 
and its administrative process. Since 1996 Congress has placed several 
mandates on HCFA to carry out changes and improvements and it is now 
our responsibility to make sure that the new provisions were 
implemented properly. Much of the focus during the last few years has 
been aimed at preventing fraud and abuse. The result has been a 
significant decrease in the number of improper claims paid. In fact, 
the number has been cut in half, saving taxpayers over $11 billion 
dollars. This is a significant achievement, but we now have to examine 
the effect these provisions have had on the delivery of care and the 
administration of HCFA.
    We will hear many complaints today regarding the hoops that 
providers must jump through to get reimbursed for routine visits or 
procedures and the fear many have of the penalties associated with 
billing mistakes. However, much of the problem is caused by the fact 
that there is a lack of communication amongst HCFA, local carriers, and 
providers. These misunderstandings are leading to fear and frustration 
and many providers are fed-up with the administrative process and 
simply want out. Better communication and education about billing and 
coding and such can alleviate many of the concerns we hear about. 
However, HCFA is ill equipped to increase educational efforts because 
of budgetary constraints.
    In fact, HCFA's budget has been static for the last 10 years. We 
have not invested in the agency and that is now being reflected in its 
administration. Mr. Chairmen, Congress asked HCFA to implement these 
changes and today we are saying shame on you for what you are doing to 
doctors and hospitals, and other providers. We need to examine the 
problems the agency is experiencing and fix them so that providers can 
be at ease and continue to render high quality care without feeling 
like every action is under scrutiny by HCFA. I look forward to the 
testimony from our panel, and I trust that we will use the information 
gathered today in a constructive manner. Mr. Chairmen, I hope to work 
with both of you and the other members of the committee to address 
these issues further.

    Mr. Greenwood. Are there any other requests for opening 
statements? If not, the Chair calls the witnesses. They are 
Mark Miller--Dr. Mark Miller, acting director of the Center for 
Health Plans and Providers, from the Health Care Financing 
Administration. Mr. Michael Mangano, the Acting Inspector 
General, Department of Health and Human Services; Dr. David 
Becker, from Largo, Florida, on behalf of the Pinellas County 
Medical Society; Jyl Bradley, administrator, Dunning Street 
Ambulatory Care Center, Associates in Surgery and 
Gastroenterology of New Hampshire, on behalf of Medical Group 
Management Association; Douglas Wood--Dr. Douglas Wood, vice-
chair, Department of Medicine of the Mayo Foundation in 
Rochester; Mr. Harvey Friedman, vice president, Medicare and 
Seniors Program, Blue Cross/Blue Shield Association of Chicago.
    The witnesses, thank you for your patience. You are aware 
that the committee is holding an investigative hearing and when 
doing so has had the practice of taking testimony under oath. 
Do you have any objections to testifying under oath?
    The Chair then advises you that under the rules of the 
House and the rules of the committee, you are entitled to be 
advised by counsel. Do you desire to be advised by counsel 
during your testimony today? Seeing no affirmative responses, I 
would ask that you rise and raise your right hand, and I will 
swear you in.
    [Witnesses sworn.]
    Mr. Greenwood. Thank you. You may be seated. You are now 
under oath. You may give your written testimony. Ordinarily, we 
ask witnesses to confine their remarks to 5 minutes. We have 
one panel today. We have a great interest in your testimony. We 
are going to give you 10 minutes to provide your testimony. If 
you can do so in less than 10 minutes, you will get a gold star 
next to your name in the official record.
    And we will begin with Dr. Miller.

 STATEMENTS OF MARK MILLER, ACTING DIRECTOR, CENTER FOR HEALTH 
  PLANS AND PROVIDERS, HEALTH CARE FINANCING ADMINISTRATION; 
MICHAEL MANGANO, ACTING INSPECTOR GENERAL, DEPARTMENT OF HEALTH 
  AND HUMAN SERVICES; DAVID BECKER, ON BEHALF OF THE PINELLAS 
COUNTY MEDICAL SOCIETY; JYL D. BRADLEY, ADMINISTRATOR, DUNNING 
   STREET AMBULATORY CARE CENTER, ASSOCIATES IN SURGERY AND 
    GASTROENTEROLOGY, ON BEHALF OF MEDICAL GROUP MANAGEMENT 
    ASSOCIATION; DOUGLAS L. WOOD, VICE CHAIR, DEPARTMENT OF 
MEDICINE, MAYO FOUNDATION; AND HARVEY FRIEDMAN, VICE PRESIDENT, 
     MEDICARE AND SENIORS PROGRAM, BLUE CROSS BLUE SHIELD 
                          ASSOCIATION

    Mr. Miller. Chairman Bilirakis, Chairman Greenwood, 
Congressman Brown, and Congressman Deutsch, distinguished 
subcommittee members, thank you for inviting me to discuss 
physician and provider education efforts here today. Medicare 
is a vitally important program to millions of Americans, 
elderly and disabled. Our partnership with physicians and other 
providers plays a critical role in providing quality care to 
beneficiaries, and our goal is to ensure that beneficiaries get 
the care they need without imposing unnecessary burdens on 
beneficiaries, physicians or providers.
    We know that there is a lot of work that needs to be done. 
We feel that we are making progress, and that progress is 
outlined in detail in the written testimony that I submitted.
    Medicare pays for the health care for 40 million 
beneficiaries. It processes a billion claims a year on behalf 
of 1 million physicians, hospitals, and other providers. Today 
alone, more than $500 million will be paid out in claims, and 
that happens every single day. This represents a tremendous 
volume of billing and payment. Moreover, the program has 
changed rapidly over the past 4 years.
    As stewards of this program, we strive to ensure that 
Medicare pays only for services that are allowed by law, while 
making it as simple as possible for qualified health care 
providers to treat Medicare beneficiaries. We are careful to 
balance the impact of the laws and regulations on physicians, 
while at the same time meet our responsibility to account for 
more than the $210 billion that are paid out in Medicare 
payments every year. We are committed to finding the right 
balance between Medicare's rules, and we are committed to 
finding the right balance and simplifying Medicare's rules, 
reducing burden, and explaining requirements to physicians and 
providers.
    Over the last few years, we have made great strides in 
reaching out to physicians and providers to help them bill us 
appropriately. Working with our contractors, we have taken a 
number of steps to ensure that information is consistent, 
clear, and unambiguous. We are making materials available in 
print, on the Internet, through toll-free telephone lines, via 
satellite broadcasts, and developing new materials and local 
and national education seminars. It is very critical that we 
listen. And there have been several efforts that we are going 
through to more clearly get the message from physicians and 
providers. I want to highlight two here.
    It is critical that we listen both to understand what 
problems physicians and providers are encountering as well as 
to determine what kinds of communication best suit their needs. 
The two examples that I want to give here of how we are 
listening to physicians in particular are the Practicing 
Physician Advisory Council, that we work with at HHS on 
precisely the issues that are being discussed here as well as a 
team inside HCFA, which is the Physicians' Regulatory Issues 
Team. These two components are just examples of how we listen 
so that information we provide is sensible, reality based and 
supportive of the care that they give to beneficiaries.
    To talk for just a moment about the Physicians' Regulatory 
Issues team, that is comprised of program staff and HCFA 
physicians. It is led by a practicing physician, Dr. Barbara 
Paul, who is here with me today. The purpose of the Physicians' 
Regulatory Issues Team is to amplify the physicians' voice in 
HCFA's decisionmaking processes as well as to pinpoint problem 
areas and develop suggestions to solve those problems. For 
example, through these two bodies, the Practicing Physician 
Advisory Committee and the Physicians' Regulatory Issues Team, 
we have been working with the physician community on new 
guidelines for billing office visits, rewriting our manuals to 
clarify billing instructions and enhance education, and 
improving the enrollment process so it easier for physicians 
and providers to participate in the program.
    We share a common mission with our physicians and 
providers, that is, ensuring high quality care for Medicare 
beneficiaries. Communicating clearly with physicians and other 
providers is an important aspect of administering the Medicare 
program. While the focus of our discussion today is likely to 
be physician issues, I also want to clarify that our education 
efforts extend to the full spectrum, physicians, suppliers, 
providers, institutions, and managed care plans.
    Strong communication entails both delivering and receiving 
information. We recognize that there are concerns in the way 
that HCFA and its contractors interact with physicians and 
providers. While we believe that the vast majority of the 1 
billion claims transactions that occur each year occur smoothly 
and positively, we are aware of delays and mistakes. I want to 
assure you that we take these problems seriously because we 
know that each transaction involves a physician or a provider, 
but most importantly each transaction involves a beneficiary.
    We believe that our education efforts will improve the 
administration of the program and will improve our relationship 
with physicians and providers. I appreciate you asking me here 
today to talk about these issues, and I look forward to 
answering your questions.
    [The prepared statement of Mark Miller follows:]
 Prepared Statement of Mark Miller, Acting Director, Center for Health 
        Plans & Providers, Health Care Financing Administration
    Chairman Bilirakis, Chairman Greenwood, Congressman Brown, 
Congressman Deutsch, distinguished Subcommittee members, thank you for 
inviting me to discuss our physician and provider education efforts 
with you. Medicare is vitally important to senior citizens and disabled 
Americans, and our partnership with physicians and other providers 
plays a critical role in providing quality care and services to 
beneficiaries. Our goal is to ensure that beneficiaries get the care 
they need without imposing unnecessary burdens on beneficiaries, 
physicians, and providers. The Administration is reviewing regulatory 
and legislative changes that may be needed to enable us to better focus 
our efforts on achieving this goal. It also is clear that we must 
reimburse physicians and other providers in a timely, efficient, and 
fair manner. We know we need to continue to improve in this area, and 
we are working to address this through the host of activities I will 
describe today.
    Over the last few years we have made great efforts to improve our 
relationship with physicians and providers. Working with our 
contractors, we have taken a number of steps to ensure the information 
we share is consistent, clear, and unambiguous. We are making materials 
available in print and on the Internet, by toll free telephone request, 
and via satellite broadcasts, and we are developing new materials to 
provide updates and clarifications about Medicare. We are reaching out 
to physicians and providers with mailings and local and national 
educational seminars. And, we are listening to them, so that the 
information we convey is sensible, reality-based, and supportive of the 
care they give to Medicare beneficiaries.
    While we have made substantial progress, we know we still have 
important work to do. We are looking to physicians and other providers 
for their input so that we can better focus our education efforts and 
make the rules required by Medicare more understandable. We have formed 
a special team that is helping us to pinpoint problem areas for 
physicians and develop suggestions to simplify Medicare requirements. 
For example, we have been working closely with the physician community 
to develop new guidelines for billing physician office visits under 
Medicare. We are rewriting our manuals to clarify billing instructions 
and enhance education. We also are improving the physician and provider 
enrollment process so it will be easier to participate in the Medicare 
program.
    We share a common mission with our physicians and providers--
ensuring high quality medical care for Medicare beneficiaries. We look 
forward to our continued partnership with the physician and provider 
community, and Congress, to further improve the education, outreach, 
and streamlining efforts that we will discuss today.
                               background
    Medicare pays for the health care of almost 40 million 
beneficiaries, involving nearly one billion claims from more than one 
million physicians, hospitals, and other health care providers. As the 
administrator of this program, the Health Care Financing Administration 
(HCFA) must strive to ensure that Medicare pays only for the services 
allowed by law while making it as simple as possible for qualified 
health care providers to treat Medicare beneficiaries. We have to 
carefully balance the impact of Medicare's laws and regulations on 
physicians and providers with our accountability for more than $210 
billion in Medicare payments, and we are committed to finding the right 
balance.
    The Health and Human Services Inspector General recently reported 
that Medicare pays virtually all claims correctly based on the 
information submitted; however, improper payments do occur for reasons 
such as insufficient documentation, lack of medical necessity, and 
improper coding. During the past five years, we have worked with 
physicians and providers to improve their understanding of the process. 
As a result, Medicare has reduced its payment error rate by half, from 
14 percent in fiscal year 1996 to 6.8 percent in fiscal year 2000, 
meeting our 2000 Government Performance Review Act goal and keeping us 
on track for continued improvement. However, we realize that the volume 
of laws and regulations covering Medicare's responsibilities is 
substantial, so the need for balance has never been more compelling.
    Over the last five years a number of new laws have dramatically 
altered the Medicare program and the health care arena, including the 
Health Insurance Portability and Accountability Act of 1996 (HIPAA), 
Balanced Budget Act of 1997 (BBA), Medicare, Medicaid, and SCHIP 
Balanced Budget Refinement Act of 1999 (BBRA), and Medicare, Medicaid, 
and SCHIP Benefits Improvement and Protection Act of 2000. Combined, 
these laws contained hundreds of provisions that we have the 
responsibility for implementing, such as new prospective payment 
systems for numerous segments of the health care industry, including 
home health, skilled nursing facilities, and emergency departments; new 
preventive benefits; and new health plan choices for Medicare 
beneficiaries. The number and complexity of these changes were greater 
than any we had ever before experienced.
    We are continuing to pursue an open process as we implement these 
new programs and policy changes, seeking insight and recommendations 
from physicians and providers, their associations, and other members of 
the public. This is far different from the way many private insurers 
conduct their business, and greatly benefits everyone as we incorporate 
stakeholders' recommendations into our new policies and regulations. 
But, as we implement these legislative and regulatory changes, we have 
had to undertake the most extensive education program in our history, 
including outreach to beneficiaries, physicians, and providers to help 
them understand how the changes affect them.
                    outreach through our contractors
    We primarily rely on the private insurance companies, who by law 
process and pay Medicare claims, to communicate policy changes and 
other information to the physicians and providers they serve. We 
recognize that the decentralized nature of this system can result in 
inconsistent communications, and we have taken a number of steps to 
improve the educational process.
    These efforts include:

 Centralizing our focus for Medicare education. We have 
        centralized the majority of our educational efforts and their 
        oversight in our Division of Provider Education and Training, 
        whose sole purpose is educating and training our contractors 
        and the physician and provider community regarding Medicare 
        policies.
 Providing consistency through contractor train-the-trainer 
        sessions. We are providing contractors with a standardized 
        training manual and in-person instruction regarding their 
        education of physicians and providers. These programs ensure 
        that our providers speak with one voice on national issues. For 
        example, coordinating with the Blue Cross/Blue Shield 
        Association, we developed train-the-trainer sessions for the 
        Home Health Prospective Payment System regulations. We then 
        developed a satellite broadcast, which was rebroadcast several 
        times prior to the effective date of the regulation. Following 
        the train-the-trainer sessions, we coordinated a town hall 
        meeting; and we participated in weekly conference calls with 
        regional offices and fiscal intermediaries to monitor progress 
        in implementing these changes and answer questions. We 
        performed similar activities for the Outpatient Prospective 
        Payment System (OPPS). We continue to refine this process on an 
        on-going basis by monitoring the training sessions conducted by 
        our contractors.
 Improving contractor responsiveness. Our new Customer Service 
        Initiative is aimed at improving contractors' responsiveness to 
        the concerns of physicians and other providers. We are 
        evaluating contractors' customer service efforts and surveying 
        physicians and providers this year to see how the initiative is 
        progressing, and where we can make further improvements.
 Working to improve contractor outreach. We also are 
        strengthening and standardizing the way in which our 
        contractors carry out education and customer service 
        activities. We require all contractors to provide information 
        via printed bulletins and newsletters, as well as via the 
        Internet. This includes requiring each contractor to link to 
        our website from its own website, giving physicians and 
        providers immediate access to our Medicare learning network. 
        And we are exploring the possibility of complementing our 
        national e-mail listservs, which deliver valuable information 
        as a broadcast email to thousands of providers, by making 
        listservs available at the contractor level to address local as 
        well as national concerns.
                    outreach through other channels
    In addition to our contractors, we have a number of other channels 
for communicating with physicians, providers, and their professional 
organizations. We are:

 Using our Regional Offices. The ten HCFA regional offices are 
        another key component of our outreach to physicians and other 
        providers of healthcare in this country. Our regional offices 
        oversee our contractors, assuring that contractual agreements 
        are met and helping with solving problems between the 
        contractor and physicians or providers. Most of our regional 
        offices now have a Chief Medical Officer. These physicians 
        serve as a liaison between HCFA and the local physician and 
        provider community. And most importantly, the regional offices 
        directly communicate with physicians, providers, and their 
        professional organizations on a daily basis. Via organized 
        meetings and through individual problem solving, they share 
        information about the Medicare program and bring the issues of 
        the physicians and providers in that region to the attention of 
        the Agency.
 Conducting monthly conference calls with physicians. Each 
        month, we conduct conference calls with physician organizations 
        across the country to provide information and obtain feedback. 
        The calls are open to the representatives of more than 100 
        national, state, and specialty associations. Participating 
        associations often share information from these calls with 
        their physician members. HCFA staff, including our physicians, 
        also attend national, state, and local medical society meetings 
        to talk with physicians, to hear their concerns, and to explain 
        Medicare policies in greater detail.
 Establishing toll-free information lines. In 2000, we 
        established toll-free lines for physicians and providers at our 
        Medicare claims-processing contractors. The numbers are listed 
        at www.hcfa.gov/medlearn/tollfree.htm. Each contractor also 
        maintains a Website and electronic bulletin boards to provide 
        information to physicians, providers, and their staff.
 Distributing Medicare & You handbooks. Responding to physician 
        requests, we sent copies of the Medicare & You 2001 beneficiary 
        handbook to more than 500,000 individual physicians and group 
        practice offices this past winter. The handbook is updated and 
        mailed to all of the nearly 40 million Medicare beneficiaries 
        as an easy-to-understand guide on Medicare's benefits and 
        policies. In addition, we worked with the Interamerican College 
        of Physicians and Surgeons to coordinate the mailing of Spanish 
        versions of this handbook to more than 49,000 physicians.
 Preventing errors through compliance guidance. We worked with 
        the HHS Inspector General to develop guidance for physicians 
        and providers on how to comply with Medicare policies, and 
        invited public comments on this guidance. Additionally, we are 
        sharing feedback with physicians and providers, both on an 
        individual and community level, about how to correct and 
        prevent the types of errors identified in medical review of 
        claims. This will help to reduce the number of improper claims 
        among the vast majority of physicians and providers who make 
        only honest errors.
 Focusing on Medicare+Choice Organizations. We also are working 
        with managed care organizations that serve Medicare 
        beneficiaries. We are holding numerous educational training 
        conferences around the country for these organizations, as well 
        as attending industry conferences to learn first hand where 
        problems may be occurring and where there are areas of concern. 
        Additionally, we are sponsoring conference calls with managed 
        care organizations on specific subjects to provide guidance on 
        emerging issues and facilitate additional training. We are 
        reaching hundreds of managed care staff who participate in 
        these calls from their work sites. And we consult extensively 
        with the industry on the guidance we provide. For example, we 
        are sharing our draft manual chapters and other policy guidance 
        with our Medicare+Choice contractors to ensure that we fully 
        consider their concerns before final publication.
 Publishing articles in the Journal of the American Medical 
        Association. We highlight news and issues of interest to 
        practicing physicians and others in the health care industry in 
        quarterly articles published on the Federal Page of JAMA. These 
        articles help to inform physicians on such topics as Medicare's 
        new preventive benefits, Medicare+Choice encounter data 
        collection, and Evaluation and Management Documentation 
        Guidelines.
              medicare education and training: a priority
    Through our contractors and a variety of other communication 
channels, we work hard to get providers the information they need to be 
reimbursed for caring for our beneficiaries. We communicate this 
information through a number of different products that employ the 
latest technologies and respond to the varying learning styles and 
needs among physicians and providers. These include:

 Creating a Web-based Medicare education site. We have a 
        variety of resources available on the Internet at the Medicare 
        Learning Network, www.hcfa.gov/medlearn. This Network provides 
        timely, accurate, and relevant information about Medicare 
        coverage and payment policies.
 Providing free computer-based training courses. Doctors, 
        providers, practice staff, and other interested individuals can 
        access a growing number of informational computer-based courses 
        at the Medlearn website. Some courses focus on important 
        administrative and coding issues, such as how to check-in new 
        Medicare patients or correctly complete Medicare claims forms, 
        while others explain Medicare's coverage for home health care, 
        women's health services, and other benefits.
 Issuing e-mail updates. As of February 2001, almost 10,000 
        listserv subscribers are receiving timely updates about the two 
        new prospective payment systems implemented in 2000 for 
        outpatient hospital services and for home health services. We 
        are exploring ways to provide similar listserv updates to 
        physician and provider organizations.
 Sponsoring satellite broadcasts. We sponsor live, national 
        satellite broadcasts for physicians and other clinicians about 
        Medicare topics such as women's health, preventive benefits, 
        and preventing billing errors. The broadcasts can be viewed in 
        hospitals, medical schools, and virtually any other location 
        across the country through satellite television.
 Creating a Resident Training Program. We are reaching out to 
        new physicians, making Medicare information available to 
        residents at teaching hospitals and medical schools to 
        introduce them to Medicare and ensure they have an 
        understanding of the program's policies early on in their 
        careers. This program, which is currently being pilot tested 
        and refined, includes an in-person training session, a video, a 
        computer-based training course, and a comprehensive manual
 Creating a Frequently Asked Questions resource. We are 
        developing a system to capture and compile the many 
        individually answered physician and provider questions that 
        come into the Agency. We will incorporate them into an ongoing 
        compendium of Frequently Asked Questions (FAQ), and make them 
        widely available via our website, publications, speeches, and 
        other channels.
 Creating a manual of Medicare basics. We are developing an 
        easy-to-use handbook of Medicare basics, which will be produced 
        both on paper as well as CD-ROM. It also will be able to be 
        downloaded from our website. The handbook will guide physicians 
        through relevant Medicare laws and regulations. We are aiming 
        to finalize and release the handbook by the end of this year.
              program requirements that support physicians
    The efforts described thus far highlight our communications efforts 
with the physician and provider communities. Additionally, we 
understand that the particular Medicare policy we are communicating 
must be sensible and supportive of physicians in caring for patients. 
In 1998, we created the Physicians' Regulatory Issues Team (PRIT) to 
improve the agency's responsiveness to the daily concerns of practicing 
physicians. This team is an agency-wide effort, and members include our 
leadership, HCFA physicians, technical experts, and regional office 
staff. The PRIT works in three broad ways. First, it has been 
invaluable to the agency in amplifying the voice of practicing 
physicians. The team has articulated for us the problem of excess 
Medicare burden as seen through the eyes of practicing physicians. 
Moreover, it has developed a vision for the agency in which Medicare 
requirements are not only less burdensome, but truly supportive of 
physicians in caring for patients. The strategy team members bring to 
dozens of discussions across the agency every week is that improving 
the integration of practicing physicians' input into our decision-
making will result in better policies.
    Second, the team members work within the agency to serve as 
catalysts and advisors to policy staff as changes and decisions are 
discussed. Examples include:

 Simplifying evaluation and management guidelines. These 
        guidelines are cited frequently by physicians as excessively 
        complex and fitting poorly with the way they provide care. 
        Therefore, in cooperation with the American Medical 
        Association, which develops the guidelines, we have undertaken 
        a major initiative to simplify them. Since sharing new draft 
        guidelines in a town hall meeting last summer, we have been 
        seeking and receiving broad input from organized medicine, 
        practicing physicians, and the Practicing Physicians' Advisory 
        Council (PPAC), a formal committee comprised of practicing 
        physicians who provide the Agency with a doctor's ``bedside'' 
        perspective. We continue to refine the guidelines and are 
        preparing to pilot test them later this year. Prior to 
        implementation, we will educate physicians about the changes.
 Streamlining Medicare forms. With extensive input from 
        physicians, providers, and their staff, we are developing 
        better procedures to reduce the burden of the Medicare 
        enrollment process on the large number of physicians and 
        providers who provide health care to our beneficiaries. And we 
        are exploring ways that we can use today's technology to 
        further facilitate the enrollment process. Additionally, we are 
        working to improve other Medicare forms, including our Advance 
        Beneficiary Notices and Certificates of Medical Necessity.
 Improving operational policies. We are working to facilitate 
        physicians' care through supportive policies. For example, we 
        recently issued changes that allow physicians to fax their 
        orders and ``initial'' changes for patients to receive 
        wheelchairs and other needed equipment.
 Paying for important services. One of our overarching goals is 
        to ``pay it right,'' and that includes making sure physicians 
        and other providers are compensated for the care they provide 
        as allowed under law and regulation. For instance, as of 
        January 1, 2001, we now pay physicians separately for their 
        work determining patients' eligibility for the Medicare home 
        health benefit.
 Clarifying oversight policies. Last year we issued a Program 
        Memorandum that brings together in one place the processes for 
        contractors to use in conducting medical review. The Program 
        Memorandum responds to the comments from many practicing 
        physicians, including that physician education and feedback are 
        essential to the medical review process. In particular, we 
        describe the expectation for communications between contractors 
        and providers, noting that decisions to conduct medical review 
        need to be data driven, and highlighting that the amount of 
        review be only that necessary to address an identified problem.
 Identifying and changing excessively burdensome requirements. 
        In a current initiative, the Physicians' Issues Project, we 
        have identified some specific Medicare requirements that 
        physicians frequently cite as problematic in their day-to-day 
        practices. We received extensive input on these issues from the 
        physician community at a recent PPAC meeting, and as a result, 
        have chosen seven requirements for immediate review. We intend 
        to change these requirements or reach out to physicians and 
        providers to improve the supportiveness of the Medicare 
        program.
 Leveraging current channels of input from practicing 
        physicians. The PPAC is a valuable resource for information 
        regarding the impact of our regulations on practicing 
        physicians. Our staff has re-focused and re-energized our 
        efforts and the open forum this group provides. We ask for 
        their advice on specific issues in areas where we can benefit 
        from the ``bedside'' perspective of PPAC members, other 
        practicing physicians, and physician organizations.
    Finally, the PRIT is responsible for several new initiatives aimed 
at increasing agency understanding of the reality of practicing 
physicians.

 ``Shadowing'' physicians. Working through our Kansas City 
        regional office and the Medical Society of Johnson and 
        Wyandotte Counties in Kansas, the PRIT has arranged for 
        approximately 12 senior HCFA staff to spend three days next 
        month observing primary care and specialist physicians. This 
        same regional office is working with the Nebraska Medical 
        Society and the National Rural Health Association to design a 
        similar program with a rural focus for our staff.
 Sentinel Clinicians. We are designing a new process for 
        querying practicing physicians from time to time, which will 
        add to and complement our other information gathering efforts. 
        We will use this process to listen to practicing physicians, 
        asking them about aspects of their daily ``bedside'' experience 
        of caring for patients while trying to satisfy the requirements 
        of the Medicare program.
                               next steps
    We are continuing our efforts to strengthen and improve our 
physician and provider education programs, including the channels we 
employ, the products we generate, and the underlying policies of the 
program. We are delivering the information they need in a timely and 
consistent fashion, but we need to do more. We are:

 Developing a national network of ``Medicare Learning Centers'' 
        to serve as host sites for satellite broadcasts, where 
        physicians, providers, and their staff can come to view our 
        satellite broadcasts in central locations.
 Developing a Medicare Learning Network faculty, to be 
        available to develop and enhance our training resources. This 
        faculty will feature nationally recognized experts on distance 
        learning, professional education, and customer service.
 Continuing to improve our Medlearn website by offering 
        convenient, one-stop information for Medicare physicians and 
        providers.
 Developing special strategies for specific populations such as 
        new physicians and providers, those who submit a high volume of 
        claims, first time callers, and repeat callers.
 Attracting a wider audience of clinicians by integrating 
        clinical topics with the billing and payment education aspects 
        of our training tools.
 Upgrading our current computer-based training tools; including 
        continuing education credits for completing certain training 
        programs; and developing new web-based training tools.
 Developing focus groups, surveys, and other evaluation 
        measures to help us understand how many physicians and 
        providers use our education tools, confirm what they gain from 
        the experience, and help us to improve continually.
                               conclusion
    Physicians and providers play a crucial role in caring for Medicare 
beneficiaries, and communicating clearly with them is an important 
aspect of administering the Medicare program. As we all know, strong 
communication entails both delivering and receiving information. We 
recognize that there is considerable concern regarding the way in which 
HCFA interacts with its providers and contractors. Many of these 
concerns are well founded. However, we hope that our new processes will 
improve our administration of the Medicare program. In addition, we 
hope that we can improve our relationship with physicians and 
providers. We have tried to improve our education efforts and share 
important information so it is easier for physicians and providers to 
follow Medicare's requirements. We have more work to do to ensure that 
we are paying physicians and other providers timely and fairly, and 
that they can understand Medicare's requirements. So we are actively 
seeking the health care community's input, paying attention to their 
concerns and suggestions, and working closely with our contractors to 
ensure we listen and explain effectively. I appreciate the opportunity 
to discuss our physician and provider education efforts with you today, 
and I look forward to answering your questions.

    Mr. Greenwood. Thank you, Mr. Miller.
    And we will now turn to Mr. Mangano.

                  STATEMENT OF MICHAEL MANGANO

    Mr. Mangano. Thank you, Mr. Chairman and members of the 
Committee. I appreciate this opportunity to be with you here 
this morning to talk a little bit about HCFA's activities 
related to educating health care professionals regarding their 
participation in the Medicare program.
    HCFA administers this program with its contractors, and 
sometimes that administration requires pre and post-pay audits. 
Some of those audits have been reflected and are responsive to 
abuses that the Office of the Inspector General has found in 
doing our work.
    When these pre-imposed pay audits uncover what they believe 
to be suspected fraud, they are referred to our office and 
that's when we begin our investigations. Clearly, the Medicare 
program over the years has grown far more complex and there's a 
number of reasons for it. There have been numerous amendments 
with the accompanying regulations that go to implementing those 
amendments, as well as the changes in the method of 
reimbursement from a cost based and charge based sysytem to 
prospective pay and fee schedules.
    The structure of the healthcare delivery system has changed 
quite dramatically with far more vertical and horizontal 
integration, as well as the managed care initiatives that have 
taken place over the last decade. Periods of transition, as we 
all know, are more taxing and very uncomfortable for those 
persons involved in it. Since the passage of the Health 
Insurance Portability and Accountability Act of 1996 creating 
the Health Care Fraud and Abuse Control Program, our office has 
been seeking ways to help Medicare providers more accurately 
bill the Medicare program.
    And when they do, Medicare pays the right amount for a 
covered service by a legitimate service provider to an eligible 
beneficiary. That's why we work so very closely with all 
sectors of the health care community to produce voluntary model 
compliance plans. We have issued so far nine of these to a 
variety of sectors in the health care community, including 
hospitals, laboratories, nursing homes, and many others.
    We were pleased, by the way, just recently to hear from the 
Healthcare Compliance Association who completed their recent 
annual survey and found that 71 percent of health care 
organizations now have compliance plans in place. Other ways 
that we provide useful guidance to the healthcare community 
include our advisory opinions, fraud alerts, safe harbors and 
our publicly available work plan and final reports. All of 
these documents and many others are available on our OIG web 
site. The web site address is available in my written 
testimony.
    I want to make it very clear that we believe the 
overwhelming majority of healthcare professionals in this 
country provide high quality care and are very honest in their 
dealings with the Medicare program. When we talk about fraud in 
the Inspector General's office, we are not talking about 
providers that make honest billing mistakes, but rather those 
very few who intentionally set out to defraud the Medicare 
program or its beneficiaries.
    The cumulative effect of the fraud and abuse initiatives of 
HCFA, the Inspector General and others, has been the reduction 
in the improper payment rate by half, saving about $11 billion 
in the last 5 years, a decrease in the Medicare inflation rate 
to its lowest level in the history of the program and an 
extension of the solvency of the Medicare program by 30 years. 
In our most recent improper payment audit, we found that 93 
percent of all Medicare payments to healthcare providers are 
free of error and for that we can all be thankful.
    But our job is not finished. Healthcare providers have told 
us and HCFA that they need more education and training and 
timely responses to their inquiries. Each year we have issued 
the improper payment report, as well as the individual reports 
we issue throughout the year that deal with erroneous payments 
of bills or troublesome regulations or report's, we have 
recommended that HCFA increase its education and training for 
its provider communities.
    I am pleased to say that, at least in our view, HCFA has 
significantly increased its provider education activities, 
contributing to the 50 percent drop in the error rate. 
Nevertheless, even more is needed. Providers remain concerned. 
Their legitimate concerns about program complexity, 
inconsistency, burdens and hassles need to be addressed. We 
stand ready to help HCFA, healthcare providers and this 
committee, to make Medicare a more understandable program and 
free of the profiteers who seek to unjustly enrich themselves 
at the expense of the legitimate providers and the taxpayers.
    Thank you, Mr. Chairman, and I look forward to answering 
any questions at the appropriate time.
    [The prepared statement of Michael Mangano follows:]
 Prepared Statement of Michael Mangano, Acting Inspector General, U.S. 
                Department of Health and Human Services
    Good morning Mr. Chairman and members of the Subcommittees. I 
appreciate the invitation to testify today on the important issue of 
the Health Care Financing Administration's role and activities related 
to educating health care providers and physicians regarding their 
participation in the Medicare program.
                      office of inspector general
    Let me first provide some background about the origin and purpose 
of the Office of Inspector General (OIG) within the U.S. Department of 
Health and Human Services (HHS). The HHS OIG, the first statutory 
Inspector General in the Federal Government, was established in 1976 
because of congressional concerns that fraud and abuse were improperly 
inflating the cost of HHS health care programs, particularly Medicare 
and Medicaid. The OIG's mandated mission is to prevent and detect 
fraud, waste, and mismanagement, and to promote economy, efficiency, 
and effectiveness in all HHS programs and operations.
    The core mission of the OIG is carried out through a nationwide 
program of audits, evaluations (called inspections), and investigations 
related to the operations of HHS programs. The OIG is prohibited from 
exercising specific ``program operating'' responsibilities. As part of 
its statutory mandate, the OIG is obligated to keep
        [T]he Congress fully and currently informed . . . concerning 
        fraud and other serious problems, abuses, and deficiencies 
        relating to the administration of programs and operations 
        administered or financed by [HHS], to recommend corrective 
        action concerning such programs, abuses, and deficiencies, and 
        to report on the progress made in implementing such corrective 
        action.
The Inspector General Act of 1978 (``IG Act''), Sec. 4.
              health care financing administration (hcfa)
    In contrast, HCFA with its contractors is responsible for 
administering the Medicare program, including the review and payment of 
claims submitted by health care providers, which may involve pre and 
post payment audits. Some of HCFA's payment review activities are the 
result of abuses identified in OIG audit and inspection reports. These 
abuses threaten the financial stability of the Medicare program and its 
beneficiaries. Where particular problems are identified which may be 
indicative of fraud, they are referred to the OIG for investigation. 
HCFA also has the primary responsibility for educating and working with 
providers to inform them on its rules.
    HCFA is the largest single purchaser of health care in the world. 
With outlays of approximately $316.2 billion in FY 2000, HCFA is also 
the largest component within HHS. Medicare and Medicaid outlays 
represent 33 cents of every dollar spent on health care in the United 
States in 1999. The Medicare program is inherently at high risk for 
payment errors due to its size and decentralized operations (39.5 
million beneficiaries, 890 million claims processed annually, 54 
contractors).
   the complexity of the medicare program and impact on patient care
    Since the establishment of Medicare, numerous legislative changes 
have been made and amendments added to Title XVIII of the Social 
Security Act (the Medicare Program), which have led to a number of 
substantive changes. With each legislative enactment, HCFA is required 
to develop new regulations, as well as update its contractor and 
provider rules and guidelines. To illustrate, the Balanced Budget Act 
of 1997 contained 335 provisions related to the Medicare program, 
including mandates for new prospective payment systems, requiring the 
development of a substantial number of new regulations.
    It must also be recognized that much of the complexity in the 
Medicare program is not inherent in the program itself, nor the result 
of legislative changes, but rather parallels the ever increasing 
complexity of the nation's health care financing and delivery systems. 
For example, the development of various forms of managed care and new 
models for vertical and horizontal integration of providers have led to 
the need for new Medicare rules and regulations.
    Additionally, the way Medicare pays for health care has changed 
over time, from primarily ``cost or charge based'' systems to new fee 
schedule and prospective payment systems. For example, hospital 
inpatient, physician, laboratory, and durable medical equipment were 
the first Medicare coverage areas to be switched to prospective payment 
or ``fee schedule based'' payment systems. More recently, skilled 
nursing facility, home health, and hospital outpatient services have 
been or are being revised to become prospective payment systems. This 
transitioning from one type of payment system to another inevitably 
results in an intensive and difficult learning period for HCFA, its 
contractors, and health care providers. In the long run, it is hoped 
that these new payment systems will simplify and reduce administrative 
burden for providers.
    While the focus of this hearing is HCFA's relationship with its 
contractors and providers, I would like to take this opportunity to 
briefly discuss the OIG's outreach activities.
            health care provider compliance program guidance
    The enactment of Health Insurance Portability and Accountability 
Act of 1996 (HIPAA) established a national Health Care Fraud and Abuse 
Control Program under the joint direction of the Attorney General and 
the Secretary of HHS, acting through the OIG. This new program was 
designed to coordinate federal, state, and local enforcement activities 
with respect to health care fraud and abuse. Since HIPAA's enactment, 
the OIG has embarked on a major initiative to promote voluntary 
adoption of compliance programs by provider organizations. Our goal has 
been to help health care providers bill the Medicare program more 
accurately. When they do, Medicare pays the right amount for a covered 
service delivered to an eligible beneficiary.
    Through its audits, inspections, and investigations, the OIG has 
confirmed that health care providers that have effective compliance 
plans including internal audit procedures and comprehensive staff 
training, not only provide quality services, but also have fewer 
systemic billing errors. In order to encourage the adoption of 
compliance measures by health care providers, the OIG has worked with 
health care industry groups to develop model, voluntary compliance 
plans. They identify steps that health care providers may voluntarily 
take to improve adherence with Medicare rules.
    The OIG guidances are very specific in identifying risk areas for a 
particular health care industry sector. Since enactment of HIPAA, nine 
health care industry sector compliance guidances have been issued, 
including specific ones targeted to hospitals; home health agencies; 
clinical laboratories; third-party medical billing companies; durable 
medical equipment, prosthetics, and orthotics suppliers; hospices; 
Medicare+Choice organizations; nursing facilities; and individual and 
small group physician practices.
    The OIG and the health care industry, through various organizations 
such as the Health Care Compliance Association (HCCA) and the Council 
of Ethical Organizations, have engaged in an ongoing dialogue on health 
care compliance to better understand and resolve the challenges 
associated with creating effective compliance programs. We were pleased 
to read in the recent HCCA annual survey of health care compliance 
professionals, that 71% of health care organizations now have ongoing 
compliance programs in place.
                     health care industry guidance
    An important core element of the new HIPAA fraud and abuse control 
program is the provision of guidance to health care providers regarding 
potential liability for activities which may be considered fraudulent 
or abusive. Specifically, HIPAA requires that the OIG:

 Issue upon request advisory opinions regarding the 
        applicability of the criminal and administrative sanction 
        provisions of the Social Security Act;
 Issue special fraud alerts, upon request or otherwise, 
        advising ``the public of practices which the Inspector General 
        considers to be suspect or of particular concern under the . . 
        .'' Medicare or Medicaid programs.
 Issue annually a public solicitation for proposals for 
        issuance of both new and modified existing ``safe harbor'' 
        regulations regarding the applicability of the Medicare/
        Medicaid Anti-Kickback Statute; and
    The centerpiece of the OIG's implementation of the HIPAA guidance 
provision has been the advisory opinion process through which parties 
can obtain binding legal advice as to whether their existing or 
proposed health care business transactions run afoul of the Medicare/
Medicaid Anti-Kickback Statute, the Civil Monetary Penalties Law, or 
the program exclusion provisions. Congress recently extended the 
authority for the ``advisory opinion'' process in the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000. 
Over 50 formal advisory opinions have been issued since establishment 
of this function in 1997. The advisory opinion process also serves to 
improve the OIG's understanding of new and emerging health care 
business arrangements and guide the development of new safe harbor 
regulations, fraud alerts, and special advisory bulletins.
    Since HIPAA's enactment, the OIG has promulgated nine new ``safe 
harbors'' under the Medicare/Medicaid Anti-Kickback Statute, and 
clarified or modified seven existing regulatory safe harbors. These OIG 
issuances have all being published in the Federal Register and are also 
available on the OIG's web site (www.dhhs.gov/oig).
    In addition, all of the OIG's final audit and inspection reports, 
as well as its annual workplan and other issuances are published on its 
web site. Health care providers and other interested parties are 
regularly advised of new OIG issuances through a free ``List Server'' 
on its web site which currently has approximately 9,000 registered 
subscribers.
                  oig/health care provider partnership
    The OIG is actively engaged in working with health care providers 
and believe we are 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 referring to the vast majority of providers who make 
innocent billing errors, but rather those unscrupulous few who 
intentionally set out to defraud the Medicare program. The importance 
of our ongoing work is to not only protect the integrity of the 
Medicare program and ensure that high quality health care services are 
furnished to Medicare beneficiaries, but to also make the Medicare a 
program in which honest providers can operate on a ``level playing 
field''--and not at a competitive disadvantage with those who choose to 
defraud or abuse the program.
    Continued participation of all types of health care providers--
hospitals, nursing homes, home health agencies, physicians, 
laboratories, and suppliers--is critical to the continued success of 
the Medicare program. All of these providers have been profoundly 
affected by recent Medicare reforms. Their operations are also affected 
by Medicare regulations and procedures.
    Provider concerns relating to inappropriate investigations and 
audits are unfounded and both HCFA and the OIG are reaching out to 
provider groups to reassure them. Under law, physicians and other 
health care providers are not subject to criminal or civil penalties 
for honest mistakes, errors, or even negligence. The Government's 
primary enforcement tool, the False Claims Act, covers only conduct 
undertaken with actual knowledge, reckless disregard, or deliberate 
ignorance of the falsity of a claim. The False Claims Act simply does 
not cover mistakes, errors, or negligence. The other major civil remedy 
available, an administrative remedy called the Civil Monetary Penalties 
Law, has exactly the same standard of proof. For a criminal case, the 
standard is even higher. As a result of the high standards of proof 
needed to establish liability under current law, the number of criminal 
and civil penalty actions initiated against physicians is very small.
                                results
OIG Medicare Fee-for-Service Audits
    Over the past five years, the OIG has undertaken audits of 
Medicare's fee-for-service claims to estimate the extent of the 
resulting payments that did not comply with Medicare laws and 
regulations. For FY 1996, we estimated that Medicare made improper 
payments of approximately $23 billion, or about 14% of Medicare program 
expenditures. Most of the identified improper payments resulted from 
improperly documented claims, medically unnecessary claims, or 
improperly coded claims. In FY 1997, after enactment of HIPAA, the 
percentage of improper Medicare payments began to decrease. And most 
recently, the OIG audit of FY 2000 claims (issued on February 5, 2001) 
estimated that improper Medicare payments had dropped to $11.9 billion, 
or about 6.8% of the $173.6 billion in Medicare payments. The improper 
payment rate declined by over 50% or $11 billion in five years.
Medicare Inflation Rate
    The decrease in improper payments has had a positive effect on 
Medicare's financial situation. From 1991 to 1996, the Congressional 
Budget Office (CBO) reported that Medicare's rate of inflation averaged 
10.9% per year. In FY 1998, the rate of inflation for the Medicare fee-
for-service program dropped to the lowest in the program's entire 
history (since 1965): 1.5%. Overall, CBO calculated the average 
Medicare inflation rate for FY 1997 to FY 2000 at 3.2%. CBO commented 
that: ``Most of the decline can be explained by a strong effort to 
ensure compliance with payment rules.'' (The Budget and Economic 
Outlook: Fiscal Years 2002-2011, CBO, January 2001).
Medicare Part A Trust Fund Solvency Projections
    As of 1996, the Trustees of the Medicare Part A Trust Fund 
projected that the Trust Fund would be insolvent in 1999. However, over 
the past 5 years, the Trustees have extended their estimate of the 
financial life of the Trust Fund by thirty years, from 1999 until 2029. 
One of the primary contributing factors cited by the Trustees has been 
``the continuing efforts to combat fraud and abuse.'' (Status of the 
Social Security and Medicare Programs, Trustees Annual Report, March 
1999).
    We believe that these positive economic findings with respect to 
the financial integrity of the Medicare program, which will positively 
impact on both taxpayers and beneficiaries, are due in large part to 
the fact that the vast majority of health care providers are engaged in 
submitting accurate claims to HCFA and providing high quality, 
medically necessary services.
                future education and guidance activities
    Obviously, more can be done to provide information to health care 
providers and physicians regarding compliance with the laws, rules, and 
policies governing their participation in and submission of claims to 
the Medicare program. At an OIG physician roundtable in July 2000, a 
number of concerns were raised by physicians regarding their inability 
to receive comprehensive and timely responses to questions raised to 
Medicare contractors. It was the general consensus of participants that 
``education and training resources would be a key factor in 
implementing an effective compliance program.'' To accomplish this 
goal, further use of web-based technologies should be explored, making 
them as ``user friendly'' as possible. This might include quarterly 
updates from HCFA regarding new policies and interpretations. 
Physicians also encouraged HCFA to reduce regional variations in 
interpretation and enforcement as much as possible. 1Finally, I want to 
also note that in the report relating to the OIG's recent Medicare fee-
for-service improper payment audit, we made the following 
recommendations.

 HCFA should continue to direct that Medicare contractors 
        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;
 HCFA should continue to highlight to Medicare providers 
        specific procedure codes and DRGs having the highest incidence 
        of error in our audits, as well as those codes and DRGs 
        identified by Medicare contractor payment safeguard projects; 
        and
 HCFA should continue to refine Medicare regulations and 
        guidelines to provide the best possible assurance that medical 
        procedures are correctly coded and sufficiently documented.
    We have made these same recommendations with each annual payment 
audit, as well as with individual audits and inspection reports 
identifying specific improper payments. We are pleased to say that HCFA 
has quite dramatically increased its provider education activities over 
the past few years leading to the dramatic 50% drop in improper 
payments described earlier. Nevertheless, even more educational 
initiatives are needed and sought by health care providers.
    Are Medicare program rules and requirements too difficult for 
providers 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 Medicare improper payment audit indicated that providers are 
doing a very good job of negotiating their way through Medicare rules 
and procedures, and we estimated that 93% of all Medicare payments to 
health care providers were free of error. In the substantial majority 
of cases, legitimate providers are billing appropriately for Medicare 
covered services.
    However, providers remain concerned. Their legitimate concerns 
about program complexity, inconsistency, burdens, and hassles need to 
be considered. Providers need reassurances that they will not be 
assessed penalties for honest errors. I expect that ways will be found, 
primarily through education and communication, to provide honest health 
care providers with the understanding and assurances they deserve in 
furnishing health care items and services to Medicare beneficiaries. We 
look forward to working with HCFA and health care providers in finding 
ways to do this.
    At the same time, we must be vigilant in our efforts to protect the 
integrity of the Medicare program. Due to the tremendous number of 
claims and amount of federal dollars involved, there will always be 
those who will continue to take advantage of program vulnerabilities 
for their own unjust enrichment.
    We stand ready to help the Subcommittees and all parties involved 
in identifying better ways to administer the Medicare program. Thank 
you for the opportunity to present the OIG's views.

    Mr. Greenwood. Thank you.
    Dr. Becker?

                    STATEMENT OF DAVID BECKER

    Mr. Becker. Good morning Chairmen Bilirakis and Greenwood 
and members of the Subcommittees. Thank you for the opportunity 
to comment this morning.
    The eloquent summary statements of the committee members 
covered many of my issues, but allow me to illustrate some 
points with examples. My name is David Becker. I am a 
Gastroenterologist from Clearwater, Florida in a practice with 
two partners. Medicare patients represent 50 percent of our 
practice. Doctors provide precious care and support for people 
in what are frequently their most desperate moments. Patients 
come to us scared and anxious. We do our best to help them with 
their illness, pain and worry. Accessibility to medical doctors 
remains a vital national resource. Patients seeing a well-
trained, up-to-date physician continues to be the cornerstone 
of the U.S. healthcare system.
    There is a threat to this universal access for Medicare 
patients. More and more of doctors' time is being consumed by 
the morass of bureaucratically complex paperwork. Regulatory 
compliance requires study and knowledge of over 100,000 pages 
of rules and policies. A doctor's time is already restricted by 
the essential activity of continuing medical education needed 
to deliver excellent patient care. Learning a complex 
bureaucracy takes time away from direct patient contact. In 
fact, some doctors are limiting or no longer seeing Medicare 
patients for fear of retribution in a system they don't 
understand. Doctors fear retribution for errors as simple as a 
keystroke mistake on a computer that will miscode a charge or a 
diagnosis. These inadvertent and innocent errors can lead to 
time consuming and costly investigations by Medicare carriers.
    Medicare patients ultimately suffer when doctors and their 
office staffs are diverted from patient care. Patients end up 
waiting longer for appointments, may have shorter time with 
their doctor, or in the worst care scenario lose their doctor 
if she or he leaves the Medicare system. In my State for 
example, a colleague from Deland received a notice from 
Medicare of an alleged overpayment, requesting a refund in the 
amount of $66,960 be paid within 30 days. Dr. Taylor sent the 
refund in to Medicare, and requested in writing a fair hearing. 
It was more than a year before the hearing date. Before Dr. 
Taylor's hearing date, Medicare sent a letter to his patients 
stating that they had been overcharged and a refund was due 
them from the physician.
    Of course, this had an extremely adverse effect of his 
reputation and damaged his practice. After the hearing, it was 
determined that all but 1 percent of the claims reviewed were 
accurate and appropriate at the original time of filing and 
that he was entitled to $66,357. It took another 15 months 
before he received the refund. However, no letter was sent to 
his patients correcting the mistake Medicare had made even 
though he requested this in writing. Clearly, the Medicare 
carrier infringed upon the relationship between Dr. Taylor and 
his patients before any due process.
    Another example is that of neurologist, Dr. Loh, in 
Bradenton. Dr. Loh was a physician in good standing with the 
Medicare program who practiced neurology in New York. He 
relocated to Bradenton, Florida where he applied for a Florida 
Medicare number. Dr. Loh has been dealing with Florida's 
Medicare carrier for 4 months with no apparent progress in 
obtaining a number to bill for neurology services. Sixty to 70 
percent of his Florida practice is Medicare patients, and he is 
slowly running out of startup capital. Medicare beneficiaries 
will lose a needed, yet undeserved subspecialty practitioner if 
Dr. Loh's practice collapses under the behemoth of Federal 
regulation.
    In my own practice, I brought a partner in 2 years ago who 
simply moved from one Florida city to another. He moved up from 
Key West, which may be considered another country by some, but 
is still part of Florida as far as I know. And he could not see 
Medicare patients for 4 months in our practice, which is what 
it took the Medicare carrier just to change his address. This 
was difficult for our group, but because we are a group 
practice, we could sustain this. But clearly for individual 
practitioners, this would be very difficult to sustain.
    My final example involves a friend who is an internist from 
Winter Park, Florida. Dr. Cecil Wilson gave influenza shots to 
patients during the months of October and November, year 2000 
during regular office visits. When his bills were filed with 
the Medicare carrier of Florida, payment was received for the 
shot, but the office visits were denied. The carrier was called 
and Dr. Wilson was advised that the shots should have had a 
modifier to be properly reimbursed. The carrier agreed that 
this rule had not been advertised in Medicare publications. Dr. 
Wilson asked the carrier if the charges could be resubmitted 
using this modifier. And he was told they could not. In January 
of 2001, Dr. Wilson's office manager attended a meeting at 
which the Medicare staff person indicated that the action by 
the carrier had been an error and a correction could be 
obtained by calling the newly established physician phone line. 
Ultimately, the payments were made in February, over 4 months 
late for this individual physician.
    Doctors are intelligent people. We have the intellectual 
capacity to learn and comprehend as much of the labyrinth 
regulatory system as anyone else. But we are not attorneys, we 
are physicians. Our time is dedicated to patients. Doctors 
should not fear that a computer keystroke error will miscode a 
diagnosis, which will trigger an audit that can be 
statistically extrapolated to a demand in the hundreds of 
thousands of dollars. This prevents us from practicing our 
chosen careers, and more importantly, denies our patient the 
care they need in order to live a healthy life.
    Many physicians have been ruined by this system. We need 
due process for overpayment allegations consistent with the 
ideals upon which the founding fathers built America. We need a 
system that all parties can easily interpret. Training provided 
by our HCFA carriers to ensure correct coding and documentation 
would make an excellent start. Streamlining the mountainous 
regulations would further simplify life for all concerned. 
Communication and education as opposed to regulation and 
retribution will is the best way to improve ourselves and our 
system. Thank you.
    [The prepared statement of David Becker follows:]
  Prepared Statement of David Becker on Behalf of the Pinellas County 
                          Medical Association
    Good morning Chairmen Bilirakis and Greenwood and members of the 
subcommittees. Thank you for the opportunity to comment this morning.
    My name is David Becker. I am a gastroenterologist from Clearwater, 
Florida in a practice with two partners. Medicare patients represent 50 
percent of our practice
    Doctors provide precious care and support for people in what are 
frequently their most desperate moments. Patients come to us scared and 
anxious. We do our best to help them with their illness, pain and 
worry. Accessibility to medical doctors remains a vital national 
resource. Patients seeing a well-trained, up-to-date physician 
continues to be the cornerstone of the U.S. healthcare system.
    There is a threat to this universal access for Medicare patients. 
More and more of doctors' time is being consumed by bureaucratically 
complex paperwork. Regulatory compliance requires study and knowledge 
of over 100,000 pages of rules and legislation. A doctor's time is 
already restricted by the essential activity of continuing medical 
education needed to deliver excellent patient care. Learning a complex 
bureaucracy takes time away from direct patient contact.
    In fact, some doctors are limiting or no longer seeing Medicare 
patients for fear of retribution in a system they don't understand. 
Doctors fear legal liability for errors as simple as a keystroke 
mistake on a computer that will miscode a charge or a diagnosis. These 
inadvertent and innocent errors can lead to time consuming and costly 
investigations by Medicare carriers.
    Medicare patients ultimately suffer when doctors and their office 
staffs are diverted from patient care. Patients end up waiting longer 
for appointments, may have shorter time with the doctor or in the worst 
care scenario lose their doctor if she or he leaves the Medicare 
system.
    My first case of the burdensome HCFA bureaucracy involves a Florida 
physician from Deland who received a notice from Medicare of an alleged 
overpayment, requesting a refund in the amount of $66,960.01 be paid 
within 30 days. Dr. Taylor sent the refund in to Medicare, and 
requested in writing a fair hearing. It was more than a year before the 
hearing date. Before Dr. Taylor's hearing date, Medicare sent a letter 
to his patients stating that they had been overcharged and a refund was 
due them from the physician. Of course, this had an extremely adverse 
effect of his reputation and damaged his practice. After the hearing, 
it was determined that all but one percent of the claims reviewed were 
accurate and appropriate and that he was entitled to $66,357.10 back. 
It took another 15 months before he received the refund. However, no 
letter was sent to his patients correcting the mistake Medicare had 
made even though he requested this in writing as well, nor attempting 
to correct the damage done to his reputation or his practice. Dr. 
Taylor requested interest from Medicare on the fifteen months that his 
funds were held by Medicare. Medicare's response was that they only 
paid interest on ``clean claims'' that were not paid in a timely 
manner. As the hearing proved, these were clean claims, thus the 
refund. Medicare further stated that the Treasury Department has very 
specific criteria outlined in their regulations on when interest can be 
paid on claims, and that his situation did not fall into that criteria. 
I might add that Dr. Taylor was prohibited from submitting electronic 
claims for the first three months of this investigation also further 
affecting the practice.
    Another example is that of neurologist Dr. Loh in Bradenton. Dr. 
Loh was a physician in good standing with the Medicare program who 
practiced neurology in New York. He relocated to Bradenton, Florida 
where he applied for a Florida Medicare number. Dr. Loh has been 
dealing with Florida's Medicare carrier for 4 months with no apparent 
progress in obtaining a provider number to bill for neurology services. 
60-70% of his Florida practice is Medicare patients, and he is slowly 
running out of start up capital. Medicare beneficiaries will lose a 
needed, yet underserved subspecialty, practitioner if Dr. Loh closes 
his doors.
    In my own practice I brought a partner in two years ago who simply 
moved from one Florida city to another. He could not see Medicare 
patients for the four months it took the carrier to change his provider 
number address--just the address. This was very harmful to our group 
practice, and for solo-practitioners, this bureaucratic delay can be 
devastating. From what I understand, HCFA is attempting to vastly 
extend this provider enrollment process--we are very concerned that 
this could lead to even more billing number delays for physicians 
wishing to see Medicare patients.
    My final example involves an internist from Winter Park, Florida. 
Dr. Cecil Wilson gave influenza shots to patients during the months of 
October and November of 2000 during regular office visits. Bills were 
filed with the Medicare carrier of Florida. Payment was received for 
the shot, but not the office visit. The carrier was called and Dr. 
Wilson was advised that the shots should have had a .59 modifier to be 
properly reimbursed. The carrier agreed that the rule had not been 
advertised in Medicare publications, but was available from another 
publication, the NCCI which is published by the National Technical 
Information Service (NTIS) for which a one-year subscription is $265. 
Dr. Wilson asked the carrier if the charges could be resubmitted using 
the -59 modifier. The reply was no. Appeal. In January, 2001, Dr. 
Wilson's office manager attended a meeting at which a Medicare staffer 
indicated that the action by the carrier had been an error and a 
correction could be obtained by calling the newly established physician 
phone line. A call was made and subsequently the office manager faxed 
the names of the denied claims, as there were too many to list over the 
phone. In mid February payment was finally received.
    Doctors are intelligent people. But we are not attorneys, we are 
physicians. Doctors should not fear that a computer keystroke error 
will miscode a diagnosis which will trigger an audit that a can be 
statistically extrapolated to a liability in the hundreds of thousands 
of dollars. Many doctors have been bankrupted by this system. We need 
due process for overpayment allegations. We need a system everyone can 
understand. We need training from our HCFA carriers for correct coding 
and documentation. Communication and education as opposed to regulation 
and retribution will greatly improve today's Medicare program.
    Thank you for your time and attention and for the opportunity to 
present my views.

    Mr. Greenwood. Thank you, Dr. Becker.
    Ms. Bradley?

                   STATEMENT OF JYL D. BRADLEY

    Ms. Bradley. Good morning. On behalf of MGMA, I would like 
to thank Chairman Bilirakis and Greenwood for convening today's 
hearing on the health care financing administration's 
relationship with providers and contractors. My name is Jyl 
Bradley, the administrator of Dunning Street Ambulatory Care 
Center, a Medicare licensed ambulatory surgery center located 
in Claremont, New Hampshire.
    I am a member of the Medical Group Management Association 
and am the immediate past president of the New Hampshire MGMA. 
MGMA members work on a daily basis ensuring that their 
practices provide the best care possible to Medicare 
beneficiaries, while at the same time navigating their medical 
groups through a sea of complex and contradictory rules, 
regulations, and policy memorandums. As a result, our members 
are uniquely familiar with the administrative requirements of 
Medicare's regulations.
    I have worked in healthcare since 1973, managing special 
team primary care practices ranging in size from three to 15 
physicians. As a group practice administrator, I am charged 
with many diverse responsibilities. I have detailed those 
duties and those of my administrative team in my formal 
testimony.
    With three physicians and six administrative support staff, 
our practice is representative of small group practices 
nationwide, as well as those predominantly found in rural 
areas. Generally, the ratio of administrative staff to 
physicians ranges from two to 10 staff per physician. Small 
practices, such as mine, struggle with limited resources to 
deal with the magnitude and complexity of multiple Medicare 
regulations as well as the difficulties caused by the program's 
poor administration.
    My comments today focus on the administrative ills of the 
Medicare program and how they lead to inefficiencies in medical 
group practices as well as in the Federal Government. While 
MGMA agrees with the current and previous administrations that 
additional HCFA funding is warranted, the efficiencies 
resulting from improving HCFA's organization, communication and 
responsiveness will vastly improve the system without creating 
additional cost.
    Let me provide you with examples of breakdowns in the 
administration of Medicare. I begin my discussion with two 
examples of problems experienced by my practice followed by 
another experience by colleagues nationwide. Included in my 
written testimony are many more examples, which I would be 
happy to share with you during the Q&A.
    My first example pertains to when our ambulatory surgery 
center completely stopped receiving Medicare facility 
reimbursements for services performed. After I placed numerous 
phone calls to determine the source of the problem, a carrier 
representative finally told me that our provider number had 
been inactivated due to a mail return from our facility. 
Without even so much as a phone call to my practice, all 
reimbursements stopped. It took months of letters and telephone 
calls to identify the appropriate person who had the knowledge 
and the authority to correct this situation. During this time, 
the financial hardship on our practice was enormous.
    This was a simple mistake that should have had a simple 
solution. Instead, it took approximately 6 months to resolve. 
This problem highlights the inefficiencies within the Medicare 
program whereby a seemingly small problem through a series of 
carrier breakdowns resulted in a substantial cost to my 
practice as well as that of the carrier.
    My second example occurred when HCFA implemented new 
Congressionally mandated regulations initiating coverage of 
screening colonoscopies for Medicare beneficiaries with high 
risk. The system developed by the carrier was not equipped to 
handle the facility codes, which reimbursed costs to ambulatory 
surgery centers. Claims were routinely denied. It took months 
of telephone calls to the carrier and persistence to resolve 
this matter, only then to lead to a different problem. That is, 
claims for the anesthesia necessary for the procedure began 
being rejected. In other words, a beneficiary could have a 
colonoscopy, but only without anesthesia.
    Our carrier was not prepared to handle these new rules. Now 
I am concerned about the new rules that will take effect on 
July 1, 2001, which expand the coverage for screening 
colonoscopies for individuals with average risk. Based on my 
prior experience, I can only imagine how long it will take 
before this new coverage policy will be properly implemented.
    This second example illustrates a routine program change 
whereby the Medicare program failed to undertake a close 
examination of the system changes necessary for proper 
implementation. Again, this implementing breakdown caused 
inefficiencies that resulted in a drain of resources for my 
practice as well as that of my carrier, and ultimately the 
program.
    My third example pertains to the October 30, 2000 quarterly 
update of the correct coding initiative, or CCI. Without any 
prior notice to providers or carriers as to its contents, the 
CCI disallowed the billing of over 800 procedures when 
performed on the same day as 66 different evaluation and 
management codes. Providers were never told that as a result of 
this revision, they were required to use a 2-5 billing 
modifier, or annotation. Implementation of the CCI update 
resulted in thousands of claim denials. To further exacerbate 
the situation, carriers denied claims that actually used the 
correct modifier.
    In a memo sent out to the provider community outlining the 
problem in late January, HCFA admitted that unfortunately a 
number of carrier processing systems do not recognize the 2-5 
modifier with certain codes. While parts of the October update 
were rescinded on February 8, 2001, the original implementation 
occurred at a tremendous cost to both providers and carriers. 
Not only did this communication breakdown between HCFA, the 
carriers, and ultimately providers result in physician 
practices around the country having to resubmit thousands of 
denied claims billed from October 30, 2000 to February 8, 2001. 
It undermined the trust and credibility necessary to preserve a 
good working relationship between practices and carriers.
    As a side note, if my, or any other practice, desires 
access to the quarterly CCI update, it is only available for 
purchase at a cost of $300 annually. There are many more 
examples such as these that I could share with you as well as 
possible solutions that MGMA has identified. However, for the 
sake of brevity, I have included these in my written testimony. 
As you continue your oversight of this program and developed 
recommendations for improvement, I urge you to personally visit 
a group practice in your district and discuss Medicare's 
complexities with the practice administrator.
    On behalf of the Medical Group Management Association, I 
thank you very much for the opportunity to share our thoughts 
with you today. MGMA realizes that both the carriers and HCFA 
are called upon to accomplish an extremely difficult and 
complex task. MGMA members and staff are available as resources 
as you continue your examination of this critical issue. Thank 
you.
    [The prepared statement of Jyl D. Bradley follows:]
  Prepared Statement of Jyl D. Bradley on Behalf of the Medical Group 
                         Management Association
    Good morning. My name is Jyl D. Bradley, MHP, FACMPE. I am the 
administrator of Associates in Surgery and Gastroenterology, LLC, a 
three-physician multi-specialty practice, and Dunning Street Ambulatory 
Care Center, LLC, a Medicare licensed ambulatory surgery center located 
in Claremont, New Hampshire.
    I am a member of the Medical Group Management Association (MGMA) 
and the immediate past president of the New Hampshire MGMA. I have a 
Bachelor of Science in Health Care Administration from The University 
of New Hampshire and a Masters in Health Policy from Dartmouth College. 
I have worked in health care since 1973, managing specialty and primary 
care practices ranging from three to fifteen physicians.
    MGMA is the nation's oldest and largest medical group practice 
organization representing more than 18,000 administrators working in 
organizations in which over 176,000 physicians practice medicine. 
MGMA's membership reflects the full diversity of physician 
organizational structures today. MGMA members work on a daily basis 
ensuring their practices provide the best care possible to Medicare 
beneficiaries, while at the same time navigating their medical groups 
through a sea of complex, and contradictory rules, regulations, and 
policy memorandums. As a result, our members are uniquely familiar with 
the administrative requirements of Medicare's regulations.
    On behalf of MGMA, I would like to thank Chairmen Bilirakis and 
Greenwood for convening today's hearing on the Health Care Financing 
Administration's (HCFA) relationship with providers and contractors. My 
comments today will focus on the administrative ills of the Medicare 
program and how these problems lead to federal government and medical 
group practice management inefficiencies, unnecessarily diverting 
limited resources away from patient care. While MGMA agrees with both 
the current and previous Administrations that additional HCFA funding 
is warranted, the efficiencies resulting from improving HCFA's 
organization, communication and responsiveness will vastly improve the 
system without creating additional costs.
    As a group practice administrator, I am charged with many diverse 
responsibilities. The physicians in our practice rely on my expertise 
to guide them through the innumerable and continually changing federal 
rules and regulations, including coding, documentation, billing, 
physician referral rules, Local Medicare Review Policies, physician 
credentialing and assignment and reassignment of patient and physician 
billing rights. As the physician's time is consumed by providing 
patient care and documenting that clinical care, they depend upon my 
business acumen to maintain smooth daily operations.
    My tasks include but are not limited to: managing information 
systems; serving as corporate compliance officer; monitoring and 
negotiating contracts with our many private payers; staffing board 
meetings; and developing relationships with lending institutions and 
area hospitals. Furthermore, I am responsible for staff training and 
development; facilities management; and the employee/physician 
compensation and benefit plans. In addition to being responsible for 
Medicare compliance, the typical administrator must also deal with a 
host of other federal, state and local laws and regulations including 
tax, CLIA, OSHA and other labor requirements.
    My staff's responsibilities include managing patient flow, 
submitting and monitoring claims, helping patients with insurance 
questions, determining medical necessity of certain services such as 
laboratory tests, and completing encounter and referral forms. These 
are full-time tasks for myself and my administrative team--6 full-time 
equivalent support staff including medical secretaries, 
transcriptionists, billers, accounts receivables personnel and patient 
coordinators.
    With three physicians and six support staff, our practice is 
representative of small group practices nationwide, as well as those 
predominantly found in rural areas. However, our ratio of physicians to 
administrative staff is extremely low. Based on the experience of MGMA 
members, physician practices maintain anywhere from double to ten times 
the number of administrative staff to support the physician workload. 
Small practices, such as mine, struggle with limited resources to deal 
with the magnitude and complexity of multiple Medicare regulations as 
well as the difficulties caused by its, at times, poor administration.
    There is a chasm between the amount and complexity of federal 
regulations, the level of communication, organization, and 
responsiveness of HCFA and its contractors to medical group practices 
and the ability and time of most managers to understand these 
regulations, much less to comply. Regulations such as the recently 
released privacy rule create a gold mine for attorneys and consultants, 
but an administrative landmine for our medical group practices.
Examples of Breakdowns:
    Let me provide you with actual examples of breakdowns in the 
administration of Medicare. I will begin my discussion with two 
examples of problems I have personally had with HCFA and my particular 
carrier followed by those experienced by my colleagues nationwide. 
Through these examples, I hope to give you some insight into medical 
group practice management and the constant battles and inefficiencies 
in the Medicare system we struggle to overcome. As you continue your 
oversight of this program and develop recommendations for improvements, 
I urge you to personally visit a group practice in your district and 
discuss Medicare's complexities with the practice administrator.
     Lack of Organization and Responsiveness of Contractor: In 
1998, our ambulatory surgery center stopped receiving Medicare facility 
reimbursements for services performed. After many phone calls, I 
discovered our carrier had received a ``mail return'' from our 
facility. Without so much as a phone call investigating the matter, the 
carrier automatically inactivated our provider number and halted 
reimbursement. It took months of letters and telephone calls to correct 
this situation, much of which time was spent merely trying to locate 
the appropriate contact person. During this time, the financial 
hardship on our practice was enormous.
     Lack of Preparedness of Carrier to Handle HCFA Changes: In 
January 1998, HCFA implemented new regulations initiating coverage of 
screening colonoscopies for Medicare beneficiaries with high risk. When 
the new regulations were introduced, our carrier created a ``special'' 
code for billing purposes. The physician component received 
reimbursement with minor delays. However, the system developed by the 
carrier was not equipped to handle the ``special'' facility codes which 
reimburse overhead costs to ambulatory surgery centers. Claims were 
routinely denied. It took months of telephone calls to the carrier and 
persistence to resolve this matter--only then to lead to a different 
problem. That is, anesthesia claims began being rejected when attached 
to this ``special'' code. This problem has been extremely difficult and 
time consuming and again was only recently resolved. Our carrier was 
not prepared to handle these new rules and I am now concerned about the 
upcoming rules that will take effect on July 1st 2001, making screening 
colonoscopies a covered benefit for individuals with average risk. 
Based on my prior experience, I can only imagine how long it will take 
until this new coverage policy will be properly implemented.
     Lack of Communication from HCFA to Contractors and in turn 
to Providers as well as Ineffective Routine System Changes: On October 
30, 2000, HCFA sent carriers an electronic quarterly update of the 
Correct Coding Initiative (CCI). The CCI contains more than 121,000 
pairs of codes that cannot be billed on the same claim to Medicare. 
Each quarter it is ``updated'' to add or delete various code 
combinations. Under the CCI, claims are scanned and scrubbed 
electronically for ``disallowed'' code pairs, which are then 
automatically denied.
    Without any prior notice to providers or carriers as to its 
contents, the October version of the CCI disallowed the billing of over 
800 procedures when performed on the same day as sixty-six different 
evaluation and management (E&M) codes. Providers were never told that 
as a result of this revision, in order to bill for any one of the 800+ 
procedures on the same day as a physician visit or other E&M code, they 
were required to use the ``-25'' billing ``modifier'' or annotation. 
Implementation of the CCI update resulted in thousands of claim 
denials. However, many carriers did not become aware of the cause of 
the denials until the provider community notified them of the problem. 
The carriers simply implemented the electronic edits received from HCFA 
without knowing how the action would affect their claims processing 
operation. To further exacerbate the situation, carriers denied claims 
that actually used the correct modifier. In a memo sent out to the 
provider community outlining the problem in late January, HCFA admitted 
that, ``Unfortunately, a number of carrier processing systems do not 
recognize the -25 modifier'' with certain codes.
    While parts of the October update were rescinded on February 8, 
2001, the original implementation occurred at tremendous cost to both 
providers and carriers. Not only did this communication breakdown 
between HCFA, the carriers and ultimately providers, result in 
physician practices around the country having to resubmit thousands of 
denied claims billed from October 30, 2000 to February 8, 2001, it 
undermined the trust and credibility necessary to preserve a good 
working relationship between practices and carriers. As a side note, 
members of the Committee might be interested to know that if my, or any 
other practice, as a participating provider in the Medicare program, 
desires access to a copy of the quarterly CCI update, it is not 
accessible online and only available through NTIS Products (HCFA's 
authorized distributor) for an annual $300, four issue, subscription 
fee or $85 per single update, plus shipping and handling.
     Inconsistencies between HCFA manuals and Medicare Statute: 
Frequently, the relationship between providers, carriers and HCFA is 
strained due to the ambiguous and, at times, incorrect information in 
the Medicare Carriers Manual itself. The Medicare Carriers Manual 
contains HCFA's instructions to its carriers on how to administer the 
program. The following technical, yet illustrative example shines light 
on one such example of this problem. Under 1861(s)(3) of the Social 
Security Act, ``diagnostic x-rays, diagnostic laboratory services and 
other diagnostic tests'' are covered separately by Medicare from 
physician services. However, section 2070 of the Medicare Carriers 
Manual states ``for diagnostic X-ray services and other diagnostic 
tests, payment may be made only if the services are furnished by a 
physician or incident-to a physician service (which requires direct-
supervision by the ordering physician). This carrier manual provision 
is contrary to the Social Security Act Section 1861(s)(3) coverage 
provisions for these services and has caused numerous interpretive 
problems between providers and carriers concerning the appropriate 
level of physician involvement and supervision.
     Lack of Notice to Medical Group Practices of HCFA's 
Intentions to Change Billing and Payment Rules: Medical group practices 
trying to play by the rules are often blindsided by policies 
implemented without notice or input by the effected parties. For 
example, in May of 1998, HCFA issued Transmittal No. 1606, which 
drastically changed the rules for billing for allergy immunotherapy. 
The new rule, which amended the definition of ``dose,'' meant that 
physicians could, in most situations, only bill for half as many doses 
as they had actually prepared. HCFA's interpretation went against 
longstanding practice and was inconsistent with the Current Procedural 
Terminology (CPT) Code definition and the American Medical 
Association's CPT guidance. This change was announced with no notice to 
the physician community. The effect of the adjustment reduced 
reimbursement in half for allergy immunotherapy billed under CPT Code 
95165. It took the affected physician practices and their 
representatives two and a half years to get HCFA to see the error of 
its policy. The policy was finally rescinded effective January 1, 2001 
with the implementation of the 2001 Medicare physician fee schedule.
     Carrier Mistakes Unresolved: While some Medicare carriers 
and intermediaries are quite good, others are plagued with problems 
that may take months to resolve. Prompt action by Medicare carriers and 
intermediaries to resolve their own mistakes is critical to the 
Medicare program. The following example from a colleague of mine 
illustrates this point.
    In September 1999, a large multi-site practice organized as a rural 
health clinic, located in Michigan, received Medicare checks totaling 
$1,260,184.84, far in excess of their billed charges. The management 
service organization (MSO) that does billing for these clinics, 
immediately notified United Government Services, LLC, (UGS) their 
Medicare fiscal intermediary, about this overpayment and were told that 
the intermediary would get back to them on the issue. The MSO asked if 
they could return the checks but UGS instructed them to retain the 
payment until the problem had been sorted out. The MSO contacted the 
intermediary once a week for a month before they were told that there 
had been a problem with UGS' processing system that had produced this 
overpayment. UGS' Detroit office instructed the MSO to retain the money 
and that it would be recouped via withholdings from future payments. 
The MSO informed the Medicare intermediary that recouping the money in 
this way would take a minimum of five years. UGS' response was that the 
same type of erroneous payments had been sent to a number of other 
physicians. These incorrect payments were direct deposited to the 
physicians' accounts and as a result the physicians were drawing 
interest on the money. The clinic in question's payment had been sent 
in the form of a paper check and it did not want to cash it in the 
first place.
    To resolve this problem the MSO spent an extensive amount of time 
attempting to obtain corrected explanations of benefits so that they 
could ascertain what the correct payment should have been and then 
return the difference. This process took months and involved a great 
deal of back and forth between the MSO and the Medicare Intermediary. 
Finally, on September 21, 2000, more than a year after the initial 
overpayment by the fiscal intermediary, these problems appeared 
resolved and the overpayment was returned to UGS the Medicare 
intermediary.
    The problem, however, was not resolved at this point. During the 
year in which the clinic and its MSO billing entity had been attempting 
to sort out the problem, UGS, the intermediary had, as they originally 
proposed, been withholding Medicare payments due to the clinic to make 
up for their original erroneous overpayment. When the MSO returned the 
overpayment, UGS continued to withhold payment for current claims. To 
date the withholding has not ceased and UGS now owes some $88,000 for 
services provided by the clinic.
     Lack of HCFA Oversight and Enforcement of its Requirements 
Over Contractors: The Medicare Carriers Manual, under Section 1030.1 
(enrollment instructions to the carriers) states ``absent extenuating 
circumstances, [a carrier must] process an application for non-
certified providers within 45 calendar days of receipt of the 
application. For certified providers, process the application within 30 
calendar days, absent extenuating circumstances. If you need to review 
the application for incomplete or missing information, the processing 
time stops. Complete the review of the application and annotate what 
information is missing prior to returning application (emphasis 
added).'' In reality, this is not what occurs. If a carrier finds an 
error in the application, it sends it back to the provider at the first 
instance of an error taking place. Once corrected by the provider, the 
application goes to the ``back of the line'' to begin the process anew. 
Due to the complexity of the 34 page application and instructions, this 
resubmission process sometimes may occur several times before a 
physician is enrolled in the program. If a review was actually done in 
a complete manner as per the Medicare Carrier Manual, and the 
information annotated in its entirety, before being returned to the 
provider for correction, the process would work much more efficiently. 
Instead, it now may take up to 6 months to enroll a physician in the 
program. During this time period, a physician can examine and treat 
Medicare patients, but all claims resulting from those services cannot 
be submitted for payment until the certification process is complete. 
Situations like this are particularly aggravating given that the 
physician enrollment process has no statutory foundation in the 
Medicare Act and HCFA has spent years trying to develop regulations 
governing the enrollment process.
     Lack of Provider Education Tools and Recent Action in the 
Wrong Direction: Education of providers concerning how to comply with 
rules and regulations is fundamental to the efficient administration of 
the Medicare program. I know of few, if any, physician practice 
managers who also happen to be lawyers. What is needed in the Medicare 
program are written materials and other unambiguous communications that 
explain the rules and regulations in a clear and concise manner. It is 
distressing to see directives from HCFA to its carriers that impede the 
system's delivery of such necessary tools to its participating Medicare 
providers. For example in a January 25, 2001 Program memo (AB-01-12), 
from HCFA to its carriers, HCFA permits its carriers to charge a fee to 
providers for ``reference manuals, guides, workbooks, and other 
resource materials developed by the contractor designed to supplement 
or provide easy reference to formal Medicare provider/supplier manual 
and instructions.'' For practice managers, the idea that we may now 
have to pay carriers a fee for access to simplified and reasonable 
reference materials is difficult to understand. At a minimum, this type 
of guidance is clearly the wrong direction to take in providing proper 
education and communication between providers, HCFA and the carriers.
Proposed Solutions:
    There are many more examples such as these that I could share. The 
system is in dire need of change. But, instead, let me turn to 
solutions. While these are far from exhaustive, attending to the 
following would provide necessary first steps toward healing this 
ailing program.
     Congress should require the Secretary of Health and Human 
Services (HHS) to publish in the Federal Register, on no less than a 
quarterly basis, a notice of availability of all proposed policy and 
operational changes which may affect providers and suppliers including 
but not limited to changes to be issued through amendments to its 
carriers manuals and other HCFA manuals, or program memoranda, program 
transmittals or operational policy letters, and of all such policy and 
operational changes issued in final form during the previous quarter. 
Simultaneous with publication in the Federal Register, the Secretary 
should transmit such proposed and final policy and operational changes 
to its Medicare contractors. The Secretary should require that its 
contractors notify all providers and suppliers in their service areas 
of such changes within 30 days of this Federal Register notice. The 
Secretary should further provide that any changes issued in final form 
will take effect no earlier than 45 days from the date such final 
change was noticed in the Federal Register. The Secretary should not 
make a change in policy or operations that affects providers and 
suppliers without going through the public notice process unless such 
change is required to meet a statutory deadline or is otherwise 
required by law. In that event, the Secretary must publish such change 
in the Federal Register along with the Secretary's justification for 
issuing such change in a manner other than that required.
     Congress should require the Secretary of HHS to create and 
distribute a user-friendly manual that contains all the information 
necessary for Medicare compliance. The manual should be organized, 
accessible (including on-line), free and up-dated quarterly. It should 
contain, in addition to actual regulations and program memorandum, 
etc., a summary of each issue, Q&A and other explanatory/supplemental 
material. I would be remiss not to note that as part of its small group 
compliance guidelines, the Office of Inspector General suggested that 
small groups create such a document on their own. Can you imagine that 
if HHS has not even accomplished this task with its many employees, how 
medical group practices such as mine with only 6 support staff could 
accomplish such a feat?
     Congress should require the Secretary of HHS to develop a 
site on the Internet, similar to what HHS has already developed for the 
Health Insurance Portability and Accountability Act section of their 
Web site, where Medicare providers and suppliers can post questions and 
obtain feedback. Responses should be maintained on the Internet site 
for reference.
     Congress should require the Secretary of HHS to furnish 
all education and training materials and other resources and services 
free of charge for providers, eliminating all user fees. The education 
materials should be drafted in easily understandable language with 
contact information should questions arise. The materials should be 
free and accessible on-line.
     Congress should require the Secretary of HHS to make every 
effort to educate not only the provider community but also its own 
staff and those of its contractors.
     Congress should instruct HHS to provide better oversight 
of its contractors to ensure uniform application of national policies 
and efficient administration of the Medicare program.
     Congress should require the Secretary of HHS to enhance 
and make public its contractor evaluations. The report should include 
all components of training, education, auditing and payment. Medicare 
providers and suppliers should be granted a formal process to provide 
feedback on the evaluation directly to HCFA.
     Congress should require the Secretary of HHS to annually 
conduct a review of, and report to Congress on, the sources of 
complexity in the Medicare program as is required of the Internal 
Revenue Service in Section 4022 of the IRS Restructuring and Reform Act 
of 1998.
     Congress should provide the Secretary of HHS with the 
resources necessary to adequately manage the Medicare program without 
provider user fees.
    On behalf of the Medical Group Management Association, I thank you 
very much for the opportunity to share our thoughts with you today. 
MGMA realizes that both the carriers and HCFA are called upon to 
accomplish an extremely difficult and complex task. MGMA members and 
staff are available as resources as you continue your examination of 
this critical issue.

    Mr. Greenwood. Thank you, Ms. Bradley.
    Dr. Wood?

                  STATEMENT OF DOUGLAS L. WOOD

    Mr. Wood. Good morning Chairman, Chairman Greenwood, 
Chairman Bilirakis, Mr. Brown, and members of the 
subcommittees. I am privileged to have this opportunity to 
share with you my insights regarding the complexity of the 
management of the Medicare program and in my short time, I hope 
that I can give you a better understanding of the impact of 
these actions on the daily practice of medicine.
    My experience is over the last 10 years working in coding 
and nomenclature activities, functioning as the Chair of the 
Carrier Advisory Committee in Minnesota and my privilege to sit 
as a member of the Practicing Physicians Advisory Counsel and 
have given me a set of insights which I hope will be productive 
in the discussion, especially listening to the opening comments 
of many of the members of the Subcommittees.
    Now there has been much made, even this morning, about the 
complexity of regulations of Medicare including the thousands 
and thousands of pages of regulations. But if you take even the 
most conservative estimate, and that I think is HCFA's estimate 
of 35,000 pages, and consider that the leading textbook of 
cardiovascular diseases now has 2,000 pages in it, then it 
means that I have to learn about the equivalent of 15 textbooks 
of administrative rules and regulations for my practice. And 
even just a few of these policies, when applied in an 
inconsistent or an erroneous fashion by a Medicare carrier, can 
have an even more deleterious effect on the daily practice of 
physicians.
    Indeed and perhaps most cases, the most adverse 
circumstances that physicians encounter are those that come 
more from the carriers in their attempt to interpret the rules 
and regulations rather than from HCFA Central or even from my 
colleagues at the OIG.
    My written statement includes a number of detailed 
descriptions of events that have surrounded the care and the 
billing of patients in the Medicare program. And in one of 
these circumstances, a colleague of mine who spent nearly 50 
minutes counselling a patient with heart failure about changes 
in medications is detailed. After a 2-year saga, including the 
denial of payment and then finally ending up with a hearing in 
which the service was downcoded, the physician now confronts a 
circumstance where he still is considered to have filed an 
erroneous claim. The error on the part of the carrier will 
never be recognized.
    And it is not hard, I submit, for you to imagine the impact 
of this experience on the physician. The next time that he 
confronts a patient like this, he will have several choices. 
One choice is to spend less time with the patient. 
Unfortunately, the result of this might be a hospitalization, 
one that would have been preventable. At an average case cost 
of $10,000, it is clear that HCFA cannot afford to have many of 
these preventable hospitalizations when it would have been more 
reasonable to pay the $100 office visit for the counseling 
necessary to manage the patient's medications.
    But more likely, what will happen is that the physician 
next time will simply downcode the service to avoid an 
interaction with the carrier and instead take care of the 
patient in the most appropriate way. This is not how I believe 
the Congress intended Medicare to work. Carriers often 
implement local medical service or policies or local medical 
review policies to address problems in variation of 
utilization. Minnesota has some 100 of these policies, 
Wisconsin next door has over 220. I can tell you that the 
practice of medicine between these two States is not 
sufficiently different to account for such a difference in 
regulation.
    My written statement also includes information to show you 
that this regulation, this excessive regulation in one State, 
does nothing to improve the quality of care, nor to have a 
substantial impact on the spending for physician's services on 
a beneficiary basis. Indeed, additional carrier decisions that 
limit the payment for services for Medicare beneficiaries with 
chronic diseases like cancer, heart disease, hypertension and 
diabetes cause profound confusion for beneficiaries and 
providers alike. And in that circumstance, this overemphasis on 
regulation and the pressure to develop these policies then is 
an unhelpful distraction that keeps us from devoting the needed 
attention and resources to making sure that Medicare 
beneficiaries around this country receive the best possible 
care.
    In my statement, I have summarized for you some specific 
actions that I think should be taken in the short term to 
improve this circumstance. HCFA should work as fast as possible 
to develop national payment policies for some commonly 
performed procedures that would reduce the necessary regulation 
at a local level. HCFA should work with its carrier medical 
directors to develop a uniform approach to payment for services 
for patients who have chronic diseases like cancer, heart 
disease, diabetes and hypertension.
    HCFA must better supervise to the performance of the 
carriers. There should be some different solutions for 
providers to demonstrate their compliance with these 
regulations as well as restore the ability of the physician to 
become an advocate for the patient and being able to get the 
most appropriate care. HCFA should aggressively pursue and 
resolve all of these issues that have been identified by Dr. 
Barbara Paul and her colleagues working as the physician's 
regulatory issues team at HCFA. And their recent statement to 
us that the PPac, it was indicated that limited resources meant 
that they had to focus on only a few of those issues, although 
I know that they have the interest in addressing all of them.
    And the Congress should now allocate a reasonable 
administrative budget for beneficiary and provider service and 
have a greater expectation for service to beneficiaries and 
providers. Recently, HCFA leadership has been criticized for 
its inattention to PPAC recommendations, but my recent 
experience demonstrates that PPAc can have a positive effect. 
There, however, remains considerable opportunity for 
improvement.
    The comments that were made earlier and referred to in 
testimony about the advance beneficiary notice are 
illustrative. When I joined the Minnesota Carrier Advisory 
Committee in 1992, the advanced beneficiary notice was one of 
the first items on our agenda, and it has taken a long time to 
get this particular problem solved. The changes that have 
occurred at PPAC give me tremendous optimism for the future, 
but there does remain a need for more effective leadership 
within HCFA to try to more effectively get groups to work 
together to achieve the goals of providing the best care to 
Medicare beneficiaries, while at the same time doing everything 
necessary to ensure the integrity of the program for future 
beneficiaries.
    It is simply too important that we all be successful in 
meeting the increasing needs of our elderly that we risk 
success in this endeavor by being unable to work 
collaboratively to achieve these solutions.
    I thank all of you for your concern and for your leadership 
in pursuing Medicare Program improvements.
    [The prepared statement of Douglas L. Wood follows:]
           Prepared Statement of Douglas L. Wood, Mayo Clinic
    Good morning Chairman Bilirakis, Chairman Greenwood, Mr. Brown, Mr. 
Deutsch, and members of the subcommittees. I am privileged to have this 
opportunity to share with you my insights regarding the complexity of 
the management of the Medicare program and its adverse impact on the 
care of Medicare beneficiaries. I will try, in my short time, to give 
you a better understanding of the impact of actions of HCFA and the 
Medicare carriers on physicians in the daily practice of medicine.
    I am a practicing cardiologist at the Mayo Clinic in Rochester, 
Minnesota, where I often care for elderly patients. For the last 
decade, I have been involved in the work of coding and documentation, 
interaction with Medicare carriers and with the Health Care Financing 
Administration. I have served on the CPT Editorial Panel (where I 
chaired the first ad hoc subcommittee on development of documentation 
guidelines for evaluation and management services), and continue to 
serve on the CPT Advisory Committee. I am a member of the Medicare 
Carrier Advisory Committee in Minnesota and have been the physician 
chair of this committee for the last four years. In this work, I have 
direct interactions with the medical directors and staff of the 
Medicare Carrier. I have worked with the PRO in Minnesota to improve 
the quality of care for heart attack patients. And, for the last year, 
it has been my privilege to serve on the Practicing Physician's 
Advisory Council for HCFA.
                              introduction
    Much has been made of the complexity of Medicare regulations by 
reference to the sheer volume of regulations. The number of pages of 
regulations is not as relevant to practicing physicians as the daily 
impact of only a few of these policies and regulations. I hope to give 
you a real and more practical understanding of the impact of 
regulations by sharing recent experience with documentation guidelines, 
local medical review policy and their impact on patient care. My 
examples will be those of real patients and physicians. Then I will 
speak about the Practicing Physicians Advisory Council. Last, I will 
suggest to you several possible solutions to the problems we discuss 
today.
    documentation guidelines for evaluation and management services
    Medicare has tried to develop guidelines for documentation of 
physician visits since the current coding system was adopted in 1992. 
Three separate attempts have been made since 1993 to develop a set of 
guidelines that would be simple, not interfere with the process of care 
and be useful for carriers in their administration of the Medicare 
program. Unfortunately, none have been satisfactory to all users, and 
so we are in the midst of yet another effort. It is not difficult to 
imagine the cost of these repeated efforts, both for physicians and for 
HCFA.
    Consider this example. An elderly man with heart failure was seen 
by his cardiologist in March of 1999 for evaluation of his progress 
with his cardiomyopathy and adjustment of his medication. The physician 
spent 50 minutes with the patient, the majority of which was devoted to 
counseling the patient about his medications and changes in the 
regimen. The physician billed Medicare for a level five visit based on 
the counseling services and time required. The physician documented the 
time spent delivering the service and his counseling, emphasizing that 
``many questions were answered'', and consistent with HCFA 
documentation guidelines 1 that the physician should 
document the total time required and the nature of the counseling 
service. However, this service was denied by the carrier in February 
2000, and when the denial was appealed by the physician, a hearing 
officer held that the coding based on time was irrelevant and thus 
down-coded the service. This ruling (which came in March of 2001, two 
years after the original service) was made despite a clear direction 
from the Medicare Carrier's Manual that the carrier should pay for 
counseling services when appropriately documented. Thus, in this case, 
the physician provided a medically necessary and appropriate service, 
documented the service according to existing guidelines and ultimately 
required two years and a hearing to be paid even a part of what was 
appropriately due the provider. Even worse, this obvious error on the 
part of the carrier will not be recognized or used in the development 
of improved review mechanisms. And, it will still ultimately be 
considered that the physician made an error in billing when, in fact, 
the carrier simply decided that it did not want to pay for the service. 
More frustrating is that the physician has no other appeal rights since 
the amount in dispute does not meet a $500 minimum for appeal to an 
administrative law judge.
---------------------------------------------------------------------------
    \1\ 1995 Documentation Guidelines for Evaluation and Management 
Services, http://www.hcfa.gov/medicare/1995dg.pdf. ``DG: If the 
physician elects to report the level of service based on counseling 
and/or coordination of care, the total length of time of the encounter 
(face-to-face or floor time, as appropriate) should be documented and 
the record should describe the counseling and/or activities to 
coordinate care.''
---------------------------------------------------------------------------
    This example illustrates the adverse impact of a single set of 
regulations developed at a national level, applied improperly by the 
carrier on the local level and an unnecessarily burdensome and flawed 
appeals process. One possible effect of this experience for the 
physician will be to make him less likely to spend necessary time in 
the counseling of patients in the future if he knows that the carrier 
will not pay for the service and will consider that he codes 
inappropriately. The other, and most likely, option for the physician 
is simply to down-code his services, since the patient would be 
otherwise poorly served. The latter option is occurring more often than 
we might imagine; the frequency of this action is difficult to measure 
with precision. It is not difficult to imagine that this physician 
feels uncertain in his coding, and worried about what future sanctions 
he might face. The more serious effect of this kind of activity is to 
threaten the care of Medicare beneficiaries. Over 10% of hospital 
admissions of the elderly are related to adverse drug reactions; most 
of these hospitalizations are preventable with careful office 
management of patients, involving counseling patients about their 
treatment, dosage changes and possible medication side effects. The 
application of a payment policy that discourages appropriate office 
counseling will result in greater expense to HCFA because of the costs 
of inpatient care, and greater risk to patients. This is not how 
Medicare should work.
                      local medical review policy
    Consider the example of local medical review policy. Local medical 
review policies are often created in response to utilization variation, 
and there seems to be some pressure from HCFA for carriers to 
demonstrate their capability of implementation of such policy. These 
local policies, however, serve mostly to create additional burden for 
physicians (including risks for errors in coding and billing) and have 
little apparent effect in controlling cost or improving care.
    In the upper Midwest, four states are served by a single part B 
carrier. There are 107 local medical review policies in Minnesota; but 
244 local medical review policies in Wisconsin 2. It is not 
likely that there is so much difference in medical practice between 
these two states that one carrier should have twice as many medical 
review policies that affect how physicians can bill for their services. 
This discrepancy is even more dramatic if you consider carrier 
differences for patients with heart disease; Minnesota has nine 
policies for cardiovascular disease, Wisconsin has twenty-seven. None 
of this has a direct positive influence on the quality of care or per-
beneficiary cost of physician services. Minnesota, in a study done by 
Dr. Steven Jencks 3 and colleagues from HCFA, has the 
highest quality performance of these Midwestern states (in fact, 
Minnesota ranks fourth in the country in quality). This excess 
regulation has not achieved a substantial reduction in spending; there 
is only a 6% difference between Minnesota and Wisconsin in spending for 
physician services. And, for the other two states, quality is worse 
(both are below the national median) and per beneficiary spending is 
even greater in the other states than in Minnesota.
---------------------------------------------------------------------------
    \2\ Wisconsin Physician Services. www.wpsic.com.
    \3\ Jencks SF, Cuerdon T, Burwen DR et al. Quality of care 
delivered to Medicare beneficiaries. JAMA 2000;284:1670-1676.
---------------------------------------------------------------------------
                   carrier medical director decisions
    Other problems created by carrier decisions may cause undue 
distress for beneficiaries, providers, and even HCFA. Consider the 
coverage of physician's services for patients with chronic disease. 
Medicare does not pay for routine preventive visits. Most physicians 
would consider this prohibition to apply to patients without an acute 
or chronic medical condition who seek preventive services for an 
undiagnosed condition. However, Medical director decisions in Minnesota 
in the last two years that visits for routine care are not covered by 
Medicare have caused considerable difficulty for Medicare beneficiaries 
and physicians. Beneficiaries are confused and face more out-of-pocket 
costs for care they and their physicians believe is appropriate for 
their medical problems. Providers are confused and cannot understand 
when visits are covered and when they are not. When a carrier makes a 
decision to deny the claim after the fact as being non-covered, the 
provider has no appeal right and must then re-bill the beneficiary. 
Cancer, heart disease, hypertension and diabetes are common conditions 
in elderly Americans. These conditions are often treated with 
medications (the typical elderly patient fills 13 prescriptions a 
year). In all of these conditions, the patient's status may remain 
stable for months or years, but it is important to regularly evaluate 
the status of a patient's disease and make certain that there is no 
evidence of disease progression or a regimen of medications is 
satisfactory to improve quality of life and/or likelihood of survival. 
These services are, therefore, part of the continuing care of patients 
with these chronic conditions and should not be subject to an arbitrary 
local decision regarding coverage. I do not believe it is the intent of 
the Congress, or of Medicare, to have coverage decisions for our 
nation's elderly with chronic conditions subject to individual medical 
director policy at a local level. A similar decision regarding coverage 
of pre-operative evaluations caused similar confusion and has required 
considerable effort by HCFA central staff to attempt to resolve. The 
lack of a clear, consistent national payment policy creates this 
unnecessary confusion in the local application of Medicare payment 
rules.
                impact on physician-patient relationship
    Underlying these two examples is a fundamental change in the way in 
which carriers seem to approach physicians. The intensity of efforts to 
uncover fraud and abuse has disrupted relationships between physicians 
and carriers, and, more worrisome, has begun to undermine the 
physician-patient relationship. It is the responsibility of the 
physician to be the patient's advocate in discussions with insurers 
where there may be questions about payment policy that would adversely 
affect a patient's care. But, in the Medicare program, the effects of 
the examples I have cited are to create an uncomfortable situation 
where the physician is supposed to be the agent of Medicare and is 
fearful of making a mistake in billing or interpretation of policy. The 
physician must know Medicare payment policy and inform patients when 
services are not covered by Medicare; failure to do so has the 
potential for significant adverse consequences. Thus, in my daily 
practice, not only do I have to understand the myriad of Medicare 
rules, but I must also be able to translate a local medical review 
policy and to try to understand the case-by-case decision making of the 
medical director. If I make a mistake, in addition to not being 
reimbursed, I face the risk of other sanctions. This is a demanding 
task for any reasonable human being. Perhaps more disconcerting is that 
physicians and carriers are no longer working together to improve the 
care of Medicare beneficiaries.
    What are the contributing factors to this state of affairs and what 
might be done to resolve these problems? A significant factor is the 
loss of talent at HCFA and the carriers. For whatever reason, the 
reorganization that occurred at HCFA was followed by the departure of a 
number of very talented people from the agency. Reassignment of 
remaining staff meant that people were placed in new areas having to 
learn new jobs. Carriers around the country have had similar problems; 
carrier changes and the lack of significant oversight of the carriers 
by HCFA have allowed poor carrier performance to go on without 
intervention to improve performance or service. Minnesota has had three 
different part B carriers in the last five years (as well as 3 changes 
in part A fiscal intermediary), and had no effective medical direction 
in the part B carrier for nearly eighteen months. As a consequence, 
medical record reviewers have been making decisions about payment and 
coverage without medical oversight. The result has been an exponential 
increase in pre- and post-payment reviews that consume excessive 
resources for both the carrier and provider, resources that could have 
been used more productively to provide better service to beneficiaries 
and providers.
    And, carrier efforts to reduce administrative expense may cause 
other problems for beneficiaries and providers. The Minnesota part B 
carrier recently announced a reduction in its budget for beneficiary 
outreach after receipt of a communication from HCFA indicating that the 
carrier should manage its telephone service lines to have at least a 
ten per cent busy signal rate. Providers were told they might expect to 
hear more questions from beneficiaries given the reduction in level of 
service at the carrier. Providers should not be expected to provide 
telephone backup service to the carrier.
                       recommendations for action
    The Health Care Financing Administration can effectively reduce 
regulatory burden and improve its relationship with providers. This 
will require several actions, including more stringent oversight of 
carriers, the most common point of contact between providers and HCFA. 
The following actions are recommended:

1. HCFA should work as fast as possible to develop national payment 
        policies for commonly performed services that would eliminate 
        the need for local medical review policies along with the 
        confusion these policies create.
2. HCFA should work with its carrier medical directors to develop a 
        uniform approach to payment for services required in the care 
        of patients with chronic conditions like cancer, heart disease, 
        hypertension and diabetes.
3. HCFA should better supervise the performance of the carriers; too 
        often, carrier problems create unnecessary additional burdens 
        for physicians and beneficiaries, as well as for HCFA in 
        Baltimore.
4. Different solutions to allow providers to demonstrate their 
        compliance with regulation should be implemented that would 
        restore the ability of the physician to be an advocate for 
        patients.
5. HCFA should accelerate efforts to eliminate or simplify regulations 
        that affect physicians in daily practice by aggressively 
        pursuing and resolving issues that have been identified by its 
        Physicians Regulatory Issues team.
6. The Congress should allocate a reasonable administrative budget for 
        beneficiary service or have a greater expectation for HCFA 
        service to beneficiaries.
                practicing physicians' advisory council
    I am aware that HCFA has been criticized for its lack of 
recognition of PPAC recommendations and for not effectively utilizing 
the council. I have been a member of PPAC for one year and in these 
months it is evident that HCFA is beginning to address some of the 
problems I have described, as well as other chronic issues. Though 
there is now evidence of progress, it is slow and could be considerably 
accelerated. Let me illustrate with two examples.
    First, the Physicians' Regulatory Issues Team (PRIT) has spent much 
of the last year trying to understand issues that affect physicians and 
has recently completed a survey of physicians to provide guidance in 
prioritizing its work. The highest priority for regulatory relief in 
the minds of American physicians is that of Advance Beneficiary Notices 
(ABNs). A simpler and easier to use notice, free of derogatory language 
about the provider, and some notification of the physician when a 
patient decided not to have a recommended test or procedure have been 
requested by providers for years. In fact, in 1992, in the first 
meetings of the Minnesota Medicare Carrier Advisory Committee, this 
issue was identified and a letter was sent to HCFA requesting these 
improvements. In my first meeting of the PPAC, an ABN proposal was 
presented to the Council and PPAC made many suggestions. To the credit 
of the staff at HCFA, they changed their direction entirely, adopted 
the suggestions of the council and moved forward to implement our 
suggestions. The work of the staff has been very gratifying, and it is 
clear from this example that staff can make changes that are helpful 
not only to physicians but beneficiaries (field testing of the 
simplified ABN found better beneficiary response to the new, simpler 
form). However, it is difficult for me to understand why it has taken a 
decade to resolve an issue that required only a year of development and 
testing. We should be able to make faster progress than solving one 
problem every ten years. Unfortunately, HCFA staff members have 
informed PPAC members that at least two of the issues important to 
physicians (and included on the PRIT physicians' issues list) are 
nearly impossible to resolve (notably, claims resubmission and the 
requirement for prior hospitalization for skilled nursing facility 
placement).
    Second, HCFA has asked PPAC to take a central role in the 
supervision of the process to develop new documentation guidelines. 
This is encouraging, and I hope this new effort will produce changes in 
both coding and documentation that will solve problems that are also 
ten years old. This will require a cooperative effort between HCFA and 
the CPT Editorial Panel of the American Medical Association and 
significant leadership on the part of both organizations. I do harbor 
some concerns about our ability to resolve this problem because of 
difficulties within HCFA. The group at HCFA with responsibility for 
implementation of the guidelines proposes to undertake a series of 
pilot projects to field test the new guidelines before national 
implementation. However, such a trial will inevitably have a period 
where there will be disagreements about interpretation and payment. 
Physicians who participate in these pilots do not want to be exposed to 
the current set of risks of making a mistake in coding (as in the 
example I described earlier). However, Program Integrity staff seem 
insistent that there can be no provision made for these pilot projects 
and that any mistakes made must be aggressively pursued to make sure 
that no improper payments are made. Unless Program Integrity staff, 
Health Plans and Providers staff and carrier medical directors can 
develop an effective structure for pilots that promotes the learning 
necessary to successfully implement a new system that will be 
effective, we will have gone through ten years of work in four major 
efforts without being any farther than we were in 1993 when I chaired 
the first ad hoc committee on the development of documentation 
guidelines. If HCFA cannot reasonably consider the views of PPAC in a 
process where its involvement has been specifically sought, then it 
seems unlikely that PPAC will ever serve any useful purpose.
                 how could hcfa work better with ppac?
    The examples I have cited indicate the recent efforts of leadership 
within HCFA to use the PPAC effectively and demonstrate the utility of 
PPAC. Though these changes give me optimism about the future role of 
PPAC, there remains a need for more effective leadership to achieve 
better coordination between groups within HCFA. These groups should be 
working together to achieve the goals of HCFA to provide the best care 
for Medicare beneficiaries in partnership with physicians and other 
providers while working to assure the integrity of the program for all. 
It is simply too important that we be successful in meeting the 
increasing needs of the elderly that we risk our success by not being 
able to work effectively together.
    There must be an increased emphasis on resolving problems of 
regulations. Proposed regulations are not regularly reviewed by PPAC to 
understand their potential effect on practicing physicians; it is 
extremely difficult to change regulations after they have been 
implemented. HCFA could use PPAC more effectively to help it avoid 
problems with regulations by making a more intensive effort to present 
proposed regulations for review very early in the process of 
development.
                               conclusion
    I appreciate the opportunity to share my experiences with you this 
morning and I hope that my observations and suggestions will be helpful 
in making improvements in the administration of Medicare, a vitally 
important program for our elderly. Thank you for your dedication to the 
success of Medicare and for seeking ways to make it better for patients 
and physicians.

    Mr. Greenwood. Thank you, Dr. Wood.
    Finally, Mr. Friedman.

                  STATEMENT OF HARVEY FRIEDMAN

    Mr. Friedman. Thank you. Good morning. Mr. Chairmen and 
members of the subcommittees, I am Harvey Friedman, the 
Medicare contracting officer at the Blue Cross and Blue Shield 
Association. The association represents 45 independent Blue 
Cross and Blue Shield plans throughout the Nation. Together, 
Blue Cross Blue Shield plans are, by far, the largest Medicare 
fee-for-service contractors, as well as the largest Medicare 
Plus Choice and Medigap insurers. I appreciate the opportunity 
to testify before this joint subcommittee hearing on how 
Medicare contractors communicate new rules and regulations to 
providers.
    I will make a brief oral statement at this time. My full 
statement has been submitted for the record.
    Medicare contractors have several areas of responsibility 
on behalf of the Federal Government. Most relevant to the 
purpose of this hearing, contractors are the main points of 
routine contact with the Medicare Program for both 
beneficiaries and providers. Contractors educate providers and 
beneficiaries about Medicare and respond to about 40 million 
inquiries annually.
    I would like to focus on the following three areas in my 
testimony today: How contractors communicate in the rules and 
regulations to providers, challenges facing contractors, and 
BCBSA's recommendations for improving the contractor program.
    Contractors use several methods to communicate instructions 
to providers. The process begins with the creation of an annual 
provider education and training plan, so-called PET. This plan 
is reviewed, typically quarterly, with a PET Advisory 
Committee, consisting of representatives from State and local 
medical societies, providers, and other entities that submit 
Medicare claims.
    Contractor communications with providers throughout the 
year take the form of quarterly newsletters, special bulletins, 
desk manuals, training seminars and publication of Internet web 
sites. HCFA's own Internet web sites contain copies of all the 
instructional program memoranda and transmittals which are sent 
to the carriers and intermediaries, as well as some computer-
based training modules.
    In fiscal year 2001, the Blue Cross Blue Shield Medicare 
contractors have been funded with $16.5 million for Part A 
provider education and training and $24.6 million for Part B. 
Although this is less than we would like to have, which I will 
address shortly, you can see that a considerable amount of 
resource and effort goes into communicating new rules and 
regulations.
    The Medicare Program continues to grow more and more 
complex. Furthermore, new rules are being changed with greater 
frequency. In the Balanced Budget Act of 1997, Congress created 
new payment mechanisms. Since 1997, Congress has acted twice, 
in 1999 and 2000, to amend the Balanced Budget Act, requiring 
additional major changes and creating additional confusion. All 
of this translates into more change orders to the Blue Cross 
Blue Shield contractors. Just as Members of Congress hear from 
providers about the difficulties in understanding these new 
rules, so too do contractors who must answer the questions and 
concerns about new payment methodologies.
    Medicare contractors were allocated about 6 percent less in 
overall operating funds this year than they received in fiscal 
year 2000. An area hit particularly hard was provider 
education. Blue Cross Blue Shield plans estimate that fiscal 
year 2001 funding for provider education is about 18 percent 
below the amount they need to effectively educate and train 
providers. And, frankly, the picture for fiscal year 2002 looks 
even grimmer, although that budget is in process.
    The fact is that when Medicare budgets are tight, provider 
education is one of the first areas to be cut by HCFA. Over the 
past 2 fiscal years, the customer service functions, including 
inquiries, education, and outreach efforts have been 
particularly hard hit. We urge Congress and the Administration 
to explore new methodologies to develop Medicare contractor 
budgets.
    The Blue Cross and Blue Shield Association supports 
congressional efforts to reform and improve the Medicare 
Program. However, such efforts must have as one of its goals a 
reduction in the complexity of the program. The program has 
been micromanaged to the point where a clear and consistent 
understanding of the rules and regulations is simply 
impossible. Blue Cross Blue Shield plans constantly hear from 
providers that the complicated payment rules and paperwork 
required of them is overwhelming, and some are being driven out 
of the program. BCBSA applauds the efforts of these 
subcommittees to review and address this issue and we offer our 
assistance in implementing improvements.
    Finally, we recommend against awarding contracts in a way 
that would fragment and weaken Medicare administration, as has 
been proposed by HCFA in past reform plans. Competition does 
not have to mean fragmentation. By breaking up contracting 
functions and spreading them among a large pool of new 
entities, many of whom would be inexperienced in Medicare, the 
claims payment process would become fragmented. The Blue Cross 
and Blue Shield Association cannot emphasize enough the 
potential confusion and difficulty that would arise from using 
a multitude of independent specialty contractors who share work 
but do not share accountability for the outcome; that is, for a 
correctly and efficiently processed claim.
    In conclusion, Blue Cross and Blue Shield Medicare 
contractors believe more can and should be done to improve the 
communication among HCFA, contractors, and providers. However, 
two considerable obstacles stand in the way of any significant 
improvement: The complexity of the Medicare Program and 
insufficient funding. BCBSA urges Congress to streamline the 
Medicare Program, a goal we know these subcommittees share, and 
provide adequate funding to Medicare contractors. BCBSA 
strongly recommends against fragmenting contractor functions, 
an action that would certainly lead to more confusion, more 
inconsistency, and more delays in payment and customer service.
    We look forward to working with the subcommittees and HCFA 
to make these needed improvements. Thank you, and I would be 
pleased to answer any questions.
    [The prepared statement of Harvey Friedman follows:]
 Prepared Statement of Harvey Friedman, Medicare Contracting Officer, 
                 Bluecross and Blue Shield Association
    Mr. Chairmen and members of the Subcommittees, I am Harvey 
Friedman, the Medicare Contracting Officer at the Blue Cross and Blue 
Shield Association (BCBSA). The Association represents 45 independent 
Blue Cross and Blue Shield Plans throughout the nation. Together, BCBS 
Plans are, by far, the largest Medicare fee-for-service contractors, as 
well as the largest Medicare+Choice and Medigap insurers. I appreciate 
the opportunity to testify before this joint Subcommittee hearing on 
how Medicare contractors communicate new rules and regulations to 
providers.
    As background, the Medicare program is administered through a long-
standing partnership between the private health insurance industry and 
the Health Care Financing Administration (HCFA). Since 1965, Blue Cross 
and Blue Shield Plans have played a leading role in administering the 
program. They have contracted with the federal government to handle 
much of the day-to-day work of paying Medicare claims accurately and in 
a timely manner. Nationally, 26 Blue Cross and Blue Shield Plans serve 
as Part A fiscal intermediaries and/or Part B carriers and, 
collectively, process about 90 percent of Medicare Part A claims and 
about 60 percent of all Part B claims.
    Medicare contractors have three major areas of responsibility on 
behalf of the federal government:

1. Paying Claims: Medicare contractors process all the bills for the 
        traditional Medicare fee-for-service program. In fiscal year 
        2000, it is estimated that contractors processed over 900 
        million claims, more than 3.5 million every working day. 
        Contractors also process the initial appeals of adverse claim 
        decisions.
2. Special Initiatives to Fight Medicare Fraud, Waste, and Abuse: All 
        contractors have separate fraud and abuse departments dedicated 
        to assuring that Medicare payments are made properly. It is 
        estimated that these activities saved the government $11 
        billion in 1999.
3. Providing Beneficiary and Provider Customer Services: Most relevant 
        to the purpose of this hearing, contractors are the main points 
        of routine contact with the Medicare program for both 
        beneficiaries and providers. Contractors educate providers and 
        beneficiaries about Medicare and respond to about 40 million 
        inquiries annually.
    With this as background, I would like to focus on the following 
three areas in my testimony:

I. How contractors communicate new rules and regulations to providers;
II. Challenges facing contractors; and,
III. BCBSA's recommendations for improving the contractor program.
 i. how contractors communicate new rules and regulations to providers
    Contractors use several methods to communicate instructions to 
providers. The process begins with the creation of an annual provider 
education and training (PET) plan. The plan is reviewed with a PET 
advisory committee consisting of representatives from state and local 
medical societies, providers, and other entities that submit Medicare 
claims.
    Contractor communications with providers throughout the year take 
the form of quarterly newsletters, special bulletins, desk manuals, 
training seminars and publication of new instructions on contractor 
Internet websites. PET advisory committees are often used to review 
written communications and website changes for clarity.
    HCFA's own Internet websites contain copies of all the 
instructional Program Memoranda and Transmittals which have been sent 
to the fiscal intermediaries and carriers, as well as some computer 
based training modules. In particular, training modules for the new 
outpatient prospective payment system and the new home health 
prospective payment system were developed by the BlueCross and 
BlueShield Association at HCFA's request, and are available on HCFA's 
website.
    In fiscal year 2001, the BCBS Medicare contractors nationally have 
been funded with $16.5 million for Part A provider education and 
training and $24.6 million for Part B provider education. Although this 
is less than we would like to have--which I will address shortly--you 
can see that a considerable amount of resource and effort goes into 
communicating new rules and regulations to the provider and billing 
communities.
                   ii. challenges facing contractors
    Medicare contractors face two key challenges to success in 
communicating with providers: 1) increasing complexity of Medicare 
rules; and, 2) inadequate funding levels.
    Increased complexity of Medicare rules: The Medicare program 
continues to grow more and more complex. The new payment mechanisms for 
outpatient departments, home health agencies, and skilled nursing 
facilities, to name a few, are very complicated and require a great 
deal of resources to implement. Just as Members of Congress are hearing 
from providers about the difficulty in understanding these new rules, 
so too are contractors who must answer their questions and concerns 
about new payment methodologies.
    Furthermore, the new rules are being changed with greater 
frequency. In the Balanced Budget Act of 1997 Congress created the new 
payment mechanisms listed above. Since 1997, Congress has acted twice--
in 1999 and 2000--to amend the Balanced Budget Act, requiring major 
changes and reeducation of providers. All of this has translated into 
more change orders. In calendar year 2000 contractors received 719 
formal change orders--more than 2-1/2 times the number received in 
fiscal year 1998. This fiscal year, through February, contractors have 
already tracked 513 changes. If this rate continues, we will receive 
more than 1,230 changes in fiscal year 2001--a 70% increase over last 
fiscal year.
    Exacerbating this problem is the fact that these rapidly 
multiplying change orders are rarely accompanied by sufficient funding 
or transition time for proper implementation. This leads to the second 
challenge facing contractors.
    Inadequate Funding Levels: Every change transmittal from HCFA must 
be implemented by the contractors and then communicated to the 
providers. This is a time-consuming and costly process and, frankly, 
contractors have not been provided all the resources they need to 
successfully carry out this important function.
    In spite of a 9 percent increase in the overall Medicare Program 
Management appropriation for fiscal year 2001, the operational budgets 
of Medicare contractors have been cut 6 percent below fiscal year 2000 
levels. An area hit particularly hard has been provider education, at a 
time when so many changes resulting from the Balanced Budget Act and 
the subsequent amendments are being implemented. BCBS Plans estimate 
that fiscal year 2001 funding for provider education is about 18 
percent below the amount they need to educate and train providers 
effectively.
    In response to this funding shortfall, BCBS Plans have been forced 
to take such actions as eliminating opportunities for individualized 
training, declining invitations to speak at conferences, and, in 
general, cutting back on personal training interactions.
    The picture for fiscal year 2002 looks even grimmer. Based on 
conservative assumptions of workload growth, BCBSA estimates that a 
funding increase of 7 percent above the fiscal year 2001 level will be 
necessary to meet current obligations. This estimate does not include 
the millions of dollars that will be necessary to implement privacy and 
administrative simplification requirements that are on the horizon, or 
the changes included in the Medicare Benefits Improvement and 
Protection Act of 2000.
    The fact is that when budgets are cut, provider education is one of 
the first areas to be cut by HCFA. Over the past two fiscal years, the 
customer service functions including education and community outreach 
efforts have been particularly hard hit due to budget cuts and resource 
constraints.
 iii. bcbsa recommendations to improve the medicare contractor program
    Blue Cross and Blue Shield Medicare contractors are committed to 
achieving outstanding performance levels. We want to work with the 
Congress and HCFA to attain this objective. We recommend consideration 
of the following recommendations:

1. Reform the Medicare program: BCBSA supports congressional efforts to 
        reform and improve the Medicare program. Such efforts must have 
        as one of its goals a reduction in the complexity of the 
        program. Over the past 35 years federal policymakers have 
        micromanaged the program to a point where a clear and 
        consistent understanding of the rules and regulations is simply 
        impossible. BCBS Plans constantly hear from providers that the 
        complicated payment rules and paperwork required of them is 
        overwhelming.
      BCBSA applauds the efforts of these Subcommittees to review and 
        address this issue and we offer our assistance in implementing 
        improvements.
2. Provide adequate and stable funding levels: Congress should provide 
        adequate funding levels to assure that contractors can perform 
        the range of functions necessary for the efficient operation of 
        the Medicare program. As highlighted earlier, funding has not 
        kept pace with programmatic needs--important functions such as 
        provider education and training are not being fully funded. We 
        urge Congress and the Administration to explore using a new 
        methodology to develop Medicare contractor budgets. This method 
        should assure that workload growth and the costs of claims 
        administration are reviewed annually and that each time a new 
        Medicare law is passed, there are sufficient administrative 
        resources to handle the new workload. While BCBS Medicare 
        contractors are committed to continually achieving greater 
        efficiencies, it is simply not realistic to expect contractors 
        to continue to attain outstanding performance levels with 
        greater workloads and tighter budgets.
      It is imperative that Congress provides a stable and adequate 
        funding stream for all contractor activities. Underfunding 
        contractor activities can result in ineffective provider 
        education and training, as well as payment slowdowns to 
        providers and beneficiaries, deterioration in effective anti-
        fraud efforts, and significant delays in responses to provider 
        and beneficiary inquiries.
3. Avoid counterproductive reforms: Finally, we recommend against 
        awarding contracts in a way that would fragment and weaken 
        Medicare administration, as has been proposed by HCFA in past 
        reform plans. Instead, potential contractors should compete on 
        a level playing field to be the single manager of a contract, 
        and--as needed--be held responsible for subcontracting more 
        specialized work to other entities. By breaking up contracting 
        functions and spreading them among a large pool of new 
        entities--many of whom would be inexperienced in Medicare--the 
        claims payment process would become fragmented. This is likely 
        to disrupt effective management of the program and exacerbate 
        current provider concerns. For example, if one e entity 
        received the contract to educate providers while another 
        received the contract to process claims there will undoubtedly 
        be more errors since educator will not be as familiar with the 
        policies of the processor.
      In addition, fragmenting the claims payment process would destroy 
        the current single point of accountability now available to 
        HCFA, providers, and beneficiaries. BCBSA cannot emphasize 
        enough the potential confusion and difficulty that would arise 
        from using a multitude of independent specialty contractors who 
        share work but do not share accountability for the outcome 
        (that is, for a correctly and efficiently processed claim). 
        Such contractors may even consider themselves competitors to 
        each other and not work cooperatively. It is conceivable that 
        under HCFA's proposal that an individual claim could be handled 
        by three or more separate contractors before it is finally 
        processed. This fragmentation would increase claims payment 
        timeframes and remove the single point of accountability for 
        processing a claim properly--from beginning to end.
                               conclusion
    Blue Cross and Blue Shield Medicare contractors believe more can 
and should be done to improve the communication between HCFA, 
contractors and providers. However, two considerable obstacles stand in 
the way of any significant improvements: the complexity of the Medicare 
program and insufficient funding. BCBSA urges Congress to streamline 
the Medicare program and provide adequate funding to Medicare 
contractors. BCBSA strongly recommends against fragmenting contractor 
functions, an action that would certainly lead to more confusion, more 
inconsistency and more delays in payment and customer service.
    We look forward to working with the Subcommittees and HCFA to make 
these needed improvements.

    Mr. Greenwood. Thank you, Mr. Friedman. You reached for the 
gold star. The Chair recognizes himself for 5 minutes for 
purpose of questions.
    My thinking has been on this issue that there probably 
isn't much of a problem in terms of bad faith on the part of 
HCFA, the providers or the physicians. It is a question of 
systems and incentives that are difficult to work with. And the 
question I want to start with Dr. Miller on is--and I should 
know the answer to this, but I don't--can the health care 
provider file a Medicare claim online today?
    Mr. Miller. Most claims in Medicare are filed 
electronically, and the vast majority are filed electronically, 
if that is what you mean by online.
    Mr. Greenwood. Explain to me how that works.
    Mr. Miller. There are standard forms, 1500's, that is--
there is an interface between the provider, whether it is a 
hospital or a physician's office. Information is put into the 
forms, the I.D. of the provider, the I.D. of the beneficiary, 
codes for services, and it is transmitted to the carrier along 
telephone lines. I believe so, yes.
    Mr. Greenwood. But that is not an interactive process, I 
assume.
    Mr. Miller. That is correct. I think if you are saying can 
somebody log onto the Internet and see the status of their 
claim at any given point in time, I don't believe that they can 
do that, if that is your question.
    Mr. Greenwood. Okay.
    Mr. Miller. In terms of an interactive effect.
    Mr. Greenwood. And has HCFA--what I have been grappling 
with is the extent to which--and if your associate there would 
like to speak for herself, she is welcome to do that as well.
    Mr. Miller. She was saying that it is not interactive.
    Mr. Greenwood. The next question then is, is that under 
consideration? It would seem to me that in the information age, 
with the information technology that we have, if I go to order 
something from Amazon.com--if I were to file every request that 
I ever made online to purchase a product, for instance and had 
to wait until I received information back as to whether or not 
I had done that accurately, I would probably be experiencing 
some of these similar problems. The health care provider is 
sending in a claim, waiting, and finding out I didn't--it was a 
wrong keystroke or a mistake, and the we do it over again.
    On the other hand, when I make a transaction online, it can 
be interactive in that I can get instantaneous feedback as to 
whether or not I made a mistake. And then I get some sort of a 
clearance, ``Okay, your t's are crossed or i's are dotted, 
claim is ready for acceptance,'' and I can get almost 
instantaneous response. Is that kind of approach under 
consideration by HCFA?
    Mr. Miller. There have been discussions about that. There 
was an article in the newspaper a few months back where some 
private insurance firms were beginning to look at these types 
of systems. And I know myself and a few other people within 
HCFA noticed those, and there were discussions about it. But to 
move to something like that, I think would require--and I am 
not a systems person, so I am stepping out here a little bit--
would require, I think, a significant investment and 
significant reconfiguration of our systems. So these are 
certainly things we are aware of and are thinking about, but I 
can't point to plans that say that this is going to happen 
soon.
    Mr. Greenwood. Well, okay. You don't have plans that it is 
going to happen soon, but I think--let me refine my question. 
It would certainly take a significant investment, but it would 
seem to me that, in terms of both missions that we have 
discussed this morning, that is preventing waste, fraud, and 
abuse and having a workable, user-friendly relationship with 
the providers, that such an interactive system could take us 
down both of those paths simultaneously with fewer conflicts 
between those goals. So if HCFA doesn't have such plans, is 
HCFA engaged in a process of ascertaining whether that is 
feasible, what it would cost, how long it would take to 
implement so that HCFA could make an informed decision as to 
whether that is where it can and should go?
    Mr. Miller. Certainly, nothing in my answer was intended to 
imply that we didn't think that this is a worthy idea to 
consider. I think your point about being able to interactively 
check where you are at any given point in time is well taken. I 
just don't want to--and my understanding is in the private 
sector, this is sort of just coming up to speed, just being 
considered. And I could be wrong about that, but that is my 
understanding.
    HCFA, I think, can think about this, but I just don't want 
to mislead you. We are not down the road to how feasible, how 
much does it cost, those kinds of things, but we certainly 
would be open to considering that.
    Mr. Greenwood. Okay. My time has expired.
    Mr. Miller. Can I just say one other thing?
    Mr. Greenwood. Sure.
    Mr. Miller. Apparently, you can log on and check online 
where your claim stands, but it is not interactive. That is 
true. But, apparently, you can log on and check the status of 
your claim.
    Mr. Greenwood. Well, my time has expired. The subtle 
difference between there and being open to think about it is 
important. What my recommendation to HCFA is, is that HCFA 
ought to be completely engaged in the process of determining 
whether that is--what it would take to do that, what it would 
cost, what the timeframes would be, the feasibility, and 
conferring with your providers to see how attractive that might 
be to them.
    Mr. Miller. Can I just say one other thing? Apparently, our 
information systems people have been meeting with the private 
sector to discuss the privacy issues associated with that 
interactive issue, because you would have to have protections 
in on that, just like Amazon.com has privacy protections. And 
there is some discussion.
    Mr. Greenwood. My guess is if Amazon.com can do it, the 
United States of America could probably do it.
    Mr. Miller. I would think so.
    Mr. Greenwood. The Chair recognizes the gentleman, Mr. 
Brown, for 5 minutes.
    Mr. Brown. Thank you, Mr. Chairman. I am particularly 
interested, Dr. Miller, in the area of HCFA's oversight of 
contractors. Ms. Bradley had two interesting examples of areas 
where a contractor, with respect to provider enrollment forms 
and the provider overpayment, where a contractor appears to be 
performing badly but apparently has no relation to HCFA 
guidance. I am interested in your oversight of contractors. How 
does HCFA hold contractors accountable in those areas?
    Mr. Miller. There are a couple of things. There is a 
process inside HCFA that is called contractor performance 
evaluations, and there are a set of requirements that are given 
to contractors regarding performance standards. And these have 
to do with things like claims processing, customer service. 
Customer service in this instance is how fast you answer the 
phone, how accurate is the information that you give over the 
phone, responding to inquiries--written inquiries, I am sorry, 
how much time it takes to respond to those, those kinds of 
things. There are also payment safeguard requirements, fiscal 
oversight kinds of requirements.
    There is at least an annual evaluation process that goes 
on, and all of the carriers are ranked on their performance. 
And then each of the contractors--and I won't describe this 
really well, because, again, it is a slightly different area 
than the one I deal with--but there are people in HCFA who are 
responsible for each of the sets of carriers and go out 
regularly and spend time with the carriers to look at how they 
are performing, what kinds of problems are being encountered in 
response to problems, working problems through with the 
carriers, the intermediaries.
    Mr. Brown. Putting aside funding for a moment, does HCFA 
have the proper authority to do sufficient oversight of the 
contractors?
    Mr. Miller. I don't want to talk about proper. I just want 
to talk about the authorities that they have. And I think what 
your question is getting at is the question that was raised by 
Blue Cross Blue Shield, the idea of additional flexibilities in 
HCFA's contracting authority. In the past, there have been 
proposals that have looked at contracting flexibility in a 
couple of ways: Moving to performance-based contracting, which 
is not allowed by law now, and also the ability to contract 
with entities in addition to the ones that we are able to 
contract with now. And then, finally, the idea of being able to 
contract out for pieces of the work. So, say, for example, you 
have some group in a given area who is particularly good at 
customer service, the ability to go and contract separately 
with them. Again, that is not something that we have the 
authority to do at this point, if that is your question.
    Mr. Brown. Mr. Mangano, would you talk about your view of 
the authority, the need for contract reform, if there is a 
need, your view of if the authority is sufficient that HCFA now 
has to oversee contractors properly? Give us your rate on that.
    Mr. Mangano. Our view is consistent with the positions we 
have taken in the past, as well as today. It is that HCFA ought 
to have the kinds of authorities they need to have to be able 
to select contractors on whatever basis they deem appropriate. 
Given that fact, we have strongly supported in the past HCFA 
being able to select for part of the process, contractors who 
are not insurance companies, to be able to competitively bid 
and experiment with some other ways of doing it.
    If we are going to hold HCFA responsible for the 
performance of its contractors, they ought to have more say in 
selecting who their contractors are and terminating contracts 
when they deem it in the best interest of the Government.
    Mr. Brown. What percentage--just a ballpark figure, what 
percentage of carriers are or have recently been investigated, 
either by OIG or by DOJ?
    Mr. Mangano. Since 1993, we have reached either a criminal 
conviction or a civil settlement with 13 contractors across the 
country in which they ended up returning to the Medicare Trust 
Fund $350 million. And today we have a number of others under 
investigation as well.
    Mr. Brown. This is money from the contractors or from 
providers?
    Mr. Mangano. This is from the contractors.
    Mr. Brown. From contractors only.
    Mr. Mangano. Yes. And for a variety of offenses, either not 
being diligent in terms of how they bill providers, making 
false statements to the Medicare Program, turning off edits, 
which are designed to identify false claims, and a variety of 
other----
    Mr. Brown. Would some of that money then be recoverable by 
the contractors from providers or typically no?
    Mr. Mangano. Yes, it would. We recently had a case in which 
a contractor in the Northeast basically was sending checks to 
hospitals on the basis of improving their performance ratings. 
This particular contractor was basically saying that they pay 
bills very quickly, and they were paying money to hospitals 
that shouldn't have been paid. We reached a settlement of over 
$70 million with that particular contractor.
    Mr. Brown. One last real quick question. The purpose of 
paying these contractors, my understanding, these private, 
generally for-profit contractors, is to safeguard tax dollars, 
correct? And to administer the program, but ultimately to 
safeguard taxpayers as they administer it.
    Mr. Mangano. Sure.
    Mr. Brown. Okay. Thank you.
    Mr. Bilirakis. [presiding] We have more than one vote. So 
it may be--Nathan, would you like to inquire for 5 minutes? We 
could probably get you in.
    Mr. Deal. I can do one real quickly, and I will try to get 
a gold star and keep under the 5 minutes if I can.
    I would just like to maybe get some broad parameters here, 
because we all seem to be focusing on the same general issues, 
but sometimes I think we lose sight of perhaps what the cost 
is, what the overall objective might be. And let me start with 
this, and it may be facts and figures that nobody has. If you 
do not have, then I would like to ask if you could provide them 
to me at a later date.
    First question I would have is, considering the overall 
Medicare budget, how many cents out of every Medicare dollar is 
paid to medical providers?
    Mr. Miller. Medical providers?
    Mr. Deal. Yes. Doctors, hospitals--medical providers.
    Mr. Miller. Well, I mean, virtually all of the Medicare 
dollars go to payments to providers of one kind or another. Is 
there a particular category you are looking for?
    Mr. Deal. I said medical providers. I am not--I want to 
know how much of the Medicare budget is syphoned off at HCFA 
paying for things that are not for services rendered? How much 
is syphoned off paying to carriers to administer the program? 
How many cents out of every total Medicare dollar goes to 
providers?
    Mr. Miller. Okay. I think the two figures that you are 
looking for are there is about $210 billion in payments made 
every year, and HCFA's budget is $2.2 billion, of which 
contractors receive about half of that. So $1 billion out of 
$210 billion, if that is what you are asking.
    Mr. Deal. One billion?
    Mr. Miller. Out of $210 billion goes to the contractors. 
And HCFA's total budget, when you consider the central office 
and the regional office, is $2 billion, in round numbers.
    Mr. Deal. Two billion?
    Mr. Miller. That is correct. Out of $210 billion in 
payments per year.
    Mr. Deal. So we have $3 billion out of the $210 billion 
that goes to things other than paying for medical services.
    Mr. Miller. Yes. And I think if--you were saying how many 
cents on every dollar, that is about two cents of every dollar.
    Mr. Deal. Two cents of every dollar. All right.
    Mr. Miller. If I understand your question.
    Mr. Deal. I think you did. The next question, then, is at 
the provider level, and Dr. Becker, you and Dr. Wood, I 
suppose, would be--well, Ms. Bradley, you probably too--at the 
provider level, how many cents out of every Medicare dollar 
that you receive do you consider is spent in complying and, in 
effect, getting the dollar in something other than paying for 
time spent in providing care or medication or supplies related 
to that care? Do you have any estimates?
    Mr. Becker. Well, it would only be an estimate, but I can 
tell you that in Florida, where we have a large HMO population, 
the HMOs, in general, take 20 percent of the Medicare money 
that they are given, which is strictly for administration. They 
take 20 percent, and they pay out about 80 percent to 
providers. Then out of that 80 percent, of course, for my 
office administration, there is some percent that would go to 
administration as well. That is probably a low figure, maybe 
15, 20 percent also.
    But a significant--once it leaves the carrier, and I have 
understood the carrier cost also to only be around 2 percent, 
which is fairly reasonable, I suppose, for a larger system, but 
once it leaves the carrier, when it gets to an individual area 
HMO, they usually take 20 percent, and then out of what I get, 
which would be 80 percent of that, I will probably have to 
spend another 20 percent for administration as well.
    Mr. Deal. Assuming it is not an HMO situation but a direct 
reimbursement, what percentage would you estimate would be 
consumed?
    Mr. Becker. Well, again, in my office, probably at least 20 
percent of my expenses go for strictly administrative costs, 
for dealing with the paperwork and bureaucracy, so to speak.
    Mr. Deal. Is that comparable, do you think?
    Mr. Bradley. All due respect to physicians, the 
administrators are the ones who deal with this every day, and I 
would say a considerable amount of our dollar is spent trying 
to understand the rules and regulation, trying to get these 
issues straightened out. So I would say it is well over 50 
percent.
    Mr. Deal. Fifty percent out of every dollar?
    Mr. Bradley. Fifty, 5-0. Fifty cents, at least.
    Mr. Deal. Out of every dollar that----
    Mr. Bradley. That is correct.
    Mr. Deal. Dr. Wood?
    Mr. Wood. I think that figure is relatively reasonable. The 
circumstances are that there are----
    Mr. Deal. Which figure, the 20 or the 50?
    Mr. Wood. The 50.
    Mr. Deal. Okay.
    Mr. Wood. Because you have a series of rules and 
regulations from the carrier, and there are additional things 
that you have to do for compliance. If you put all of those 
together, it is a rather substantial number.
    What your question perhaps doesn't represent very well is 
what the impact is of having to deal with then audits and 
payment reviews.
    Mr. Deal. Which you are not compensated for.
    Mr. Wood. Right. And it may cost $14, $15, $20 to pull the 
record, get the record ready, send it to the carrier for 
review. The amount in question for payment may be only $20 on a 
low-level service. So from that circumstance, then, a physician 
may decide do I just forgo the payment or do I just go through 
all the administrative work to get a few dollars back?
    Mr. Deal. Could I ask one very brief follow-up question on 
that?
    Mr. Bilirakis. Very quickly. We will have a second round. I 
just wanted to advise those that are still here.
    Mr. Deal. All right. Mr. Friedman, Blue Cross Blue Shield 
is in the business of providing health insurance in a non-
Medicare environment. Do those percentages, are they comparable 
in the non-Medicare health insurance area that Blue Cross Blue 
Shield supervises? Are those percentages comparable?
    Mr. Friedman. No insurance company would dream of trying to 
administer a program for two cents on the dollar, because you 
simply can't do a very good job. More typically, administrative 
costs run 15 to 20 percent in administering insurance plans 
other than Medicare, if I am understanding your question.
    Mr. Deal. So you are saying, then, in the non-Medicare 
environment that it would be more than the percentages we have 
heard referenced here.
    Mr. Friedman. Certainly in terms of the cost of 
administration versus the cost of benefit payments, absolutely.
    Mr. Deal. Then why do you ask to be an administrator in the 
Medicare environment then?
    Mr. Friedman. I think the question is perhaps best answer 
historically. Going back to the beginning of the program, most 
of the Blue plans who entered into these contracts saw it as 
part of their community involvement, their community mission.
    Mr. Deal. So your administration is community service.
    Mr. Friedman. That is correct.
    Mr. Deal. That is a unique answer, Mr. Chairman, unique. 
Thank you.
    Mr. Bilirakis. I thought his answer might be, ``Well, we 
are probably asking ourselves that same question.''
    We are going to recess until 12:45, because we do have 
these two votes. That will give you an opportunity to grab a 
bite for lunch. So we will recess until then.
    [Whereupon, at 11:57 p.m., the joint subcommittees 
recessed, to reconvene at 12:49 p.m., the same day.]
    Mr. Bilirakis. Thank you for your indulgence, Ms. Bradley 
and gentlemen. Those of you who have testified up here before 
know what it is like. The rest of you probably feel that we are 
very discourteous, but that is the name of the game up here, 
votes left and right.
    I would like to enter into the record, without objection, a 
letter dated April 4 from Secretary Tommy Thompson to the 
chairman of the full committee, Mr. Tauzin. The minority has 
had a chance to look at the letter. And also a statement of Dr. 
Kenneth Webster, executive director of the Pinellas County 
Osteopathic Medical Society, and a statement of Randy O. Shuck, 
Chairman of the Pinellas County Osteopathic Medical Society. 
Without objection, those will be made a part of the record.
    [The material follows:]

         The Secretary of Health and Human Services
                                             Washington, DC
                                                      April 4, 2001
The Honorable W.J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
House of Representatives
Washington, D.C. 20515
    Dear Chairman Tauzin: Thank you for your letter concerning the 
Health Care Financing Administration's (HCFA's) relationship with 
physicians and other providers who participate in Medicare. I agree 
with you that it is significant that the Medicare error rate, as 
reported by the Inspector General, has continued to decline. While the 
reduction is a good sign, the current error rate is still unacceptable. 
The reduction of fraud and errors in Medicare is critically important 
and we must continue to build on our success. I also share your concern 
over the provider community's perception that Medicare rules are 
burdensome and HCFA's oversight is intrusive.
    With respect to reducing fraud and errors in the Medicare program, 
more needs to be done, and the Department will make this a priority. 
Let me assure you that we will work with you and members of your 
committee on our plans in this area. Likewise, I support your efforts 
to examine how best to educate our providers in order to make the 
program work better. You are correct. If providers have the right 
information from the start, then the whole process of submitting and 
paying claims is greatly enhanced. HCFA has already begun a number of 
ongoing Medicare provider education efforts that will help increase the 
level of understanding in the provider community. But here again, more 
needs to be done.
    I understand that my staff has already begun this process of 
consultation by providing a briefing for your staff covering many of 
the issues raised in your letter. We will continue to work with your 
staff to provide additional material in response to your specific 
questions. Finally, I have asked HCFA to provide me with options that I 
can use in working with you and others in Congress to further improve 
on these provider education efforts.
    Again, I look forward to working with you on these issues. Once our 
new HCFA Administrator has been confirmed, I believe we can make 
significant progress in improving the administration of the Medicare 
Program. A similar response is being sent to the cosigner of your 
letter.
            Sincerely,
                                                  Tommy G. Thompson
                                 ______
                                 
  Prepared Statement of Kenneth Webster, Executive Director, Pinellas 
                   County Osteopathic Medical Society
    I am Kenneth Webster, Executive Director of the Pinellas County 
Osteopathic Medical Society. While I am appearing only on behalf of 
that organization, I believe I can speak for all of the physicians--
D.O.s and M.D.s alike--who have found themselves caught up in a unfair 
and unwarranted criminal investigation that threatens their reputations 
and livelihoods.
    There is ongoing a series of federal investigations and 
prosecutions in the Middle District of Florida that should be of great 
concern to anyone who takes the time to learn the facts. Over a dozen 
physicians who, in the past, had modest or de minimus financial 
relationships with health care service providers, to whom they referred 
patients, have been indicted. They have had their ongoing Medicare 
reimbursements suspended, causing them to declare bankruptcy or cease 
practicing. Hundreds more have been threatened with indictment, 
subpoenaed or otherwise targeted for criminal investigation. These 
physicians collectively represent the core of the family and general 
practitioners in three counties; their indictments or prosecutions and 
resultant exclusion from Medicare and Medicaid have had and will have 
enormous repercussions for the health care delivery system in an 
extensive area of Florida. And worst of all, almost all of these 
doctors were totally unaware that their conduct was improper, let alone 
criminal. They were lied to by the real criminals--the service 
providers--and lulled into a situation that the United States Attorney 
for the Middle District of Florida proclaims to be a violation of the 
Medicare anti-kickback law.
    These doctors ordered medically necessary tests for actual 
patients; the alleged crime is that the doctors sent the blood work to 
a laboratory that improperly procured the work. The government 
acknowledges that the doctor's activities here did not involve any harm 
to patients and ``did not result[] in a loss to the Medicare program.'' 
The government has chosen to criminalize this conduct in only this one 
federal district; no where else in the country has the government 
indicted doctors who have made similarly-poor judgments about 
relationships with Medicare referral recipients. The facts of these 
cases under indictment, and the ones under investigation, simply do not 
warrant ruining the careers of this large group of well-meaning family 
practitioners.
    I do not defend doctors who defraud Medicare. Like everyone, we 
believe that doctors who willfully defraud Medicare, or knowingly 
engage in financial relationships that induce unnecessary medical 
services, are a stain on the profession and should be dealt with 
appropriately. But these cases in Tampa do not involve doctors who 
defrauded Medicare. None of the indicted physicians have had their 
billings to Medicare challenged. The government has never claimed that 
they ordered tests or services that weren't medically necessary or in 
any way performed medicine inappropriately. Rather, the government has 
criminalized the poor judgment of these doctors by charging them with 
kickback violations--and suspending their wholly unrelated Medicare 
payments--due to their acceptance of very modest payments from a 
corrupt clinical laboratory for services that the doctors believed were 
legal and appropriate.
    The background to these cases needs to be understood to put these 
matters in the proper context. The doctors in the Tampa area have been 
caught up in a federal investigation known as ``Operation Takeback'' 
which apparently is part of the nationwide Operation Restore Trust 
conducted by HHS. As part of Operation Restore Trust, HHS auditors 
visited Clearwater Clinical Laboratories (CCL), a local clinical blood 
lab, in January 1998. For years, CCL had a history of renting space 
from doctors clinics in order to have strategically situated draw 
stations and sub-leasing equipment from physicians that had previously 
had small laboratory draw stations in their clinics. CCL had also 
recruited doctors to be Medical Review Officers for each of the draw 
stations to monitor lab tests and consult with other physicians on lab 
results of blood drawn at the draw station for the other physicians' 
patients. These practices, widespread in the industry, were especially 
commonplace in the Tampa area, with a large Medicare population and 
heavily subscribed to managed care. Many ancillary service companies, 
such as home health and laboratories, rented space from physicians to 
lower overhead and provide convenience to practitioners and patients.
    Based on documents seen by the auditors, a search warrant was 
executed on CCL in June, 1998. Government agents seized numerous 
contracts with physicians who referred their patient's blood work to 
CCL. The owners and sales manager of CCL agreed to plead guilty and 
told investigators that the contracts with physicians--for personal 
services, equipment rental and space rental--were ``shams'' designed by 
CCL to disguise CCL's corrupt purpose in proposing such contracts to 
the physicians: to obtain their business. The doctors, of course, were 
never told by CCL how it viewed these contracts; to the contrary, part 
of CCL's marketing strategy was to tell physicians it approached that 
the contracts were legal and supplied a written legal opinion to 
support the claim. These physicians were asked by CCL to rent office 
space for CCL to establish a draw station for blood collection, to rent 
certain medical equipment, or to perform test interpretation services 
as a Medical Review Officer (MRO) or a Test Review Officer (TRO). The 
prosecutors acknowledge that a MRO or TRO can appropriately be employed 
by a clinical lab; they chose to view these as ``shams'' based on the 
CCL executives' confession of criminal intent as opposed to what the 
doctors legitimately understood. The compensation provided by CCL to 
the physicians under any of these contractual arrangements was very 
modest--typically several hundred dollars monthly, with none exceeding 
$1,500. None of these contracts required the physicians to refer their 
patients' blood work to CCL. Some of the physicians were already doing 
so, others did so after entering into the contract. Again, the 
physicians were assured that these arrangements were legitimate 
business relationships, and the March 1994 opinion letter from CCL's 
lawyers, Conklin & Sauey, that these arrangements met the ``safe 
harbor'' requirements of the law, appeared to be written confirmation.
    Unfortunately, the doctors were too naive, and too trusting. CCL's 
sales manager testified that one of the first physicians he enrolled as 
a TRO was ``very naive and believed everything [we] told him about TRO 
payments being in accordance with Medicare guidelines.'' One doctor, 
now indicted and convicted, was concerned about the ethics of one 
laboratory. Serendipitously, his office manager knew a FBI agent, who 
offered to advise him of a reputable lab to use. The agent was the case 
agent for ``Operation Takeback'', recommended CCL, and the rest is 
history. In hindsight, these doctors should have aggressively pursued 
independent advice as to whether the ``safe harbors'' of the Anti-
Kickback Act were met in all respects. But because they did not, and 
because they entered into these contractual arrangements and received 
modest payments from CCL for the services actually rendered or the 
space and equipment rented--some as little as $14,000--14 of these 
doctors were indicted on multiple felony count violations of the 
Medicare Anti-Kickback Act. At the same time, their own Medicare 
receipts--for their own patients, having nothing whatsoever do to with 
CCL--were suspended. Under HCFA regulations, suspension decisions are 
made without a hearing and are not appealable. These suspensions had 
the effect of putting these physicians out of business, even before 
trial. Those who are convicted, of course, will receive the mandatory 
5-year exclusion from participating in Medicare and Medicaid, further 
ensuring the end of their careers. All this for being naive, and for 
receiving a few thousands of dollars for services actually provided, 
when no one has ever challenged their billings or questioned the 
quality of their care.
    The real culprits in this story, of course, are CCL and their 
executives. Not only did they engineer a corrupt scheme to obtain 
referrals, but once having the business, the lab proceeded to implement 
a scheme to defraud Medicare in two separate billing schemes: 
unbundling requested tests to bill components separately and testing 
for cholesterol or iron when they weren't ordered by the physician. 
This isn't just my assessment; I'm quoting from the United States 
Probation Office's Presentence Investigation Report. Medicare paid 
hundred of thousands of dollars to CCL for fraudulently-billed tests. 
While the government prosecuted CCL and its executives, they entered 
into plea agreements that will result in minimal sentences by virtue of 
their cooperation in testifying against the physicians they duped. They 
will receive no jail time, they can continue in the industry, and no 
restitution will be required for the massive fraud that CCL perpetrated 
on Medicare.
    And that is the real injustice here. The government lets the 
masterminds off the hook with lenient treatment and goes after the 
small fish with a vengeance. And it is a vengeance unique to the Middle 
District of Florida, even though Operation Restore Trust is a 
nationwide investigation. None of the doctors who had MRO or TRO 
agreements with CCL, or leased space to CCL, who lived in the Southern 
District of Florida were prosecuted by the United States Attorney in 
that district. Moreover, I am reliably informed that none--or virtually 
none--of the numerous physicians who received kickbacks from the many 
other clinical laboratories that have plead guilty to kickback charges 
elsewhere in the country have been charged. I am informed that the 
government had evidence that some of those physicians received hundreds 
of thousands of dollars in research grants, educational grants or 
consulting agreements when little or no work was done. According to 
statistics compiled by our local newspaper, this one federal prosecutor 
in this one (out of 94) federal judicial district has accounted for 10% 
of the Medicare kickback cases nationwide all by himself. Outside of 
the Middle District of Florida, the government has exercised its 
prosecutional discretion in these situations appropriately by 
prosecuting the initiator of this conduct and the party truly 
responsible--the laboratory or other service provider.
    While all of us are pained mightily at what has happened, our 
overriding interest is in preventing further repetition of this 
tragedy. In July 1998, the prosecutor in charge of these prosecutions 
in the Middle District of Florida stated that his plan was to 
investigate approximately 400 physicians; his expectation was that he 
would secure 100 criminal convictions, with an additional 100 doctors 
who would not be criminally convicted but who would have to pay money 
back to the government together with civil fraud penalties; 100 
physicians who would have to repay the government without paying civil 
penalties and the last 100 physicians who might get out without any 
payments or criminal investigation. He appears to be implementing his 
plan. According to local reports that appeared last October, more than 
100 subpoenas have been issued to Tampa-area physicians for 
documentation of any relationship they may have had with Home Health 
Corp. of America, a Pennsylvania-based provider of home health nursing, 
respiratory care, durable medical equipment and other services. We have 
reliable information that subpoenas have been served on physicians that 
did business with another service provider as well.
    We do not think it fair that physicians in the Middle District of 
Florida should be held to a standard that is applied no where else. We 
do not think it fair that we appear to be the object of some vendetta 
by a single prosecutor. If his performance in the CCL case is any 
harbinger, we will have dozens--if not hundreds--more doctors in this 
community singled out. Their reputations will suffer, and if an equal 
number of prosecutions ensue, their wholesale exclusion from Medicare 
will cause the entire health care delivery system in Tampa to be 
affected. The core of family practitioners, who are the main medical 
resource of the elderly population here, is in jeopardy.
    We need to make known to the country at large what is happening in 
Tampa. We need to restore some semblance of sanity. We need the 
spotlight from outside the Middle District of Florida to shine into the 
abyss that we find ourselves in. We need your help.
    Thank you.
                                 ______
                                 
   Prepared Statement of Randy A. Shuck, Pinellas County Osteopathic 
                            Medical Society
    Good morning Mr. Chairman, I am Dr. Randy Shuck, Chairman of the 
Special Advisory Committee dealing with Medicare Fraud, to Pinellas 
County Osteopathic Medical Society. I am a Doctor of Osteopathic 
Medicine, a D.O., but I believe I can speak for all physicians both 
D.O. and M.D. alike, who find themselves caught up in the unfair and 
unwarranted criminal investigations that threatens their reputations 
and livelihoods.
    I am currently in private practice in St. Petersburg, Florida, and 
I am at risk for being accused of Medicare Fraud. I say this because of 
the trend affecting the ``middle district'' of Florida, under the 
``Operation restore trust'' program supervised by US Attorney Bucella. 
To date, 140 of my fellow physicians have been subpoenaed, 14 have been 
indicted, and 2 have been tried and convicted. Based on the 2 
convictions, the 14 indicted physicians have been goaded into accepting 
pleas which effectively ends their medical careers. One of the indicted 
physicians had an office 2 miles from my office. He has been stripped 
of his dignity, financially bankrupted, and embarrassed publicly, by 
being arrested in his office and handcuffed and paraded out through his 
waitingroom full of patients. He has not been tried or convicted, but 
his medical career is over. I am at risk of losing my practice just as 
this physician if I am placed under suspicion. We practice medicine 
largely by reputations based on ethics and moral behavior. If this 
reputation is put in question, our ability to gain the trust of the 
patient suffers.
    I am further at risk of being charged with Medicare fraud because 
of where I practice. The Middle District of Florida has the highest 
number of inquires into Medicare fraud. This is not because there is 
more fraud here than anywhere else but because of an aggressive 
Prosecuting Attorney looking to make a name for himself at the expense 
of the physician. This is based on questionable practices, threats, 
extortion and misconduct that appears common place under the 
supervision of USA Donna Bucella. Several high profile cases have been 
overturned , and charges dropped due to prosecutors misconduct 
according to an recent article in the St. Petersburg Times by Graham 
Brink on 3/24/01. According to this article, The Aisenburg's case 
charges that the investigators lied, fabricated evidence and raised 
questions that the federal prosecutors knew, and intentionally mislead 
the Grand Jury. There are similar issues raised by the lawyers 
defending the physicians involved here as well.
    The defense has stated that the physicians were ``duped'' into 
questionable contracts. The prosecutors have questioned how intelligent 
physicians could be ``duped''. In order to understand how this could 
have occurred, you have to understand the practice of medicine in 
today's HMO driven market.
    I specialize in Family Practice. I usually work 12 to 16 hours each 
day. I usually start with rounds at the local hospitals before office 
hours. Office starts at 8:30 am, and I usually see on average 25-35 
patients over the next 8\1/2\ hours. In-between seeing patients, I 
answer questions from staff, answer telephone calls from patients and 
other physicians, and see representatives of supply companies, 
pharmaceutical companies, diagnostic testing services and facilities. 
The average time I have to see these representatives is less than 10 
minutes. In this 10 minute session, these rep's will try to sell their 
services, by giving information, written material and supportive 
evidence. This information is placed on the desk, and I move onto the 
next patient or rep. My day usually ends as it starts, rounding at the 
local hospital after office hours. The remainder of the day is on call, 
knowing I could be called back to the hospital at anytime.
    The physician does not have enough time to set up meetings or 
verify every legal claim made by the reps. A great deal of trust is 
placed in the rep, and other physicians with similar agreements. The 
physicians who were prosecuted are similar to myself. They were in 
private practice, without sufficient time to verify contracts proposed 
to them. They also did not have the funds available to hire a lawyer 
everytime a rep made a claim, or offered a contract. These physicians 
did not enter into these contracts with any intent to defraud the 
government. The basic premise was to take care of the patient. The 
convience of a medical test, the ability to follow up immediately 
allows the physician to take care of the patient.
    A methodical, well thought out plan such as the one involved in 
this case required time and planning. This was produced by the 
businessmen working on the fringes of medicine. These individual 
businessmen have no care for the patient, they only care about the 
money.
    I am not inferring that no physician has ever defraud Medicare, and 
further I am not supporting any physician who has defrauded Medicare 
not be punished. True justice protects the innocent and punishes the 
guilty. It is equal and fair. It is not to advance one's career goals. 
It does not cater to the ones with the most money, or the ability to 
hire the most lawyers. It treats all suspects with respect and thinks 
them innocent until proven guilty in a court of law, not the 
prosecutor's office.
    We ask that you look at the facts presented today both in testimony 
as well as in the white paper prepared by our attorney. We wish to 
ensure a spotlight shines into the abyss that we practice in today, so 
that further lives are spared the indignity of being wrongfully 
accused. We are only asking that fair and just measures are used to 
enforce Medicare fraud. We ask that the physicians are treated with 
respect, and allow them to take care of the patient. We ask that you 
punish the true criminal no matter how layered they are with lawyers 
and false companies. The physicians are easy targets, with the most to 
lose, but the true losers are our patients. If you allow the current 
standards of prosecution to remain, young physicians like myself, will 
not be around to take care of the patient, and an already overburdened 
system will deteriorate even faster.
    We are asking for your help. Thank you for the opportunity to bring 
these issues to light. We truly appreciate your diligent investigations 
into this disturbing trend in the criminaliztion of medicine.

    Mr. Bilirakis. I will go ahead and kick off my questioning.
    I don't have to tell you good people that there is an awful 
lot at stake here, and what is at stake, of course, is the 
quality of medical care to our constituents. We hear these 
stories. I don't know how many of them are isolated, although I 
might tell you we hear an awful lot. As the good people from 
HCFA might know, we have requested input from all the Members 
of Congress regarding the problems some of the providers have 
had. And once we get those, those will be a part of a 
forthcoming hearing.
    I would like to ask Dr. Miller and Mr. Mangano, you have 
heard these other people testify regarding specific situations. 
I am one of those people who feels that you are conscientious, 
that generally HCFA officials are conscientious, they are 
trying, they are working hard. I have said this before a few 
times--I have been disappointed over the years when we have 
asked HCFA officials to tell us what they need from us in terms 
of changes in the laws and changes in authority so we can help 
them do a better job. Really, not too much was forthcoming in 
that regard.
    Even from the money standpoint, I am not sure that I 
remember anybody from HCFA specifically saying, ``Give us X 
amount of millions of dollars or whatever the case may be, and 
we will do a better job.'' If they would do that, I would like 
to think that they would tie it into specific functions so that 
we could have an idea of where the money might be going.
    Let me ask you, Dr. Miller, we have worked together, but 
some of these stories that you have heard from these good 
people, are they acceptable? I mean are they acceptable from 
the standpoint of where there are 1 billion claims transactions 
in a year's time? Some of this conduct that they have talked 
about, which can be multiplied many times, is that basically 
acceptable from the standpoint of so many claim transactions 
where a few things are going to fall through the crack?
    Mr. Miller. They are unacceptable, and----
    Mr. Bilirakis. They are not acceptable.
    Mr. Miller. [continuing] and all of them are regrettable. 
You are right. There is a billion claims. It does mean that 
transactions will go off track at times. All of these, the 
transactions that have occurred here, give us raw material to 
listen and to make changes. The enrollment form was underlying 
one of the problems or a couple of the problems that were 
brought up today. We recognize that the enrollment form is 
complicated, and there are several steps we are taking to make 
that better.
    We have broken the enrollment form out so that it is 
specific to the type of provider. Before it was all together, 
and that was confusing to people. We have put the instructions 
with each of the items on the form, and we are moving to 
setting strict timelines, that when a form comes in, all 
questions must be dealt with a physician and the provider and 
settled and the enrollment form done.
    Another situation that has been discussed here is the 
advanced beneficiary notice when a service is not going to be 
covered so that the beneficiary knows that they may be liable 
for it. And it may have taken a long period of time, but we 
worked with the Practicing Physicians Advisory Council, and we 
have designed a much more streamlined, single-page form to deal 
with that, and that was done in consultation with the medical 
societies--or with the physicians.
    They aren't acceptable. These things need to be corrected. 
We take all these transactions seriously, and when we are aware 
of them, the regional office, the carrier, and HCFA central 
office deal with these problems.
    Mr. Bilirakis. Well, all right. Let us go into the carrier 
or the contractor, whatever term might be used there. My 
understanding that HCFA's authority over the carriers is very 
limited?
    Mr. Miller. Well, there are certain strict authorities in 
the law about who we can contract with, in terms of our 
contractors, carriers, and intermediaries.
    Mr. Bilirakis. So we tell you who you can contract with.
    Mr. Miller. That is correct. And I believe the contracts 
are cost based so they are not performance based or 
competitively bid. But then behind that, we have budgets that 
we set, and we have criteria and performance standards for each 
of the contractors, and we try and manage contractors through 
those mechanisms. And then also some of the problems that have 
been discussed here are issues of consistency, that you get the 
same message from the same carrier and the same message from 
within the same carrier or contractor. And the efforts there 
are through education, standardized materials that we give to 
carriers to, in turn, give to the physicians and other 
providers to assure that that aspect of managing the carriers 
results in consistent messages.
    Mr. Bilirakis. I was told just this morning in a meeting by 
a group of providers--one provider indicated that Medicare 
reimburses a particular procedure in one part of the country. 
Under a different carrier, and in another part of the country, 
for exactly the same procedure, there is no reimbursement. Is 
that true? Can that possibly be?
    Mr. Miller. We had a hearing here a couple of weeks ago, 
this same committee, you as the Chair, on coverage of 
technology. And in fact, carrier medical directors do have 
flexibility to cover procedures differently across the country. 
And some of the logic behind that is the idea that different 
marketplaces may be at different levels of development in terms 
of procedures that are being used for their populations, and 
that flexibility actually gives, again, information that can 
then be used to make a national coverage decision, a national 
payment decision, and a national coding decision. But the 
answer is, yes, that can happen.
    Mr. Bilirakis. The answer is yes. And it should be that 
way, in your opinion.
    Mr. Miller. There are people who argue that that 
flexibility is necessary to assure that technology and new 
procedures get to beneficiaries as quickly as they possibly 
can.
    Mr. Bilirakis. Thank you. Dr. Becker. Now, we have heard 50 
cents on the dollar is basically spent to handle the 
regulations, to learn about the regulations, and to complete 
the paperwork. In terms of time, does that translate into 50 
percent of a doctor's time?
    Mr. Becker. Well, fortunately, it doesn't translate into 50 
percent of the doctor's time, but what we end up doing is we 
have to hire a staff to do that for us. So, generally, I would 
say--and it does come out to about 50 percent----
    Mr. Bilirakis. It does.
    Mr. Becker. [continuing] because it turns out that I 
probably have one administrative clerk for every one health 
care providing staff on my staff. And so we have a staff of 10 
people who are the team members in my office, about 5 of whom 
provide health care and about 5 of whom do billing and 
administrative bureaucracy.
    For the physicians, as it turns out, where it encumbers our 
time more than anything else because we have a dedicated 
office, and we are going to do what we have to do for our 
patients, it takes away time from my evenings and my family, 
and it takes away time from me on the weekends with my family, 
because I have to go down to the office and take care of 
administrative responsibilities.
    Mr. Bilirakis. I want to get back at that maybe in the 
second round, but Mr. Stupak, you haven't had an opportunity to 
inquire, I don't think, have you?
    Mr. Stupak. Have not.
    Mr. Bilirakis. All right. Please proceed.
    Mr. Stupak. Thank you, Mr. Chairman. You know, in looking 
at this whole situation here and some of the questions that Mr. 
Deal asked I was quite interested in, because if you take a 
look at the Balanced Budget Act of 1997 alone, Congress, us up 
here, added 350 new Medicare and Medicaid policies, many of 
them which were very complex and gave you a relatively short 
time to implement it. But did you receive, Mr. Miller or Mr. 
Mangano, whoever wants to answer, did you receive any extra 
money to do these new 350 new programs, to administer them, to 
contract out, whatever you did?
    Mr. Miller. There was money included in the budget to try 
and implement those programs, but your larger point is that the 
responsibilities have been significant. I think the number is 
900 provisions have been added over the last 4 years, and that 
the resources are very strained now to try and implement.
    Mr. Stupak. Well, for the last 4 years, you must be talking 
about HIPAA then and children's health initiatives.
    Mr. Miller. I am talking BBA, BBRA, the most recent 
Benefits Improvement Act, and HIPAA.
    Mr. Stupak. What do you do when you get those mandates like 
that from Congress? Do you do them internally or do you 
contract out?
    Mr. Miller. The mandates? Perhaps one point that should be 
made here is that you should understand, and perhaps you do, 
that there is HCFA central office, HCFA regional offices, but 
then there are 50 private carriers. These are private insurance 
companies. And what happens at HCFA central office is you 
define policy, you define procedures and how the program will 
be implemented. That information is given to the carriers----
    Mr. Stupak. And they do the implementation.
    Mr. Miller. The systems and the communication, that is 
correct.
    Mr. Stupak. So even though you try hard not to, it is not 
unusual then to get 50 different interpretations of your own 
policy then.
    Mr. Miller. The carriers?
    Mr. Stupak. Sure.
    Mr. Miller. From us?
    Mr. Stupak. No. That they could interpret it--I mean you 
give them as much structure as you can, but it is for them to 
administer it, so it would not be unusual then to get different 
administration of the same rule out in the field to the 
doctors.
    Mr. Miller. I wouldn't go to 50, hopefully.
    Mr. Stupak. All right, 49.
    Mr. Miller. I believe that with 50 different carriers, you 
can get some variation. I think that has been obvious from some 
of the comments here. But part of our education efforts are to 
standardize the information that is given to the carrier so 
that doesn't happen.
    Mr. Stupak. Well, let me go to the carriers, Ms. Bradley 
and maybe Mr. Friedman. You know, I have been on this what my 
fourth term now going on this subcommittee and on Commerce 
Committee where we deal with Medicare and Medicaid. Can anyone 
just tell me in really simple terms--and maybe you can't, maybe 
it is just too complex--but what really is broken? Whose fault 
is it? Is it HCFA? Is it the carriers? And how do you fix it? 
Try that one in 5 minutes.
    Mr. Bradley. Well, I will start, because I am not a 
carrier. I represent physician offices.
    Mr. Stupak. All right.
    Mr. Bradley. But MGMA represents--really has its pulse on 
the physician offices across the country. And I believe that it 
is a complex task, and it is accomplishable, but it does take 
input from the providers. And just this communication that we 
are having right now is a step in the right direction.
    Mr. Stupak. How would you fix it? How would you fix the 
problem?
    Mr. Bradley. One step at a time.
    Mr. Stupak. Okay. Give me a ``for instance.''
    Mr. Bradley. For instance, if there were quarterly reports 
from the Federal Register that we could depend upon, we knew 
that they were coming every quarter with any changes that were 
coming down the pike, if the Federal Government required the 
contractors to notify providers and give us a time limit, we 
would know at certain times check the Federal Register, check 
with our carriers, let us know what is happening, and then open 
up the lines of communication in that manner.
    Mr. Stupak. But you would want the communications before 
the changes were made, I would take it.
    Mr. Bradley. Before the changes are made, that is correct.
    Mr. Stupak. So in that quarterly report, you would like to 
see here is the proposed change, certain time limit to respond, 
and then finalize the rule?
    Mr. Bradley. That is correct. Give us enough time to 
implement the changes, give the carriers enough time to get the 
system working correctly.
    Mr. Stupak. How much time is usually that? I mean up here 
we usually hear 180 days, things like that.
    Mr. Bradley. I would say 45 days from the time of the 
Federal Register publication, perhaps.
    Mr. Stupak. Okay. Mr. Friedman, you want to add anything 
there?
    Mr. Friedman. Absolutely. From the carrier point of view, 
the pace of change is probably the most difficult to deal with. 
And the 180 days is a very different number. I don't want you 
to think of that at all from what the carriers have to do. The 
180 days comment was that--provided, a community would like 180 
days to understand a new policy, but it takes much more than 
180 days to change your electronic systems to actually process 
a new policy. As a matter of fact, there is supposed to be 
roughly 8 weeks of testing time for putting something of any 
significance new into a system. That has never happened. We 
have never gotten 8 weeks of actual testing time.
    And so while you have got, on the one hand, lots of things 
to do, on the other hand, very complicated things to do, you 
don't, in the final analysis, get enough time to implement and 
test what you are doing. And all of this becomes a vicious 
cycle, because then the next set of changes come along.
    The other area has to do with funding, but funding not in 
the simple sense that you probably need a few more dollars 
because you have got a few more claims. What has happened over 
the last several years, because of dealing with less money, is 
that the infrastructure is gone. It isn't so much that there 
aren't enough people to process claims, but there aren't enough 
people to stop and say, ``Are we doing it well?''
    When you have to give things up, the things you give up 
appear to be intangible, but they are very important in running 
an organization from a quality point of view. And so we have 
got to get back to the point where there is sufficient money so 
that an organization can not only do what it has to do but look 
behind itself and see that they are doing it well.
    Mr. Stupak. Thank you, and thank you, Mr. Chairman. I see 
my time has expired.
    Mr. Norwood. [presiding] Thank you very much. I want to 
first start by saying to all of you how much we appreciate you 
being here, particularly those of you that have taken time away 
from your practices and are here on your own buck. This is a 
very, very important hearing, leading to, I hope, some very 
important solutions.
    Dr. Miller, I wouldn't have your job for anything on Earth. 
I want to say to you that I have come to the conclusion that no 
matter how many smart people you have an no matter how big your 
computers are, this issue is out of hand and simply too 
complex, I think, to deal with on the path that we have been 
going over the last year.
    And I also want to say to you that I think there is a lot 
to be said--a lot of truth in the fact that Congress is 
micromanaging. I think Congress certainly aids in many of the 
problems that we see from HCFA today. We lay down laws, and you 
lay down rules, and somewhere in the process we have all made a 
large, large mess. Can you simply tell me how many new rules 
and regulations that you have put out in the year 2000?
    Mr. Miller. No, I can't. I can come back to you on that, 
but, no, I don't know the answer to that.
    Mr. Norwood. Would you care to even guess? Are we talking 
about 3 or 30 or 500?
    Mr. Miller. I couldn't hazard a guess, because I would say 
two things in response to your question. Remember that there 
has been several pieces of major legislation passed on a couple 
of years, and so the volume of rules and instructions to 
providers and so forth may be significantly more than it would 
be in an average year, if such an average year exists.
    Mr. Norwood. Well, when you come back with the answer of 
how many in 2000, why don't you come back with the answer of 
how many in 1990? Let us just see how this thing has grown over 
the last 10 years.
    [The following was received for the record:]

    In 1990, we issued about 40 final rulemaking documents. 
Similarly, in 2000 we also issued about 40 final rulemaking 
documents. It is important to note that we counted only final 
rulemaking documents, or substantive changes to final 
documents, not proposals. Additionally, although these numbers 
are similar, they do not reflect the breadth nor thr comlexity 
of each final rulemaking document.

    Mr. Norwood. Mr. Friedman, I thought I heard in your 
statement something to the effect you put out a number or an 
explanation of how many rules you as a contractor have had to 
deal with in the year 2000.
    Mr. Friedman. One of our contractors had put together--done 
a count in 2000 that 719 significant change transmittals had 
come through.
    Mr. Norwood. The number again, please.
    Mr. Friedman. Seven hundred and nineteen in the year 2000, 
which was about 2.5 times what it was in 1998. I am talking 
fiscal years, actually, Federal fiscal years. So it is growing 
considerably.
    Mr. Norwood. And those are simply rules you as a contractor 
get, which typically you pass on to Dr. Wood, Dr. Becker, and 
others. Is that correct?
    Mr. Friedman. That is correct, sir. And also what it 
doesn't really tell you is that some of them may be extremely 
significant.
    Mr. Norwood. Let me stop a minute and try to make sure we 
get this record straight. I know everybody says there are a 
different number of thousand rules. HCFA says they only have 
35,000. I tend to say there is 130,000, and I am looking at it 
from the point of view of not HCFA, but the provider that sits 
there and has the 35,000, which is probably a conservative 
number that could be questioned. And all the rules then that 
come from all of the contractors for a physician who deals with 
numerous contractors.
    And the point I make here is about educating the provider. 
That is a very interesting concept. Doctors spend 4 years in 
college, 4 years in medical school, 1 year as an intern, 2 to 6 
years as a resident. My understanding is that they deal with 
the equivalent of about 12 dictionaries a year in terms of 
their learning process all the time in medical school. And I am 
saying a dictionary, perhaps, is 1,000 pages, for example.
    Now, if we are going to educate the provider, that means 
that the provider--if you take all your rules and regulations 
and you put them into a textbook, the provider has to deal with 
about 10 dictionaries a year to get educated. And I am 
wondering do we need to add another year of medical school in 
order for the provider to become educated with all the rules 
and regulations?
    A lot of our colleagues talk about educating the physician 
who typically is fairly able to be educated. But the system, I 
contend, is so out of hand that there is absolutely no way that 
a doctor can treat his patients and tend to all the rules and 
regulations. And Congress, through HCFA, has made it then even 
that more difficult, because now if you don't pay attention to 
the rules, we may put you in jail or we can make you have a bad 
day. And this kind of situation has got to change.
    Dr. Miller, you talked a lot about your emphasis on 
provider education. Remember I ask you this question in the 
context that we are looking at 10 dictionaries worth of 
education. I see in this program memorandum that, quote, 
``Provider feedback in education is an essential part of 
solving problems,'' end quote. So my question is why, in the 
October 31, 2000 Federal Register on critical standards for 
evaluating carrier performance is, quote, ``provider education 
optional,'' in that Federal Registry rather than mandatory? The 
question basically is, if you really believe that we are going 
to solve this problem by having another year of medical school, 
and that is the only thing that is going to solve it, why is it 
optional?
    Mr. Miller. Just a couple things. On the 35,000, the other 
thing to keep in mind there is those are not all for 
physicians. That is 35,000 for all providers, so I wouldn't 
expect that the physician would know all of that.
    Mr. Norwood. So now we are back to eight dictionaries. I 
mean, come on, you get the point of this.
    Mr. Miller. I realize it, and page counts are not the point 
here. Education and communication is the point, which I think 
is your point, and I agree with you. I am not aware that 
provider education is optional as one of the criteria for 
carriers. We have budgets for the contractors to do education, 
and my understanding is, is that they are all doing it.
    Mr. Norwood. Well, look under the criteria standards in the 
Federal Register and see if I am not right.
    Let me ask Mr. Mangano?
    Mr. Mangano. Mangano.
    Mr. Norwood. Mangano. You said in your testimony that you 
are really saving the Federal taxpayers all these billions of 
dollars. And, certainly, none of the things you are dealing 
with happens to be an honest billing mistake. That is not a 
problem. Why don't you explain to us what happens if a 
physician makes an honest billing mistake.
    Mr. Mangano. If a physician makes an honest billing 
mistake, what will happen in almost every case is that HCFA 
will ask that provider to return the money. If the case happens 
to be turned over to us in which we are asked to investigate it 
and we discover it was an honest billing mistake, we turn it 
right back to HCFA and just say, ``Repay the overpayment.''
    Mr. Norwood. Sort of like they did with Dr. Becker's friend 
after they wrote all of his patients and said, ``Geez, you are 
going to a doctor that is overcharging you.'' I mean I expect 
that from Blue Cross Blue Shield; I have been on that end of 
it. But I don't expect that from the Federal Government.
    Mr. Mangano. None of those cases were given to the 
Inspector General.
    Mr. Norwood. None of the cases that----
    Mr. Mangano. Dr. Becker talked about.
    Mr. Norwood. --Dr. Becker talked about.
    Mr. Mangano. They all stayed within HCFA and its 
contractors.
    Mr. Norwood. But don't--first of all, if a mistake is made, 
you don't know if it is honest or not.
    Mr. Mangano. Well, I would just mention that for us to 
prosecute someone criminally, we would have to prove criminal 
intent to defraud the Medicare Program.
    Mr. Norwood. I appreciate that, but this is more than just 
prosecution. If a mistake is made, though inadvertent, you 
don't know that, and that triggers an audit.
    Mr. Mangano. If we were asked to go in and to take a look 
at a provider because HCFA suspected, or its contractor 
suspected, that they were overbilling the program 
intentionally, we would go in and take a look at it, and review 
the facts of the matter.
    Mr. Norwood. Well, if they made a mistake, you don't know 
if it is intentional or not, so therefore an audit is--you 
either deny the payment or you have an audit, don't you?
    Mr. Mangano. At the beginning of the process, if we were 
involved in it, we obviously don't know what has happened. We 
want to go in there and find out what the facts are.
    Mr. Norwood. Which is an audit.
    Mr. Mangano. It could be an audit or it could be an 
investigation, depending on what the allegations are.
    Mr. Norwood. All right. It is an investigation. Now, when 
you start investigating people, if they are really, really nice 
and cooperate in every way, how long is this type of thing? How 
disruptive is this type of thing? How many patients aren't 
treated while you are auditing or investigating?
    Mr. Mangano. If we are doing an audit, we will draw a 
sample of claims from that particular provider. We ask them to 
send us the medical records so we don't even have to go in to 
the office to do that. They send us the records, we review the 
records, review any other information that is available around 
the case. As we go through the records, if we find that there 
has not been a problem here or that the problem is what we 
believe to be an inadvertent billing error, we end it at that 
point, give the records back to the health care provider, and 
tell HCFA that they probably need to go collect an overpayment.
    Mr. Norwood. I am not going anywhere. Please don't leave, 
Dr. Wood and Dr. Becker. I have got a bunch of questions I want 
to ask you two. My time has expired, and I believe, Sherrod, 
you are next. Mr. Brown is next.
    Mr. Brown. Thank you, Mr. Chairman. You know, I hear over 
and over the threat of doctors going to jail, and I hear it 
from my district, I hear it from committee members, that if 
doctors make a mistake, they go to jail. I am just real 
curious, Mr. Mangano, how many doctors have actually gone to 
jail, and what do they go to jail for?
    Mr. Mangano. Since I knew this hearing was going to be 
dealing primarily with physicians, we went back and took a look 
at our records for the last 3 years. In the last 3 years, we 
criminally prosecuted an average of 18 physicians a year, out 
of the 650,000 physicians.
    Mr. Brown. Do all 18 of them--since I hear so much about 
it--do all 18 live in my district?
    Mr. Mangano. No, they don't. These are physicians that--I 
will give you some examples. One case we had physicians that 
were billing for acupuncture. They were claiming it was 
physical therapy--1,300 times. It is interesting, because 
Medicare doesn't cover acupuncture, but it does cover physical 
therapy. Even when we got into the case, we found out something 
even more interesting, that most of the patients weren't even 
around when the physician said that they were around. Some of 
them were in jail; some of them were in the hospital so they 
couldn't have been treated.
    We have physicians that are signing certificates of medical 
necessity, which are required in order for a patient to get 
durable medical equipment. The durable medical equipment 
company would go to the physician and say, ``Sign this stack of 
certificates of medical necessity, a whole stack of them. We 
are going to give you $100 for every one you sign. And, by the 
way, you are not going to see the patient.'' And then the 
physician not only takes the kickback arrangement, but often 
bills Medicare for office visits that never happened. This is 
the kind of case that we deal with.
    So 18 isn't a lot. We don't have enough investigators to go 
out and look at every allegation, so we are picking what we 
believe are the worst cases. In addition to the 18, we also 
were successful civilly with another 20 on average per year. 
There is not a lot of physicians that are coming under our 
scrutiny.
    Mr. Brown. Eighteen a year were criminally prosecuted 
successfully?
    Mr. Mangano. Correct.
    Mr. Brown. And 20----
    Mr. Mangano. Civilly.
    Mr. Brown. [continuing] a year civil. How many of those 
were criminally or civilly prosecuted for making what one might 
call an honest mistake?
    Mr. Mangano. None of them, because none of the criminal or 
civil statutes would allow us to do that. It would be illegal. 
Criminally, we would have to prove criminal intent to defraud 
the Medicare Program. When we go after somebody on a civil 
case, we have to prove that they had actual knowledge of the 
false claim they had submitted or a reckless disregard for the 
truth. So honest billing mistakes don't come under our purview.
    Mr. Brown. If you were to explain each of those cases, 
those 38, say, last year--18 and 20--to this whole panel, do 
you think there would be any doubt that all of us--do you 
believe that all of us would think that was a legitimate 
prosecution?
    Mr. Mangano. I believe so. We speak about 75 times a year 
before professional organizations, compliance organizations, 
and the bar that represents them. And every time we go out and 
we talk about the kind of work that we would be doing. When we 
get to specific cases, there is no argument over that. In fact, 
we ask people to send to us examples of where they believe we 
have misapplied our investigative resources for a particular 
case of a physician or other health care provider they think we 
should not have been investigating. And to this date, in the 20 
some years that I have been in the Inspector General's Office, 
no one has ever come to us with a case like that. Because when 
you get to specifics, everybody realizes that these are bad 
cases.
    And what happens is, probably the worst damage of all is 
that these few bad apples, these bad physicians, are tarnishing 
their whole profession, because when the public sees in the 
newspaper Dr. So-and-So was convicted of criminal fraud in the 
Medicare Program, it tends to put a taint on all physician 
practices, and that is unfair.
    Mr. Brown. Do you ever prosecute anyone, a doctor, when he 
or she gets conflicting information from carriers, and they 
take the more lucrative choice, if you will?
    Mr. Mangano. No. As a matter of fact, one of the first 
things that we do in an investigation and in an audit, is to go 
back and look at the information that was sent to them by the 
contractors and we ask them about that: ``What information did 
you have in terms of how to bill for this procedure?'' And when 
the contractors says, ``Bill it this way,'' and they did, even 
if they had conflicting arrangements, that is the end of it for 
us.
    Mr. Brown. So going back, that is 38 physicians out of how 
many physicians in the United States?
    Mr. Mangano. Six hundred and fifty thousand, approximately.
    Mr. Brown. Okay. That is a better percentage than Members 
of Congress, I would say.
    Mr. Mangano. Every profession has bad apples.
    Mr. Brown. Speak for yourself.
    Mr. Mangano. Every profession has bad apples, and 
unfortunately the medical community has theirs.
    Mr. Brown. All right. Thank you.
    Mr. Bilirakis. First, the February 4 letter from Secretary 
Thompson that I inserted into the record is in response to a 
March 22 letter sent by the committee to Secretary Thompson, 
signed by Mr. Greenwood, Mr. Tauzin, and myself. So I would ask 
unanimous consent that that letter be placed in the record. And 
then there is a February 19, 2001 article in USA Today by Julie 
Appleby and additionally an article in the Denver Post, dated 
January 12, 2001, entitled, ``Doors Closing for Medicare 
Patients.'' I would to, with unanimous consent, insert those 
into the record.
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    Mr. Bilirakis. Dr. Becker, you have heard the statistics--
18 convicted, 20 civilly. I think Mr. Mangano has told us. Have 
you told us, basically, sir, that of those 18, or whatever the 
case may be, are any of them technically wrong in terms of 
billing mistakes, things of that nature or are they the onerous 
type of situation that you shared with us?
    Mr. Mangano. No, I believe they are the onerous conditions 
that we talked about. As I said, the requirement for us is to 
prove criminal intent to defraud for a criminal act, and, 
civilly, to show actual knowledge of a false claim itself.
    Mr. Bilirakis. Mr. Mangano, my concern in that regard is 
that because of an honest mistake, not the types that you are 
referring to, a provider's reputation might be soiled, as a 
result. Can you address that?
    Mr. Mangano. Well, you know, one of the things that we have 
as a standard operating procedure, if we have somebody under 
investigation, we make no public statements about that. So no 
one in the outside world is going to know about that person 
through any press release that we are going to put out in our 
office. So they are protected that way.
    When we serve search warrants, we try and do it with a 
great deal of respect for the practice, so we often will go in 
on a Saturday morning or ask the physician to stay at night 
after his hours are over so that we go in so that we don't 
interrupt any business there. At a hospital, it is the same 
thing. We try and do it in as unobtrusive way as we possibly 
can so we don't influence the practice that they have.
    Mr. Bilirakis. All right. Dr. Becker, any comment?
    Mr. Becker. Organized medicine certainly supports the 
efforts to eliminate fraud and abuse from the system. We 
certainly would not condone in any way fraud in the system. 
What we are concerned about, of course, are inadvertent areas, 
which really fall probably not in the jurisdiction of the OIG, 
which looks at fraud, but really we are concerned about the 
aggressive methods used by the carrier under HCFA's observation 
about when physicians are alleged to have made overpayments, 
and where it has become very burdensome for practices to deal 
with those investigations.
    Mr. Bilirakis. Well, do you know personally of any 
instances where a physician falls in the category of a billing 
mistake or something of that nature but nothing as onerous as 
kickbacks, where a physician has been accused and whose 
reputation was soiled? I realize that is a subjective issue.
    Mr. Becker. Sure.
    Mr. Bilirakis. Oh, you do?
    Mr. Becker. Interestingly enough, when I first came to 
Clearwater, and this is about 12 years ago now, the person who 
brought me to town underwent an audit about 2 years after I was 
there. He originally had an allegation of an overpayment of 
$120,000. He is a busy physician who does a lot of work, 
including a lot of work for Medicare, because Largo, Florida 
has about 50 percent Medicare population.
    Mr. Bilirakis. Is he still doing work under Medicare?
    Mr. Becker. Still doing great work.
    Mr. Bilirakis. He is? All right. Good.
    Mr. Becker. He is a good physician; he is a smart guy, and 
provides excellent care to Medicare beneficiaries.
    It was an alleged overpayment of $120,000. Obviously, not 
very many people have $120,000 in the bank. He had to take a 
bank loan out to pay that overpayment. He went to his fair 
hearing, which took months to arrange. He got the vast majority 
of that back. I believe he got about $120,000 of $140,000 back. 
So the vast majority he correctly billed initially, and that 
was proven during his fair hearing.
    But in the meantime, it cost him certainly the interest 
that he had to borrow a bank loan on. It cost him lawyer fees, 
because he had to hire health care lawyers to help him support 
his case at the fair hearing. And it certainly was an 
incredible intrusion and inconvenience to his practice.
    Mr. Bilirakis. Was the community area aware of all this 
having taken place?
    Mr. Becker. At that time, the community area was not aware. 
Now, obviously, there is one of the examples that I gave 
earlier in my testimony of where--and I am guessing that must 
be a new policy for the carrier to actually contact the 
patients. In the practice I was involved in, they did not 
contact the patients in that particular case. But they have in 
subsequent cases, which, like I said, I think may be a newer 
policy.
    Mr. Bilirakis. I realize Dr. Becker's statement might be an 
isolated case, but are there--do you know of doctors who have 
been accused, who ultimately were not found to be guilty, whose 
reputations maybe were soiled wrongly? I don't want to come 
across as opposing the efforts on waste, fraud, and abuse. 
After all, it was this subcommittee, which a couple years ago 
kept emphasizing the need to do something about this. I am 
concerned that these things be done in a correct manner, and I 
am not saying that they haven't been, but we get an awful lot 
of comments from a lot of providers to that effect.
    Mr. Becker. The only case I am aware of is Dr. Taylor's 
case where in fact the Medicare carrier did contact his 
patients prior to his fair hearing. And so certainly there are 
incidents where due process is the second consideration after 
penalties are imposed.
    Mr. Bilirakis. Dr. Miller, my time is up, but can you 
respond to maybe the Dr. Taylor situation?
    Mr. Miller. Yes. Yes, I can. We agree that--just a couple 
of points first. When there is an overpayment, by law, Medicare 
has to take it back. That is by law. It is correct that all 
steps of the process, when the overpayment is taken, when there 
is an appeal, and the adjudication of that appeal, that because 
the beneficiary also has money involved in this, they should be 
informed. In this instance, I believe that the case that he is 
talking about this was not a good example. This is not how it 
should have happened.
    How it should happen is at each step of the process, the 
beneficiary should be informed of what is going on. So on 
appeal, when most of the money came back in this instance, the 
beneficiary should have also been notified of that. And there 
is a clarification of policy that is going out to make that 
clear to carriers.
    Mr. Bilirakis. That is going out? It is in the process of 
going out?
    Mr. Miller. I can't remember whether it is going out or 
already out.
    Mr. Bilirakis. Or already has.
    Mr. Miller. But that is a specific issue that we became 
aware and that we are----
    Mr. Bilirakis. Thank you. Mr. Deutsch to inquire?
    Mr. Deutsch. Thank you, Mr. Chairman. Mr. Mangano, Dr. 
Becker makes a statement that I would like you to comment on. 
He says in his testimony, I will quote, ``Doctors are 
intelligent people, but we are not attorneys; we are 
physicians. Doctors should not fear that a computer keystroke 
error will miscode a diagnosis, which will trigger an audit 
that can be statistically extrapolated to a liability in the 
hundreds of thousands of dollars. Many doctors have been 
bankrupted by this system. We need due process for overpayment 
allegations; we need a system everyone can understand; we need 
training from our HCFA carriers for correct coding and 
documentation.''
    Mr. Mangano, what are your thoughts on this? And what do 
you believe is accurate here? And what, if anything, in this 
statement could benefit from a bit more context?
    Mr. Mangano. I believe everything in that statement is 
accurate. Nobody should ever be prosecuted for innocent billing 
errors. The worst that should happen in that case is if the 
errors have occurred, they do an overpayment back to the 
Medicare Program. Physicians, as with all other health care 
providers, need to have the kind of educational and training 
materials to understand the program as best as they possibly 
can. So there isn't anything in that statement that I would 
disagree with.
    Mr. Deutsch. Can I ask two things about that? What about 
the responsibility of HCFA to provide that training for 
physicians?
    Mr. Mangano. I believe it is their responsibility. I have 
noticed over, say, the last 4 years a significant increase in 
the amount of training that HCFA has been providing. In fact, 
we have been on some of the panels when they have met with 
physician groups nationally. I do know there is a lot of 
materials going out from HCFA to its contractors, the 
advancement of some of the web sites that they have, as well as 
where the beneficiary can also contact Medicare directly and 
ask questions about Medicare.
    There is information on nursing homes. They have got a 
system--we really are pretty impressed--if you have someone who 
is about ready to go into a nursing home, you can call up the 
Medicare web site and find out information about how that 
nursing home stacks up. There is a lot of really good things 
going on. That doesn't mean that more isn't needed, and clearly 
much more is needed.
    Mr. Deutsch. On the training side, though, if you can, if 
you can sort of comment on any resource issues, in terms of 
HCFA itself having the resources to provide that type of 
training, specifically for physicians.
    Mr. Mangano. I am glad I am not an appropriator----
    Mr. Deutsch. Right, I understand.
    Mr. Mangano. [continuing] but as a private citizen, HCFA 
does not have the resources to carry out this program in the 
way that I think you want it to be carried out or the health 
care professionals in this country want it to be carried out. 
We heard earlier in testimony the amount of money that HCFA has 
in terms of its overhead costs of 2 to 3 percent. That is 
really running this program on the cheap. Mr. Friedman, at the 
end of the table, talked about 15 to 20 percent being more 
adequate for their private-side business.
    So I think the Congress, at some point, and the 
Administration are going to have to come to the point where if 
you want this program to operate properly, if you want people 
to get the training they need, if you want them to pay all the 
bills that are supposed to be paid, get all the information 
out, turn the legislation into regulations that are 
understandable, you have to pay for it.
    Mr. Deutsch. Let me--and, again, because I want to get at 
least one more question, if you can try to be a little bit 
concise with the answer to this and specific if you can, and if 
you can't, if you can provide us afterwards with the 
information. Again, the statement talks about physicians being 
bankrupt because of keystroke errors and a liability of 
hundreds of thousands of dollars. How many physicians would you 
say would be in that category over the last 12 months across 
the entire country?
    Mr. Mangano. With relationship to our office, there 
shouldn't be any.
    Mr. Deutsch. No, but how many were?
    Mr. Mangano. I would have to ask that of HCFA, because 
HCFA's contractors do an enormous number of--well, I won't say 
enormous--do many audits across the country. I really don't 
have that number.
    Mr. Deutsch. Dr. Miller, would you want to respond to that, 
just to give a ballpark type number?
    Mr. Miller. Okay. I think what you are referring to are 
physicians being audited.
    Mr. Deutsch. Or audited with the results of what we just 
said and with the information that is effectively a human error 
that was a mistake that led to that result.
    Mr. Miller. What I can tell you is three-tenths of a 
percent of physicians are in audit in any given point in time. 
That is about 1,900 physicians out of the 650,000. If I can 
also say one other thing about this. Program integrity is not 
my area, but I have been briefed for the purposes of this 
hearing. The way this works is progressive corrective action, 
and there is sort of three steps in it. If there is a small, 
one-time error, it is education and recouping the money. If 
there is a systematic problem, say, 75 percent of bills are 
coming in and being denied, then there may be that the 
physician is put on 100 percent review process to look at the 
claims. And then, finally, it is only in the most egregious 
cases, providing services that aren't covered or patients that 
aren't present, that get referred to the Inspector General.
    Mr. Deutsch. Thank you.
    Mr. Bilirakis. I thank the gentleman. Mr. Deal to inquire.
    Mr. Deal. Thank you, Mr. Chairman. Recently, my 94-year-old 
mother received a notice from one of her physicians that she 
was no longer accepting Medicare patients. Chairman Bilirakis 
has recently just introduced an article from USA Today with 
regard to this issue of certain parts of the country, in 
particular, suffering physicians withdrawing from Medicare--as 
Medicare providers. I suppose, Dr. Miller, I would ask you is 
this perception that we are losing medical providers because of 
the complexity and the fear of being prosecuted or being 
harassed, is that real? And if it is, what, if anything, is 
HCFA doing about it?
    Mr. Miller. I don't believe that there is a widespread 
problem where physicians are defecting from the Medicare 
Program. I believe that there are physicians who do feel that 
there are burdens, and it is too burdensome to deal with the 
Medicare Program. We are aware of the situation in Colorado.
    What Medicare is doing and what HCFA is doing, and much of 
this is laid out in the testimony, but for just 2 seconds or 
so, the kinds of things that we are doing: First and most 
importantly, we are listening to physicians, and there are 
several ways that we are doing that. I have mentioned the 
Practicing Physicians Advisory Council; I have mentioned the 
Physicians' Regulatory Issues Team. There are conference calls 
with the medical specialties, I believe, on a monthly basis. 
There are public meetings that we go to. There are 
accumulations of frequently asked questions so that we can say, 
``This is what they are confused by. We need to put out 
information to clarify this.''
    Then there is the issue of communicating information. We 
are trying with the carriers to standardize our communications 
so that there is not confusion across the carriers. So when we 
have a new bulletin, we often put the bulletin out to the 
carrier and say, ``This is the guidance. Put it out unchanged 
to providers so that every provider gets it the same from every 
carrier.''
    We are doing things like that. We have national 
publications. There was another question along the lines here 
of medical school. We have a publication for interns and 
residents that says, ``This is Medicare. This is what you can 
bill for. This is how you bill for it.'' So, again, we can get 
a standardized message out to the physician. We have toll-free 
lines that we now have so that physicians can ask questions. We 
have the web-based learning resources that Mike referred to. 
These are the kinds of things that we are working on.
    Mr. Deal. Dr. Becker, what is your impression of what is 
happening in the physician provider community?
    Mr. Becker. Well, I am in Florida, which is fairly--a 
little different than the rest of the country. Fifty percent of 
my practice if Medicare, and 50 percent of most physicians' 
practices in Florida is Medicare, sometimes a much higher 
percentage. It would be difficult for anybody in Florida to 
pull out of the Medicare Program without considerably 
sacrificing how busy you were going to be. So in Florida, it is 
not happening very much. But I think it is a much bigger 
problem around other areas of the country where there is a less 
high percentage of Medicare patients in people's practices.
    Mr. Deal. And in lower reimbursement rate areas, that 
complicates it even further, I would presume.
    Mr. Becker. I am sure it makes a difference. If you can get 
a higher compensation from a private insurance company, then it 
gives you less incentive to see a Medicare patient, for sure.
    Mr. Deal. Could I ask what is done to coordinate the 
reporting processes of those who are civilly and criminally 
prosecuted? Is there any coordination with licensing boards and 
their States with--in other words, does anybody ever lose their 
medical license for defrauding Medicare?
    Mr. Mangano. If you are convicted of a criminal statute, 
you are automatically excluded from participation in any 
Federal health care program by our office. We put together 
lists, and they are available on the web sites, as well as 
people who want to contact us through our other information 
sources, to find out whether a physician or any other health 
care provider has been excluded, and we provide that free of 
charge.
    Mr. Deal. Do you provide it to the State licensing board of 
the state?
    Mr. Mangano. That is correct. We also provide it to HCFA, 
who sends it out to their contractors as well as to the State 
Medicaid agencies.
    Now, if you are--if we have a successful civil action 
against you, in many of those cases, we have an opportunity to 
have a permissive exclusion. We only take that exclusion in the 
worst cases. We allow people to stay in business usually when 
we have a civil action against them. If they are willing to 
make some changes in the way they practice medicine, in many of 
those cases, what we do is require what we call a corporate 
integrity agreement. This is usually for large companies, in 
which we ask them to put into place training and self-audits of 
their billings to make sure that they stay good corporate 
citizens in the future.
    Mr. Deal. Thank you. I believe, Mr. Chairman, Dr. Miller 
raised his hand. I don't know whether you have time for him to 
respond.
    Mr. Bilirakis. Quickly, if you would, Dr. Miller.
    Mr. Miller. I was just going to say that that is also 
coordinated with the carriers. When somebody is excluded, that 
information is given to a carrier, and carriers are aware that 
those providers are excluded.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Bilirakis. All right. The Chair will recognize Mr. 
Deutsch for his second----
    Mr. Deutsch. Thank you, Mr. Chairman. I appreciate being 
accommodated.
    Ms. Bradley, in your testimony, you make the following 
remarks: ``While MGMA agrees with both the current and previous 
administrations that additional HCFA funding is warranted, the 
efficiencies resulting from improving HCFA's organization and 
communication responsiveness will vastly improve the system 
without creating additional costs.'' What specific changes do 
you believe we can make right now regarding HCFA's organization 
and communication responsiveness that would make a substantive 
difference but would not involve adding additional resources to 
the agency?
    Mr. Bradley. I believe that if claims can be processed 
efficiently without having to wait months and months and 
months, it won't tie up our staff, it won't tie up the staff at 
the carrier. We can save monies that way. I believe also that 
if you continue to offer free educational materials or if you 
will at least offer free educational materials and educate the 
provider community, we try to do what is right, we try to do a 
good job. We need clear communication and clear direction from 
HCFA and our carriers to do that.
    The laws, however, need to be clear. Oftentimes there is a 
Federal law, and then there is HCFA. There is a State law, and 
they are hard to know which ones we should be following, what 
is in the manuals different from a Federal law. So we are 
caught in the middle, and as I said, we want to do what is 
right. So if we could have manuals, for instance, that agree 
with Federal law, that would save the system money.
    Mr. Deutsch. Okay. Aren't most of the claims quickly 
processed under the Medicare system, some automatically through 
a wire transfer process at this point in time?
    Mr. Bradley. I would say standard electronic claims, we are 
paid in a prompt manner by Medicare, that is correct.
    Mr. Deutsch. Let me just follow-up on the two things you 
mentioned, and this sort of ties into my previous question. I 
don't think anyone here would disagree with your statement that 
there needs to be better communication with HCFA and 
physicians. I don't think there is anyone at all who wants 
physicians to not follow the procedure, to make inaccurate 
mistakes. I guess part of it, though, at least there might be a 
little bit of a difference amongst the panel up here in whether 
HCFA has the resources to do that. And I guess at least that 
aspect that you are describing, I don't personally see how HCFA 
can do it under present resources. I think that they should be 
doing more of it. I think it would have a cost-benefit effect 
absolutely. But I don't see them presently being able to do 
that under their existing structure. So I would agree with you 
completely about that.
    The other issue, though, and, again, I guess part of our 
job in terms of our oversight responsibility on HCFA is 
specifically to look at that time element. I mean could you 
give some elaboration to that time element problem in terms of 
the processing of the more problematic claims that they have, I 
mean in terms of personal experience or others' experiences 
that you can relate to us?
    Mr. Bradley. Yes. The time element spent in my office as 
well as spent with trying to----
    Mr. Deutsch. Well, but also the reimbursement time element, 
in terms of the processing issues on claims that are not being 
reimbursed electronically.
    Mr. Bradley. Claims that are not being reimbursed 
electronically take longer. Problematic claims can take at 
least 6 months.
    Mr. Deutsch. Okay. And what does that mean as a practical 
problem for you or other offices?
    Mr. Bradley. It is a practical problem for me, because lots 
of times I don't get any responses to my letters. I have to 
have staff continually following the claims. We have to keep 
calling on the telephone. All this time we would prefer to be 
spending with our patients who might need our help, who often 
need our help, for instance, in helping process their secondary 
claims. We have a lot of patients who come into our office 
asking for assistance in that manner, for instance.
    Mr. Deutsch. And let me get one final question: How does 
the claim processing time under Medicare compare to the claim 
processing time under the strictly private side of the carrier 
or the same carrier, for that matter?
    Mr. Bradley. That is a difficult question to answer. They 
both have their strengths and weaknesses. I would say that 
Medicare probably has payments received as quickly as the 
private payers for a standard routine claim.
    Mr. Deutsch. Thank you, Mr. Chairman.
    Mr. Bilirakis. Dr. Norwood, inquire?
    Mr. Norwood. Dr. Wood, you stated in your testimony that 
there was a need to get groups within HCFA to work together. 
Would you expound on that for me just a little bit?
    Mr. Wood. Gladly. The Health Care Financing Administration 
is working on a new set of documentation guidelines to help it 
in paying claims for physician office visits, hospital visits, 
emergency room visits, and the like. In that process, it will 
be critical to engage a large number of providers in a phase of 
pilot testing. The difficulty, however, is that the program 
integrity folks are insisting that there cannot be any sort of 
a pilot where providers would be held harmless or given some 
sort of protection as that pilot is developed.
    It would be anticipated in the pilot that there should be 
some areas where we would be learning, and there would be 
differences of opinion about what an appropriate code would be. 
And so despite all of the intense effort of the group that 
works directly with physicians in that regard, that would be 
the health plan provider section that Dr. Miller is leading, 
they then encounter some difficulties with other parts of the 
agency. And that is a particular circumstance where there will 
need to be some significant leadership from the higher levels 
of the agency to make a decision about how we are going to go 
forward.
    Mr. Norwood. PPAC has made a number of suggestions to HCFA 
and a number of complaints to HCFA, in terms of them not 
working as well with PPAC. Now, have those concerns been 
addressed or do we still--where are we with that?
    Mr. Wood. Well, from my position at PPAC, where I have had 
the privilege to sit for the last year, there has been progress 
made. I know that some of you are aware of Dr. Kuffner's 
letter, Dr. Kuffner being the previous Chair of PPAC. And I do 
believe that PPAC is making progress. In particular, some of 
the work that has been done with the advance beneficiary 
notices that Dr. Miller referenced earlier, very positive. It 
has happened very rapidly, although it has taken a while to get 
it to the point where something has happened. The documentation 
guidelines, I think, are another positive sign that HCFA is 
intending to work with physicians in a prospective manner; that 
is, trying to work together and putting these guidelines 
together before the fact, before they are published and before 
they are implemented.
    This will be, I think, the litmus test. If PPAC's 
recommendations regarding a pilot project or some sort of a 
demonstration project under the authority of the Secretary 
cannot be implemented by the agency, then I believe that PPAC's 
position as an effective advisory committee will have been 
significantly weakened, and its future then would be in doubt.
    Mr. Norwood. Well, it certainly is if they just totally 
ignore any of your recommendations as if you--Dr. Miller, you 
said overpayment, by law, you have to ask for it back.
    Mr. Miller. That is correct.
    Mr. Norwood. When that happens, the provider then can 
appeal that case?
    Mr. Miller. Yes.
    Mr. Norwood. To whom do they appeal?
    Mr. Miller. I am not sure I can describe this process in 
the detail that you may want.
    Mr. Norwood. Briefly.
    Mr. Miller. I believe the appeal goes to the carrier first. 
And then if there is not resolution there, it then begins to go 
to an administrative law judge.
    Mr. Norwood. Well, who determined that it was an 
overpayment?
    Mr. Miller. HCFA.
    Mr. Norwood. HCFA?
    Mr. Miller. The carrier.
    Mr. Norwood. The carrier.
    Mr. Miller. By HCFA and the carrier.
    Mr. Norwood. Right. You two determined that it was an 
overpayment.
    Mr. Miller. That is correct.
    Mr. Norwood. Then the provider can appeal that case.
    Mr. Miller. That is correct.
    Mr. Norwood. What happens when they appeal that case, and 
they are found innocent, and it is not an overpayment?
    Mr. Miller. The money is returned to the provider.
    Mr. Norwood. Right. Now did the same people say it was an 
overpayment who later, on appeal, said, no, it is not an 
overpayment?
    Mr. Miller. No, I believe it is--I am not sure I know the 
answer to that question. I believe if it is appealed beyond the 
carrier, it is a different group of people.
    Mr. Norwood. So it is the carrier who denies the payment, 
because it is an--or who says that it is an overpayment?
    Mr. Miller. That is correct, based on the rules and 
procedures that HCFA and the carrier have developed together.
    Mr. Norwood. And then when you appeal, it goes back to 
HCFA, and you say, ``Whoops, wait a minute. That wasn't an 
overpayment.''
    Mr. Miller. No. I think the appeal goes to the carrier 
first, and then if the appeal goes beyond the carrier, it goes 
to a different group. Actually, can I ask a question?
    Mr. Norwood. Of course.
    Mr. Miller. Okay. Thank you.
    Mr. Bilirakis. Where does that overpayment go?
    Mr. Norwood. Well, they demand that the physician send the 
money back.
    Mr. Bilirakis. Yes. But when the physician sends the 
overpayment, the so-called overpayment money, who do they send 
it to, the carrier or to HCFA?
    Mr. Miller. Okay. Let me first get the answer to the first 
question. It was roughly right but not quite. The appeal occurs 
within the carrier. There is a different group within the 
carrier that handles appeals. If it is not resolved there, as I 
said, then it moves to an administrative law judge. If it not 
resolved there, then it moves to a Department appeals board, 
which is an HHS-wide group that deals with the appeals.
    Mr. Norwood. Well, what happens to the poor guy sitting 
down there who has just been told to send the $100,000 check 
back, patients are written that he is a bad guy, and 2 years 
later it is found that he didn't do anything wrong; he has just 
been trashed real well?
    Mr. Miller. That issue----
    Mr. Norwood. What happens?
    Mr. Miller. I am sorry; go ahead.
    Mr. Norwood. Well, my question is, what do we do to do the 
right thing at that point, other than say, ``Uh-oh, sorry.''
    Mr. Miller. We addressed this question, or at least part of 
this question, I think, you may have been out of the room when 
it happened. I acknowledged that particularly the information 
being sent to the beneficiary and indicating that there was an 
overpayment on the part of the physician is necessary, I 
believe, because both the Medicare Program and the beneficiary 
have money that have gone to the provider. And so we feel it is 
our responsibility to tell the beneficiary there may be an 
issue here. What has to be done better is to inform the 
beneficiary at each step of the process, ``This was in 
question, it is now no longer in question.'' And there is 
guidance to do that.
    Mr. Norwood. Why couldn't we just get it right? Why have to 
go say that this is an overpayment, go back through appeals, 
and all that gobbledygook to find out you were wrong to start 
with? Why couldn't we get it right to start with and not do 
such harm to people?
    Mr. Miller. I think there are two answers to that, and 
obviously there is not--these issues do arise. Most claims 
transactions are done correctly, the overwhelming majority of 
them. Medicare relative to the private sector has the highest 
percentages of electronic claims and processes claims between 
14 and 30 days by law. Most claims are paid correctly on time.
    The second thing is, my understanding is only 3 percent of 
denials at the carrier level are appealed. So I think your 
point is taken, we should get them all right, but there a 
billion transactions a year; some of them will be wrong.
    Mr. Norwood. You have to have a system that doesn't destroy 
the lives of people. You say that only 38 people were 
prosecuted last year, which I can't even do the percentage it 
is so low. Only 38 were bad actors. Well, we want the bad 
actors put away too. So does Dr. Becker and Dr. Wood. Everybody 
does. But in the process of putting away 38 bad people, how 
many lives do you destroy in that process, meaning physician 
practices who are taking care of their patients? And if you 
believe it is just Dr. Wood, Dr. Becker, Ms. Bradley, I can 
line you up providers from here to Atlanta who will come tell 
stories just like this.
    Now, what you say is, ``Oh, the percentages are small.'' 
What I say is, it is American lives that you are messing with 
out there, people that have spent all of their life trying to 
be prepared to take care of patients. That is the problem with 
this big, gigantic system we have. You just absolutely run 
roughshod over--maybe you do it well, you only get 2 percent. 
But if you are one of those 2 percent, this is major, major 
stuff.
    Dr. Wood, and I will----
    Mr. Bilirakis. Your time has expired, but without 
objection----
    Mr. Norwood. Dr. Wood wanted to----
    Mr. Bilirakis. Yes, I saw him motioning. Go ahead, sir.
    Mr. Wood. I can describe for you the process by which a 
provider may appeal a denial from the carrier. The first level 
is what is called an informal review, which is handled within 
the carrier, usually by people that work close to the group 
within the carrier that denied the claim originally. Second 
level is a fair hearing, which may be either by telephone or in 
person, and is supposed to be handled by an impartial hearing 
officer who is knowledgeable about the Medicare Program and who 
does not work for the carrier.
    Now, the rules from there are somewhat limiting, in the 
sense that if a provider is in a circumstance that he or she 
disagrees with the ruling at the fair hearing, there are no 
other appeal rights if the amount in controversy does not 
exceed $500. So the physician then is left not to appeal to a 
higher level. If you have only one claim, it will be hard to 
get to $500. It will take a lot of claims for especially office 
services, which may be very small, especially if you are 
appealing the difference between one or two levels of 
evaluation in management services.
    Now that being said, that actually is one of the reasons 
that many people simply don't bother to appeal, because the 
process is very time consuming. It takes a lot of time and 
ultimately the physician has to come back to the fair hearing, 
meaning that the physician takes time out of the practice to 
participate in the fair hearing. And the yield for them may 
simply be too low in a busy practice.
    Mr. Norwood. Well, the more of those claims under $500 that 
nobody can appeal or has time to anyway, how much of that is 
the dollars we are talking about saving because of our great 
program of waste, fraud, and abuse?
    Mr. Wood. Well, I think you are actually very prescient in 
that question, because I believe that a large amount of the 
reduction in, quote, ``erroneous spending,'' is because of 
changes in billing to avoid the difficulties that happen.
    Mr. Bilirakis. Let me get back to the money that you 
require the physician--the overpayment, where does that go? I 
want to follow the money. Where does it go? Does it go to the 
carrier, and is it held by the carrier, or does it go to HCFA?
    Mr. Miller. I believe it is returned to the Medicare 
Program and held by the Treasury, I believe.
    Mr. Bilirakis. Well, that is--is that right?
    Mr. Miller. Yes.
    Mr. Bilirakis. So it doesn't go to the carrier.
    Mr. Miller. No. I believe it comes back to the Medicare 
Program and is held by the Treasury.
    Mr. Bilirakis. One other point here. You said by law a 
number of times, that in the case that you referred to, and Dr. 
Taylor's case, et cetera, that the beneficiaries have to be 
notified. And you said--well, did you not? I mean, if there is 
an overpayment----
    Mr. Miller. By law, we have to take the money back.
    Mr. Bilirakis. Yes. And then what? Notify the 
beneficiaries?
    Mr. Miller. I was not saying that by law we had to do that. 
What I was saying is, is that the beneficiary, particularly in 
a physician's case, 80 percent from the program, 20 percent 
comes from the beneficiary, the notice is to the beneficiary 
that they, too, may have money involved in this. That is why 
the beneficiary----
    Mr. Bilirakis. You mean their 20 percent?
    Mr. Miller. Correct. Also, you asked about----
    Mr. Bilirakis. Boy, that sure does--you know, we are 
talking about the image and that sort of thing. I mean that is 
it right there. It gets out into the community, like Dr. 
Taylor's case.
    Mr. Miller. And as I said, the policy that we have moved to 
as a result of these kinds of situations are that we inform the 
beneficiary at each step of the appeals process so that the 
beneficiary knows when something has been overturned.
    The $500 that is being referred to is, in law, in terms of 
what the appeal level that you can go above, and my 
understanding is, is that you can accumulate claims to hit the 
$500 target.
    Mr. Bilirakis. Mark, a lot of damage can be done in that 
case of notifying the beneficiaries. I don't know. We have got 
to talk about that. Okay.
    Mr. Norwood. Can I have one more little----
    Mr. Bilirakis. Only if it is a short one. I have got a 2:45 
meeting.
    Mr. Norwood. I will sit there if you want me to. Let me 
see, which one of you said no one should be prosecuted for 
honest mistakes? I think it was you. And what you mean, I 
presume, by prosecuted, they shouldn't prosecuted, meaning in 
court. They shouldn't be investigated. Did you mean that too?
    Mr. Mangano. No one should ever be prosecuted for an 
innocent billing error. The problem with it is that when you 
said investigated or audited, if there were aberrancies in 
billing, if there were strange things that were occurring in 
the billing process, what would normally happen is the 
contractor would take a look at it first and only would refer 
it to us if they suspected it went beyond billing----
    Mr. Norwood. Well, the contractor can audit and 
investigate----
    Mr. Mangano. Yes, yes.
    Mr. Norwood. [continuing] and you seem to say, ``We don't 
want that to happen. Guys, that is terrible.'' The solution to 
that, then, of course, is education. And I will conclude, 
because the chairman is going to run me out there--the only 
reason I am going to conclude--I will conclude with asking you 
to at least admit today that all of this should not be put on 
the back of the provider. It is not all just the provider needs 
to be educated. It is equally as much you need to find better 
processes. You need to have fewer, simpler rules and 
regulations that a normal doctor can see their patients and 
deal with you too. Now, will you just tell me that the solution 
isn't all just educating the doctors?
    Mr. Bilirakis. This hearing has to end sometime.
    Mr. Norwood. Can he answer that? If they will just agree.
    Mr. Bilirakis. It goes on and on. Dr. Miller?
    Mr. Norwood. Just somebody tell me something besides laying 
it on the doc.
    Mr. Miller. That is correct. We are, and I have given 
several examples today where we have tried to improve our 
processes. You are right. We have to improve our processes.
    Mr. Norwood. Mr. Mangano, I would love to hear from you.
    Mr. Mangano. I would agree with Mr. Miller.
    Mr. Norwood. Let the record show you do agree that----
    Mr. Mangano. I agree that everybody that the process needs 
to work better.
    Mr. Bilirakis. Well, thanks so much. I think it has been a 
good, educational hearing. And we will be sending you written 
questions, requesting written answers. Please respond to those 
as quickly as you can.
    I might add that Dr. Norwood is leading a working group on 
putting the patients first and HCFA modernization, trying to 
help HCFA. That is what this is about, trying to help HCFA do 
what I know they want to do, and that is a more efficient, fair 
job.
    I would ask all of you: please don't hesitate to volunteer 
any advice, information, or any suggestions to us.
    Thank you very much. The hearing is ended.
    [Whereupon, at 2:01 p.m., the joint subcommittees were 
adjourned.]
    [Additional material submitted for the record follows:]
      Prepared Statement of The American Association for Homecare
    The American Association for Homecare (AAHomecare) appreciates the 
opportunity to submit this statement for the written record to the U.S. 
House of Representatives Energy and Commerce Subcommittee on Health and 
Subcommittee on Oversight and Investigations. AAHomecare is a national 
association that resulted from the merger of three smaller national 
home health associations; the Home Care Section of the Health Industry 
Distributors Association (HIDA Homecare), the Home Health Services and 
Staffing Association (HHSSA) and the National Association for Medical 
Equipment Services (NAMES). AAHomecare is the only association 
representing homecare providers of all types including not for profit, 
proprietary, facility based, freestanding, and government owned home 
health agencies and medical equipment providers.
    The members of AAHomecare would like to express their gratitude to 
the Subcommittees for initiating an in-depth review and analysis of the 
Medicare program and specifically the restructuring of the Health Care 
Financing Administration (HCFA). This is an important first step toward 
addressing inefficiencies existent within the current structure and 
prescribing concrete solutions to promulgate more effective policy.
    As Congress begins to explore possible approaches to HCFA reform, 
AAHomecare has identified six broad areas that it believes should be 
included in any HCFA restructuring proposal.
    The six broad areas include:

 Eliminating Unnecessary Regulatory Cost/Administrative 
        Simplification: The first step in any effort to improve the 
        efficiency of HCFA and providers would be to review all 
        regulations to determine their necessity for homecare services. 
        Regulations that are redundant or simply not needed should be 
        eliminated.
 Consistent Interpretation: Consistent interpretations of 
        regulatory requirements by HCFA and Medicare contractors are 
        extremely important. Variations cause confusion among all 
        parties and make it very difficult to adhere to the rules and 
        regulations. Inconsistent interpretations are also costly to 
        the program, providers and patients. A system that would ensure 
        consistency of the interpretations and clear communication of 
        those interpretations needs to be developed. Further any 
        changes should be implemented prospectively rather than 
        retroactively.
 Timely Appeals Process: Much of the time and energy of 
        providers includes lengthy appeals processes to determine 
        proper determinations. The appeals process increases costs, 
        energy and time for both providers and the Medicare 
        contractors. The delay in payment associated with prolonged 
        appeals also increases the cost of doing business with Medicare 
        and will continue to reduce the number of providers willing to 
        serve Medicare beneficiaries. An approach to expedite the 
        appeals process and make public appellate determinations would 
        be helpful.
 Education/Communication: As new regulatory requirements are 
        implemented for healthcare providers, ongoing communication 
        between providers, government officials, and consumers must 
        exist. All parties should have the opportunity to discuss the 
        impact of additional regulations and new rules should be 
        subject to public notice and comment.
 Prohibit Delegation of Policy Decisions: Medicare contractors 
        are often incentivized by economic considerations rather than 
        what is in the best clinical interest of the patient. HCFA 
        should not be permitted to delegate policy decisions to 
        government contractors in an effort to circumvent established 
        procedures intended to obtain input from effected parties. 
        Clinical/coverage decisions should be completed before economic 
        considerations are brought into the discussion of new policy.
 Recognize Cost of Regulations: The government should recognize 
        the cumulative financial impact of new regulations on providers 
        and make sure sufficient reimbursement is incorporated into the 
        payment system to permit providers to be in regulatory 
        compliance as they provide services and products for patients.
    Set out below are examples of regulatory problems faced by homecare 
providers.
1. Eliminate Unfair Burdens In Documenting Medical Necessity
    One regulatory burden that has caused particular consternation 
among home medical equipment (HME) providers is the determination of 
medical necessity. It highlights the need to evaluate the necessity 
layers of burdensome requirements that HCFA has developed. The 
certificate of medical necessity (CMN) is a form to document the 
medical necessity of certain items of medical equipment. It is required 
by statute, and was approved by the Office of Management and Budget 
(OMB) in accordance with the Paperwork Reduction Act. The CMN collects 
information necessary to determine whether the beneficiary meets 
Medicare coverage criteria for the DMEPOS item. In order to receive 
payment for a covered item of DMEPOS, a provider's claim (HCFA--Form 
1500) must be accompanied by a CMN signed by a treating physician. The 
original CMN must be maintained by the supplier and must be produced 
upon the request of the DMERCs, HCFA, or the Office of the Inspector 
General.
    A supplier who submits a properly executed certificate of medical 
necessity (CMN) has satisfied its legal obligation to document the 
medical necessity for an item of durable medical equipment, 
prosthetics, orthotics, or supplies (DMEPOS). HCFA should be prohibited 
from requesting DMEPOS suppliers to provide documentation in support of 
medical necessity beyond the scope of a properly executed CMN.
    HCFA and the DMERCs ignore the original intent of Congress to 
designate the CMN as a tool to determine medical necessity. The DMERCs 
routinely require DMEPOS suppliers to submit documentation of medical 
necessity in addition to the CMN. The requests for additional 
documentation are unpredictable and often require information that 
fails to be specified in current medical policy for the item. 
Additionally, DMERC auditors often request additional documentation for 
hundreds of claims simultaneously, creating an unreasonable 
administrative burden for suppliers. The DMERCs also request 
documentation supporting medical necessity from hospital and physician 
progress notes although suppliers do not have access to a patient's 
confidential medical records. Further, DMEPOS suppliers can be assessed 
overpayments when they fail to produce portions of these records.
    DMEPOS suppliers are even subject to overpayment demands when they 
have obtained the appropriate medical documentation but the physician's 
notes contained therein are deemed inadequate for corroboration, even 
though the physician, by acting as signatory, expressly certifies that 
the information on the certificate of medical necessity is ``true, 
accurate and complete'' and acknowledges that any ``falsification, 
omission, or concealment of material fact'' may subject him (the 
physician) to civil or criminal liability. DMERC auditors also assess 
overpayments for technical errors on CMNs even though these technical 
errors have no bearing on the documentation of medical necessity for 
the item.
    The Association would recommend that HCFA use the CMN for its 
original intent in assuring eligibility for the Medicare beneficiary, 
and eliminate the unnecessary and unworkable requirements for 
additional documentation.
2. Remove Non-Medicare and Non-Medicaid Patients from Participation in 
        OASIS
    A second example of administrative requirements that need to be 
simplified is the case-mix adjuster known as the Outcomes and 
Assessment Information Set (OASIS) for home health services. Medicare 
requires home health agencies to collect OASIS survey data from 
Medicare and Medicaid beneficiaries. AAHomecare understands the need 
for this uniform standard to measure homecare patient population 
outcomes data. However, the Association fails to understand the 
underlying HCFA rationale in determining that OASIS data must be 
extended to include non-Medicare/Medicaid patients.
    As currently structured, OASIS is overly burdensome in any context. 
HCFA maintains that comprehensive OASIS data is needed to thoroughly 
implement the prospective payment system (PPS) for home health 
agencies. In actuality, approximately twenty questions are needed to 
accurately reflect the payment category under PPS not the over eighty 
questions required by HCFA. While AAHomecare strongly supports the need 
for appropriate and accurate information to ensure quality care under 
PPS, this is an example of the need to review the OASIS tool to 
determine the specific questions that are relevant and necessary in 
providing quality care to the beneficiaries.
    AAHomecare is especially concerned about the expansion of the OASIS 
data collection to private pay patients and the homecare consumers who 
are not receiving payment from either Medicare or Medicaid. This adds 
an additional burden to home health agencies to collect personal 
information on all patients for submission to the government. Equally 
important, the Association is concerned that the data collected may be 
extrapolated by HCFA officials to make payment or policy changes in the 
future. Medicare and Medicaid patients have specific eligibility 
requirements that are not required of private pay patients. Likewise, 
private pay patients may receive additional services that are not 
benefits under the Medicare program. Comparing data from these groups 
of patients is like comparing apples to oranges.
    The length and overuse of the OASIS assessment tool has served as a 
key factor resulting in the marked reduction of nurses interested in 
entering the field of home health. Additionally, many nurses already 
working in the industry are choosing to leave as a result of the 
procedural burden being placed on them due to increased OASIS 
requirements. These nurses cite they have become too far removed from 
direct patient care and focus a majority of their time on compliance 
with administrative matters. For example, nurses state that the OASIS 
questionnaire for a patient takes between 20 to 45 minutes while in the 
patient's home. The homecare industry is now faced with significant 
losses of qualified nurses who had valued the direct patient care in 
the home health environment and are now overwhelmed with paperwork.
    The Association recommends that OASIS tool be streamlined and 
applied only to Medicare and Medicaid recipients.
3. Revise/Eliminate the ``In the Home'' and ``Homebound'' Definitions
    For durable medical equipment providers, patient eligibility is 
limited to items deemed to be medically necessary for the patient to 
independently perform the four activities of daily living within the 
four walls of their home. Items that enable the beneficiary to move 
about in the community are not covered creating an inherent conflict 
among the government's policies. The ``in the home'' is not required by 
statute, and conflicts with policies aimed at promoting independence, 
productivity and integration of people with disabilities. This is 
especially true since Congress has recently passed legislative 
initiatives to expand a disabled person's opportunities. The 
legislative initiatives include: the Americans with Disabilities Act 
(ADA), the Work Incentives Improvement Act (TTW/WIIA) and the 
Individual with Disabilities Education Act (IDEA). These three 
initiatives were the direct result of Congress empowering people with 
disabilities to seek employment while maintaining their benefits such 
as Medicaid and Medicare services.
    For home health agencies, one of the eligibility requirements for 
Medicare home health services requires the Medicare beneficiary to be 
``homebound.'' Last year, Congress broadened the definition of 
``homebound'' by permitting the home health beneficiary to attend 
religious services and adult day care facilities. Although the 
broadening of the definition coincided with the other Congressional 
legislative initiatives, it also increased the providers responsibility 
to determine the patient's eligibility. The home health agency must 
determine more closely if the patient leaves his/her home for the 
purposes of religious services or adult day care or another event.
    To the best of its ability, a provider may determine that a patient 
meets ``in the home'' or ``homebound'' requirements but the Medicare 
contractor may determine differently. The result may be lost 
reimbursement to the homecare provider who is working with an arbitrary 
definition or the provider may face endless appeals processes to prove 
the appropriateness. Either process has negative implications to the 
provider who had determined, to the best of its ability, that the 
patient met the definition.
    The Association urges Congress to direct HCFA to eliminate 
arbitrary eligibility guidelines which incorporate the current ``in the 
home'' and ``homebound'' definitions and develop policies which are 
consistent with today's social policies and Congressional intent.
4. Clarify Use of the Home Health Advanced Beneficiary Notices
    The Home Health Advance Beneficiary Notice (HHABN) is given to 
Medicare patients when a home health agency believes that services 
prescribed by a patient's physician will not qualify for coverage under 
the Medicare home health benefit (65 Fed. Reg. 24217). AAHomecare 
supports the use of these standardized notices as a mechanism to 
accurately inform patients of their Medicare rights. However, the 
Association has significant reservations concerning the applicability 
of the Home Health Advanced Beneficiary Notice (HHABN) as it relates to 
patients covered under both Medicare and Medicaid reimbursement 
guidelines.
    In certain states, Medicaid agencies have embarked on a Medicare 
maximization policy. This process is known as ``third party liability'' 
(TPL) and essentially positions a home health agency as intermediary 
between Medicare and Medicaid. Although there are significant issues 
surrounding the HHABN, this is an excellent example of providers caught 
in the appeals process because of inconsistent and conflicting 
regulatory regimes.
    In these instances and prior to processing reimbursement claims, 
the state Medicaid agency will request that a home health contractor, 
providing service to a dually-eligible patient who has been denied 
Medicare coverage for a prescribed service resubmit paperwork for 
coverage review. Thus, in order to be paid for service provided to a 
dually eligible individual, a home health agency must submit patient 
paperwork twice before being granted Medicaid reimbursement. In many 
instances, agencies have been forced to hire a full-time staff person 
just to address these Medicaid resubmission requests.
    Although the provider was originally correct in the billing, the 
third party liability permits the Medicaid and Medicare program to go 
through extensive appeals to have a final judgement. As this process 
continues, the burden is placed on the home health agency to provide 
the patient's complete file and supporting documentation. At every 
juncture through the process, the home health agency may be requested 
to provide additional substantiating documentation.
    The Medicare and Medicaid programs should determine a settlement on 
cases that impact the home health agencies retroactively. As the 
process moves forward, the HHABN should be properly clarified and used 
as a tool to determine proper eligibility for possible dually-eligible 
beneficiaries.
    The Association recommends clarifying the use of HHABN to allow for 
a determination by Medicare on the patient's eligibility. The 
Association further believes that the Medicare and Medicaid programs 
should resolve the retroactive cases through a sampling process to end 
the on-going problem.
4. Eliminate Inconsistencies In Guidelines Issued By DMERCs
    Home Medical Equipment (HME) providers supply medically necessary 
equipment and auxiliary services that enable beneficiaries to 
adequately meet their rehabilitative and/or therapeutic goals. Pursuant 
to a physician's order, HME providers deliver medical equipment and 
supplies to a consumer's home, set up this equipment, educate and train 
the consumer and caregiver in its use, provide required maintenance 
service, and assemble and submit the considerable paperwork needed for 
third party reimbursement. HME providers also coordinate with 
physicians and other home care providers thereby performing an integral 
role in home health case management.
    The Medicare durable medical equipment, prosthetic, orthotic and 
supply (DMEPOS) benefit is administered through four specialized 
regional carriers known as Durable Medical Equipment Regional Carriers 
(DMERCs). AAHomecare's HME members routinely express their frustration 
with the inconsistency of the guidelines issued by the four DMERCs and 
the unpredictable manner in which national policy changes are announced 
and implemented by these regional coordinators. Changes are often put 
into effect without any consideration of the potentially significant 
operational impact these changes will have on providers.
    AAHomecare believes that many of the regulatory problems associated 
with the Medicare DMEPOS benefit could easily be solved through 
increased and improved education and communication efforts.
    Specifically, AAHomecare recommends that HCFA:

 Communicate with DMEPOS providers and provider groups prior to 
        implementing changes in coverage policy or claims processing 
        requirements.
 Seek comments from the HME industry with respect to the 
        operational impact of proposed changes.
 Standardize DMERCs documentation requirements.
 Consider conducting pilot programs to ascertain the impact of 
        operational changes on DMEPOS community prior to nationwide 
        implementation.
 Provide increased opportunity for regulatory education to the 
        DMEPOS community.
Conclusion:
    AAHomecare looks forward to working with the subcommittees, HCFA 
officials, the Medicare contractors, consumers, and other providers to 
seek a collaborative and more streamlined approach to the delivery of 
Medicare services. The Association believes that many of the regulatory 
problems associated with the Medicare program could easily be solved 
through increased and improved communication and educational efforts.
                                 ______
                                 
  Prepared Statement of Mary Grealy, President, Healthcare Leadership 
                                Council
    The Healthcare Leadership Council applauds the Chairmen and Ranking 
Members of the Subcommittees on Health and Oversight and Investigations 
for holding this hearing and reinforcing the need for ongoing 
improvement in the quality of care for Medicare beneficiaries.
    We at the Healthcare Leadership Council believe that a Medicare 
system with the highest quality of care 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.
    Unfortunately, this is not the case in today's Medicare. 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. This 
inefficiency within Medicare adversely affects providers and 
beneficiaries on many fronts.
    Complexity stifles innovation. Medicare cheats beneficiaries from 
being able to receive the best care achievable when its regulations set 
standards that may be used by some providers as ``ceilings of care.'' 
Medicare's extensive coverage process for new items and services can 
leave beneficiaries behind the curve on 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 extraordinarily complex, lengthy, and 
sometimes irrational--resulting in the delay or denial of lifesaving 
treatments.
    One case in point is Hepatitis B liver transplants. Scientific 
evidence had shown for some time that the outcomes for Hepatitis B 
liver transplants were comparable to the outcomes of liver transplants 
made necessary by other primary indications. However, 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.
    Those Medicare standards of care that are 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 instance, 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.
    Burdensome coding and documentation. Providers, as well as 
beneficiaries, must wrestle with the ever-expanding Medicare jigsaw 
puzzle. Medicare's many complex coding and documentation rules make 
completing claim forms 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. Furthermore, providers must consult not one source to ensure that 
they are billing and coding correctly, but multiple manuals, letters, 
bulletins, and updates. Even after poring through all of these 
references, providers have learned that there is no guarantee they are 
proceeding with documentation properly. To make things more difficult, 
when providers seek clarification of billing and coding requirements 
from HCFA, carriers and fiscal intermediaries, they often receive 
different answers.
    Medicare's documentation requirements also lead to redundant and 
inefficient documentation practices. For example, physicians are 
required to write all notes regarding patient assessment, regardless of 
whether a registered nurse under his or her supervision wrote identical 
notes at an earlier point in the day that concur with the physician's 
view.
    In addition, Medicare has inconsistent coverage policies based on 
the specific site of care. 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 professionals, 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.
    Time and financial resources wasted. Complex and burdensome 
regulations sap time and financial resources that could be used more 
productively in providing patient care or developing innovations to 
improve patient care. 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. 
It also found that the processing costs associated with Medicare claims 
are 26 percent higher than the costs associated with private claims. In 
addition, 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.
    Members of the Committee, four years ago Congress took great 
strides to overhaul the IRS and, in acknowledgment of the increasing 
size and complexity of the tax code, make the agency and the process 
more taxpayer-friendly. The hearings brought to the attention of 
Congress not only the size of the Internal Revenue Code, but the 
difficulty of navigating through it and the even greater difficulty of 
getting help from the IRS when navigating through it results in 
questions or problems.
    Health care providers should be so fortunate as to have a billing 
and coding system that resembles the much-maligned U.S. tax system. At 
least taxpayers know that there is one book that details all the rules 
for paying taxes. That book is about nine thousand pages long. Instead, 
health care providers have over a hundred thousand pages to pore 
through--pages that spread throughout multiple redundant and confusing 
sources and that are constantly changing, yet often outdated.
    The hearings on the IRS also revealed the cost of collecting taxes. 
Many members were astounded and impressed by the amount of money that 
is actually spent collecting taxes--astounded and impressed that there 
were taxes that actually cost more to collect than were brought in at 
the end of the day. Similarly, we ask that you consider the impact that 
the costs--in time and money--of paperwork, regulations and delays have 
on patients, providers and the quality of care in the Medicare system. 
These complex and burdensome regulatory requirements sap time and 
financial resources that could be used more productively in providing 
patient care or developing innovations to improve patient care.
    In terms of financial resources, 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. In the 
meantime, the inefficiencies and complexities of this program are 
keeping Medicare beneficiaries stuck in an outmoded and overburdened 
health care program that could, and needs to, deliver so much more.
    HLC is encouraged by the leadership of this Committee and its 
efforts to work with providers in improving the quality of health care 
that Medicare beneficiaries receive. We stand ready to assist this 
committee in any way as you work toward solutions that will allow all 
Americans to enjoy the benefits of our nation's health care system.
    The Healthcare Leadership Council is a coalition of chief 
executives from America's leading health care companies and 
institutions, including hospitals, health plans, pharmaceutical and 
device manufacturers, biotech firms and educational institutions.
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PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE 
                            HEALTH COVERAGE

                              ----------                              


                         THURSDAY, MAY 10, 2001

              House of Representatives,    
              Committee on Energy and Commerce,    
                 Subcommittee on Health, joint with the    
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman, Subcommittee on Health) and Hon. James C. 
Greenwood (chairman, Subcommittee on Oversight and 
Investigations) presiding.
    Members present, Subcommittee on Health: Representatives 
Bilirakis, Upton, Greenwood, Deal, Burr, Whitfield, Bryant, 
Pitts, Brown, Capps, Deutsch, Eshoo, Stupak, and Green.
    Members present, Subcommittee on Oversight and 
Investigations: Representatives Greenwood, Bilirakis, Stearns, 
Burr, Whitfield, Bass, Deutsch, Stupak, and DeGette.
    Staff present, Subcommittee on Health: Tom Giles, majority 
counsel; Kristi Gillis, legislative clerk; Amy Droskoski, 
minority professional staff member; and Bridgett Taylor, 
minority professional staff member.
    Staff present, Subcommittee on Oversight and 
Investigations: Joe Greenman, majority professional staff; and 
Chris Knauer, minority professional staff member.
    Mr. Bilirakis. Good morning. I now call to order this third 
joint hearing in the 107th Congress, of the Health Subcommittee 
and the Oversight and Investigations Subcommittee. This the 
third hearing of our series entitled Patients First: A 21st 
Century Promise to Ensure Quality and Affordable Health 
Coverage.
    Patients First is an initiative launched by the Energy and 
Commerce Committee to modernize and reform the Health Care 
Financing Administration. To improve the quality of patient 
care, we are conducting a top-to-bottom review of HCFA's 
structure, operations and regulations.
    Today's hearing will be especially useful to our process 
because we are honored to have such a distinguished and 
impressive panel. I would like to welcome to our hearing four 
former Administrators of the Health Care Financing 
Administration. Dr. Bill Roper, Dr. Gail Wilensky, Dr. Bruce 
Vladeck, and Nancy-Ann DeParle have all had the daunting task 
of running HCFA--and I emphasize ``daunting,'' and dealing with 
Congress. I hope that today we will be able to have a candid 
discussion with them about what works at the Agency and what 
can be improved.
    Our examination of HCFA will also be guided by the input 
that we receive from stakeholders, most notably, the true 
stakeholders, the beneficiaries and providers. To help us 
understand their concerns, we have created surveys--or 
``questionnaires''--to collect comments, concerns and 
suggestions.
    I would like to enter into the record a sample copy of each 
of these surveys. I would note that the text of these surveys 
can be reviewed on the Internet at the following address which 
is up there on the board--http://hcfasurvey.house.gov.
    Mr. Brown. Well done.
    Mr. Bilirakis. We have undertaken an ambitious project to 
reform HCFA and put patients first. Over the next several 
months, we will work to ensure patients receive quality 
affordable health care through Federal programs, and with the 
help of our expert witnesses today, as well as the 
beneficiaries, providers, and other stakeholders, I am 
confident that we will succeed in our efforts to put patients 
first. And I yield to Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. As we think about how 
to strengthen Medicare, Medicad and S-CHIP and help HCFA 
negotiate the challenges they have, we have a rare opportunity 
to hear from four of the Nation's most highly respected health 
policy experts, who also happen to be former Administrators of 
the Health Care Financing Administration.
    I would add that my health care policy person, Ellie 
Tahoney, graduated--got a Master's Degree from Dr. Roper's 
program in North Carolina, and she is very well trained. And 
Dr. Roper, until today, was the only of the four that I was not 
acquainted with, so welcome to him and the other three of you. 
It is a thrill to have you here, and looks to be an exciting 
day.
    HCFA-administered health insurance programs--Medicare, 
Medicaid and S-CHIP serve 80 million Americans. Those are just 
the direct beneficiaries. When you factor in the positive 
impact on families and communities, as well as the critical 
funding stream for safety-net and other providers, these 
programs benefit every one of us.
    A great deal is at stake when we contemplate HCFA reform. 
It doesn't mean we should shy away from changes when those 
changes make sense. For example, it makes sense to adequately 
fund HCFA. That would be a major change. As it stands now, we 
expect HCFA to run on a hope and a prayer. Not only is the 
Agency chronically under-funded, but we have no qualms about 
increasing its workload without increasing its resources. Then 
we whine in this Congress when HCFA fails to meet statutorily 
imposed deadlines for resource-intensive systems changes.
    Last year, we gave $11 billion to Medicare managed care 
plans. They insure 16 percent of the Medicare population. HCFA 
insures the rest. We didn't give HCFA a dime.
    Over a 3-year period, HMOs have dropped 1.7 million seniors 
from coverage. They have cut back on the very benefits that 
attracted seniors to their plans in the first place. They claim 
to be over-regulated, but we have no idea how they spend the 
money we give them.
    And this year we are focusing on HCFA reform, not 
Medicare+Choice reform. Don't get me wrong, it is certainly 
worthwhile to make direct improvements in HCFA, but we should 
keep our concerns in perspective.
    In terms of HCFA reform, it also makes sense to address 
concerns raised by Medicare providers. There are clearly some 
kinks in the policies and procedures under which HCFA, its 
contractors and its providers operate. We should coordinate 
with HCFA to make sure the necessary statutory, regulatory or 
administrative changes are made to straighten these problems 
out. But should HCFA undergo a massive reorganization? It would 
certainly keep HCFA busy, as if the Agency weren't busy enough, 
you know, it would be an excellent way to burn up extra 
administrative dollars, if there were any. But does it make 
sense? No. Reform should mean giving HCFA the tools and the 
flexibility it needs to continuously improve its operations. It 
should not mean restructuring the program, which implies either 
an arbitrary and costly reorganization or, far worse, a 36-year 
step backwards into the private insurance market.
    In the latest issue of the Harvard Health Policy Review, 
Bruce Vladeck and Harry Kane wrote opposing articles on 
Medicare. Well, my views were certainly more aligned with Dr. 
Vladeck's. His article is entitled ``Medicare Works,'' while 
Dr. Kane's was entitled ``The Medicare Menace.''
    There is a sentence in Dr. Kane's article that I want to 
share with you, discussing a private sector alternative to 
traditional Medicare, Dr. Kane wrote: ``The dynamics of a 
market can still thrive, but that will always mean there will 
be market frictions,'' he said. And he went on and said, ``Some 
people will not do nearly as well as others in obtaining all 
the medical services they want and need.'' Dr. Kane is 
obviously comfortable with that, I am not. Enough said about 
Medicare privatization.
    Should Medicaid be removed from HCFA? If we want to make 
HCFA work better, we need to give HCFA more resources, we need 
to release our statutory stranglehold on them, and we need to 
work with them to address provider concerns. We do not need to 
arbitrarily create a new home for one of the three health 
insurance programs which HCFA administers.
    I will stop there, Mr. Chairman. I am looking forward to 
getting the perspective of our four distinguished witnesses.
    Mr. Greenwood. (Presiding) Thank you. This is a joint 
hearing between the Health Subcommittee and the Oversight and 
Investigations Subcommittee, and lest anyone think that 
Chairman Bilirakis and I are being overly formal by trading 
seats off and on, I need to swear in the witnesses, so that is 
why I moved to the Chairman's seat.
    Let me thank the four witnesses. This is a real special 
occasion for us to be able to draw on your collective knowledge 
and experience at HCFA to help us with our mission.
    I think there are two ways that we could go wrong. One of 
them is to do anything arbitrarily or make change for the sake 
of making change. None of us wants to do that. And certainly 
none of us is critical of anyone at HCFA, past Administrators, 
current employees. I think everyone universally agrees that we 
have been blessed with great Administrators. We have been 
blessed with a whole slew of people at HCFA, all of whom are 
very, very dedicated and very competent, but this is a vehicle 
that was built in 1977, I think, and that has been asked to 
carry a lot more weight over the years, and it does us well, 
for the sake of the beneficiaries, to think through whether, 
given today's management ideas, today's realities, today's 
information systems, whether there are ways to improve the 
system.
    I think we should go into this process without any 
prejudices, without any presuppositions about what we should or 
shouldn't do, but rather do some real innovative, blue-sky 
thinking, thinking about paradigms and how it is best to serve 
these clients of ours in the 21st Century. And I would yield to 
Mr. Green for an opening statement.
    Mr. Green. Thank you, Mr. Chairman, for holding this 
hearing, the third in a series on the problems facing the 
Health Care Financing Administration. I especially am eager to 
hear from our panel of witnesses since they have been working 
on these issues for two decades. And like my colleague, Sherrod 
Brown, having dealt with HCFA Administrators in our 8 years in 
Congress, 9 years now, this is the third hearing we have had on 
this issue, and we have already heard from providers, 
contractors, insurers and others that have to work with the 
Agency day in and day out. We have heard their frustrations, 
their concerns, the problems they see with the Agency.
    What we have heard from panelists at each hearing is that 
HCFA is over-burdened and under-funded. The Agency is 
responsible for administrating Medicare, Medicaid, State 
Children's Health Insurance Programs, as well as the health-
related provisions of the Health Insurance Portability and 
Accountability Act. Funding these programs is challenging 
enough, but Congress makes the job harder for HCFA by 
constantly moving the goalpost.
    Congress' micromanagement of the Agency is a constant 
problem for HCFA, forcing them to implement pages and pages of 
new policies. The Balanced Budget Act alone created 350 new 
Medicare and Medicaid policies. But before some of these 
changes could be fully implemented, Congress revised the BBA in 
1999 and again last year. Despite all these changes, Congress 
has failed to provide HCFA with the additional resources it 
needs to manage the increased workload.
    The fiscal year 1995, before passage of HIPAA, before 
creation of the Children's Health Insurance Plan, before 
passage of the Balanced Budget Act, HCFA's administrative 
budget was $2.2 billion. Yet, 5 years later in 2000, however, 
HCFA was appropriated less money, $2.1 billion.
    HCFA is the largest provider of health care in the country, 
and probably in the world, yet we in Congress ask the Agency 
year after year to operate on a shoestring budget. As Dr. Roper 
states in his testimony, this low administration budget should 
not be a source of pride, it should be a source of 
embarrassment.
    HCFA and Congress must work together to maximize its 
efficiency, to modernize its operations to better serve the 
beneficiaries and providers, and to reach our mutual goals of 
providing our elderly and disabled populations high quality 
health care.
    I have read each of the witnesses' testimony. I am 
interested in hearing about the ideas they share on how we can 
improve this Agency. I am especially interested in proposals to 
resolve some of the issues through the Administration. I am 
afraid if we wait for Congress to do this, it will take much 
longer than necessary, and we may not like what we end up 
getting.
    Mr. Chairman, I thank you for the time, and yield back.
    Mr. Greenwood. Thank the gentleman. Mr. Deal, for an 
opening statement.
    Mr. Deal. Pass.
    Mr. Greenwood. Mr. Deal passes. Mr. Stupak.
    Mr. Stupak. Thank you, Mr. Chairman. I will be brief, and 
thanks for holding this hearing. This has been an ongoing 
concern, and these hearings emphasize the need for action and 
attention to HCFA.
    As I am sure the previous Administrators in front of us 
today are well aware, HCFA-bashing is a popular pastime up here 
on the Hill. I and everyone else in this room today would like 
to change that.
    In reading the testimony, each of the previous 
Administrators agree on a need for reform. So do I, and so do 
many beneficiaries and providers in my district. The layers 
upon layers of bureaucracy within HCFA is one area of concern. 
Another is the lack of funding. Still another--and this list 
could go on and on--is the sheer volume of mandates given to 
HCFA by all of us here in Congress.
    I have said this before and I will say it again--although I 
don't believe in throwing money at HCFA as the solution to all 
their problems, it certainly cannot continue running with 
administrative costs of less than 2 percent. What this slim 
budget translates into is a lack of adequate computer system 
and information technology, a lack of adequate training for 
staff, and a rather high turnover of HCFA Administrators.
    I believe HCFA reform is an area that crosses party lines, 
and this is proven by the similarities contained in the 
testimony of our four witnesses, witnesses that know better 
than anyone else exactly what problems affect the proper 
running of HCFA.
    I look forward to hearing each of their suggestions on how 
best to make HCFA workable again. I will be in and out, Mr. 
Chairman, because I have a couple of other things, but I am 
looking forward to the witnesses, and it is good to see so many 
old friends back here. Thank you.
    Mr. Greenwood. Thank the gentleman. Ms. Eshoo.
    Ms. Eshoo. Good morning, Mr. Chairman, and thank you. Good 
morning to the distinguished panel. For sometime now, I have 
been concerned that bureaucratic barriers at HCFA are 
inhibiting beneficiary access to new technologies, and I think 
the people that are going to testify today know this because 
they have heard from me on it.
    According to a Lewin Group study, it often takes as long as 
5 years for a product to make its way through the HCFA maze, 
yet it only takes 18 months to get FDA approval. It doesn't 
make sense to me that the Federal Government can determine 
whether a product is safe and effective in 18 months, but takes 
5 years to decide whether we will pay for it or not.
    As you know, Mr. Chairman, my Congressional District enjoys 
the largest concentration of biotech companies in the country. 
While this is a great source of pride to me, there is also a 
burden that comes with it, and many of them are created, I 
think, by the problems that are at HCFA.
    We've spent an inordinate amount of time and resources 
calling and writing the Agency about coverage delays, failures 
to reimburse, and illogical coding decisions. Rather than 
micromanaging the Agency, we should really address the 
structural problems that produce the inefficiencies.
    Last year, I led the effort in this committee to include in 
the BBA give-backs package two provisions aimed at streamlining 
the coverage process at HCFA. I am pleased that we were 
successful in that, however, it wasn't enough and more work has 
to be done.
    So, I am committed to taking a comprehensive approach to 
streamlining HCFA in much the same way that we did with FDA in 
1997. Prior to FDAMA, FDA had many of the same problems that 
HCFA currently suffers from. By modernizing the Agency in a 
very comprehensive way, we were able to dramatically improve 
approval times. I am proud of that work, and I think that we 
need to apply the same model to HCFA.
    We also have to combine these efforts in streamlining the 
Agency with additional resources. At 2 percent, HCFA has one of 
the slimmest administrative budgets of any Federal Agency. So, 
as Congress continues to add new responsibilities to the 
Agency, we have to make sure that the resources are there. 
Otherwise, whatever our reforms are, we are not really going to 
be able to be very proud of them because they won't be able to 
handle them. They won't be able to implement them.
    So, I am looking forward to working with all the members of 
this committee and the Agency in making this happen, and I look 
forward, of course, to hearing from the distinguished panel. As 
Bart Stupak said, we have some good friends that are going to 
be testifying today. Thank you.
    Mr. Greenwood. Thank the gentlelady. The gentleman from 
Michigan, Mr. Upton, for an opening statement.
    Mr. Upton. Thank you, Mr. Chairman. I appreciate today's 
hearing. I know that we are here today, and the HCFA staff on 
the front lines, administrating the Medicare program, to share 
the same goal and commitment--ensuring continued access to high 
quality health care services for our seniors and disabled 
beneficiaries, while guarding the integrity of the program and 
the taxpayers' investment both now and in the future.
    I am delighted to hear about the witnesses. I want to put 
my full statement into the record. I know that we want this 
program to run efficiently, and to do so, by hearing from the 
former Administrators, I think that we will have some good 
ideas in terms of where we need to go and what adequate level 
of resources they need to do the job that we want them to do. 
And I yield back the balance of my time so that we can listen 
to their testimony. Thank you.
    [The prepared statement of Hon. Fred Upton follows:]
  Prepared Statement of Hon. Fred Upton, a Representative in Congress 
                       from the State of Michigan
    Mr. Chairmen, thank you for calling today's hearing. I think it is 
an excellent idea to ask for the perspective of our four distinguished 
witnesses. They've been in what is one of the hottest seats in our 
government and can give first-hand insights on how the Medicare program 
can be more efficiently managed in the short-term and the long-term to 
address the mounting frustration we are hearing from Medicare 
beneficiaries and health professionals alike. I want to personally 
thank our witnesses for their willingness to be here today and give us 
the benefit of their experience.
    I know that we here today and the HCFA staff on the frontlines of 
administering the Medicare program share the same goal and commitment--
ensuring continued access to high-quality health care services for our 
seniors and disabled beneficiaries while guarding the integrity of the 
program and the taxpayers' investment in it both now and in the future. 
Congress and HCFA should be partners in this effort--not adversaries. 
We have tended to rake the agency over the coals for its errors, 
failures, and problems, and that is part of our oversight function. But 
I don't think we've been as willing to be open to hearing from HCFA 
about what it is the agency needs to perform more effectively and 
efficiently and to go to bat for those changes. We need to change this.
    For starters, we should go to bat for the funding HCFA needs to 
administer the program efficiently and effectively. I think a cosigned 
letter from us to our colleagues on the Labor/HHS/Education 
Appropriations Subcommittee reflecting what we will learn today about 
agency's needs would be a good place to start.
    Our witnesses will give us differing visions for the future of HCFA 
today, but they are very consistent in their recommendations for 
reasonable, common-sense steps we can take now, over the short-term, to 
help the agency function better from the perspective of beneficiaries 
and health care professionals.
    First, I think a lot of the dissatisfaction we are hearing from our 
constituents, beneficiaries and providers alike, stems from the 
contractor system that's been with us, relatively unchanged, since the 
Medicare program's inception. Does it really make sense to have 50 
separate contractors, or is this a recipe for miscommunication. Does it 
really make sense to have a law on the books that prohibits HCFA from 
competitively bidding for contractors? What an effective tool that 
could be for improving contractor performance, particularly if part of 
the evaluation for contractor renewal is beneficiary an provider 
satisfaction.
    Second, instead of having 50 different contractors making coverage 
calls on new technologies, wouldn't it make sense to beef up and 
streamline HCFA's national coverage policy process and give them the 
authority to pay what they need to attract the expertise they need?
    These are just two areas in which some common-sense reform would go 
a long way. I'll focus on several others later this morning as we have 
a dialogue with our witnesses.
    Again, let's think in terms of forging the partnership we need to 
achieve our mutual goals of ensuring beneficiaries' access to high-
quality care now and in the future.

    Mr. Greenwood. The Chair thanks the gentleman. Without 
objection, his written statement will be entered into the 
record. The Chair recognizes the gentlelady from California, 
Ms. Capps.
    Mrs. Capps. I thank you, Mr. Chairman, for holding this 
hearing, and I am impressed with our witness panel today, with 
the expertise that will be at the table.
    I am pleased we are looking at the Agency that manages 
Medicare and hearing from those who know it best. As we listen 
to their testimony and question them on possible reforms, I 
hope we will remember the following: That Medicare is the most 
successful government health program in history. It has ensured 
the availability of health care for millions of older Americans 
who had previously no options.
    I have heard, as I am sure we all have, lots of loose talk 
about reforming and privatizing Medicare. The idea of turning 
this program over to the private sector is a bad one. The 
marketplace can be a wonderful place of efficiency, but it is 
also ruthless in its drive for profit, and we must not allow 
health care decisions for our seniors to be strictly business 
decisions, and we can see that danger clearly in some of the 
excesses of managed care.
    Government works best when it is harnessing the incredible 
potential of the private sector, but softening some of its 
harsher edges. To be sure, there may be room for more 
businesslike efficiency in HCFA, and I am open to making those 
very changes. For instance, we do need to modernize and 
streamline the coding and coverage processes, especially for 
new devices, treatments and technology. I echo my colleague, 
Anna Eshoo, in stating that I wish we could modernize HCFA the 
same way that the Food and Drug Administration--that we have 
been able to do that with them, but it would be a terrible 
injustice to our seniors to open Medicare, unshielded, to the 
cruelties of the business world. Medicare is a sacred program 
to many of today's seniors. They count on it, and need to be 
able to do so in the future.
    We as a society have made a pledge to them that they will 
have health care, and we need to follow through on this pledge. 
We should also take a moment to recognize how hard a task it is 
that Congress has assigned HCFA. I personally want to thank our 
four former Administrators here for the years of service that 
you have given to this Agency. Balancing Medicare is an 
enormous challenge and a delicate balancing act. While we don't 
want to compromise patient care with excessive regulation, we 
also need to make sure that the Agency preserves a high level 
of program integrity and works to prevent fraud, waste and 
abuse.
    Often, this committee has sent contradictory messages to 
HCFA about our priorities. We tell them to come down hard on 
fraud, waste and abuse, and then the next day we are screaming 
at them because they are being too aggressive. It is hardly 
fair to put them through that and not clearly state our goals 
and, also, to clearly examine the relationship between our 
goals and the funding resources that we give the Agency to 
operate.
    I look forward to working with you on this, Mr. Chairman. I 
hope that we can address these issues in a fair-minded and a 
bipartisan way. Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady, and 
recognizes the gentleman from Florida, Mr. Stearns, for an 
opening statement.
    Mr. Stearns. Thank you, Mr. Chairman, and good morning. 
This is a conundrum, trying to figure out insight into this 
Health Care Financing Administration, HCFA. I don't think any 
of us feel comfortable that we know all the answers here. Lots 
of times we criticize the Agency, but it is so important, so it 
is nice also to find out ways we can improve it.
    Interestingly enough, I had a constituent in my district 
who was on Social Security Disability, and he turned 65 and he 
wanted to convert to Medicare, and it was almost an 
impossibility given all the paperwork. And as we sit here 
today, my constituent has still been unable to convert his 
Social Security Disability into Medicare. And we have helped 
him. He has received forms. We filled them out. And what is 
troubling is that he has been unable to use his secondary 
insurance which he purchased at a total cost of $1200, to help 
him. So we have been hassling this back and forth for over a 
year, so I am interested to hear the testimony of the 
witnesses.
    Also, I would like to comment a little bit on Dr. Roper and 
Dr. Wilensky's testimony, in which they reaffirmed their 
support of reforming Medicare using the Federal Employee Health 
Benefits Program as a model. I welcome their suggestions here. 
I fully concur with what they spoke about, with all the changes 
we have today in the program, and the complexity of it, 
obviously we need an overhaul. How we do this, we don't know, 
but maybe to use as a paradigm, the FEHBP is a good idea. This 
is a program that has worked, it has had low inflation up to 
this date, and I think if we provided that same kind of program 
for the seniors, it would also provide them access to new drugs 
and devices without a government-run program, but a private 
sector program with competition.
    So, I look forward to hearing from our witnesses, and I 
thank both Chairmen for having this hearing.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the gentlelady from Colorado, Ms. DeGette, for an 
opening statement.
    Ms. DeGette. Mr. Chairman, I have a very excellent opening 
statement which I would ask unanimous consent to submit for the 
record.
    Mr. Greenwood. No, we insist that you read it. Without 
objection, the gentlelady's opening statement will be entered 
into the record, and the Chair recognizes the gentleman from 
New Hampshire, Mr. Bass, for an opening statement.
    Mr. Bass. Thank you, Mr. Chairman, and I just want to 
associate myself with the remarks of my colleagues behind me, 
and thank both you and Mr. Bilirakis for holding this series of 
hearings which are not only timely and instructive, but also 
very relevant to what will undoubtedly be one of the one or two 
most important issues that this committee will address during 
this Congress--the reform or review of the Medicare system in 
general and, within that category, the provision of--or the 
issue of providing a prescription drug benefit for seniors.
    It is important to understand how this important and 
substantial program is administered, what its problems are, and 
what options we have available to us. So, I thank you for 
holding this series of hearings, and look forward to hearing 
from our witnesses. Yield back.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Chairman Bilirakis and Chairman Greenwood, thank you for holding 
this important hearing. This is the third in a series of hearings this 
Committee is holding on the reform and modernization of Federal health 
care programs.
    At this morning's hearing, we are honored to have assembled before 
us the previous four Administrators of the Heath Care Financing 
Administration. I can think of no better group of distinguished people 
to bring before this Committee to talk about the issues facing HCFA.
    I hope today to continue a process we began earlier this session, 
beginning with our March 1st hearing on this topic, where Republicans 
and Democrats work together to improve the lives of people 
participating in these programs.
    The objective of these hearings is clear: We want to ensure that 
America's seniors will have access to the best health care technology 
that our country has to offer. This will help Medicare patients live 
longer and healthier lives.
    HCFA has come under heavy criticism in recent years from both sides 
of the aisle. We are not here today, nor are these hearings designed, 
to bash HCFA. We want to hear your perspectives as Administrators who 
ran this program about what you learned and what your thoughts are as 
you hear all of the criticisms levied against this agency. Are they 
justified? How should the agency be changed? Is it a cultural thing? 
What are the resource needs of the Agency?
    Dr. Vladeck, in your paper ``Making Medicare Work,'' your first set 
of findings are that ``beneficiaries need better customer service;'' 
``beneficiaries face unintended financial liabilities;'' and 
``beneficiaries are subjected to too much and confusing paperwork.'' 
That is concerning. Often times we hear these concerns as they relate 
to providers. I am interested in your insights into these areas and 
your suggested reforms to address them.
    Dr. Wilensky, I am interested in fleshing out the fundamental 
tensions you see existing at HCFA and seeing what we can do to improve 
that dynamic. Ms. DeParle, I certainly appreciate your comments that we 
all need a breather from more changes to the Medicare program. We made 
major changes in the Balanced Budget Act of 1997, and I think it's time 
we all assessed where HCFA is with implementing those provisions and 
the impact that the work load had on your agency and your staff.
    Dr. Roper, you served the earliest of any of the four here today 
and therefore are the most removed from HCFA's current operations. Yet 
as far back as 1986 when you started your tenure under President 
Reagan, you say that HCFA was ``the favorite four letter word of people 
in the health care industry.'' How do the issues we are confronting 
today differ from those you faced fifteen years ago?
    Clearly, there will always be some tension between HCFA as the 
agency paying the bills, and the providers, who are the ones getting 
paid. But when beneficiaries are affected and when people familiar with 
the Agency say the culture is as bad now as it has ever been in recent 
memory, we need to step back and ask how did we get here, and how can 
we make it better. We owe at least that to the beneficiaries and their 
families.
    Chairman Bilirakis and Chairman Greenwood, thank you again for 
holding this hearing. I look forward to hearing from the witnesses.
                                 ______
                                 
    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California
    I'm pleased that all of you are here today. I've had the 
opportunity to work with each one of you over the years as you served 
as Administrators of the Health Care Financing Administration. I think 
each of you personify the extremely high level of ability and 
commitment that we have had in the persons serving at the leadership 
level of the Agency.
    It has been my experience--and I think each of you would echo this, 
that in fact at all levels of HCFA, there are many, many public 
servants who have shown unusual dedication and commitment. They have 
done their jobs under extremely difficult conditions: a rapid expansion 
of workload and no corresponding increase in resources--both in terms 
of dollars and staff positions.
    Further, they have operated during a period when we in the Congress 
have made many complex changes in Medicare, when we have frequently 
failed to resist micromanaging the agency, and when we have exhorted 
the agency on the one hand to stop any incorrect payments--we call it 
fraud and abuse--but criticized you when the steps taken to achieve 
that goal have caused legitimate unhappiness in the provider community.
    I want to make just a few points. One, clearly we need to do more 
to give the agency the resources it needs. It is inexcusable that fewer 
people work in HCFA now than were there than when Dr. Roper was there a 
dozen years ago.
    Two, we need to resist the idea that somehow we in Congress have a 
magic bullet in terms of how to reorganize the agency that will somehow 
solve these problems. Just setting up a Board, or chopping off vital 
pieces of HCFA, or rearranging the boxes, not only won't solve the 
problem indeed it may make it worse. Further we here in the Congress 
are not in the best position to really know the implications of what we 
may try to do. So I think we have to be very careful here.
    Finally, I want to stress that I find the idea of moving Medicaid 
out of the agency--and treating it even more like the forgotten 
stepchild that we'd just as soon was someone else's responsibility--is 
a serious mistake.
    Medicare and Medicaid are both vital health care insurance 
programs--and I emphasize that word insurance--that are depended on by 
millions and millions of Americans. Medicaid now serves nearly 40 
million people--at least as many as Medicare. It is approaching 
Medicare in expenditures. It deals with the same population of 
providers. And we have worked to establish the same standards for those 
providers, including nursing homes, to name one particularly important 
example.
    The populations themselves overlap. In fact, I would argue that 
Medicare only works for low-income elderly and disabled people because 
Medicaid is there to supplement it--paying premiums, coinsurance, 
providing long-term care, prescription drugs, and other additional 
services.
    It is a mistake to turn our backs on years of progress and return 
to viewing Medicaid as a welfare program, or as a grant program to 
states or organizations, as opposed to a program of insurance coverage 
for beneficiaries.
    Both Medicare and Medicaid are critical programs for the American 
people. Both are vital to the health care system. Providers depend on 
them. Aged, blind, disabled people, and low-income families and 
children, depend on them. We need to work together to make them work 
better for us all.
                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    I am pleased to have such a distinguished panel assembled today. 
Together, you have managed the Health Care Financing Administration 
(HCFA) through more than a third of its existence. With that much 
wisdom you are well suited to make recommendations to improve the 
agency. I look forward to hearing your different perspectives on the 
challenges facing HCFA and how we can help the agency best meet them in 
the future.
    One of the challenges facing the agency is the administrative 
budget. HCFA has been entrusted with enormous responsibilities and 
duties but given a meager allotment to perform them. It is a credit to 
you all that HCFA has done so much with so little. How much does HCFA 
need to effectively and efficiently meet its mandated goals?
    Another key challenge is balancing the different roles that the 
agency is often asked to play, as a regulator, as a purchaser, and as a 
protector of those who depend on HCFA to guarantee quality health 
insurance coverage. From my perspective, HCFA's number one priority is 
to protect the millions of people who depend on its programs for their 
health insurance. Part of that means ensuring that providers continue 
to participate in the program, making the rules understandable, and 
paying claims in a timely manner. Part of that also means being a 
prudent guardian of public money and working to eliminate fraud and 
abuse. These goals require careful, thoughtful, and open consideration 
by the agency. How can the Congress help with this balancing act?
    Often we in Congress hear the call for ``reform'' of the agency--
either from frustrated providers or from those with an ideological bone 
to pick about the role of government in their lives. I don't hear 
seniors calling for reform of HCFA--I hear them asking for assistance 
with prescription drugs. I don't hear children, the elderly, or the 
disabled calling for more flexibility in Medicaid--I hear them asking 
for the government to protect the coverage they have. Therefore, what I 
am most interested in hearing about today is the role of HCFA for 
beneficiaries--the seniors, the disabled, children, families, and 
others who depend on the programs HCFA runs. With a doubling of the 
Medicare population expected in the next two decades and the desire to 
continue to expand health insurance coverage through successful 
programs like Medicaid and the Children's Health Insurance Program, 
HCFA will be asked to protect an increasing number of Americans, both 
young and old. What needs to be done to make HCFA work better for 
beneficiaries?
    One of the ideas I have heard floating around is that we should 
separate the Medicaid program from HCFA and allow the agency to focus 
solely on Medicare. While Medicare is a very important program, I am 
concerned about what this approach might do. Medicaid, like Medicare, 
is an insurance program which serves vulnerable populations. Many of 
the same functions are performed for both programs and separating the 
two would merely mean a duplication of bureaucracy. Further, I cannot 
support any proposal that would place less importance on the 40 million 
elderly, disabled, women, and children in Medicaid than those protected 
by Medicare. We cannot allow either program to ``wither on the vine'' 
or to suffer from ``benign neglect.''
    I thank the Chairman for holding what I believe will be a most 
informative hearing. What the agency and its programs need at this time 
is a firm commitment from Congress that will enable it to do a first 
rate job of protecting and serving the millions of Americans that 
depend on the health care they receive through the agency's programs. 
Part of that is funding. Part of that is giving the agency the tools it 
needs to perform its multitude of responsibilities. And part of that is 
for us to foster a good working relationship between the agency, 
Congress, providers, and beneficiaries to achieve our mutual goals. 
Today's hearing should help.

    Mr. Bilirakis. The Chair thanks the gentleman, and now 
calls for the witnesses: Dr. William Roper, who is the Dean of 
the School of Public Health, University of North Carolina at 
Chapel Hill; Dr. Gail Wilensky, John M. Olin Senior Fellow at 
Project HOPE and Chair of MedPAC; Dr. Bruce Vladeck, Senior 
Vice President for Policy, Institute for Medicare Practice, 
Mount Sinai School of Medicine, and Nancy-Ann Min DeParle, 
Former Administrator of Health Care Financing Administration, 
all for Administrators. As you are aware, this is a joint 
hearing with the Oversight and Investigations Subcommittee and 
the Health Subcommittee, and you understand that when we do 
this, we have a practice of taking testimony under oath. Do you 
have any objection to testifying under oath?
    Mr. Roper. No.
    Ms. Wilensky. No.
    Mr. Vladeck. No.
    Ms. DeParle. No.
    Mr. Greenwood. According to the rules of the committee, you 
are entitled to be advised by counsel. Do you care to be 
advised by counsel?
    Mr. Roper. No.
    Ms. Wilensky. No.
    Mr. Vladeck. No.
    Ms. DeParle. No.
    [Witnesses sworn.]
    Mr. Greenwood. We are going to ask that each of you give a 
10-minute statement. We are doubling the normal allotment of 
time because we are so eager to hear your testimony, and we 
will start with Dr. Roper.

 TESTIMONY OF WILLIAM L. ROPER, DEAN, SCHOOL OF PUBLIC HEALTH, 
UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL; GAIL R. WILENSKY, 
JOHN M. OLIN SENIOR FELLOW, PROJECT HOPE, CHAIR, MEDPAC; BRUCE 
  C. VLADECK, SENIOR VICE PRESIDENT FOR POLICY, INSTITUTE FOR 
 MEDICARE PRACTICE, MOUNT SINAI SCHOOL OF MEDICINE; AND NANCY-
   ANN DePARLE, FORMER ADMINISTRATOR, HEALTH CARE FINANCING 
                         ADMINISTRATION

    Mr. Roper. Good morning, Mr. Chairman. It is an honor and a 
privilege to appear before you. I am Bill Roper. I am Dean of 
the School of Public Health at The University of North 
Carolina. I was HCFA Administrator starting in 1986--actually, 
I started 15 years ago this week. I served from 1986 to 1989, 
and it is a pleasure to come back to talk with you and my 
colleagues about this important program.
    Following my time at HCFA, I was also Director of the CDC, 
the Federal Public Health Agency in Atlanta, and served in the 
private sector as a senior executive with a managed health care 
company, so I think I have seen other aspects of the world that 
HCFA touches and is touched by.
    When I was at HCFA, I often jokingly remarked that HCFA was 
the favorite four-letter word of providers in the health care 
industry, but I think that those tensions, those concerns have 
surely been heightened in the years to come. There are 
significant improvements to be made in HCFA and we are going to 
be talking about those today, but I would begin by saying the 
fundamental problems we face are primarily problems of the 
Medicare program itself, not primarily of the Agency that 
administers it.
    Having been head of both HCFA and the CDC, I used to say as 
well that HCFA is a ``black hat agency'' whereas the CDC is a 
``white hat agency''--that is, on most days, most people think 
good thoughts about the Centers for Disease Control and 
Prevention. On the other hand, on a good day HCFA makes only 
half the people mad at it.
    The essence of what HCFA does is saying ``no'' to people, 
lots of people--the Congress, beneficiaries, providers, and so 
on--and when you say no, you make people mad, and that is what 
I think we all need to understand as we talk about this.
    Many of the problems attributed to HCFA are not of its own 
making. It exists and functions in a conflicted environment 
where the Congress will often pass legislation with noble, even 
lofty, goals, but that have internal challenges--for example, 
the challenge for fiscal responsibility while at the same time 
not saying no to beneficiaries when they believe they need 
health care services, pushing for quality in health care 
services while at the same time not upsetting doctors and other 
providers. Those are surely challenges. I would say, in 
general, it is difficult to be both customer-friendly and to be 
a regulator.
    There are some specifics, though, that I would like to talk 
about, and I will do that quickly. The Medicare program itself 
is sadly out-of-date, it needs to be modernized. It has failed, 
and continues to fail, to take advantage of the innovations 
that we have had in the private sector and, as was said 
earlier, I am on record elsewhere as saying it ought to be much 
more like the Federal Employee Health Benefits Program.
    In general, beyond that point, new skills and expertise are 
needed in the Agency's workforce. New tools and data systems 
are needed to enable informed purchasing decisions and informed 
assessments of quality and other important tasks. HCFA needs to 
have explicit approaches to hiring staff with private sector 
skills, and needs to realistically evaluate its resource needs. 
It needs to be functioned more as a continuous quality 
improvement agency and, as such, needs to be given much more 
freedom to implement pilot studies or to test efforts to guide 
improvements in services.
    In the past, no one has ever accused HCFA of being too 
nimble, and that need to innovate is at the forefront of this 
problem. At present, we need a new approach to trying out ideas 
on a short-turnaround time. Perhaps feasibility waivers could 
be granted where something doesn't have to be researched to 
death to demonstrate whether it works or not, but you can try 
something for even a short period of time and, if it works, 
spread it more broadly and, if it doesn't, abandon it and go on 
to something else.
    As I and others have previously said, it is important to 
emphasize the need for more resources for HCFA itself. When I 
hear people brag about how little Medicare spends on 
administration, I cringe. That should be a source of 
embarrassment, not of pride.
    The Agency is under-staffed both in numbers and in the mix 
of skills, and it is seriously hampered by inadequate systems. 
There are actually fewer staff in HCFA today than when I became 
Administrator 15 years ago, despite a tripling of the outlays. 
The inadequacy of resources shows in the quality of the output.
    Now nearly 25 years old, HCFA needs to be updated, however, 
I believe a large-scale reorganization is not necessarily the 
way to do it. As well-intentioned as it was, and it was, HCFA's 
recent reorganization produced much chaos. It created mass 
confusion in many respects. Accountability has been diffused 
throughout the Agency at the regional and central levels. 
Individuals outside the Agency are confused about who is 
accountable for particular issues, and uniform implementation 
of procedures and processes is largely absent. A confusing 
organization might ease HCFA's essential dialog with the 
private sector, which is already unsympathetic with HCFA and, 
even more so, unsympathetic to the chaotic structure.
    Rarely are problems solved by moving boxes around on the 
organizational chart. I believe it is time to re-evaluate 
Medicare's contractor system, the fiscal intermediaries and 
carriers. We still have too many intermediaries and carriers to 
be efficient. I believe there are 50 today--30 Part A, 20 Part 
B. We could dramatically reduce the number of contractors and 
improve the management of the program, while being more 
efficient.
    I would suggest the most significant problem Medicare and 
HCFA faces is that is stuck firmly in a fee-for-service 
mentality and modality. Integrated health delivery systems are 
much more appropriate and responsive to the needs of seniors, 
certainly far more promising than the Yellow Pages fee-for-
service approach of organizing care for seniors with serious, 
complex, chronic illnesses.
    I believe private plans, including managed care and 
indemnity plans, should compete with the traditional program on 
the basis of quality and cost but, unfortunately, the current 
Medicare+Choice program brings together an inhospitable 
environment with complex legislation and unrealistic rules that 
have made the Government in a managed care setting undesirable 
to the private sector.
    The attitude among many private companies is that doing 
business with the Federal Government in health care is a sure 
way to lose your shirt. When I was HCFA Administrator, I got 
many questions about ``can we depend on you, the Government, to 
be a reliable business partner over time.'' I would have to say 
that a fair reading of the last 15 years is, the Government is 
not a reliable business partner, and we have to fix that if we 
expect this program to grow.
    One of the ideas that has gained some currency recently is 
to remove the administration of the managed care portion of 
Medicare from the fee-for-service part. I believe, on balance, 
that both should remain within HCFA, but it surely makes sense 
to develop a new, separate unit whose full-time assignment is 
Medicare+Choice because HCFA staff are still largely fee-for-
service oriented. The new unit would need individuals from the 
private sector with specific expertise in managed care, and 
perhaps there ought to be designated a new Deputy Administrator 
for Medicare+Choice, or an Associate Administrator for it.
    I would also like to comment on another matter that has 
received a fair amount of attention recently, the possible 
creation of a Medicare Board. I believe the Secretary and the 
Administrator of HCFA are the President's appointees charged 
with responsibility for health care financing within the laws 
enacted by Congress. The creation of a National Medicare Board 
or similar organization would only serve to make more diffuse 
the systems of management, of responsibility, and of 
accountability that are necessary for the Agency to be 
effective in its work. As some have pointed out, the notion of 
a unitary executive--the President, the Secretary, the 
Administrator--is one that I think we would be better served if 
we follow in general rather than having independent boards and 
commissions.
    Finally, HCFA needs an administrative structure that 
promotes internal accountability and responsibility, and that 
is understood by all of HCFA's partners, public and private. It 
needs to modernize and enhance its existing workforce with new 
and different skills. It needs adequate personnel and systems 
resources that reflect the enormous responsibilities it faces. 
It needs new legislative and regulatory flexibility that allow 
it to engage in different, innovative arrangements. And, 
finally, and most importantly, I believe, HCFA needs to be able 
to work in an environment of reasonable expectations from the 
public, the Administration and the Congress.
    I thank the committee for the opportunity to be with you 
today.
    [The prepared statement of William L. Roper follows:]
    prepared statement of william l. roper, dean, school of public 
                 healththe university of north carolina
    Good morning Mr. Chairman and members of the Committee. I am 
William L. Roper, Dean of the School of Public Health at The University 
of North Carolina at Chapel Hill.
    Before I assumed my current post at UNC Chapel Hill, I was senior 
vice president for Prudential HealthCare where I was responsible for 
medical management and other services supporting Prudential's health 
plans nationwide, including what are now Medicare+Choice plans. In this 
role I observed first-hand the Health Care Financing Administration's 
regulatory processes and the challenges they can create.
    Before my tenure at Prudential, I was Deputy Assistant to the 
President for Domestic Policy, and then Director of the Centers for 
Disease Control and Prevention under President Bush. Earlier, I served 
as Administrator of the Health Care Financing Administration (HCFA) 
under President Reagan (1986-89). At HCFA, I was responsible for 
managing Medicare and Medicaid through a period of significant change 
in these programs. I am pleased to be here today and to participate 
with the other former HCFA Administrators.
    When I was at HCFA, I would jokingly remark that HCFA was the 
favorite four-letter word of people in the health care industry. Today, 
those dissatisfied with HCFA include not only the industry, but also 
large numbers of beneficiaries, the media, the population in general, 
and in particular the Congress. It often seems that HCFA is second only 
to the IRS as a target for criticism. Certainly, there are significant 
improvements to be made at HCFA, and I will elaborate on these as I see 
them. Let us be clear, however, that the fundamental problems I will be 
speaking about today are primarily problems of the Medicare program 
itself, not just the agency that administers it. Having been head of 
both HCFA and the Centers for Disease Control and Prevention (CDC), I 
believe one is a ``black hat'' agency and one is a ``white hat'' one. 
You can reorganize HCFA all you want, and put all the bells and 
whistles in its reporting channels you want, but the agency will always 
have saying ``no'' as what characterizes it.
                            general context
    In addition, many of the problems attributed to HCFA are actually 
not of its own making. HCFA functions in a political environment where 
the Congress will often pass legislation with very noble but 
unrealistic or perhaps even conflicting objectives and expectations. 
The resulting legislation may be unclear or unrealistic, but HCFA has 
to figure out a way to implement it.
    Consider the challenge faced by a well-meaning Congress that is 
committed to fiscal responsibility, but must also balance the needs of 
constituents, who will not sit still for denied hospital admissions. 
Another example would be that all Americans want to receive the highest 
quality of care possible, but many are uncomfortable with some of the 
regulation, oversight or data acquisition activities that might be 
needed to achieve that end.
    I am by no means a proponent of additional government regulation. 
On the other hand, to fulfill the objectives of many statutory 
provisions there is often the need for more intervention or oversight 
than you and the American people welcome. We need to recognize that 
HCFA is quite often doing a difficult job in its effort to walk the 
fine line between maintaining a focus on the good things you want to 
come from the legislation you enact, and actually achieving those 
objectives in a reasonable way. It is difficult at times to be both 
customer friendly and a regulator.
    Clearly, there are strong opinions about each of these issues, and 
HCFA must contend with them all. We should all have a realistic vision 
of HCFA and its potential within a politicized environment.
    There are, however, a number of specific problems and issues that I 
would like to address today.
                          need for innovation
    The Medicare program is sadly out of date; it needs to be 
modernized. It has failed--and continues to fail--to take advantage of 
innovation in the private sector.
    I am on record as strongly supporting a reform of Medicare, making 
it much more like the Federal Employee Health Benefits Program.
    In particular, change is much too slow under the burden of 
excessively prescriptive legislation, which sometimes places impossible 
burdens on the Agency. This includes dealing with innovation in medical 
technologies, which can take years to gain approval for coverage under 
Medicare, as well as innovation in management approaches, increased 
emphasis on modern skills, and appropriate technology for an 
increasingly complex health care financing market.
    Although some improvements are being made, such as changes in 
HCFA's customer service, e.g., the Medicare Helpline, technological 
improvements are needed in HCFA's day-to-day implementation of 
Medicare. It is not enough to strive to be customer friendly--HCFA must 
view itself differently and become more forward-thinking in its world 
view. For example, new skills and expertise are needed in the agency's 
work force so that it can deal more effectively with complex approaches 
to health insurance. New tools and data systems are needed to enable 
informed purchasing decisions and assessments about quality of care.
    In some ways, the agency and all of its customers need to recognize 
that these are the activities for the future. For example, a worthy 
idea today is paying more for higher quality. To pursue that approach, 
HCFA needs to assure that it has all of the necessary tools and skills 
at hand to assess quality in ways that would allow differential 
payment.
    These changes surely include re-training. They also mean that HCFA 
needs to have explicit approaches to hiring staff with private sector 
skills, and needs to realistically evaluate resource needs in terms of 
number of staff, and quality and quantity of technological tools and 
data systems.
    In addition, while much of the world has successfully moved to use 
the tools of continuous quality improvement, HCFA is mired in old 
practices and is unable to move quickly to test and implement new 
approaches. I suggest that HCFA should be given much more freedom to 
implement pilot studies or test efforts to guide a movement to more 
efficient service. Simply put, no one has ever accused HCFA of being 
too ``nimble.''
    Up until now, HCFA's way of trying out new ideas has been using the 
waiver authority under Section 1115. That approach has evolved into 
doing things under the clinical trials mindset: plan, execute for 
several years, carefully evaluate. The cycle time is years. HCFA needs 
a new approach to trying out ideas on as short a turn around as does a 
well-run managed care company. These might be called ``feasibility 
waivers'' or something without the word ``waivers'' in it where HCFA 
tries out a new way of paying providers or contracting for services.
                       the need for new resources
    As I and others have previously said, it is important to emphasize 
the need for more resources for HCFA itself. When I hear people brag 
about how little Medicare spends on administration, I cringe. That 
should be a source of embarrassment, not pride.
    The agency is understaffed (both in numbers and in the mix of 
skills) and it is seriously hampered by inadequate systems. There are 
actually fewer staff in HCFA today then when I became administrator 15 
years ago, despite a tripling of the outlays. The inadequacy of the 
resources shows in the quality of the output.
                       structural reorganization
    Certainly, it is appropriate to look at HCFA at this time and to 
consider reforming the Medicare program. Now nearly 25 years old, HCFA 
needs to be updated. However, a large-scale reorganization is not 
necessarily the way to do it. As well intentioned as it was, HCFA's 
recent re-organization produced little effect but chaos. It was so 
extensive--involving moving so many people and boxes on the 
organizational chart--that it created mass confusion. I know that Bruce 
worked very hard to get the best advice possible before launching the 
new structure; however, experience shows that it did not work.
    Accountability has been diffused throughout the agency at the 
regional and central levels, individuals outside the agency are 
confused about who is accountable for particular issues, and uniform 
implementation of procedures and processes is largely absent. A 
confusing organization muddies HCFA's essential dialogue with the 
private sector, which is already unsympathetic to HCFA and even more so 
to the chaotic structure. The private sector rightfully expects 
corporate-type efficiency in their interaction with the agency. Rarely 
are problems solved by ``moving the boxes around'' on an
    organizational chart. There are a number of examples of problems 
that I and others think are attributable to the recent reorganization 
of HCFA. I will be happy to discuss these in the question and answer 
period that will follow shortly.
                   reevaluate medicare's contractors
    I believe it is time to reevaluate Medicare's contractor system--
the fiscal intermediaries and carriers. There has been a reduction in 
the number of contractors over what formerly was the case .
    I fear we still have too many intermediaries and carriers to be 
efficient. And further, the large variations across them is not in the 
best interests of beneficiaries or providers. With today's information 
and communications technology, we could dramatically reduce the numbers 
of contractors, and improve the management of the program while being 
more efficient.
                         medicare managed care
    I would suggest that the most significant problem of Medicare--and 
thereby of HCFA--is that it is stuck firmly in a fee for service 
mentality and modality. Despite efforts on the part of the Agency, the 
managed care option for Medicare has not achieved its great promise. In 
my opinion, integrated health delivery systems are much more 
appropriate and responsive to the needs of seniors, certainly far more 
promising than the ``yellow pages'' fee-for-service approach of 
organizing care for seniors with complex, chronic illnesses. 
Nonetheless, a hostile environment and ambivalence toward an 
integrated, or managed care, approach, doomed its implementation. In 
fact, the way it was created was directly linked to its downfall, as it 
resulted in so many onerous regulations on health plans.
    My thoughts about giving Medicare beneficiaries choices are long-
standing. In 1987, I wrote an article for the Wall Street Journal 
editorial page on this subject entitled, ``Medicare's Private Option.'' 
My message was simple: keep traditional Medicare intact, but increase 
choices available to Medicare beneficiaries by expanding the role of 
private sector health plans. At that time I wrote--and still believe 
today--that private plans, including managed care and indemnity plans, 
should compete with the traditional program on the basis of quality and 
cost. I oppose forcing older Americans to leave traditional Medicare in 
favor of private health plans. What I support is giving them choice. Do 
not take away the current Medicare system--just give beneficiaries more 
choices.
    When I served at HCFA, we believed that well-managed private health 
plans offered an attractive alternative to traditional Medicare 
coverage. We were committed to giving private health plans a fair 
opportunity to compete and letting beneficiaries decide what option 
would work best for them. Under this vision for Medicare reform, we at 
HCFA advocated a Private Health Plan Option, or PHPO, based on five 
goals:

(1) Ensuring appropriate access to quality care;
(2) Increasing incentives for efficiency;
(3) Reducing government's role in deciding how much to pay for 
        individual health care services;
(4) Reducing government's role in micromanaging medical practice; and
(5) Expanding the range of choices available to both Medicare 
        beneficiaries and health care providers.
    However, what has happened is that an inhospitable environment has 
combined with complex legislation and unrealistic rules to make working 
with the government in a managed care setting undesirable to the 
private sector.
    For example, reimbursement rates can change every year. This kind 
of uncertainty is unacceptable to most businesses, who would prefer a 
longer-term arrangement. In fact, the attitude among many private 
companies is that doing business with the federal government is a sure 
way to lose your shirt. I suggest that a concerted effort to change 
this attitude through a change in business approach is warranted.
    For example, setting rates every two to three years would create 
stability in the eyes of the private sector, and increase desirability 
of participating in the Medicare managed care program, thus increasing 
choice for seniors and competition to participate. The end result would 
be that HCFA could be more discerning in their choice of contractors, 
and operate more efficiently overall. I would suggest that you compare 
the current Medicare+Choice program, which has not succeeded, to the 
FEBHP, where managed care plans participate successfully alongside fee 
for service plans and where real choice is thus available.
    One of the ideas that has gained some currency is to remove the 
administration of the managed care portion of Medicare from the fee-
for-service part. I believe on balance that both should remain within 
HCFA, but that it makes sense to develop a new, separate unit whose 
full-time assignment is Medicare+Choice. This is important in part 
because HCFA staff are still largely fee for service oriented. The new 
unit would need individuals from the private sector with specific 
expertise in managed care programs.
                            a medicare board
    I would like to comment on another matter that has received a fair 
amount of attention recently--the creation of a Medicare Board. HCFA 
has a difficult job--perhaps as difficult as any in government. Over 
the 35 plus years since the creation of Medicare and Medicaid, HHS and 
the Congress have worked to address program design and needs. The 
Secretary of HHS and the Administrator of HCFA are the President's 
appointees charged with responsibility for HCFA, within the laws 
enacted by the Congress. The creation of a National Medicare Board, or 
similar organizations will only serve to make more diffuse the systems 
of management, responsibility, and accountability that are necessary 
for the agency to be effective in its work.
                                summary
    In summary, then, I would argue that several things must be in 
place if HCFA is to succeed in fulfilling its job as the agency 
entrusted with responsible management and leadership of the Medicare 
program.

 bHCFA needs an administrative structure that promotes internal 
        accountability and responsibility, and then translates that 
        accountability and responsibility into a structure that is 
        understood by all of the HCFA partners--both public and 
        private.
 HCFA needs to modernize and enhance its existing workforce 
        with new and different skills that focus on the full range of 
        program responsibilities including prudent purchasing, quality 
        assurance, and innovative health insurance arrangements. HCFA 
        needs to be receptive to change as the world around it changes.
 HCFA needs adequate personnel and system resources that are 
        reflect the enormous responsibilities involved in a $200 plus 
        billion program.
 HCFA needs new legislative and regulatory flexibility that 
        would enable the agency to engage in different innovative 
        arrangements with health plans and others.
 And finally, HCFA needs to be able to work in an environment 
        of reasonable expectations from the public, the Administration, 
        and the Congress.
    It has been a pleasure to participate today with the other former 
HCFA Administrators. I would also like to thank the Committee for 
creating this forum and for bringing us together to discuss the many 
important issues facing HCFA. I would be pleased to answer any 
questions you might have. Thank you.

    Mr. Greenwood. Thank you very much for your testimony. As 
witnesses are undoubtedly aware, there is a vote in progress 
right now, and I don't think the members who are here want to 
miss the opportunity to hear from the ``Mount Rushmore'' of 
HCFA here that we have assembled. So we are going to recess for 
about 10 minutes.
    [Brief recess.]
    Mr. Bilirakis. Well, let us just go ahead and get started. 
Dr. Wilensky, John M. Olin Senior Fellow with Project HOPE, the 
Chair of MedPAC, located here in Bethesda, Maryland.
    Dr. Wilensky, please proceed.

                 TESTIMONY OF GAIL R. WILENSKY

    Ms. Wilensky. Thank you, Mr. Chairman. I was the HCFA 
Administrator from 1990 to 1992. As you indicated, I have been 
the Chair of the Medicare Payment Advisory Commission since 
1997. It has given me an opportunity to see some of the effects 
of the current statute and regulations in terms of 
administering the Medicare program.
    I am primarily going to give my remarks, though, as a 
result of the experiences I had as HCFA Administrator and as a 
health policy analyst.
    There is no question that HCFA faces a fundamental tension. 
The members have noted that, and Bill Roper has already. That 
tension reflects the competing focus on establishing a user-
friendly Medicare program, assuring that seniors can get access 
to high-quality care and being financially prudent with 
taxpayers' money. And I think it is important that we recognize 
that there is this fundamental tension that HCFA faces.
    Nonetheless, it appears now that there is so much 
frustration, particularly being reported by providers, 
confusion over billing procedures, fears of making false 
claims, that there is reason to be concerned that seniors will 
have difficulty getting access to the high-quality care that 
Medicare has always provided, if there isn't a way to make this 
a more user-friendly program both for seniors and particularly 
for providers.
    In its March 2000 report, MedPAC reported some evidence, 
although that evidence has not been continuing, of down-
coding--that is, providers billing for services that were less 
complex than they had actually provided. You should not 
countenance abusive behavior, and the Congress has been 
appropriately concerned about up-coding in other types of 
Medicare fraud and abuse. But I believe that the Government 
should be equally concerned about evidence of down-coding. This 
is troublesome, and it can't, in the long-run, be good for the 
Medicare program or for the seniors that it serves.
    There are a variety of places where we have frustration, 
but as I talk to physicians and hospital administrators, home 
care agency administrators, nursing home administrators, it 
seems that the greatest sense of frustration revolves around 
the contractors' performance, the so-called ``fiscal 
intermediaries and carriers.''
    When I was there, that same level of hostility and 
frustration revolved around the PROs, the Peer Review 
Organizations, and I am going to make a suggestion for some 
changes that reflect some of the reforms that went on in the 
early and mid 1990's, that I think have helped reduce the 
tension between the provider community and the PROs.
    In general, to reduce frustration, we need to make sure 
that providers have better education, and seniors as well; that 
there are clear billing procedures and protocols; and that 
there are less frequent and more regularized periods when 
changes are made. We need to make sure that HCFA is funded 
appropriately. Thus far, Dr. Roper has said so, I am quite 
certain that the other two HCFA Administrators will echo that 
concern.
    And, finally, you need to have a change in attitude by the 
contractors. Right now, the default position--that is the 
presumption unless proven otherwise--is that the bills are 
submitted in an incorrect way, and that program integrity 
requires reliance on documentation. Because there is limited 
funding in addition, there is an attempt to use a series of 
different automated strategies to deny claims. It is an attempt 
to not get into a position of pay-and-chase--that is, pay the 
bills and then only after-the-fact, if there is a problem, to 
go after those particular providers.
    A different default position would have a very different 
attitude--to presume that bills that are properly submitted and 
that can go through the screens are, in fact, proper, and then 
to search for patterns of abuse, using statistical analysis. 
This is very similar to the change that occurred with the PROs 
in the early to mid 1990's--that is, before that time a PRO 
would pick up a record on an after-the-fact basis and try to 
decide if there was an untoward event, whether or not that 
meant something. But, in fact, it was very difficult, in a 
retrospective case-by-case review, to see whether it was, in 
fact, a problem. There has been over the early to mid 1990's a 
change in how the PROs respond in looking for patterns of care 
that are problems and focusing on patterns of outcomes, and it 
is precisely that change in position and default that I think 
would change the attitude and change the behavior of the 
contractors.
    We also need to be very mindful of the burden that is 
imposed on the providers by the various assessment and data 
collection efforts, and to be sure that we are collecting data 
that is needed only for purposes of payment or for purposes of 
quality monitoring. When you look at the minimum dataset that 
has been put together by HCFA, which I have, it is overwhelming 
at the amount of time and the complexity that these data 
collection efforts are asking the providers and the 
administrators to make in filling out these claims, time that 
would otherwise be devoted to patient care activities.
    I believe that it would be helpful, although the timing is 
a concern, to reorganize HCFA so that it focused on running a 
modernized traditional Medicare program. I think that the 
current combination of Medicare+Choice with traditional 
Medicare is not a stable and viable long-term option. This is 
clearly the subject of another hearing as to why the current 
construction is not one that I believe is a stable combination.
    I am on record as saying that I believe that a Federal 
Employees Health Care Model is a good model for the future, 
where traditional Medicare remains an important part of the 
Medicare program, but there are a variety of other private 
programs that are offered alongside traditional Medicare.
    If this type of a reform is introduced, the question is 
whether or not the traditional HCFA program ought to be in the 
same administrative agency. Although I think there are 
arguments that can be made on both sides, I would prefer to see 
it in another part of HHS, or possibly in an expanded part of 
OPM, the Office of Personnel Management, which is where the 
actual Federal Employees Healthcare Plan is run. It is a hard 
call because there are some discontinuities that could result 
by having these programs split but, on balance, I think that 
the expertise is not in HCFA and that the focus in HCFA is on 
running a traditional Medicare program, and that is where it 
should be. HIPAA ought to go the same place where this 
administration occurs. So, if you do go with the Federal 
Employees Healthcare Model, you have to make this decision 
about inside HCFA or in another agency. I don't think the 
Medicare Board is a proper source of accountability.
    I also believe that the clinical and QA functions that are 
now in HCFA could go to the CDC or the FDA, and at least the 
moms and kids part of Medicaid could be combined with the 
Children's Health Insurance Program and made a part of the 
agency that runs TANF. I don't feel that this is the only kind 
of reform that would work, but it is an attempt to try to allow 
HCFA to focus on that which ought to be its main 
responsibility--that is, running traditional Medicare. That is 
a very major obligation, and one that takes a lot of focus.
    The timing of making such a change is very important, and 
it is possible that we have already past the point in early 
administration where it makes the most sense to do this type of 
reorganization. And being mindful of the fact that any type of 
reorganization, even one that takes discrete pieces of HCFA and 
attempts to move them elsewhere, runs the risk of having 
further disruption.
    So, in thinking about the reorganization, you need to 
consider the types of reform that you want to put in place. You 
ought to probably phase in these changes, and you need to think 
about the timing very carefully. But I believe that this type 
of reallocation of function so that HCFA is focusing on running 
the very best modern of what we now call a traditional Medicare 
program would help seniors get the kind of quality care we want 
to see in the long-term.
    For me, the bottom line is that there is currently a 
serious mismatch between the responsibilities that the Congress 
and the Administration have given HCFA, and the resources that 
are made available to HCFA.
    HCFA needs to function better. It needs to reduce the 
burdens on providers. But, equally important, the Congress 
needs to give HCFA more flexibility and more funding, and stop 
the kind of micromanagement that all four of us have 
experienced.
    And while we are at it, HCFA could also use a new name. 
Going around the country and trying to explain to people what 
the Health Care Financing Administration meant was one more 
burden on the Administrator that Administrators don't need. 
Thank you very much, Mr. Chairman.
    [The prepared statement of Gail R. Wilensky follows:]
   Prepared Statement of Gail R. Wilensky, Ph.D. John M. Olin Senior 
                          Fellow, Project HOPE
    Mr. Chairman and members of the subcommittee: Thank you for 
inviting me to appear before you. My name is Gail Wilensky. I am a John 
M. Olin Senior Fellow at Project HOPE, an international health 
education foundation and also a former Administrator of the Health Care 
Financing Administration. My testimony today reflects my experiences as 
a HCFA Administrator as well as my views as a health economist.
    I am here today to discuss ways to improve the way HCFA functions. 
The objective of the changes I am recommending is to improve the way 
the Medicare program functions and to reduce some of the regulatory 
burdens on providers without abdicating the fiduciary responsibility of 
HCFA to be prudent stewards of the Medicare trust funds. I would also 
like to discuss possible ways to reallocate some of the functions that 
historically have been assigned to HCFA. Such a reallocation could make 
the agency function more effectively by allowing HCFA to concentrate 
its energies on running Medicare. I believe such a reallocation of 
functions would be desirable, irrespective of other reforms to the 
Medicare program but would be particularly important with some of the 
reforms under consideration. I recognize, however, that the timing of a 
reorganization would need to be carefully considered, in order to 
minimize the potential for further disrupting the functioning of HCFA.
Fundamental Tensions Faced by HCFA
    HCFA faces certain fundamental tensions with its goals of 
establishing a user-friendly Medicare program and assuring that seniors 
can get access to high quality health care while also being financially 
prudent with the taxpayers' monies. The frustration being reported by 
many physicians and other health care providers because of the 
confusion about billing procedures and fears of being charged by HCFA 
and/or the Inspector General with submitting false claims is, in part, 
a reflection of these tensions. Some of the tensions are inherent in a 
program as large and complicated as the current Medicare program but if 
left unchecked, can mean an important diversion of time and energy away 
from patient care and ultimately, become a threat to the future 
availability of high quality care.
    Last year, MedPAC reported evidence of some ``down-coding'' in both 
the hospital and physician settings. Although there is not continuing 
evidence of down-coding, the finding was consistent with reports by 
various providers regarding their uncertainty about how to bill 
Medicare appropriately and their concerns about being charged with 
making false claims against the Medicare program. Government officials 
should not countenance abusive behavior by providers, but it should be 
equally worrisome to the Government that providers may be deliberately 
under-billing Medicare in an attempt to stay clear of HCFA or the IG. 
Such behavior will not be to the long-term benefit of Medicare or the 
seniors it serves.
Strategies to Improve Functioning and Reduce Provider Frustration
    Among the many complaints raised by providers, uncertainty about 
proper billing and coding and discrepancies in treatment by various 
contractors (called fiscal intermediaries and carriers) seem to be at 
the top of most lists. Better education sessions, clearer billing 
procedures and protocols, less frequent and more regularized periods 
for changing billing procedures would represent important steps in 
reducing these legitimate frustrations. As is true for many aspects of 
HCFA reform, some of these changes will require greater flexibility 
from the Congress than has usually been granted to HCFA.
    Most of these changes can be carried out administratively, but 
expanding the types of organizations that can be contractors will 
require a change in legislation. And ultimately, a better functioning 
system of contractors will require better funding of the contractors as 
well. The mis-match between the administrative responsibilities and the 
resources for administering Medicare has been noted by each of the 
former Administrators. A former senior career HCFA employee summed it 
up best when she said, the problem with the contractors is that they've 
been asked to do ``too much, too fast in a system that's been overtaxed 
and under-funded.''
    Some of the problems associated with the contractors go beyond 
uncertainties about proper billing and inadequate responsiveness to 
queries raised by providers. These problems are associated with the 
very divergent way Medicare, as a national program, is administered 
around the country. The tension between the goal of national uniformity 
for a Federal program like Medicare and the importance of allowing for 
some local discretion to reflect the different ways medicine is 
practiced around the country has been a part of Medicare since the 
program began. The granting of limited discretion to local contractors 
with regards to coverage and payment was a part of the original 
Medicare legislation. This discretion makes Medicare less conservative 
with regard to the coverage of new treatments and technology than would 
occur with a program requiring national uniformity.
    While local discretion in payment and coverage may be the cause of 
some provider frustration, the more significant source of frustration 
comes from discrepancies in the program integrity portion of Medicare. 
Theses tensions occur because of the discrepancies in policies and 
behavior between HCFA central-office, the ten regional offices and the 
more than fifty private contractors that carry out the actual payment, 
claims processing and audit operations for Medicare. Unlike 
discrepancies in coverage, which are actually quite limited, these 
discrepancies primarily involve differences in the amount, duration and 
scope of covered benefits. They produce little gain and a lot of 
provider confusion and frustration.
    The importance of the program integrity activities has clearly 
increased, partly as a result of recommendations from the OIG audit on 
financial management and partly as a result of the Health Insurance 
Portability and Accountability Act (HIPAA) and the Balanced Budget Act 
(BBA). Both HIPAA and BBA focused attention on fraud and abuse and 
provided increased resources for program integrity. But the increased 
emphasis on program integrity didn't have to have produced the level of 
frustration that has resulted. This frustration is more a reflection of 
the prevailing attitude towards Medicare providers, namely that they 
are not to be trusted and that the way to prevent improprieties is to 
review first and pay later. With each contractor having its own notions 
of proper payment and utilization, it is not surprising that 
substantial inconsistencies have resulted and with them, substantial 
frustration.
    The default position of the current environment presumes billing 
may be incorrect or inappropriate. In such an environment, program 
integrity requires heavy reliance on documentation. This presumption 
combined with limited funding for contractors has led contractors to 
develop a series of automated strategies that deny claims. This has 
limited the amount of editing that needs to be done after-the-fact and 
also reduces the need to ``pay and chase.'' But it has also led to an 
explosion of medical review polices, policies that differ from 
contractor to contractor and with it, a heavy reliance on 
documentation.
    A different strategy, reflecting a different attitude and default 
position, would be to pay properly submitted bills and search for 
patterns of abuse based on statistical analyses. This change in focus 
would mirror a change that began taking place with the Professional 
Review Organizations (PRO's) in the early to mid 1990's. Prior to that 
time, activities by the PRO's focused on a case-by-case, retrospective 
review of medical records. The problem was that when a ``bad'' or 
undesirable outcome occurred, it was very difficult to tell whether it 
was a single, idiosyncratic occurrence or whether it indicated a 
problem worthy of pursuit. This behavior limited the effectiveness of 
the PRO's and made them intensely disliked by the physicians.
    As part of a more general emphasis on quality improvement, PRO's 
began to focus on patterns of care and patterns of outcomes, rather 
than individual case review. Physicians and institutions that have 
patterns of care and patterns of outcomes that differ from their peers 
are more readily identifiable as potential problems and can be dealt 
with more directly. A move to this type of model would have the 
statistical-analyst contractors become the focus of program integrity 
rather than the medical directors and carriers and have the medical 
directors refocused on quality improvement efforts.
    Another way to reduce provider frustration is for HCFA to be more 
mindful of the time and burden imposed on providers by various 
assessment and data collection efforts. The Beneficiary Improvement and 
Protection Act (BIPA) required the development of patient assessment 
instruments that use common data elements. This requirement provides 
HCFA with an opportunity to focus on the development of instruments 
that emphasize brevity and simplicity, collecting only those data 
elements needed for payment or quality monitoring. It is not obvious 
this requirement has driven past efforts. As an example, the MDS 
(Minimum Data Set), developed to guide care planning for nursing home 
resident care planning, has more than 350 items to be filled out. 
Instruments of this nature may not only compromise data accuracy and 
take valuable time away from patient care, but are also likely to 
increase provider frustration.
    In a similar vein, concern has been raised in MedPAC's March 2001 
report about use of the Minimum Data Set for Post-Acute Care (MDS-PAC) 
as the basis for collecting data for quality monitoring and payment 
purposes across all post-acute care settings. While this instrument has 
the advantage of potentially providing a more coordinated approach 
across all post-acute care settings, which is clearly a plus, it has 
the disadvantage of being lengthy and complex. MDS-PAC covers more than 
400 items, with at least seven different time frames for patient 
assessment. Collecting the same information in the same way across 
settings is important, but focusing on the precise purposes for which 
the data will be used and defining the minimum set of information 
needed to accomplish this goal is equally important.
    MedPAC will be issuing a report in December which looks at Medicare 
burdens on providers and will lay out areas where productive reform 
could be undertaken and suggest the principles that should underlay 
such reform. MedPAC's March 2002 report will also include some focus on 
contractor relations in Medicare.
HCFA's Current Functions
    Reviewing HCFA's current responsibilities and reallocating some of 
these functions to other parts of HHS represents another strategy that 
may help HCFA focus on efforts to reduce provider burden and 
frustration.
    HCFA's foremost responsibility is administering the Medicare 
program. Medicare covers 39 million people and is expected to cost 
around $240 billion in FY2001. The agency employs approximately 4200 
individuals in central and regional offices but has contracted 
indirectly for the services of about 38,000 FTEs through its network of 
over 50 private contractors who act as its fiscal intermediaries and 
carriers. These include the people referenced earlier that actually pay 
the bills and provide financial oversight for the services provided. In 
addition, HCFA manages the participation of more than 260 plans 
involved in the Medicare+Choice program. This makes HCFA bigger than 
most cabinet level departments in terms of both money and personnel.
    The proper oversight and administration of Medicare is a full-time 
job for any agency. The problem is that HCFA is also responsible for 
providing oversight to the Medicaid program, conducting surveys and 
certification of certain types of health facilities, approving the 
Children's Health Insurance Program (CHIP) proposals submitted by the 
states, enforcing federal health insurance portability laws and some 
fraud and abuse prevention activities. These activities require a wide 
variety of talents, skills and experience and present a management 
problem for even the most talented administrator. HCFA's problems will 
only get worse as the baby-boomers start to retire and the number of 
people on Medicare increases dramatically, making the world's largest 
insurance company, HCFA, even more difficult to manage.
Administrative Issues Supporting a Reformed Medicare with Prescription 
        Drugs
    Even in the absence of any type of Medicare reform, including the 
adoption of a prescription drug program, a case can be made for 
restructuring HCFA so that it can focus on running the Medicare program 
more effectively. If Medicare is changed in any substantial way, the 
administrative issues become even more important. Among the issues that 
should be addressed are the functions that should be included in a 
reorganized HCFA. How should HCFA be restructured so that it can 
effectively manage a modernized fee-for-service Medicare program? What 
type of administrative structure makes sense for the private plans that 
participate in Medicare, either as Medicare+Choice or potentially as 
separate prescription drug programs? What role will PBM's have in a 
reformed Medicare program and how will they be administered?
    A first logical step, at least in principle, should be to move all 
or most non-Medicare related functions as well as some clinical and 
quality assurance functions currently in HCFA elsewhere within the 
Department of Health and Human Services. The functions relating to 
conditions of participation and quality assurance such as the survey 
and certification of nursing homes, the conditions of participation for 
hospitals, and the certification of clinical labs should be housed 
either in CDC or FDA.
    The oversight of the Medicaid program is more complicated. Medicaid 
has always been somewhat the stepchild of HCFA. At least the portion of 
Medicaid relating to ``moms and kids'' should be moved elsewhere and 
given appropriate resources and leadership. The part of Medicaid that 
covers the aged and disabled is more complicated because of the overlap 
with Medicare. If this portion of Medicaid is also moved, coordination 
with Medicare could be provided through interagency agreements. Putting 
together the ``moms and kids'' portion of Medicaid with the approval of 
proposals submitted by states under CHIPs also makes sense. One 
consideration would be to put these programs together with the 
Administration for Children, Youth and Families, the agency that runs 
the welfare program. Another consideration would be to put all of these 
programs together in a new entity that also included other state health 
programs like HRSA (Health Resources and Services Administration), and 
SAMSA (Substance Abuse and Mental Services Administration).
    HCFA needs to focus on running a modernized fee-for-service 
program. A series of changes would be needed to modernize the 
traditional Medicare program. These include the authority to use 
selective contracting, centers of excellence, disease management 
programs, best-practice programs and other changes commonplace in 
better-run private sector plans. However, the desirability of some of 
the specific authorities to be granted HCFA will depend in part on the 
viability of the private sector programs offered to seniors. Selective 
contracting, for example, may be a desirable option as long as there is 
an active set private-sector plans but represent undesirable amount of 
power to grant to government if traditional Medicare is effectively the 
only Medicare program.
    One question is whether HCFA will be given the power to administer 
a modernized fee-for-service program. Will Congress allow HCFA the 
flexibility that will be needed to run such a program and will Congress 
and the Administration provide HCFA with the resources needed to carry 
out such a task. History is not encouraging on either of these issues.
    If HCFA or any governmental agency is to run a modernized fee-for-
service program, Congress will need to change its relationship with 
HCFA and retreat from it very micro-prescriptive directives. Changes in 
attitude and behavior will also be required from HCFA employees. HCFA 
has been painfully slow to undertake demonstrations or adopt promising 
ideas from the private sector. If HCFA is to run a modernized fee-for-
service program, the organization will need to be more responsive, more 
pragmatic and more creative in its behavior than it has been in the 
past.
    The appropriate administrative structure for the private plans that 
participate in Medicare in part depends on how Congress chooses to 
further reform Medicare. I believe that the current combination of a 
Medicare+Choice program, which provides a highly regulated environment, 
with payments set independent from the traditional program and a 
traditional Medicare program, is not a stable, long-term option. I am 
already on record as supporting a reform modeled after the Federal 
Employees Health Benefits Program. This type of program, particularly 
if some provisions were made to protect the frailest and most 
vulnerable seniors, would allow seniors to choose between competing 
private plans and a modernized fee-for-service Medicare program for the 
plan that best suits their needs.
    I am well aware that the FEHBP model remains controversial among 
some Members of the subcommittee. However, I think it's important that 
committee members recognize that many of the most vexing issues that 
need to be resolved for a premium support program must also be resolved 
with Medicare as it is currently structured. These issues include risk 
adjustment, providing understandable and user-friendly information to 
seniors, assuring that quality care is being delivered, providing 
safeguards for frail and vulnerable populations and given the strong 
interest in prescription drug coverage, the design of a prescription 
drug benefit that doesn't depend on administered pricing to moderate 
spending.
    Some attention has been given to the potential use of a Medicare 
Board to provide oversight for private plans and to negotiate with 
private plans as well as to provide the administrative structure for a 
premium-support type of reform, if that is the direction of reform 
Congress chooses to take. However, potential problems of accountability 
of a board plus the difficulties of using a board-structure for an 
entity that has significant administrative and operational 
responsibilities make the Board concept a less attractive 
administrative structure. A better choice would be a separate agency 
within HHS, such as was proposed last year in H.R. 4680 or an expanded 
version of the Office of Personnel Management, which negotiates with 
health plans on behalf of the Federal Employees and resides in the 
executive office of the President. The most important functions of this 
new entity would be to review and approve benefit packages, make 
payment modifications (to reflect risk adjustment, etc.), direct open 
enrollment periods, provide information about plan choices and either 
structure competitive bids or be empowered to negotiate premiums. This 
new entity would also be an obvious place to put HIPAA 
responsibilities.
    I recognize this type of structure would divide the responsibility 
of administering the overall program between two entities but I believe 
this is far preferable than lodging both with HCFA. HCFA has little 
experience in negotiating with outside entities. The functions and role 
for government in running and monitoring competing private plans are 
fundamentally different from the experiences and mind-set of HCFA 
employees. Also, separating these functions would help HCFA focus on 
administering a more modernized fee-for-service program.
    Finally, we need to be clearer about the role PBM's will play in 
administering the prescription drug program for traditional or 
modernized Medicare and the type of leadership that will be needed to 
manage such a program. Almost all of the prescription drug proposals 
have invoked the concept of PBM's as the appropriate administrative 
structure to administer an outpatient drug benefit. In large part, this 
reflects the belief that administered pricing, the main instrument of 
cost-containment for other parts of traditional Medicare, will not be 
used for prescription drugs. Since PBM's have had some success 
historically in moderating spending in the private sector, it has been 
assumed that they will be able to do so in the public sector as well.
    But many unanswered questions remain about how the PBM's will 
function, how much independent power they will be granted and where the 
government oversight function of the PBM's will be lodged. Will there 
be competing PBM's within an area, how will they be chosen, how much 
power will they have to devise formularies, encourage generics, impose 
tiered co-payments, will they be allowed to take financial risk, will 
they be encouraged to take financial risk and so forth. If there is a 
new administrative agency providing oversight for private health plans, 
that would be the logical place to provide oversight for the drug 
benefit as well. In any case, the management of this benefit will 
require leadership and private sector experience not currently 
available in HCFA.
Getting From ``Here'' to ``There''
    Historically, changes in Medicare reimbursement policy and 
structure have been phased in over several years. This has helped to 
cushion the disruption that abrupt changes could cause. It also makes 
sense to consider phasing-in changes in the structure or organization 
of a reformed Medicare program that requires substantially different 
roles for government or substantially different roles for the 
administrative institutions supporting the program. Any interest in 
experimenting with various strategies for reform or the administrative 
structures supporting reform makes it important that we begin the 
process.
    But the Congress needs to be clear that there are risks and 
potential costs involved with any restructuring of HCFA. The 
reorganization of HCFA several years ago affected most individuals 
within the agency and caused significant disruptions in workflow. 
Reorganizing HCFA would best be done at the beginning of a new 
administration or at the end of a presidential term. The ideal time for 
some of the reorganization may already have passed. Reorganizations 
that move relatively separable parts of the agency will be less 
disruptive than reorganizations that move large numbers to new 
positions.
    Whatever the decision on reorganizing and restructuring HCFA, 
Congress needs to recognize that there has been a serious mismatch 
between the responsibilities given to HCFA and the resources the agency 
has been granted. HCFA needs to find ways to reduce the burdens being 
placed on providers and to function better as an administrative agency. 
Congress needs to be more realistic in terms of the demands it places 
on the agency and with the support it provides. Both need to happen 
together; neither is likely to happen alone.

    Mr. Bilirakis. All four of you smiled at that suggestion. 
Dr. Vladeck is the Senior Vice President for Policy with the 
Institute for Medicare Practice of Mount Sinai School of 
Medicine in New York.
    Dr. Vladeck, please proceed, sir.

                 TESTIMONY OF BRUCE C. VLADECK

    Mr. Vladeck. Mr. Chairmen, members of the committee, I am 
very pleased to be here again back before you today to have the 
opportunity to participate in this hearing. I am still weighing 
in my mind the metaphor of ``Mount Rushmore'' and my comfort 
level with that, but it is a whole new perspective on a variety 
of things for me.
    As I believe you know, I was Administrator of the Health 
Care Financing Administration from 1993 through 1997. Prior to 
that time, I spent 6 years on the Perspective Payment 
Assessment Commission, one of the predecessors to MedPAC. And, 
as Mr. Bilirakis well knows, right after I left HCFA, I was 
appointed as a member of the National Bipartisan Commission on 
the Future of Medicare, where I had the pleasure of serving 
with the Chairman, which was one of the few pleasures I would 
associate with that experience. So, I have been involved in 
these issues in a number of ways. Of course, I am now employed 
by a major academic Medical Center which has some sensitivity 
to Medicare policy issues. As well, the committee staff knows, 
and they have been very considerate and flexible, I returned 
just last night from a very long trip abroad, which explains 
the absence of an appropriate written statement on my part, and 
I appreciate the committee's indulgence in its absence.
    There was a report that we did at the Institute for 
Medicare Practice on the future of Medicare that I asked be 
distributed sort of in lieu of that, and I do want to make--I 
was going to make just four points very quickly this morning, 
but in response to Gail's comments and some of the others that 
have been made recently, I would make a fifth.
    I agree entirely on the name issue. I actually thought that 
Medicare and Medicaid Administration, or ``MAMA,'' would be a 
much friendlier name for the Agency. And I found when we 
discussed internally, that every male member of the senior 
staff was in favor of that renaming, and every female member 
was opposed. And since we had more women in the senior staff of 
the Agency than men in the senior staff of the Agency, that was 
the end of that particular proposal, and also that 
Administrator's willingness to float any specific proposals for 
changes in name, but I would certainly applaud any efforts in 
that regard. Almost anything would be better.
    There are four other points that I want to make. First, I 
used to teach that policy administration and public 
administration were in some ways fundamentally inseparable, but 
in some ways as well, they are not, and there are just some 
basic administrative things that one needs to do anything in 
terms of people and the right kinds of people, and money, and 
information systems, and both of my colleagues who have spoken 
already have spoken to it, and I know that Nancy-Ann would 
agree.
    I want to particularly emphasize the extent to which, in 
provider communications and provider education, in fact, HCFA 
is doing substantially less of that than it did a decade ago, 
purely for budgetary reasons. Almost all of those activities 
were historically funded through the contractors. As contractor 
budgets were effectively frozen in the light of increasing 
volume of claims processing activities and the statutory 
requirements on timeliness of claims processing, those 
functions gradually got squeezed out, and the level of service 
or nonservice being provided to providers and beneficiaries 
alike is woefully inadequate, we would all agree with that, and 
that is a pure money issue. In fact, I think, as many private 
sector organizations have learned over time, while there are 
issues of management and training and staffing an organization, 
at some fundamental level you get the level of customer 
service, however you define your customers that you pay for, 
and we are not paying for any under the administration of 
Medicare and Medicaid at the moment, and it shows, but it can 
be fixed.
    The second point I would make is that when one seeks 
greater flexibility and nimbleness, to use Dr. Roper's phrase, 
on the one hand, simultaneously, with greater consultation, due 
process, fairness and openness to a wide variety of views, we 
have a flat-out contradiction. And this is a contradiction that 
Members of Congress are familiar with in a number of ways, as 
well as folks in the executive branch, and so forth, but I 
think both that we need to recognize it relatively explicitly 
and that we need to--I think the Congress needs to--take some 
responsibility about making decisions about it.
    We talk about greater authority to do things like disease 
management or inherent reasonableness, as Dr. Roper described, 
I would suggest that HCFA, as it has traditionally been 
overseen by the Congress and traditionally responded to by 
providers, could never in a million years get away with the 
kind of flexibility and the kind of privacy of negotiations and 
the kind of processes that go on between the Office of 
Personnel Management and the plans that participate in the 
Federal Employees Health Benefits Plan.
    The outrage that one would hear from the provider community 
and from the plans about secret negotiations, about 
administrative discretion, about not having adequate 
consultation, and so forth, would make the kind of negotiations 
that drive the operations of the FEHBP simply impossible, 
unless one were prepared to accept that large parts of the 
Medicare program would be administered informally through a 
discretionary negotiated process, largely in secret, which we 
couldn't even do in particular markets for half-a-handful of 
managed care plans without Congress intervening to reopen those 
experiments.
    Similarly, there is a flat-outright tension between 
flexibility to respond to the enormous heterogeneity of the 
health care system in the United States and the increasing 
pressures to have uniformity and ``fairness'' in policy from 
one place to another. Some of the so-called ``confusion'' or 
lack of clarity that providers particularly, and manufacturers, 
complain about in that a policy regional office in California 
may interpret a policy differently from a regional office in 
Texas, arises from the fact that those two regional offices are 
trying to respond to very different local circumstances. This 
is a very big, very heterogeneous country, with very big, very 
heterogeneous health care systems, and the more uniformity you 
have, the more instances you will have in which rules seem 
particularly inappropriate or out-of-place in particular 
communities, and that is just a constant tension that is built 
into having national programs of this kind in a health care 
system that is so heterogeneous, but we have to be explicit 
about that.
    The third point I would make is, I think HCFA is often 
criticized for what are really policy failures, and I think 
someday, if ever, someone writes an objective history of the 
Medicare+Choice, in fact, they will applaud Nancy-Ann Min 
DeParle and her colleagues who were then at HCFA for an 
absolutely extraordinary job of bringing up an extraordinarily 
complex set of legislative requirements, and a whole new 
approach to beneficiary education and beneficiary choice, in a 
remarkably short period of time, under a system of enormously 
constrained resources.
    I think the simple fact is that when we all worked together 
on the Balanced Budget Act in 1997, we ended up with a payment 
formula for managed care plans which established a level of 
payment in 1998 and 1999 which, in most markets, most plans 
could not effectively provide the benefits that they wanted to 
provide and avoid losing money. I would specify--I would remind 
you that the rates that are paid in every county in the United 
States are established by a statutory formula. I think the 
Congress, in the Balanced Budget Act, as we all said while we 
were working on the Balanced Budget Act, tried to do a number 
of mutually contradictory things simultaneously in the 
establishment of those payment formulas, and they didn't work 
because we were trying to balance too many conflicting 
objectives at the same time in setting those payment levels.
    The history of managed care participation in the Medicare 
program, for which we now have more than 30 years of history, 
is that there has never been a protracted period of time in 
which the involvement of plans increased in terms of the number 
of plans participating in the program and the number of 
beneficiaries enrolled in the plans, and the programs saved 
money. In fact, the two moved in opposite directions. When the 
program was paying plans at a level that was costing the 
program money, enrollments went up very substantially, as they 
did during my tenure. When we changed the formula in the BBA to 
limit the amount of overpayment to plans, enrollments dropped 
and plan participation dropped, and we haven't solved that 
policy problem. That's not an administrative or regulatory 
problem.
    Finally, I would just emphasize, as we think about 
organizational structures of one sort or another, that Titles 
18, 19 and 21 of the Social Security Act are relatively 
complicated statutes that affect more than 80 million Americans 
directly, and every American in one way or another, in a 
variety of important ways, and the expertise and commitment and 
dedication of the core staff of HCFA is really, in that regard, 
an extraordinary national resource which is, in some says, very 
fragile and would be very easy to lose or damage, and I think 
we need to worry about it over time, just in terms of all of us 
having a stake in and responsibilities for some very, very 
important, very complicated programs, about which the level of 
expertise or the number of individuals who have some sense of 
institutional memory and know what is actually in the statute, 
is probably diminishing over time, not increasing over time, as 
the programs grow in the number of people they cover.
    In some ways, of course--and we haven't talked about it at 
all up to this point in this hearing--the Medicaid program, and 
the Medicaid statute is even more complicated than the Medicare 
statute. And there is an awful lot of Federal dollars at stake 
there, and there is the well-being and health care of even more 
individuals than are covered under the Medicare program at 
stake there. And the risk of diffusing or losing the kind of 
just expertise and specialized knowledge that is contained 
primarily in the career staff at HCFA, I think, would raise 
some very significant concerns about their implications on the 
Federal budget and, in the longer-term, for the well-being of 
those 80 million beneficiaries.
    Again, I very much appreciate the opportunity to appear 
here today under these circumstances. I congratulate you on 
asking us. I appreciate your asking us to come here, and I am 
happy to respond to any questions.
    Mr. Bilirakis. Thank you very much, Doctor. Ms. Nancy-Ann 
Min DeParle is the immediate former Administrator of HCFA, who 
has been pretty busy the last couple of years. She now is the 
mother of two. I remember, it seems like yesterday when you 
were going through your first one.
    Ms. DeParle. It does. It does.
    Mr. Bilirakis. It seems that way to me, anyhow. Please 
proceed, Nancy-Ann.

                 TESTIMONY OF NANCY-ANN DePARLE

    Ms. DeParle. Thank you, Mr. Chairman, and Chairman 
Greenwood as well. I, too, appreciate the opportunity to be 
with you this morning. It brings back some pleasant memories 
and some difficult memories because I did serve at HCFA during, 
I think, a very challenging time for all of us, with the 
enactment of the Balanced Budget Act and the need to get the 
Balanced Budget Act implemented so we could preserve the 
solvency of the Medicare Trust Fund. And I think you saw in 
that period the fullest manifestation of the difficulties that 
HCFA faces in trying to work with providers and trying to 
implement laws that are extremely prescriptive, often for good 
reasons, but also in trying to be responsive to providers and 
beneficiaries.
    I provided a written statement for the record, so I am just 
going to hit the high points, and many of the points I am 
making have also been made by others here.
    I identified two major problems at HCFA. The first is the 
one you have heard, I think, from everyone this morning, and 
from many of you as well, which is that the Agency has faced 
dramatically growing responsibilities and inadequate resources 
to handle those responsibilities. And, to me, one number sort 
of says it all, which is that in 1998, which was the peak year 
of the Balanced Budget Act--and not only was that a period when 
we were writing regulations, which is the kind of thing that 
you normally do to implement statutes, but I daresay that each 
and every one of you had some specific issue with a provider in 
your district or your community where you needed some special 
help, helping them to understand things. So, there was a lot of 
customer service work that we needed to be doing. And the FTEs 
in that year were 3942 Full-Time Equivalents whereas in 1980 
the FTEs were 4961. So, in a year when I think everyone would 
agree our responsibilities couldn't have been greater, the 
things we needed to be doing with the providers and just in 
managing this transition to all of these changes that we did, 
you know, couldn't have been greater, and yet we did not have 
the resources to get it done.
    The main example that I have cited is one that you heard 
also, I think, especially from Dr. Roper, but also from Dr. 
Vladeck, which is customer service. For example, I think every 
provider should have a manual that they can look to. If you are 
a home health agency, there should be a Home Health Manual that 
you know all the rules are in there that you know apply for 
Medicare, so that you know what to do as a physician. It turns 
out that for physicians, it is different in every State, so 
there would have to be 50 manuals, but whatever. In Michigan, 
they should have a manual. That doesn't exist, and the Agency 
was in the process of trying to come up with that--and it 
should be online, too, by the way--but the Agency was in the 
process of trying to come up with that when Dr. Vladeck left. 
We then had to suspend work on it while staff worked on 
implementing the Balanced Budget Act. And when we went back to 
it to try to get people back involved in doing the manuals, we 
saw that most of the work we had done was irrelevant because, 
of course, we changed many of the payment systems. We just need 
more staff to get these things done, to do the kind of customer 
service that I think you want.
    Many of you have also complained about the slowness in 
answering the mail. You send a lot of letters to us. You get 
very specific letters from providers in your district that get 
into esoteric details about the wage index in a particular 
district, or whatever. It is not something that you can just 
send to a mail room and say ``Do a form response to this.'' It 
takes analysis. It takes people spending time on it. And we 
have had a very difficult time having the kind of staff that we 
need to just get that done. You can't say you are doing proper 
customer service, if you are not doing those sorts of things.
    I want to mention one more example on the issue of 
resources because it relates to a point that Ms. Eshoo made, 
and Ms. DeGette, which is the coverage issue. We took some 
steps forward in the last couple of years in making that 
process more open and transparent. And I think if you talk to 
the medical device community and the biotechnology community, 
they will say that we did take some steps forward.
    Now, any citizen can petition Medicare to make a coverage 
decision and the Agency is trying to hold itself to timeliness 
standards, but we simply don't have the kind of staff that we 
need to make those decisions.
    The FDA has hundreds of staff who are devoted to looking at 
devices and deciding whether they are appropriate and safe and 
effective, and I am not saying that that is the same judgment 
that HCFA has to make, but you still have to have clinicians 
who are able to look at something, to talk to other 
professionals, to figure out if it works or not, is it 
appropriate for the Medicare population.
    We have a lot of trouble attracting people like that, and 
we have a lot of trouble finding room for those FTEs in our 
budget, and that is something that we really need to fix if we 
are going to have the kind of Medicare program we want to have.
    The second problem I identified is also something you heard 
a lot about this morning, which is not enough flexibility. And, 
again, it is not--I am sympathetic to why laws are written in 
such a prescriptive fashion. Part of it is, frankly, just to 
get scoring under the Budget Enforcement Act rules. It is not 
just because people enjoy writing prescriptive laws, but when 
they are written in that prescriptive way, then that means the 
Agency's regulations need to be prescriptive and, after all, if 
you are running a program for millions of providers and 
millions of beneficiaries, you need to have some rules. But 
then it is very difficult for us when, Mr. Greenwood, you have 
a specific problem in Pennsylvania, to be as flexible as you 
might like, to try to adjust, to have some discretion. And as 
Dr. Vladeck suggested, there would be many who would say that 
was unfair if we worked individually with providers. We 
actually did quite a bit of that while I was there, trying to 
help providers understand different provisions of the Balanced 
Budget Act, or give them more time--home health agencies, for 
example--to pay back money under the interim payment system. 
But it is just very difficult, and there is an inherent tension 
between those two roles, and I don't know what the answer is. 
But I think a big part of the answer is more resources for the 
Agency to do more customer service and more provider education.
    You might not be able to change the fact that there is 
going to be a tension between prescriptive laws and 
prescriptive regulations and discretion, but if we could do 
more customer service, then maybe there wouldn't be so much 
concern about that in the provider community.
    I also had two recommendations, and I am going to add one 
more that I heard this morning from Dr. Roper. My first 
recommendation is that we should provide HCFA with more 
resources. Congress should be very clear about its priorities 
among the many things that HCFA could be doing, and we should 
give the new Administrator time to achieve them. And I went 
into some detail about some of the authorities that I think the 
Administrator needs to be able to do his job better.
    Investing in HCFA now is critical, I think we all agree 
with that, and I am very hopeful that this committee will be 
able to do something about that.
    Second, I recommend that you try to provide HCFA with 
additional flexibility to do its work. Dr. Vladeck talked about 
contractor reform and ways of modernizing that relationship and 
holding the contractors more accountable. Dr. Wilensky also 
talked about that. There are proposals that are here that we 
could certainly talk about that would achieve that, and that is 
something that is needed.
    Finally, I want to associate myself with Dr. Roper's 
remarks about the need to have reasonable expectations from 
Congress and the public, and that is another recommendation, if 
you will. I recently was speaking to a former colleague at the 
Agency, and this person is not someone who is prone to feeling 
a lot of pressure. And he said to me, ``You know, it is really 
hard to be here when you feel like you are working so hard and 
all you hear is that HCFA doesn't do a good job.'' And the tone 
of this hearing today has not been that way, and I want to 
thank you all for that. And I hope that in formulating your 
recommendations for the future of HCFA, that you bear in mind 
what a tremendous job the people who work there are trying to 
do, and that the morale is very difficult right now, it is a 
very challenging environment, and that whatever steps you take 
should be constructive and should recognize the public service 
that those people are providing. Thank you.
    [The prepared statement of Nancy-Ann DeParle follows:]
  Prepared Statement of Hon. Nancy-Ann DeParle, Former Administrator, 
                  Health Care Financing Administration
    Chairman Bilirakis, Chairman Greenwood, Congressman Brown, 
Congressman Deutsch, and distinguished Subcommittee Members, thank you 
for the opportunity to offer my perspective on how to strengthen the 
Health Care Financing Administration (HCFA) so that it can better serve 
Medicare, Medicaid, and S-CHIP beneficiaries and the American people. I 
applaud the Committee's leadership in soliciting the views of the four 
most recent HCFA administrators to provide insight into the challenges 
we faced in trying to manage the agency and solicit advice about what 
Congress can do to help.
    I served as HCFA Administrator from November 1997 until October 
2000, when I left to become a Fellow at the Institute of Politics and 
the Joint Interfaculty Health Policy Forum at Harvard University. I am 
now working as a health policy consultant and as a senior advisor at JP 
Morgan Partners, LLC. Before coming to HCFA, I served for more than 
four years as the Associate Director for Health & Personnel at the 
White House Office of Management & Budget. I have also worked in state 
government and as a lawyer in the private sector. The time I spent at 
HCFA was the most rewarding professional experience of my life, and it 
also was the most challenging.
                               background
    HCFA is filled with talented, dedicated professionals who work hard 
to carry out agency's responsibilities of providing healthcare to over 
74 million Americans. Over the last several years, the agency's 
workload has increased dramatically and its responsibilities have also 
expanded to cover new areas. The following examples of the agency's 
accomplishments over the last few years provide some context for this 
Committee's deliberations in the hope that, when focusing on HCFA's 
problems and developing ways to address them, you will also acknowledge 
the agency's strengths.
     Legislative Mandates, including the Balanced Budget Act: 
Since 1996, HCFA has been responsible for implementing over 700 
provisions from 5 major pieces of legislation: welfare reform, the 
Health Insurance Portability and Accountability Act (HIPAA), the 
Balanced Budget Act of 1997 (BBA), the Balanced Budget Refinement Act 
of 1999 (BBRA), and the Benefits Improvement and Protection Act of 2000 
(BIPA). I will focus my remarks on the BBA. HCFA staff worked hard to 
implement the BBA and its some 335 provisions requiring changes, in 
some cases major changes, to virtually every aspect of the Medicare 
program, as well as substantial changes in Medicaid. For Medicare fee-
for-service, implementation has required designing complex payment 
systems, writing or negotiating regulations that comply with the 
Administrative Procedure Act, and providing guidance to the over 50 
fee-for-service contractors around the country that pay Medicare claims 
and interact with hospitals, physicians, home health agencies, and 
other providers. Many changes also involved extensive changes to 
Medicare's computer systems. This was a massive undertaking with many 
deadlines that were difficult to meet and high stakes, because the of 
the importance that we achieve the BBA's goal of extending the solvency 
of the Medicare Trust Fund.
     State Children's Health Insurance Program (S-CHIP): The 
BBA also created the new State Children's Health Insurance Company, 
which HCFA staff worked with the States and other stakeholders to 
launch in a matter of months. Today, this program provides health 
insurance to some 3.2 million children whose families cannot afford 
private coverage but earn too much to qualify for Medicaid.
     Fiscal Accountability: At the same time that HCFA staff 
were working to implement the BBA, we were making major strides in 
reducing the Medicare payment error rate. In 1997, the Inspector 
General's first-ever audit of Medicare's books under the Chief 
Financial Officer's Act had revealed a fee-for-service claims error 
rate of 14 percent, which translated into $23 billion in erroneous 
payments in 1996. By the 1999 audit, we had cut that rate in half, and 
last year we received an unqualified or ``clean'' opinion from the 
Inspector General's auditors, signifying that Medicare's accounting 
records are now in order.
     Y2K: Also, HCFA staff were working flat-out for two years 
to ensure that computer systems were Y2K-ready both internally at HCFA 
and at all of the over 50 claims processing contractors around the 
country so that there would be no interruption in services to 
beneficiaries or payments to providers.
     Medicare+Choice and Beneficiary Education: The BBA created 
the Medicare+Choice program, giving beneficiaries across the country 
more health care choices. In addition to implementing these sweeping 
changes, the agency launched the award-winning National Medicare 
Education Program in 1999. This massive education effort includes a 
beneficiary handbook, 1-800-MEDICARE toll-free line, and 
www.Medicare.gov internet site. We conducted hundreds of town hall 
meetings and focus groups with beneficiaries. In 2000, the agency 
received a rating of 74 on the American Customer Satisfaction Index, a 
benchmark for customer service quality that includes both the federal 
government and private industry. This compares with the national 
average satisfaction score of 72, and represents one of the highest 
gains achieved by a federal agency that works directly with the public.
     Nursing Home Initiative: Beginning in 1998, HCFA 
implemented initiatives to improve the quality of care our most 
vulnerable citizens receive in nursing homes and ensure that the 
objectives of the nursing home reforms in OBRA 1987 are being achieved. 
The General Accounting Office (GAO) has concluded that the agency has 
made progress in improving the survey and certification process, 
oversight of the states, and enforcement of the regulatory 
requirements. in addition, HCFA launched the ``Nursing Home Compare'' 
website, which allows beneficiaries and their families to compare 
nursing homes using a variety of quality indicators by zip code.
     Coverage: Under the leadership of the new Chief Clinical 
Officer, a geriatrician, HCFA revamped the process that the agency uses 
to determine what Medicare covers to make it open, transparent, 
evidence-based, and much more timely. As part of this effort, we 
established the Medicare Coverage Advisory Committee, a group of over 
100 experts including clinicians, researchers, device industry and 
beneficiary representatives who advise the agency on coverage. Most 
requests are acted upon within 90 days, and the public can track the 
progress of each request on the internet. HCFA has made more than 20 
national coverage decisions using this new process.
     Management: We also took steps on a number of fronts to 
manage the agency better and be more responsive to beneficiaries, 
providers, and the Congress. For example, we examined the process that 
we were using to oversee the contractors that process more than one 
billion Medicare claims a year and serve as HCFA's face to the provider 
community, and found it embarrassingly weak. We made tough decisions to 
reallocate resources and strengthen oversight; for example, we imposed 
customer service standards requiring contractors to answer 97.5 percent 
or more of telephone calls within 120 seconds, and respond to 95 
percent of written inquiries within thirty days. In addition, we made 
changes in the Center for Health Plans and Providers to consolidate the 
staff that make policy and oversee the Medicare+Choice plans, in order 
to cut down on confusion and be more responsive to the health plans.
    I am proud of what the agency was able to achieve during the three 
years I was there, particularly in view of the difficult environment in 
which we were operating. The BBA reduced Medicare payments to virtually 
every hospital, physician, nursing home, home health agency, and other 
health care provider in the country. On top of this, in the wake of 
revelations by the GAO and the HHS Inspector General about program 
integrity lapses in the Medicare program, the Clinton Administration 
initiated a concerted attack on waste, fraud and abuse. Although HCFA 
was still only auditing a very small percentage of Medicare claims, 
there is no question we stepped up our efforts to ensure that Medicare 
funds were not misspent, and several high-profile prosecutions 
conducted by the Inspector General and the Justice Department 
highlighted the Administration's focus.
    The combination of the BBA and the fraud crackdown created a very 
negative environment. In some instances, we probably tried too hard to 
meet deadlines in the BBA and did things that, in retrospect, I would 
have done much differently. (One example is the BBA's provision 
requiring home health surety bonds, which was both a BBA requirement 
and an element of our program integrity efforts). Simply put, the 
thousands of providers affected by the BBA were very angry, and they 
let you know it, and you let HCFA know it. While I am all too aware of 
the difficulties the agency faces, I believe this context is a part--I 
would argue a big part--of Congress's current unhappiness with HCFA. I 
hope that the Congress will bear that in mind as it works to make 
improvements and will take a constructive path to improving services 
for beneficiaries, providers, and other customers.
                       what are hcfa's problems?
    I believe that HCFA's problems are related to a few simple facts. 
HCFA has growing responsibilities, insufficient resources to do them 
all, and not enough flexibility to do them well.
     Growing responsibilities and insufficient resources to 
handle them. It is clear from this Committee's own legislative agenda 
that HCFA's responsibilities have increased dramatically over the past 
few years. The massive workload of the Medicare and Medicaid changes in 
the BBA, along with the creation of the new S-CHIP program, and the 
insurance reforms of HIPAA, have stretched the agency's staff and 
contractor resources way beyond their limits. Neither the 
Administration nor the Congress has provided adequate funding for HCFA 
to meet these new responsibilities, much less carry out its other 
duties in a responsible way. For example, in 1998, the peak year of BBA 
implementation, HCFA had 3942 full-time equivalents (FTEs), compared 
with 4961 in 1980. The 1998 staffing level was inadequate to write and 
publish the dozens of regulations and notices mandated by the BBA (in 
the end, HCFA managed to publish 39 regulations and 71 notices), much 
less to satisfy BBA requirements and carry out the agency's other day-
to-day responsibilities.
                         customer service needs
    Current resources are inadequate for HCFA to do its job the way 
Congress and the agency staff want it to. Improving relationships with 
beneficiaries, hospitals and physicians means having frequent and 
regular communications with them (and not just their trade association 
representatives) through ``town hall'' meetings, satellite broadcasts, 
and other means. And it means having clear requirements and answering 
questions.
    The complexity of the Medicare statute and the need to spend Trust 
Fund dollars prudently makes clear and specific program requirements 
and intensive provider education a necessity. At present, the various 
rules and regulations that providers need to know to stay in compliance 
with Medicare are scattered through a dozen or more manuals (i.e., 
carrier manual, intermediary manual, etc.). In 1996, the agency 
launched an effort to rationalize these manuals so that, for example, 
home health agencies would have a manual (available both in hard copy 
and online) that would contain everything they needed to know. A good 
idea, but this work had to be interrupted so that staff could work on 
implementing the BBA requirements and Y2K, and as they pointed out, the 
BBA rendered much of the work they had done on the manual irrelevant 
and out-of-date. It is simply not possible to do the kind of customer 
service HCFA needs to do with the level of staffing and resources the 
agency currently has.
    And while the agency is often credited for its low administrative 
costs (which hover around 1-2 percent of program dollars), it is 
important to realize that this efficiency sometimes has been achieved 
at the expense of sound management. For example, we have driven the 
cost to process a Medicare claim down to about $1 per claim so the 
contractor budget could be stretched further. We even eliminated the 
toll-free lines that physicians used to call carriers with questions 
about Medicare billing in order to accommodate increased spending on 
other areas, including beneficiary education and outreach. (These toll-
free lines have been reinstated.) In short, the contractor budget must 
be able to accommodate improved customer service and education for both 
providers and beneficiaries.
    One of the things I am not proud of is that during most of the time 
I was there, we had trouble getting the mail opened and answered in any 
sort of timely fashion. We spent considerable effort analyzing the 
problems and making changes to try to improve our process, but the 
bottom line is that we simply did not have adequate resources to 
respond to, for example, 50,000 comments on the proposed hospital 
conditions of participation regulation, and also answer hundreds of 
pieces of incoming Congressional mail a week in a timely fashion.
                            staff resources
    Further, even if the absolute level of staff were adequate to carry 
out the agency's responsibilities, HCFA does not have the ability to 
hire and retain staff with the skills it needs. This is a problem 
shared by other government agencies, but I believe both the need and 
the inability to meet the need are worse at HCFA. For example, the 
agency made major changes in the Medicare national coverage process in 
mid-1999, which were designed to create a process that is open, 
transparent, dependable, and evidence-based. We modeled the new 
coverage process after a similar advisory board process used by the 
FDA; however, where the FDA has hundreds of clinicians and other 
scientifically skilled personnel to evaluate new technologies, HCFA has 
only 30. And it is not just the FDA. Other agencies, such as the Agency 
for Health Care Research & Quality (AHRQ) have the ability to hire 
staff for statistics and research at salaries which are above the 
federal guidelines, but HCFA does not, despite the importance of its 
mission.
    As we all seek to improve customer service and move to being a 
prudent purchaser of quality health care for beneficiaries as opposed 
to simply a billpayer, HCFA needs to hire beneficiary counselors, 
clinicians, and experts from private health plans and providers. The 
agency has made some progress in hiring staff who have this type of 
outside experience. However, valuable and qualified staff often leave 
the agency because salaries are comparatively low and it is 
demoralizing to try to carry out the agency's responsibilities in an 
atmosphere of constant criticism and distrust.
Not enough flexibility
    Medicare law has become more complex and prescriptive over time in 
order to achieve savings that can be ``scored'' by the Congressional 
Budget Office, as well as Congress' distrust of the agency's decision-
making capability. In addition, the Administrative Procedures Act, the 
Federal Advisory Committee Act, and other statutes governing the way 
HCFA and other agencies must behave, make it very difficult for HCFA to 
relate to the public in the way the agency or Congress would like it 
to. For example, if, in developing a regulation to implement a 
provision of the BBA, HCFA finds that the payment methodology specified 
in the law is mistaken and does not reflect Congressional intent--or 
even that it does reflect Congressional intent, but it will have 
unintended consequences that no one wants--there is nothing the agency 
can do. I wish I had a nickel for every time a member of Congress 
called me and asked me to ``fix'' this or that provision because it 
adversely affected a provider in his or her district. They were almost 
always incredulous when I advised them that, unfortunately, it was 
unlikely that I had the authority to do anything.
    And if, with respect to this hypothetical BBA provision, the agency 
wanted to meet on a regular basis with industry representatives as it 
was drafting the regulation to get their views and work out problems in 
advance, the agency would be required to charter a Federal Advisory 
Committee, complete with financial disclosure forms, Federal Register 
notices, and the like. That process could take 6-8 months at the least, 
and while I was there, it usually took almost a year because the total 
number of committees government-wide was limited. Needless to say, this 
has a chilling effect on communications with providers and the public. 
Of course, these statutes are intended to protect the public from 
agencies imposing regulations without authority, making deals with 
special groups behind closed doors, or making policy without providing 
affected parties an opportunity to comment. Nevertheless, my experience 
was that these process rules often impeded, rather than promoted, 
responsive good government.
    A related problem arises when a statute specifies a precise way it 
wants the agency to do something and then Congress gets frustrated if 
it does not like the results. For example, the BBA specified in 
extensive detail the new county-based payment formula for 
Medicare+Choice plans. When this formula produced payment rates that 
were lower than what was expected or desired, HCFA was criticized for 
creating ``thousands of payment zones'' and then ``underpaying'' them. 
A similar situation occurred after the agency spent almost two years in 
a BBA-required negotiated rulemaking with the ambulance industry, and 
several members of Congress sought to pressure HCFA to alter the rule 
because ambulance providers in their states did not like the results of 
the negotiation. In these situations, the agency cannot win; it is 
extremely difficult to satisfy all members of Congress, especially if 
they each have a different interpretation of what a statute directs the 
agency to do.
                            recommendations
    I would offer two recommendations to address these problems:
First, provide HCFA with additional resources, be clear about 
        Congress's priorities, and give the new Administrator the 
        authority and the time to achieve them.
    The Bush Administration has requested an overall increase in HCFA's 
budget of almost 5%, with about a 9% increase in the operating budget. 
The budget proposal is a step in the right direction, but as my 
statement makes clear, HCFA is so understaffed and under-resourced to 
carry out its basic responsibilities that this does not go far enough. 
Congress should put the agency on a track to double its administrative 
budget over the next five years, with major improvements in information 
technology, provider education, and customer service initiatives. And, 
as it has done in at least one other case in creating a so-called 
``performance-based organization'' at the student loan agency within 
the Department of Education. Congress should be explicit about what it 
wants the agency to achieve with the additional funding and provide the 
agency head with authority to waive certain personnel rules so that he 
can recruit and retain highly qualified staff without artificial FTE or 
salary constraints and hold them accountable.
    Currently, the HCFA administrative budget has to compete with 
funding for the National Institutes of Health, Head Start, child care 
and other health and education priorities for limited discretionary 
appropriations. Congress should consider funding these administrative 
costs similar to the way that the Peer Review Organizations (PROS) in 
Medicare are currently funded. Funding for administrative expenses 
would come from the Medicare Trust Fund, and would not have to compete 
for limited discretionary appropriations. In order to maintain fiscal 
discipline, these funds would be subject to OMB approval, and as I have 
stated, HCFA should be held to certain performance standards
Second, provide HCFA with additional flexibility to do its work.
    Because of the way the Medicare law is written, HCFA must rely on 
private-sector contractors, mostly insurance companies, to do such 
things as process claims, interact with hospitals, physicians, and 
other health care providers, make local coverage policy, and many other 
important tasks. Yet HCFA has its hands tied when it comes to selecting 
those contractors and, to a great extent, in holding them accountable. 
Medicare is unique in that the Federal Acquisition Regulations do not 
apply to its contractors. For the past eight years, HCFA has sent 
legislative language to the Congress that would change this and broaden 
the pool of qualified private sector entities to do the job, permit 
incentive based contracts, and allow consolidation to achieve economies 
of scale. HCFA should also be granted greater flexibility related to 
the Federal Advisory Committee Act and the Paperwork Reduction Act, as 
well as greater flexibility in hiring and compensation of outside 
employees, in exchange for greater accountability. In addition, HCFA 
should be granted additional authority to implement care management 
techniques that are standard in today's private sector healthcare 
marketplace, like disease management and case management for Medicare 
beneficiaries.
                               conclusion
    Many, including some of my colleagues today, have argued for 
structural changes and/or reorganizations within HCFA. While it may be 
tempting to think that reorganizing or placing certain functions 
elsewhere is the answer, I believe that the two recommendations I have 
outlined above will address many of the problems that HCFA has. 
Further, maintaining HCFA as a single point of accountability for all 
Federal health insurance activities is important to ensure coordination 
and integration.
    We have just weathered a difficult and remarkable period in 
Medicare's history, and we worked together on a bipartisan basis to 
ensure that the Medicare Trust Fund would remain solvent in the 
intermediate term, until about 2029. That is good news, and it provides 
us with an opportunity that we should not miss, to consider the kinds 
of long-term reforms that will best promote the kind of Medicare 
program we want for the future. Investing in HCFA now is essential if 
we are to be in a position to choose wisely among our options and if we 
want to ensure that Medicare, Medicaid, and S-CHIP are effectively and 
compassionately managed.

    Mr. Bilirakis. Thank you. Well, we will go through a round 
of questions with a very strict 5 minutes, and then afford the 
panel an opportunity for a second round. We are going to be 
able to get to that and release these good people in a 
reasonable period of time only if we stick to the 5 minutes.
    First, you do us honor in being here, and I mean that from 
the heart, as you have done honor to the American people in 
having served in that very tough job. What this committee is 
trying to do--and I know that we don't always work in as 
bipartisan a fashion as we should--is to help HCFA. HCFA 
officials are the first to admit that the agency's image with 
the public and providers is not a good one. We are trying to 
help HCFA do a better job.
    I would also like to announce that the Administrator-
Designate, Tom Scully, is here, and he has been here for some 
time taking notes. Tom, I trust you are learning all that we 
are.
    Mr. Vladeck. I hope that we don't get him to reconsider.
    Mr. Bilirakis. His face has just turned red. Well, there is 
really so much to discuss. We have to talk about contractors. I 
know we visited HCFA sometime ago, and that was part of the 
emphasis in our discussions there. Apparently, there is a lack 
of flexibility. I stand corrected and apologize if I am 
mistaken--but I don't know that over the years that you all 
have appeared before this committee, or even contacted us, and 
said, ``We need more flexibility regarding the choice of 
contractors and our ability to monitor them.'' So, it has been 
a problem apparently, but I am not sure that we were as aware 
of it as possible.
    We are talking about constrained budgets, and the other 
side constantly talks about the lack of money, and there is no 
disagreement there. But, I am not sure that I have heard very 
much emphasis on the part of HCFA officials testifying to that 
effect. In fact, I raised the question at one of our prior 
hearings, and one of the officials came up to me and said, ``We 
tried to get additional money, but OMB shot us down, and 
therefore we couldn't come in with a request for additional 
dollars.'' So, apparently there hasn't been a proper emphasis 
as far as that is concerned.
    I am pleased to see that the President's budget this year 
increases the money for HCFA tremendously over the prior fiscal 
year, the current fiscal year. I think we are all very pleased 
with that.
    How aware are seniors of HCFA, its function, its 
responsibility, how much it has to do--directly, with the 
quality of health care? Do you have any opinions in that 
regard?
    Ms. Wilensky. I think because there is not the equivalent 
of the Social Security Office, that most people do not 
understand that there is a Federal agency that is taking on the 
functions that Social Security does, except that most of the 
actual day-to-day bill-paying is taken on through these 
contractors. That was a deliberate decision that was made in 
the mid-1960's, is rather than set up local or regional 
offices, that it would be done in a contractual way.
    Mr. Bilirakis. Is that a good idea, the contractor's 
concept as against the local offices?
    Ms. Wilensky. It is different. There was not adequate 
recognition at the time, particularly with the advantage of 
hindsight, that there are at least two very separate functions. 
One is a claims processing function, and that there are a lot 
of different types of organizations that could take on claims 
processing. They could be either regionalized or they could be 
centralized. And then there was the local function involved in 
speaking with both seniors and providers and resolving 
differences between them. I think those are really local, and 
that whatever we were to do about changing who could be the 
bill processors, which is a legislative issue and which HCFA, 
at least over time, has approached various committees in 
Congress about trying to have expanded. But to recognize that 
there are these two functions and that there really is a 
legitimate local function and that part of it is making sure 
that the local presence persists in having a discussion about 
how best to do claims processing in the 21st Century.
    Mr. Vladeck. If I could just add a couple of points to 
that. First, when Medicare was created, it was administered by 
the Social Security Administration, and you had that pre-
existing field office structure, and that was the primary point 
of contact for beneficiaries. A decision was made when HCFA was 
created not to reinvent that wheel. And I am told that worked 
reasonably well until the very significant cutbacks in Social 
Security Administration staffing that took place in the early 
1980's when, of course, the Agency was more willing to let go 
of Medicare specialists than it was willing to let go of 
income-related specialists.
    But the second thing was that I think that there has always 
been some ambivalence and confusion on the part of other folks 
in the executive branch about the extent to which they were 
prepared to have an identifiable entity within the executive 
branch that administered the Medicare program because it was 
something that was so popular--a program that was so popular 
with the American public that they didn't want to have to share 
credit in some basic ways. And we have recommended in another 
setting, another context, that the whole issue of whether it 
does Medicare any good, or Medicaid any good, to be part of the 
Department of Health and Human Services at all.
    I think it ought to be part of thinking about these 
structural issues. Our rule-of-thumb--and I think it was true 
under my predecessors from both parties--when there was good 
news associated with something HCFA was doing, the Secretary 
made the announcement, and when there was bad news the 
Administrator made the announcement. And, certainly, the Public 
Affairs Office in the Department of Health and Human Services 
always worked under that rule. I think the Budget Offices 
always worked under that rule as well. And we know from survey 
data, the average Medicare beneficiary has no idea where in the 
Federal Government responsibility lies for----
    Mr. Bilirakis. My time is expired. Dr. Roper, I know you 
wanted to add something, briefly.
    Mr. Roper. To the narrow issue of was the decision in 1965 
to go with contractors a wise one, I think it was at the time. 
To refresh memories, what happened is, Medicare was set up very 
much like BlueCross-BlueShield, and you had a contractor for 
Part A and a contractor for Part B, so basically a hundred 
contractors, 50 and 50.
    What has happened over time is that number has been 
whittled down a bit year-to-year. But it has been very 
difficult to eliminate contractors. Basically, what we had to 
do, each of us, is occasionally find some contractor that was 
just doing a horrendous job and kick them out of the program, 
so you went down from 49 to 48 to 47 and whatever.
    Mr. Bilirakis. We have got to explore that area so much 
more. Mr. Brown.
    Mr. Roper. And what has not happened, if I could just add--
I will be quick--what has not happened is enlarge the pool to 
go to different new organizations to start afresh in a green 
field operation to create the kind of contractor that you 
really want to have for the 21st Century.
    Mr. Bilirakis. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. I agree with Dr. 
Wilensky and Dr. Vladeck about the good idea of a name change. 
To show Chairman Bilirakis and incoming Administrator Scully 
that I am a uniter, not a divider, I suggest the Ronald Reagan 
Institute for Big Government Health Care.
    Ms. DeParle said something at the conclusion of her 
testimony about employee morale, and there is an awful lot 
coming out of Congress, a sort of denigration of public 
service, and it makes it harder for your employees at HCFA to 
do their jobs, it makes it harder to attract young people to 
public service. Part of it is the kinds of things we say in 
this institution, part of it is the increased workload and the 
continued mandates that all four of you spelled out. And the 
one thread that very nonpartisanly ran through what all of you 
said was the lack of resources. As Dr. Roper, almost the first 
thing he said, there are fewer employees today than there were 
when he was there. The flatline budget not even close to 
accounting for inflation, the mandates we continue to give you.
    Talk to us, each of us--and I guess this will probably take 
all 5 minutes--I would like you to give us--and President Bush 
has suggested we think a budget increase of 5 percent, although 
I have also heard other numbers from the budget yesterday--but 
give us a number, if you would, and how that money should be 
used in sort of a nutshell, what we ought to be doing, where 
this budget should go in the next year and in the next couple 
of years.
    Mr. Roper. I think where the money ought to is in enhancing 
the expertise that HCFA has by hiring new kinds of people who 
are familiar with how private health insurance markets work, 
and new skills and communication. I think a large part of it 
ought to go into, as others have said, enhancing communications 
with beneficiaries and with providers.
    What the right number is, just to pull a number out of the 
air, I would say at least a 25-percent increase in the budget. 
But I would hasten to add, it is simply unrealistic for me, or 
anybody else--Tom or the Secretary or whatever--to advocate for 
more money for HCFA at a time when we haven't yet agreed on 
what it is we want HCFA to do because the right response from 
the appropriators is going to be, ``My gracious, we are not 
going to pour good money after bad,'' et cetera. And as long as 
the mindset is that this is not money well spent, arguing for a 
very substantial increase, which I am, is going to fall on deaf 
ears.
    Ms. Wilensky. The best way to get a proper number is to ask 
the HCFA Administrator specifically what they want to do with 
that money. My guess is you are talking about somewhere in the 
neighborhood of 10 or 15 percent, but it is a guess because I 
haven't tried to task out what needs to be done.
    One of the reasons that I have suggested taking off areas 
that I think are not inherently related to running a good, 
traditional Medicare program in a modernized way and putting it 
elsewhere is because I think it would allow the HCFA personnel 
to focus on what they do best, and to do it within budget. Now, 
this, of course, would increase some of the cost of some of 
these other places that would take up some of these functions, 
and that is why deciding exactly how you structure HCFA and 
then how much money is needed is important.
    But I believe if the law were changed to allow more 
modernized bill processing groups to come compete instead of 
the current limited pool who can actually be contractors, that 
would allow you to do things a little more efficiently.
    HCFA has been able to reduce the number of systems that are 
used substantially more than the number of carriers and fiscal 
intermediaries, so there will be some savings, but not as many 
as people might think. But I do believe that if there were ways 
to try to go out and have the people who do a lot of 
transactions now, either the credit card people or other types 
of people, in bidding in terms of some of the claims 
processing, it could make a positive difference. But I am not 
talking about a small change, not as large as the one you just 
heard, but I am not talking about a small change.
    Mr. Vladeck. I can't give you an exact number with all the 
University of North Carolina and University of Michigan trained 
staff around, I could suggest some parameters. I think there 
ought to be a full-time, appropriately trained Medicare 
specialist in every Social Security District Office, and you 
can count the number and multiply it by a salary level for 
that, and probably two in the bigger ones. And I think for 
perhaps 35- or 40,000 institutional providers in the Medicare 
program, on a ratio of 1-to-50 perhaps, you ought to have an 
account executive type customer service function probably 
within the contractors rather than within the executive branch 
because the personnel systems of the contractors are more 
flexible, to be a sort of one-stop phone number that people can 
have to answer questions, to get problems resolved, and things 
of that sort.
    And you probably need a number of those on the Part B side 
per State for physicians and some of the smaller, but more 
numerous categories of providers as well. I think you are 
talking primarily about half through the executive branch 
budgets and about half through the contractor budgets. 
Probably, if you are really going to do this customer service 
right, a doubling of the number of people, but that would be 
much less than a doubling of HCFA's administrative budget, the 
largest single chunk of which goes to running computers to pay 
claims. More than half of it is just the claims processing 
function itself now, and you wouldn't need to increase that. 
And I think Gail is right, you could actually reduce that.
    The other thing that you need to do, and it is perhaps in 
the way of a one-time expenditure than a continuing 
expenditure, but I think the experience, again, of most of our 
service industries under the private health insurance industry, 
and certainly the private health care industry, is if you are 
going to do high-quality customer service for both providers 
and beneficiaries, you have to have the information technology 
platform from which to do it. You can hire all the call center 
people you want, you can hire all the field reps you want, but 
unless they can sit down at a terminal which can give them 
answers to the particular questions that the inquiry is 
involved in, they are not going to be able to provide very 
high-quality service.
    To a large extent, we need, I think, a getting-over-the-
hump kind of investment in making available the kind of 
information technology for the program that would permit you to 
save on contractor cost, but would also permit you to do late-
20th Century level customer service, at least, within the 
program.
    Ms. DeParle. I think I represent the high-water mark 
because I, perhaps reflecting on my recent experience, more 
recent experience at the Agency under the Balanced Budget Act, 
I think that you could easily double the administrative budget 
of the Agency over the next 5 years and not run any risk of 
misspending funds. And I think you could devote the additional 
funds to the areas that we can all agree need to be 
strengthened, without necessarily having to answer the question 
of what is Medicare going to look like in the future. The 
Agency is so under-staffed and so under-resourced that it has 
to have investments now in information technology, as I think 
everyone has agreed, in provider education which, frankly, 
might have prevented some of the fraud and abuse problems that 
we have had and that we have had to work through together, and 
customer service initiatives, we have some of the 
infrastructure for that with the Medicare+Choice, but we need 
to devote more resources to it, and also coverage. That is an 
area where we really need to make some investments, and the 
current budget level doesn't allow the Agency to do that.
    I agree with you that Secretary Thompson's request is a 
step in the right direction, but I hope the Congress will be 
able to do even better.
    Mr. Bilirakis. Thank you. Mr. Greenwood to inquire.
    Mr. Greenwood. Thank you, Mr. Chairman. Years ago, I read a 
book called ``The Seven Habits of Highly Effective People.'' 
Maybe some of you have read it. I don't remember what they 
were, which probably explains a lot, but the one thing I do 
remember is that he had a little quadrant, and he had 
``important things,'' ``less important things,'' and ``urgent 
things,'' and ``less urgent things,'' and he talked about how 
we all spend most of our time in the ``urgent'' and 
``important,'' and a lot of time in the ``urgent while not very 
important,'' and spend very little time in the ``not urgent but 
important'' quadrant, which encompasses planning and sort of 
thinking through into the future.
    And the question I have for you--and thank you again for 
all your help with this, and I hope we can continue to have 
your help--is there any of that going on at HCFA? In other 
words, has it been the case that you have been so busy putting 
out fires and responding to congressional inquiries and new 
statutes, that you haven't been able to have a segment of your 
hierarchy or of your administration just sort of off, insulated 
from the daily demands and being able to think through how 
should we structure ourselves into the future, what is changing 
in the world of technology and the world of health care, so 
that we can really think into the future? Has HCFA such a 
function and, if not, should it?
    Ms. DeParle. I think the Agency has had that function at 
various times, Mr. Chairman, and you and I talked about this a 
little bit. I would have to say that over the last 3 years, I 
think that being at HCFA was an experience of drinking out of a 
fire hose, and you are not--occasionally, the senior staff 
would have outside speakers come in and we would have an 
exercise or we would think about the future. We have a 
strategic plan and in doing that plan and updating it, we 
sometimes did that. But it wasn't, frankly, as though we could 
afford to devote the staff to just thinking outside the box or 
thinking about the future. And I am sorry that we didn't have 
the resources to do that, we weren't doing it.
    Ms. Wilensky. My sense is that it became increasingly more 
difficult for that to happen, as you and I had spoken on this 
issue. When I was there, the major implementation was to 
implement the relative value scale and to introduce capital to 
perspective payment for the hospitals and to worry about 
Medicaid provider and donation. Those were three major issues, 
but nothing like the type of implementation burdens that Nancy-
Ann had to face and that Bruce got the beginning of in terms of 
the Balanced Budget Act.
    So, it is possible for an agency like HCFA to be able to 
put some time into place, that was how we had the idea of 
changing how we looked at the PROs and what it would take, and 
beginning to think about the Medicare transaction system and 
the fact that politically it was very difficult to reduce the 
number of carriers and fiscal intermediaries, but if we could 
get them to use the same system we could accomplish some of the 
savings without as much political pain, but you can't do that 
if you are drinking out of a fire hose.
    So, I think that it is, in part, incumbent on the Congress, 
particularly during periods when, for whatever legitimate 
needs, it feels like it must have a lot of legislative change 
to recognize that that increases the administrative burden of 
the agency that will be implementing those legislative changes 
and to respond appropriately, but that has been a very 
difficult thing to have happen.
    Mr. Greenwood. Let me pose a related question, and that is 
another similar area, the whole question of wellness. How can 
we, again, instead of constantly responding to health crises in 
individuals, what should the Agency be doing with regard to 
promoting wellness in the Medicare population, wellness in the 
children's population, wellness in the Medicaid population, so 
that health care costs the taxpayers less?
    Is HCFA engaged thoughtfully in those processes, and what 
are your thoughts about what we should do on that score?
    Mr. Roper. Thank you for the question. I happen to chair an 
organization called Partnership for Prevention that is focused 
on advancing prevention and wellness and national policy in the 
private sector and the public sector.
    We have made some progress, but not nearly enough in this. 
The root of the problem we face is that when the statutes were 
passed in 1965, authorization was made for paying for treating 
sick people, and the notion of paying for checkups or screening 
or immunization or whatever, we have, one by one by one, added 
some of those things through statute to the program, Medicare 
and also Medicaid, but we need to do more of that.
    Frankly, I don't want to divert the conversation, but just 
to make the point, one of the attractions of prepaid capitated 
plans is the incentive given for promoting wellness, et cetera.
    If I could just add a quick response, I fully agree with 
the point that we ought to invest more in learning new ways of 
delivering health services, health policy, et cetera, whether 
that is done inside HCFA or at the Agency for Health Care 
Research and Quality. The investment in that kind of research 
is tiny compared to the huge and important investment we make 
as a Nation in fundamental biomedical research. There is just 
no comparison.
    Mr. Greenwood. Thank you.
    Mr. Bilirakis. Mr. Deutsch to inquire.
    Mr. Deutsch. Thank you, Mr. Chairman. And, actually, I was 
just talking to staff because one of the things all four of you 
have done as Administrators that has really been very positive 
is, in fact, some of the initiatives that you started, but I 
think patting ourselves on the back as well as some of the 
initiatives on preventative care and, as much as we have done 
on that, though, I was just asking the numbers, there is still 
the utilization rate is just still amazingly so poor. And as 
all of you are aware, I am sure, July 1st we go to a whole new 
slew of Medicare wellness coverage.
    I want to, at least in this round, focus on something that 
this committee, both the Health Committee and the Oversight 
Committee, has been dealing with over the last several months, 
and that is the issue--and we have had anecdotal stories of 
HCFA being too tough on providers in their efforts to police 
against fraud, waste and abuse, in fact, creating really, at 
least anecdotally, very unfair situations for providers.
    I want to focus really actually on Ms. DeParle just because 
I want to actually read and actually submit for the record a 
U.S. News and World Report article, and it is somewhat dated, 
1998, during your tenure, but as you well recall, our Oversight 
Committee pulled you in front of it and questioned you about 
why the Government wasn't doing a better job in fraud issues. 
And let me just quote--and as I said, I will submit this for 
the record--this is a quote from that story.
    ``Gabriel Hernandez is not your typical medical 
practitioner. He couldn't tell an x-ray from an EKG. His sole 
preparation for a career in the field was ten lucrative years 
as a logistics coordinator for the Mendelin Columbia cocaine 
cartel, a job that gave him plenty of cash, sleek power boats, 
and 5 years in Federal prison. But shortly after his release in 
1993, a crooked accountant tipped Hernandez to the largesse of 
the Federal Medicare program, and his new career was born. 
Hernandez set up more than two dozen phony medical clinics in 
the names of friends and relatives, and applied for a provider 
number, the code that doctors and companies use when they 
submit bills to Medicare's computers. Florida's Medicare 
Office, more than half funded by Federal Medicare, gave him his 
provider number within 2 weeks. No one bothered to check his 
clinics, his background, his list of patients. A few days 
later, an assistant began billing the State via computer for 
mythical checkups and procedures, and Medicare payment checks 
began to flow in. In the course of 2 easy years, Hernandez 
received checks totaling $1.7 million. ``The drug business was 
very dangerous', he said with a charming smile, `but not health 
care poor. It was easy money and there was no risk'. Hernandez, 
authorities said, is only one of a horde of hardened criminals 
who saw Medicare for what it really was, an unguarded $250 
billion a year pile of cash just waiting to be had. Over the 
past decade, many of the criminally inclined have moved out of 
the drug trade to start careers in Medicare fraud, where 
penalties are low and rewards are stratospheric. To realize 
this windfall, they have set up thousands of phony clinics, 
medical equipment outlets and laboratories, a vast underworld 
of health care investigators find particularly difficult to 
understand, let alone penetrate. Owners are shielded by layers 
of cutout companies, lowly runners and mules are employed and 
sometimes blackmailed to move the money. Profits flow through a 
maze of bank accounts into offshore places like Liechtenstein, 
the Kirks and Cacaos Islands and Cypress, and often back into 
drug business. One Russian informer interviewed said Russian 
groups cleverly serve up defunct companies to investigators, 
diverting them from going forward. `We are always chasing 
something that isn't there anymore', says Bruno Vinero, who 
heads the New York Section of Department of Health and Human 
Services Office of Inspector General.''
    We have heard all this before, but this article was written 
when you were HCFA Administrator. I think it important to 
recall the environment we were in just a few years ago to put 
some of these fraud and abuse complaints into at least some 
context. So I have three questions for you.
    First, can you comment on what your experiences were when 
you were HCFA Administrators, regarding Congress' appetite in 
going after fraud, waste and abuse?
    Second, do you still believe that Medicare fraud is still a 
serious problem plaguing the program today, and do you believe 
the Government is doing enough to combat it?
    And, third, do you think that during your tenure and the 
other Administrators' tenures at HCFA was too aggressive in 
going after Medicare fraud and abuse?
    Ms. DeParle. Well, first, you asked about Congress' view 
about this. As a matter of fact, I arrived at the Agency when 
Dr. Vladeck was still there, to serve as his Deputy while I was 
awaiting confirmation, and I believe it was the week that the 
Inspector General's first ever audit of the Medicare program 
came out, and it revealed an error rate of 14 percent in claims 
that were paid inappropriately, which translated into $23 
billion in Medicare funds that were misspent for, I guess it 
was 1996, 1995 or 1996, and that was not a pleasant week at the 
Agency. Congress was furious about that. We were not happy 
about it. We needed to get on top of it. We needed to make sure 
that Medicare wasn't wasting the taxpayers' dollars, and we 
worked with the Congress--in particular, Mr. Greenwood's 
committee was very interested in this issue--and the Congress 
did give the Agency more resources and, in particular, gave 
more resources to the Inspector General and to the Justice 
Department, through the Health Insurance Portability and 
Accountability Act, to use on program integrity.
    In 2 years, we were able to cut that error rate in half. I 
do think that it is unfortunate that a lot of what occurred 
left providers with the feeling that the Agency, or the 
Government, thought they were all crooks. And I think it is 
important to make a distinction between the prosecutions that 
occurred and the investigations that occurred, and the 
appropriate role of HCFA.
    My view is that, in general, program integrity should not 
be a law enforcement function, it is a function of HCFA. HCFA 
should be the steward of the Medicare Trust Fund. HCFA should 
make sure that funds are spent appropriately, but to do that we 
need an appropriate amount of resources. We need to be able to 
do provider education.
    We did launch, in fact, a project down in Florida doing 
provider education down there to help physicians and others 
understand how to bill Medicare. We started doing some things 
like site visits before we let new equipment suppliers into the 
Medicare program. But all those things cost money. So, we need 
to continue to be vigilant, I think, there. I am not really 
prepared to say whether the exact number is sufficient at this 
point, but in everything else, Medicare is a growing program 
and we need to continue to be vigilant.
    Mr. Bilirakis. The gentleman's time is expired. Mr. Deal.
    Mr. Deal. Thank you, Mr. Chairman. I want to thank all of 
you for your testimony and, Dr. Vladeck, I want to express 
appreciation to you in the way you have laid out your written 
testimony here. One of the things that this committee has tried 
to determine over a period of time is the kind of things that 
need to be changed and whether they can be changed 
administratively within the Agency, or whether they require the 
action of Congress statutorily to make those changes, and I 
appreciate the outline that you have given us, and you have 
indicated those areas that are administrative and those areas 
that are statutory, and I think that will be helpful to us as 
we proceed through this, and I thank you for that.
    One of the areas, of course, that all of you have alluded 
to is the lack of adequate funding for administrative purposes. 
One of the complaints we, of course, continue to hear is that 
the reason that HCFA is ineffective in many regards is that the 
staff is too large, that it takes too much time to make 
changes, that flexibility, or the lack thereof, is in large 
part because changes have to be vetted through so many 
subcommittees and so many various divisions within the Agency, 
and I have a concern that if we simply increase that, that we 
are going to slow down the entire process and, even though we 
may want to give flexibility, we may, in fact, do exactly the 
opposite. Would you care to address that subject?
    Mr. Vladeck. Well, I would make a specific proposal. I 
would--and, again, this goes back to my concern about the 
relationship between HCFA and the Department of Health and 
Human Services--but I would suggest that the Congress might 
mandate that for every increment of x-percent in the size of 
the HCFA staff relative to rulemaking processes or other 
regulatory roles, that the number of employees of the 
Department of Health and Human Services who don't work for 
HCFA, whose job it is to oversee and harass HCFA be reduced 
proportionately. And we still have a very strong and under the 
new Administration, I believe, an even strengthened Office of 
Management and Budget that has the responsibility on behalf of 
the whole executive branch for making sure that individual 
agencies and individual parts of the executive branch are 
responsive to the needs of consumers and the general public in 
the regulatory process, that they are not too bureaucratic and 
so forth.
    What we have done within the executive branch over the last 
decade or so is add several more layers of review so as 
bureaucratic as HCFA may be, we have multiplied that by 
entities outside HCFA, all of which have oversight on a piece 
of HCFA's role. So, I think you could address some of those 
issues.
    Again, I would urge the committee at the appropriate time 
to seriously consider the question of the relationship between 
the Agency and the Department of Health and Human Services more 
generally. I know that Secretary Thompson--for the first time 
in quite some time, we have a Secretary who has shown a great 
deal of interest in some of these administrative questions, and 
maybe this is not a good time to talk about that, but I think 
the relationship--if you think about levels of review and 
levels of bureaucracy, once HCFA is done with a regulation or a 
payment formula or so forth, the number of steps after the 
Administrator signs a document, before it appears in the 
Federal Register, before it appears in a HCFA Notice and so on 
and so forth, has multiplied enormously over the last decade or 
so, and I would say you ought to focus on reducing that while 
not building it up within the Agency itself.
    Mr. Deal. And I assume that would tie in, as you indicated, 
to your suggestion that it be made an independent agency and 
separate it?
    Mr. Vladeck. That is right.
    Ms. Wilensky. I think it is with the appropriate mindset of 
an Administrator of understanding the need to have regulations 
out in a timely way, there are always organizational changes or 
requirements for accountability that can be introduced within 
the Agency so that when you have conflicts arise when people 
are putting together regulations, as inevitably happens, there 
is a clear manner for resolving conflicts, and to the extent 
that that can happen, you can keep the process flowing in a 
reasonably timely way.
    I appreciate the concern that Bruce has raised about the 
fact that there are other levels outside of HCFA that typically 
review regulation. ASPE, Assistant Secretary for Planning and 
Evaluation, typically within the Department of Health and Human 
Services, serves a coordinating function so that all of the 
operating divisions can review regulations. It goes then 
specifically to the Office of the Secretary, and then to the 
Office of Management and Budget.
    Having said that, I don't think the right response is to 
make HCFA a separate agency. I think you will lose a lack of 
accountability. I think the proper relationship that Dr. Roper 
had mentioned earlier, of President and Secretary, HCFA 
Administrator is a good one, and that there needs to be 
appropriate pressures laid on the Secretary and the OMB 
Director to make sure that their administrative functions occur 
in a smooth way. These are not impossible to have happen, but 
if left on their own regulations can circle almost indefinitely 
within either HHS or between HHS and the Office of Management 
and Budget.
    Mr. Roper. If I could just quickly echo, I, too, would be 
opposed to separating HCFA out from the rest of HHS. I believe 
the primary thing that needs to be done is to put an 
expectation--in addition to resources, an expectation that 
decisions are going to be made and made expeditiously. It is 
always easier when you are facing a difficult choice, to put it 
on the back of your desk and come back to it later. And as 
Bruce earlier said, in so many of these areas we face difficult 
choices and tradeoffs, and I believe the most important thing--
again, other than resources--is for Secretary Thompson and Tom 
Scully and everybody else to say, ``We are going to manage this 
department, this agency.''
    There has not been, over time, routinely the notion that 
management is something that is worthy and important. Policy 
considerations are usually a whole lot more fun and whatever, 
but the day-to-day blocking-and-tackling of getting the job 
done is just as important.
    Mr. Deal. Thank you, Mr. Chairman.
    Mr. Bilirakis. Mr. Green to inquire.
    Mr. Green. Thank you, Mr. Chairman. Dr. Roper, I want to 
reiterate some of the statements you made, and I agree, about 
HCFA. In your statement about many of the problems attributed 
to HCFA are actually not of its own making and created by 
Congress passing legislation that is very notable, but often 
unrealistic in objectives and its expectations. And, also, when 
you talk about the need for new resources, you said it is 
important to emphasize the need for resources for HCFA, and 
what people brag about, and your quote is, ``When I hear people 
brag about how little Medicare spends on administration, I 
cringe. That should be a source of embarrassment, not pride.'' 
And the Agency is under-staffed both in numbers and mix of 
skills, it is seriously hampered by inadequate systems and 
actually they have fewer staff in HCFA today than when you were 
Administrator 15 years ago, despite a tripling of the outlays 
or the requirements. I think those are important.
    Let me ask a question of both Dr. Vladeck and Ms. De Parle. 
Both Drs. Roper and Wilensky have been on record, as mentioned 
in their testimony, they support transitioning Medicare from 
the traditional fee-for-service to a premium support program 
that is more similar to what we have as Federal employees. 
There is a number of us who have concerns about this--in other 
words, mixing--I guess as a senior citizen we would pay more 
than the amount.
    Can you share a little bit your thoughts on a premium 
support system compared to what we have today?
    Mr. Vladeck. Well, maybe I can repeat some of the 
conversations we had at the Bipartisan Commission or whatever. 
The first thing I would say is, if you use the model of the 
Federal Employees Health Benefits Program, if Medicare had had 
the cost increases over the last 3 years that the FEHBP has 
had, we wouldn't be talking about 25 years' remaining life on 
the Trust Fund, we would be talking about an imminent emergency 
in terms of the finances of the Trust Fund.
    But I think the fundamental issue is the extent of who 
bears the risk for increases in the cost of providing health 
services and health benefits over a period of time, and I 
think, again, we do have 25 years' worth of experience with the 
participation of private plans on a capitated basis in the 
Medicare program. And what that experience seems to suggest is 
that you can save a substantial amount of money for the Federal 
Government by shifting costs to beneficiaries, or you can 
substantially increase the participation of private plans at 
greater expense to the program, but that you haven't been able 
to both reduce costs and increase the participation of private 
plans without running into some of the problems that the 
Medicaid program has had with some very low-cost providers in 
terms of the availability of services and availability of the 
benefits.
    The notion that you can save money by the mere presence and 
competition of private plans in the Medicare program, while 
theoretically correct if you assume enough things about the 
nature of how you would design your program, is just directly 
contradictory to 25 years of empirical experience with the 
participation of private plans in the Medicare program.
    And if the point is not to save money but is to provide 
opportunities to enhance benefits of one form or another, then 
I think you have to deal with the issue of equity and 
uniformity of a guaranteed benefit to all beneficiaries 
everywhere in the country, and you can only do that by having a 
base program, a core program, which has that level of benefits 
and has that common definition of benefits everywhere in the 
country.
    Ms. DeParle. I agree with Dr. Vladeck. I have some concerns 
about the Federal Employees Health Benefits Program as a model. 
There are some appealing aspects to it. Allowing people to 
choose and having education for the consumers is an appealing 
thing and something that we have actually, I think, done a 
pretty good job of in implementing the Medicare+Choice program. 
But the populations in those two programs, the FEHBP and 
Medicare, are very different, and the Medicare population is 
much more vulnerable both in terms of their health status and 
their financial status, and I think we should really think long 
and hard about moving in that direction.
    I do support the proposal that the Clinton Administration 
put forward for a competitive defined benefit where there would 
be market-based pricing, competitive pricing, for managed care 
plans and where beneficiaries might have an incentive to go to 
a less-expensive plan, but where the fee-for-service program 
would be maintained because--I agree with Dr. Vladeck--the 
experience so far is that it is very difficult both to save 
Medicare money and increase access to these private plans in 
many areas of the country. There may be areas of the country 
where we will never have private plans in Medicare, and we need 
to maintain a strong and effective and well-managed traditional 
fee-for-service program for those areas.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Bilirakis. I thank the gentleman. We now will start the 
second round, so any further members coming in will be 
inquiring as part of the second round, not as the first round. 
I thought I would make that clear.
    Mr. Green. Appreciate that guidance, Mr. Chairman.
    Mr. Bilirakis. That guidance, unfortunately, is necessary.
    On the contractors, please furnish us with your suggestions 
on how that should be handled because apparently it is going to 
take legislation to give you that flexibility.
    On the point that Dr. Vladeck emphasized, the flexibility 
versus uniformity, the opened or closed process, we would very 
much like to hear more in that regard.
    I would like to ask a question, though, regarding the FDA 
approval which Ms. DeParle concentrated on. We were advised of 
this to some degree when we went to HCFA in Baltimore back in 
February. As Ms. Eshoo and Ms. DeGette mentioned, FDA spends 
all of its time approving new drugs and devices. Does HCFA play 
any part during that FDA approval process?
    Ms. DeParle. No.
    Mr. Bilirakis. They do not.
    Ms. DeParle. No, sir. And it is a different question, but 
they are both important questions, but the question that FDA 
has in front of it is, is something safe and effective, and can 
it be generally approved for the public to use?
    The question that HCFA has with respect to Medicare is, can 
and should Medicare cover this item or service? And as you well 
know, there are many items and services that, by statute, 
Medicare can't cover. Dr. Roper mentioned preventive benefits. 
Medicare's own statute says it has to cover things only for the 
diagnosis and treatment of a disease or a malformed body 
member. It says nothing about preventive treatment. So, when we 
have added preventive treatments, it has taken an act of 
Congress to do that.
    Prescription drugs is another example. Those obviously 
aren't covered by statute by Medicare. Once the FDA has said 
something is safe and effective, then the question for the 
Medicare agency is, should this be covered for Medicare as 
well? And that is where we made a change in the process a 
couple of years ago, to create an open and transparent process 
so that device companies, citizens, Medicare beneficiaries, 
everyone, could petition for coverage of a new item. But there 
might be some things what while the FDA would say they were 
safe and effective, might not be appropriate for Medicare 
coverage, or they might be appropriate only in certain 
circumstances, and that is where we need the staffing to help 
make those kind of decisions.
    Mr. Vladeck. It might be helpful, Mr. Chairman, to actually 
provide an example because, in the abstract, these things get--
but one subject of an oversight hearing when I was 
Administrator, was on the issue of lymphedema pumps. Lymphedema 
is a very common complication of surgery for breast cancer and 
for other major surgery for treatment of cancer, that involves 
accumulation of fluid and swelling that is very painful. It is 
a very serious and very real condition. It is most common, 
again, and the issue of Medicare payment arises most commonly 
relative to breast cancer.
    There were a number of clinicians within HCFA and elsewhere 
within HHS who believe that physical therapy was the most 
appropriate treatment for lymphedema for almost all 
beneficiaries who experienced it, but there are two categories 
of pumps that are actually applied to the extremities involved 
in the swelling that have been approved by the FDA. One costs 
about $400 and the other costs about $4,000 apiece. And we 
found in the mid-1990's that 80 percent of the lymphedema pumps 
being ordered in the Medicare program were of the $4,000 
variety, not the $400 variety.
    Now, the FDA is not statutorily in a position to say when 
you should pay for the $400 pump and when you should pay for 
the $4,000 pump. They were able to say that both were safe and 
effective for the following kinds of indications. And what we 
needed to do in the absence of some of the new coverage 
processes which are desperately needed, is to say the $400 pump 
is appropriate in these circumstances, and the $4,000 pump is 
appropriate in these circumstances, and when the $400 is 
appropriate Medicare shouldn't be paying for the $4,000 pump. 
That is the kind of distinction that you need the processes and 
the resources to be able to make, that the FDA is not in the 
position, under its statute or its operating policies, to make.
    Ms. Wilensky. That is a very good example, to think about 
the difference between coverage and pricing, and sometimes they 
have gotten confused and it has delayed a coverage decision 
that needn't have been delayed.
    When I was at HCFA, there was a decision that was requested 
about having coverage for high and low osmolar density contrast 
material, and they are very different in terms of the cost 
involved.
    We had some advice from the American College of Radiology 
about eight or nine instances when the more expensive contrast 
material was medically important, but the coverage was allowed, 
and we weren't directing physicians or hospitals which of these 
contrast mediums to use, it was the payment that would be 
limited to the higher payment only at times when there was 
clear medical benefit.
    One of the issues--and I have had discussions with some of 
the senior career people at HCFA and also with Nancy-Ann, at 
her invitation--is to try to help HCFA understand that the 
coverage decision may be easier. The pricing decision, which is 
very important, might allow for things to move forward while 
still being financially prudent. You obviously do want to do 
the spirit of what was just mentioned.
    Mr. Greenwood. There isn't any way to speed up that 
process?
    Ms. Wilensky. There are definitely ways to speed up, yes. 
There are lots of ways to speed it up.
    Mr. Greenwood. Is the answer additional dollars, additional 
personnel?
    Ms. Wilensky. It is that and, in fairness, while resources 
will be important, having an expectation and accountability 
within HCFA itself for being able to produce in an appropriate 
manner--produce results, produce decisions, produce pricing--
decisions is going to be important and, in fact, without having 
the Congress have some expectation that the increased money is 
actually going to make a difference, it would be hard to expect 
the Congress to act. And I think all of us understand there is 
a little bit of a chicken-and-egg problem going on. HCFA 
behaves and performs badly and makes it hard to want to have 
Congress or the Administration give it lots more money. One of 
the reasons HCFA has had trouble performing well is that there 
has been this huge mismatch.
    Mr. Bilirakis. think we have gotten that message--hopefully 
we have. Dr. Roper, very briefly.
    Mr. Roper. If I could add just one other thing. All too 
often, we view the coverage decision as a yes or no, and you 
need--we all need--to understand that it is much more a 
question of for which patient under which circumstance is a 
specific treatment or device or whatever appropriate, and that 
subtlety is one that it is very hard for a national 
organization with this kind of scrutiny and whatever to do 
fairly and routinely and whatever.
    I would just cite one example from my watch. When we began 
to cover heart transplants under the Medicare program in 1986 
or 1987 or thereabouts. Hugely expensive at the time, still 
thought by some to be experimental. And what we decided was to 
say that heart transplants would not be covered when done 
anywhere around the country, but we would cover them in 
specific centers where they were done with technical quality 
and so on. And those kinds of subtleties and complexities are 
much different than just a one-time, one-size-fits-all, ``Yes, 
we will cover it today,'' we did not cover it yesterday for all 
the beneficiaries all over the country.
    Mr. Bilirakis. Thank you. Mr. Brown.
    Mr. Brown. Thank you. Dr. Vladeck, each of the other 
panelists gave a range or a specific idea about what number of 
dollar, what percent of increase--Dr. Roper said 25, Dr. 
Wilensky said 10 to 15--I understand these are very rough 
estimates--Ms. DeParle said 100 percent over 5 years.
    Could you give us a range, so we get an idea of----
    Mr. Vladeck. Again, I would find a need to divide that into 
three pieces, if I could. The first is, I think the core 
administrative budget, which is now about $500 million a year, 
which is most of the staff and direct operations of the Agency, 
I would think over a 3-to-5-year period, we are probably 
talking about a 50-percent increase, I would guess. But I am 
still missing--on the contractors, the contractor budget is now 
about $1.4 billion a year. I think several hundred million 
dollars would rebuild, so that is 25 percent perhaps, would 
rebuild a lot of that customer service function.
    I am still missing from that 1500 staff in Social Security 
offices--I don't know where that comes from--and a one-time 
investment that I think probably runs to several hundred 
million dollars over a period of years in a major, sort of 
quantum modernization of information technology. But then, 
again, I think you can get back to a steady-state that is lower 
than that.
    So, I would add those up and I guess it would come to 
probably about a 50-percent increase, if you did the arithmetic 
on all those parts, over several years.
    Mr. Brown. Thank you. Most of your trips, each--at least 
the two of you that came to the Hill since I have been here, 
and Dr. Wilensky, too, in her trips not as the HCFA 
Administrator--mostly they were about Medicare, and I want to 
talk about Medicaid a little bit, not that you didn't come to 
the Hill to talk about that, too, but much more often Medicare.
    Medicaid, as you know, covers roughly the same number of 
people, roughly 40 million, pays for health and long-term 
coverage for 1-in-7 Americans, the country's largest health 
insurer for children, six times the Children's Health Insurance 
Program, single largest insurer for maternity care, 1-out-of-3 
deliveries is Medicaid, single largest purchaser of nursing 
home care, as you know, and the single most important source of 
financing for hospitals like Metro in Cleveland, safety-net 
hospitals, inner-city hospitals, public hospitals.
    Some have suggested possibly separating--including Dr. 
Wilensky--separating Medicaid out from HCFA and assigning its 
responsibilities to another agency.
    I have concerns about such proposals. First, that this may 
have a negative implication for beneficiaries. We have worked 
hard to sever the link between Medicaid and Welfare and 
eliminate the Welfare stigma, placing that program in a part of 
the Department of Health and Human Services that deals with 
low-income programs, like they could potential stigmatize the 
health care programs, stigmatize Medicaid. Placing the 
program's administration with HRSA also sends the wrong 
message, it is not a block grant but obviously an insurance 
program, and HCFA runs insurance programs, Medicare obviously 
as well as Medicaid. Additionally, many of the staff and 
activities of HCFA work on both programs and perform functions 
that serve both programs.
    A question for Dr. Vladeck and Ms. DeParle, since you are 
the only Administrators here who were here during and after 
Welfare Reform, which really did sever the link between 
Medicare and Welfare. Give us each your thoughts on moving 
Medicaid out from HCFA's responsibility, if you would.
    Mr. Vladeck. As I said in my statement, I think the trick 
on Medicare--and it is a very, very difficult program for 
anyone in the Federal Government to administer--is to recognize 
the extent to which it is a partnership with the States in the 
sense of the States having initiatives, but that there are very 
powerful Federal financial risks and issues associated with it. 
And, in fact, all of us were involved in quite intense debate 
in 1995 and 1996 and 1997, about the extent to which the 
Federal Government had a continuing responsibility to protect 
beneficiaries directly rather than delegating that entirely to 
the States.
    And I think if you think about the history of the 
regulation of nursing homes, which is the largest single thing 
on which Medicaid spends its money in most of the States, if 
you think about the controversy that you are going to have the 
pleasure of dealing with and Mr. Scully is going to have the 
pleasure of dealing with on the proposed rules for the 
regulation of Medicaid managed care plans coming out of the 
Balanced Budget Act, I think there are very sort of profound 
issues of beneficiary protection that most of my familiarity 
with the other organizations in town that might take 
administrative responsibility for this make me very nervous 
about. At the same time, there are very significant issues of 
financial management in the Medicaid program, and if you didn't 
have the expertise in HCFA you would have to reinvent somewhere 
else or else be creating very substantial risk to the Federal 
Treasury, I think.
    Ms. DeParle. Just quickly, I always wished I had more time 
to spend on Medicaid. I think you are right, it does cover 
almost as many people, spends almost as many dollars now, and 
the trends are going in that direction with Medicaid. I always 
felt that I was struggling to keep up with the demands in 
Medicare and not able to spend as much time on Medicaid as I 
wished. And from talking to my fellow former Administrators, I 
think they all felt that way.
    Gail's approach to it is to try to separate it out, I 
think, in the hope of giving it more attention. My concern 
about that is I think you need a single point of accountability 
for insurance programs in the Federal Government, and I think 
you would lose some of the coordination that we have tried to 
ensure between Medicare and Medicaid, if you were to do that. 
So, that would not be the first place I would go.
    Ms. Wilensky. It really has been the stepchild, though, of 
HCFA. I appreciate your concern, having lived there, and I 
guess I would invite you maybe to spend some time--it is a 
frustration because it is such an important program, and it 
gets so little of the attention. I mean, HCFA is really running 
Medicare, it is a Federal program, but how you deal with the 
State-run program with Federal guidelines and oversight is so 
fundamentally different, although that is why I made the 
distinction between the mom and kids part and the part of 
Medicaid that overlaps with Medicare, which is fewer people but 
large dollars, although that is probably the worst functioning 
part of all the areas in terms of functioning, which is the 
dual eligibles, in my opinion.
    So, I appreciate the concerns that have been raised, I just 
wouldn't want you to think that where it is now means it gets 
anything like good attention. I mean, it really is the 
stepchild of the Agency.
    Mr. Roper. This is a classic case of the old expression, 
``Some of my friends are for it, some of my friends are against 
it, and I agree with my friends.'' I happen to disagree with 
the notion of moving Medicaid out of HCFA, but to make Gail's 
point, I think a fair estimation of my time as HCFA 
Administrator, I spent about 15 percent of my time on Medicaid 
and 85 percent on Medicare.
    Mr. Greenwood. The gentleman's time has expired. The Chair 
recognizes himself for 5 minutes.
    Dr. Wilensky, you talked about what you referred to as the 
pay-and-chase methodology. It seems to me some claims are paid 
immediately without any question, some are delayed and then not 
paid, some are delayed and then paid, some are denied right off 
the bat, I assume.
    Do we know anything about the percentages of claims that 
are rejected or delayed because a ``t'' isn't crossed and then 
the provider amends, corrects the claim, and then it is paid? 
Do we know that, in fact, there is a substantial savings 
resulting from the ones that are screened out before they are 
paid?
    Ms. Wilensky. I don't personally know that. This is 
information that the Agency may be able to provide you. I don't 
know whether it is readily available. But in some ways, it is 
worse than that because--the reason it is worse than that is 
that in order to try to not have to chase--because they don't 
have any money, among other things--that you have a series of 
automated screens and documentation requirements, and they 
differ from contractor-to-contractor.
    I think there are times when having different coverage 
decisionmaking at a local level gives you a benefit because 
medicine is practiced different ways around the country. This 
kind of differentiation, which has to do with amount, scope and 
duration, brings little gain and an awful lot of frustration, 
but I don't know those numbers. I think that would be a 
reasonable thing to ask the Agency to provide you with.
    Mr. Greenwood. Thank you. Direct a question to Dr. Roper, 
if I could. Several points in your testimony, you state that 
HCFA staff are stuck in a fee-for-service mentality. Discussing 
the managed care option for seniors, you state, ``A hostile 
environment and ambivalence toward an integrated or managed 
care approach doomed its implementation. In fact, the way it 
was created was directly linked to its downfall as it resulted 
in so many onerous regulations on health plans.'' Could you 
elaborate on that?
    Mr. Roper. Sure. I think that the point about the staff is 
one that is a simple observation, that most of the people came 
to the Agency at a time when it had responsibility that was 
only fee-for-service. Their life experience and training and so 
on is rooted in that, and that is important for the fee-for-
service part of Medicare. But there is this other part that 
requires different understanding, different expertise, 
different mindset, et cetera, and that is the argument that I 
am making.
    Just to add a point, it is going to be awfully hard to do 
what I am suggesting because, to hire people from the private 
sector at a time when the Agency is under fire, but also at the 
pay levels in the Federal Government compared to what they can 
make in the private sector, that is a real challenge. So, it is 
glib to say what I am saying, but it is awfully hard to do it.
    To the other point, Medicare+Choice, when it passed the 
Congress, and the predecessor programs that went by slightly 
different names, were the product of compromise, and the 
legislative process brought to the eventual legislation lots of 
built-in inconsistencies and things that were hard for anybody, 
even very well-meaning colleagues that are here, to implement, 
and those very inconsistencies were codified in the regulations 
and the oversight and so on. And I think we have succeeded in 
producing--collectively, we have succeeded in producing a 
program that is almost impossible to administer, and surely not 
attractive to the folks in the private sector.
    Mr. Greenwood. I agree with Mr. Brown on the urgency of 
fixing Medicare+Choice, I think it should be a very high 
priority.
    Let me ask a very, very specific question about AWP. In 
looking at this issue, we have these drugs that are covered by 
Medicare, that are reimbursed at statutorily determined phrase, 
``average wholesale price,'' and yet it appears quite obvious 
that there is nothing average or wholesale about that price and 
it is based on absolutely nothing, it is a fiction. It appears 
to be designed fundamentally to create the largest spread 
possible between what the physician provider actually pays and 
what Medicare is reimbursed in order to get market share, and 
it is costing us billions of dollars. It doesn't reach the 
pharmaceutical companies because they are not making any of the 
money, it is enriching the providers. Anybody know how to fix 
that? Obviously, we have to look at the whole issue of practice 
expense, but I would appreciate anyone's thoughts on what to do 
about this.
    Ms. Wilensky. The real question is why you are not paying 
actual acquisition, and the answer is only because of the 
concern that too many physicians would drop out because they 
are claiming they need the cost subsidy from average wholesale 
price in order to continue participating.
    There probably are some real problems in terms of the 
practice expense portion, and perhaps even in terms of the 
actual amounts we are paying physicians for administering 
certain chemotherapies or other covered drugs.
    It is hard to come up with a good rationale for why we 
should do it by reimbursing at what we know, or what we have 
good reason to believe, is not actually the acquisition price.
    Mr. Greenwood. It is not even clinically right because it 
is driving the use of particular products that may or may not 
be indicated. It is driving the frequency that they are 
administered.
    Ms. Wilensky. It is a very clumsy way to fix what is an 
issue that you need to look at at the same time. I don't want 
to have it be the recommendation is actual acquisition price 
and ignore the other issue. There is a serious issue, but what 
we are doing now does not make much sense.
    Mr. Greenwood. My time has expired. The gentleman from 
Florida.
    Mr. Deutsch. Thank you, Mr. Chairman.
    Mr. Greenwood. Did anyone else want to respond?
    Ms. DeParle. No, I think we all agree.
    Mr. Greenwood. All agree. Okay, fine.
    Mr. Deutsch. I wanted to shift a little bit and talk about 
Medicare and the administration that you do, that all of you 
have done. It is not an insurance plan. It functions in many 
ways like an insurance plan, but it is still a Government plan 
in terms of having public policy goals. And that changes. And I 
want to focus at least in an area of screening and prevention. 
And when you are making those decisions, you are not making 
those--an insurance company would make those decisions and just 
doing a cost-benefit analysis of it.
    Each of you, independently, No. 1, are there goals, public 
policy goals that we should be using HCFA Medicare for that we 
are not using it for today, No. 1? And, No. 2, specifically in 
the prevention side of the health care equation, what else can 
we do? And, again, as all of you know--I mean, the utilization 
is shockingly low, so what else can we do? And as part of that, 
is it driven by reimbursement levels? So, if we can kind of 
talk about--is there things that we can do with Medicare on the 
public policy side of it, that we are not doing, and then, more 
narrowly, within the area of screening/prevention, what else 
can we do that we are not doing today?
    Ms. DeParle. I think there is a lot we can do to promote 
quality in the health care that Medicare beneficiaries receive, 
and I will give you an example of that. In September of this 
past year, the Agency published an article--some of the 
clinicians in the Agency published an article in the Journal of 
the American Medical Association, where they had looked on a 
state-by-state basis and picked out some clinical indicators of 
things that are beyond controversy among clinicians, things 
that people who experience certain conditions need to receive--
beta-blockers after a heart attack, that kind of thing--and 
then looked at all the data that Medicare has to see whether 
they were receiving it or not, and there was quite a wide 
disparity among the States as to whether beneficiaries in 
certain States were getting it or not, and there is no reason 
why that should be the case. Medicare covers these things.
    So, what the Agency is trying to do now is to work with the 
peer review organizations that Dr. Wilensky talked about, to 
drive those numbers up and to make sure that beneficiaries are 
getting the care that they need.
    It could also be used in the medical error context, which 
is something that Dr. Roper is working on, I know, through his 
work with the National Quality Committee. What I have been 
talking about are errors of omission, but there are also errors 
of commission, and Medicare might be able to play a role there 
as well in helping to reduce the number of medical errors. So, 
I think there is a lot we could be doing in terms of quality to 
make sure that having Medicare means more than just having the 
health security, it means also improving your health status.
    Mr. Roper. If I could just add, I strongly agree with the 
need for a much more intentional focus on improving quality in 
the program. I think we have begun to make some progress of 
late. It needs to be extended.
    On the prevention notion, the key obstacle, I think, to 
further progress is we are locked in a process whereby changes 
to the program, prevention in this case, are scored for their 
short-term budgetary costs, and any longer-term cost-savings 
that might accrue to the program are way in the outyears, and 
with the current rules administered by CBO, whatever, we just 
never can show the appropriate value to the program, the value 
to American seniors. And, furthermore, I think we need to step 
back and say, much of what is done in prevention is really not 
about saving money, it is about improving people's lives and 
the quality of those lives, and we ought to just admit that and 
recognize that we are going to spend some more money in 
accomplishing that.
    Ms. Wilensky. Let me direct a comment or two--I think the 
other part you address, which is the very low use of the 
currently covered benefits because while I agree that we 
certainly ought to be willing to have the discussion even if it 
doesn't appear to be cost-effective in a reasonable timeframe, 
is it appropriate to cover a preventive benefit because we 
believe it will have an effect on quality of life? But we need 
to give equal thought to actually making use. I assume you were 
referencing to at least numbers that I have looked at, which 
are the pitifully low use of mammography, which is--I think the 
last time I looked it was about 32 or 33 percent--very low 
rate, and that is, unfortunately, much harder than passing 
legislation to provide a new benefit. And it may mean working 
through either the AMA or some of the specific colleges, of 
trying to do something that when advanced directives was passed 
in the early 1990's, there was a big effort to have an outreach 
to work with different groups that interact with seniors, to 
try to encourage the use of some of these preventive benefits, 
to make use of public service announcements in a way that has 
coordination, as we do with some of the healthy baby PSAs that 
are used. But I think we need to recognize that we have ample 
documentation that coverage and the payment per se is a first 
step, it doesn't seem to solve the problem particularly in some 
of the efforts that have taken a lot of work by the Congress to 
get covered.
    Mr. Vladeck. I was going to say that Dr. Wilensky mentioned 
earlier her efforts to reform the PRO program, which I think is 
one of the more successful changes in HCFA in the last decade 
or so. The only thing she didn't succeed was getting them to 
overcome their extraordinary institutional aversion to publicly 
reporting what it is they do, or taking credit for what they 
do. But as this committee continues its oversight and 
monitoring function, particularly around these issues of 
quality but then into the issues of prevention and provider 
education, I think there has been, over the last decade, an 
awful lot more accomplished than anyone has acknowledged or 
taken credit for, or talked about. And I would encourage you to 
take a look at what, beginning in the first Bush Administration 
through the Clinton Administration into this current 
Administration, that part of the program has done, which no one 
has given very much attention to but has been enormously 
positive and sets the model, as Gail suggested, for some other 
ways you might change the Agency in the future.
    Mr. Deutsch. Mr. Chairman, I know we are on the last round, 
could I just very quickly ask one final question?
    Mr. Greenwood. You may.
    Mr. Deutsch. Thank you very much. You have all talked about 
this quality thing. While we are talking about it--obviously, I 
can talk to you afterwards, but while we are in this setting--
you mentioned the betablocking specifically. It just seems 
crazy, so how do we change it? I mean, you know----
    Ms. Wilensky. This is not just a Medicare problem. The 
first thing to recognize--and I will turn it over to the real 
doctor on the panel--is that what we are aware of now, 
increasingly aware of, is the systems and quality problems in 
how health care is delivered in this country, and we spend a 
lot of time sometimes worrying about whether things are 
slightly better in fee-for-service or managed care, and not 
focusing on that. In both of these places, six or seven out of 
ten times, somebody might not get the care that is regarded as 
appropriate by a clinical expert, so that it is a country-wide 
issue of how to deal with getting the right care.
    Mr. Deutsch. I don't want to take anymore time. I guess I 
would just say, though, that one of the things that maybe we 
have been thinking of, if we aren't reimbursing for the wrong 
care, maybe providers would all of a sudden thinking pretty 
quickly what is the appropriate care. I mean, in other words, 
HCFA has been so incredibly creative in terms of getting people 
to make choices based on incentives, and the success story of 
all four of you has been an amazing success story. I mean, Dr. 
Vladeck pointing out if HCFA was run the way the Federal Health 
Insurance Plan, we would be at zero-life expectancy in the 
plan. And all four of you, I think, have specific records that 
you each can be very, very proud of in terms of. And I guess 
maybe this aspect of health care in general--I mean, the 
creative energies that you have had, you have used basically to 
do cost-containment. I mean, that is where most of the creative 
energies have been done. And I think maybe we really need to 
shift some emphasis and use creative energies for quality of 
care type issues and, beyond quality of care, prevention as 
well.
    Mr. Roper. I can't resist saying, in 30 seconds, you are 
right and we need to do it. It requires much better information 
systems, not just within HCFA but within our health care 
system, broadly speaking, to accomplish that.
    And the other thing it requires is that purchases of care, 
especially in this case, public purchasers need to use their 
clout to demand quality, and I think we need to, with your 
prodding, get HCFA to be much more focused on that, but 
recognize that what will happen is a push-back from the doctors 
and others who are threatened by that.
    Mr. Vladeck. This is a whole other debate, but purchasers 
can leverage quality except at the margins. All the data we 
have suggest doctors practice medicine the way they think they 
ought to practice medicine, and they want to do a good job, and 
there are techniques in terms of education and professional 
communication and professional leadership some of them 
developed in the PRO program, but you can't improve the quality 
of medicine the way you want to through manipulation of 
financial incentives. You have to appeal to the higher motives 
which drive the decisionmaking of most physicians.
    I think we have got a lot of experience in public and 
private programs to that effect, and I think that is worthy of 
another very big discussion because I think there are important 
responsibilities. But at the end of the day, it is not payment 
that is going to drive it, it is a whole set of different 
incentives, which is why some people become doctors as opposed 
to businessmen or other.
    Mr. Greenwood. Mr. Pitts has arrived. Would you care to--
recognize Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman. I am sorry I was in and 
out. Dr. Vladeck, thank you very much for your report, it is 
very helpful. You mention in your report how fraud and abuse 
activities have created the impression of a police state. 
Providers in my district have mentioned their concern that if 
they make an honest mistake, they will be penalized or that 
they are guilty until proven innocent. Certainly, no one in 
this room would argue that we should not do everything in our 
power to root out true fraud from the system, but do you think 
that these efforts have gone too far, or that this is another 
area requiring reform?
    Mr. Vladeck. Well, again, I think we have spoken about this 
already, and I think Ms. DeParle spoke to it effectively well. 
The fact is that I think the large majority of physicians in 
the United States believe that they are at risk of going to 
jail if they fill out a Medicare claim incorrectly, and that is 
simply not true. And so there is some basic educational 
investments and basic informational investments that need to be 
undertaken. They are to some extent resources, but to some 
extent a matter of policy and approach.
    I do believe that in a society like this one, in every 
aspect of life, we have to strike a balance between having in 
place the basic rules and the basic systems and the basic law 
enforcement capabilities and the basic detection capabilities 
to protect the overwhelming proportion of citizens who are 
honest against crime, without becoming a police state. And that 
is just a balance that you have to strike all the time. And I 
think we have to be more open in our discussions about the need 
to strike a balance like this relative to program integrity in 
health care as well as everything else. You don't want a system 
that is 100-percent foolproof because then nobody would ever be 
able to have any time to see a patient. You don't want a system 
that is as wide open as things were in the early 1990's in 
parts of the Medicare program, where Mr. Deutsch read about 
some of the experiences we had.
    And I don't know that there is a clear answer to this, this 
is just a constant balancing that all of us, I think, have to 
take responsibility, and recognize there is a tendency to 
oversimplify this, to put it all in rhetoric to say ``these 
guys are all good guys, these guys are all bad guys.'' I think 
particularly when you talk about issues of law enforcement and 
so forth, the need to have sort of a reasoned balanced 
discussion of it is often contrary to the dynamics of the 
process, but that is where we need to come out. We are talking 
about taxpayer dollars. We are talking about a track record 
with very, very significant problems. On the other hand, we are 
talking about no one disagreeing that the overwhelming 
proportion of all providers in the system are basically well 
motivated and honest, and you don't want to make their lives 
anymore difficult than they already are, and I think the issues 
of communication, education and openness of discussion are a 
very important part of that process in dealing with that.
    Mr. Pitts. Do you--and anyone on the panel can respond--do 
you favor a more open or more closed process at HCFA?
    Mr. Vladeck. Well, I would say again, I think we have to be 
much more honest and more direct and open about these things.
    Ms. Wilensky. I think one of the frustrations that I hear 
about is that people can't--providers can't seem to get clear 
answers of how do they bill, and there has been a lot of debate 
about, well, if you told them various kinds of approaches or 
screens, everybody would go up to the screen--it seems to me 
that you ought to know how to bill and what the rules are, and 
if you were to call in to your contractor's office four times 
in a row, that you would get the same answer. What people claim 
is that when that happens, they are subject to getting 
different answers for the same kind of procedure, and that 
while they may hate the decision of a private insurer on a 
particular issue, they are quite confident that if they call in 
four different times, they will get exactly the same hated 
answer each of those four times.
    So, I think there are ways that we ought to be able to have 
the providers know, here are the rules, follow them. If you 
don't, here are the consequences, and to have a clear 
understanding about what those rules are.
    Ms. DeParle. I just wanted to make one point about what Dr. 
Wilensky said. There is software that the Agency uses to edit 
claims, and there is one package of that software that was 
implemented probably during Dr. Vladeck's tenure sometime in 
the early to mid-1990's. At this committee's behest, Chairman 
Greenwood's committee's request, we implemented another set of 
what is called off-the-shelf software that contained additional 
edits, and because we negotiated with a private sector company 
to get those edits, we could not disclose them to the 
physicians. But just to sort of complete the circle here, that 
was at the behest of this committee, and I agreed to do it 
because I thought we had such a severe problem that if there 
were private sector alternatives, that we needed to use them. 
So, we purchased this one, implemented it, but a condition of 
it--and we worked with the committee staff on this--was that we 
could not reveal the edits to providers whereas we had done 
that before, and they didn't like it very much at all. They 
felt that we should be telling them what the edits were. So, 
that kind of brings us full-circle in the difficulties and the 
tensions here.
    Mr. Greenwood. Let the record show that I was not the 
chairman of this subcommittee at the time.
    Ms. DeParle. You were not.
    Mr. Greenwood. Again, thank you, all four of the witnesses. 
I am not sure if the Mount Rushmore analogy was appropriate, 
but you really are a ``brain trust,'' and we are going to have 
to rely on you because you know the system best of anyone else. 
So, we look forward to working with you in the future. Thank 
you again. The hearing is adjourned.
    [Whereupon, at 12:55 p.m., the joint hearing was 
adjourned.]
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