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




  SECOND IN SERIES ON MEDICARE REFORM: BRINGING REGULATORY RELIEF TO 
                             BENEFICIARIES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 15, 2001

                               __________

                           Serial No. 107-12

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

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

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Health

               NANCY L. JOHNSON, Connecticut, Chairwoman

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

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


                            C O N T E N T S

                               Page______
                                                                   Page
Advisory of March 8, 2001, announcing the hearing................     2

                               WITNESSES

U.S. Department of Health and Human Services, George F. Grob, 
  Deputy Inspector General for Evaluation and Inspections, Office 
  of Inspector General...........................................    76

                                 ______

American Health Care Association, and Marriott Senior Living 
  Services, Mary K. Ousley.......................................    23
American Hospital Association, and Northwestern Memorial 
  Healthcare, Gary Mecklenburg...................................    17
American Medical Association, Richard F. Corlin, M.D.............    12
Center for Medicare Advocacy, Inc., and National Citizens' 
  Coalition for Nursing Home Reform, Toby S. Edelman.............    64
Moffit, Robert E., Heritage Foundation...........................    89
National Association for Home Care, Connecticut Association for 
  Home Care, and Visiting Nurse Association of Central 
  Connecticut, Inc., Susan Wilson................................    30
Wilensky, Hon. Gail R., Project HOPE, and Medicare Payment 
  Advisory Commission............................................    98

                       SUBMISSIONS FOR THE RECORD

American Association of Homes and Services For the Aging, 
  statement......................................................   119
American College of Physicians--American Society of Internal 
  Medicine, statement............................................   123
American Occupational Therapy Association, Inc., Bethesda, MD, 
  statement......................................................   126
American Physical Therapy Association, Alexandria, VA, statement.   129
Mayo Foundation, Bruce M. Kelly, letter and attachment...........   134
National Association of Chain Drug Stores, Alexandria, VA, 
  statement......................................................   135

 
  SECOND IN SERIES ON MEDICARE REFORM: BRINGING REGULATORY RELIEF TO 
                      BENEFICIARIES AND PROVIDERS

                              ----------                              


                        THURSDAY, MARCH 15, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 1100 Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairwoman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
March 8, 2001
HL-2

                  Johnson Announces Second Hearing in

                     the Series on Medicare Reform

    Congresswoman Nancy L. Johnson (R-CT), Chairwoman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold the second day in the hearing series on Medicare 
reform. On this occasion, the Subcommittee will examine ways to bring 
regulatory relief to beneficiaries and providers and restructuring the 
Health Care Financing Administration (HCFA) in the context of efforts 
to improve the Medicare program. The hearing will take place on 
Thursday, March 15, 2001, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 10:00 a.m.

    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include a panel of health care providers representing 
doctors, hospitals, nursing homes, and home health agencies. The second 
panel will include Dr. Gail Wilensky of Project HOPE and other Medicare 
experts to discuss regulatory relief and to provide suggestions on how 
HCFA can be more responsive to beneficiaries and providers, possibly 
through agency restructuring. Any individual or organization not 
scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.

BACKGROUND:

    This hearing will be the second in a series of Subcommittee 
hearings intended to lay the groundwork for the development of 
legislation to improve and strengthen the Medicare program, including 
the addition of a much needed prescription drug benefit to the program. 
The first hearing, held on February 28th, gave members a general 
overview of the reform debate. This and subsequent hearings will focus 
on particular areas in need of reform.

    In announcing the hearing, Chairwoman Johnson stated: ``Regulatory 
relief has to be at the center of any effort to improve the Medicare 
program. Too many providers are spending too much time struggling with 
paperwork rather than treating patients. It is time to introduce a 
little common sense into the HCFA bureaucracy.''

FOCUS OF THE HEARING:

    The March 15th hearing is not intended to convey that all 
regulation is inappropriate--in fact, many regulations addressing 
patient protections, financial accountability standards, and 
operational guidance are a vital part of the Medicare program. However, 
some of HCFA's 130,000 pages of regulations place an unnecessary, and 
oftentimes duplicative and cumbersome burden on providers that can 
negatively affect the beneficiaries who rely on them for needed 
services. Witnesses will provide specific examples of burdensome 
regulations--and specific suggestions for regulatory changes that can 
be made to promote, rather than hinder, efforts to improve the Medicare 
program. The Subcommittee will be presented with testimony on how the 
government can do its job better, to ensure that beneficiaries are 
protected, and that taxpayer dollars are used wisely and responsibly 
without placing undue burdens on providers.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
March 29, 2001, to Allison Giles, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Health office, room 1136 Longworth House 
Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

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

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

                                


    Chairwoman Johnson. Thank you. Today's Subcommittee holds 
the second in a series of hearings designed to lay the 
groundwork for the development of legislation to improve and 
strengthen the Medicare Program, while adding a much needed 
prescription drug benefit to that program.
    The first hearing, held last week, gave Members a general 
overview of the reform debate. This and subsequent hearings 
will focus on particular aspects of the Medicare Program in 
need of reform.
    The purpose of this hearing is to examine the impact of the 
regulatory burden on beneficiaries and the providers that serve 
them and to examine specific proposals to provide regulatory 
relief. Our intent is to distinguish between unnecessary 
regulations and those that are critical to program integrity 
and effectively deterring fraud and abuse.
    Our witnesses will provide us with specific examples of 
burdensome regulations and specific suggestions for regulatory 
changes that can be made to promote efforts to improve the 
Medicare Program.
    The Subcommittee will be presented with testimony on how 
the Government can do its job better to ensure that 
beneficiaries are protected and that taxpayer dollars are used 
wisely and responsibly, without placing undue burdens on 
providers.
    I thought it was important to begin with this topic 
because, like many of my colleagues, I hear every day from 
doctors and home health agencies, from nursing home 
administrators and ambulance companies, that the status quo is 
not only unacceptable, it is destructive. Not only is the 
tremendous explosion of payments diverting valuable nursing 
hours from patient care, but it is on the verge of severely 
reducing seniors' access to essential health care services. 
Indeed, if we cannot return common sense to the Health Care 
Financing Administration (HCFA) bureaucracy, we will lose the 
services of small nursing homes whose two Medicare patients are 
imposing loads of paperwork for all patients, the services of 
small home health care providers who will simply be unable to 
serve the dual-eligible because delayed reimbursements cause 
such severe cash flow problems, and the shower of paperwork 
imposes such significant new and unreimbursed costs.
    The testimony today dramatizes the challenge this Committee 
faces to preserve Medicare, to strengthen Medicare, to preserve 
it for our seniors. As this Committee continues to prepare 
through our hearings and our bipartisan seminars for the 
development of Medicare improvement legislation, we need to 
keep what we will hear today from witnesses in the forefront of 
our minds. We must not, we simply cannot compound the 
regulatory problems we face. We must instead make it a priority 
to improve administration responsiveness to beneficiaries and 
providers.
    We will work closely with Secretary Thompson, whom we heard 
from yesterday, to explore how HCFA can restructure as we work 
to modernize Medicare. As we think about regulatory relief, 
however, it is vitally important that we not allow ourselves to 
believe that all regulation is inappropriate. In fact, patient 
protections, financial accountability standards, and 
operational guidance are a vital part of the Medicare Program.
    Just last week, the Office of Inspector General reported 
that inappropriate Medicare claims had fallen to 6.8 percent 
from 14 percent in 1996. That is good news for beneficiaries 
who are paying the bills and for taxpayers. However, 
simplifying HCFA's 130,000 pages of regulations will bring 
these numbers down steeply, as the testimony today clearly 
indicates, and at the same time protect seniors' access to 
quality care.
    While we must balance accountability and relief, as we will 
hear from witnesses today, we must move forward in developing 
legislation, and I am confident that as we work together, we 
will get it right. No matter what shape a modernized Medicare 
Program ultimately takes, we all know that one of the most 
important measures of success will be whether we can protect 
program integrity while ensuring that health care providers can 
focus on patients rather than paper.
    I would like to recognize now Mr. Stark.
    [The opening statement of Chairwoman Johnson follows:]

  Opening Statement of the Hon. Nancy L. Johnson, a Representative in 
Congress from the State of Connecticut, and Chairwoman, Subcommittee on 
                                 Health

    Today this Subcommittee holds the second in a series of hearings 
designed to lay the groundwork for the development of legislation to 
improve and strengthen the Medicare program while adding a much needed 
prescription drug benefit to the program. The first hearing, held last 
week, gave members a general overview of the reform debate. This and 
subsequent hearings will focus on particular aspects of the Medicare 
program in need of reform.
    Today, there are more than 130,000 pages of Medicare regulations. 
That's four times the number of IRS! This regulatory burden is a 
consequence of Medicare's administered pricing system, which requires 
government micro-management of health care. Certainly, this is not all 
the fault of the Health Care Financing Administration (HCFA). Indeed, 
Congress has enacted significant Medicare legislation in three of the 
last four years.
    The purpose of this hearing is to examine the impact of the 
regulatory burden on beneficiaries and the providers that serve them, 
and to examine specific proposals to provide regulatory relief. Our 
intent is to distinguish between unnecessary regulations and those that 
are critical to program integrity and effectively deter fraud and 
abuse.
    Our witnesses will provide us with specific examples of burdensome 
regulations--and specific suggestions for regulatory changes that can 
be made to promote efforts to improve the Medicare program. The 
Subcommittee will be presented with testimony on how the government can 
do its job better, to ensure that beneficiaries are protected and that 
taxpayer dollars are used wisely and responsibly without placing undue 
burdens on providers.
    I thought it was important to begin with this topic because, like 
many of my colleagues, I hear nearly every day from doctors and home 
health agencies, from nursing home administrators and durable medical 
equipment providers, that the status quo is unacceptable. Too many 
health care providers are spending too much time struggling with 
paperwork rather than treating patients. It is time to introduce a 
little commonsense into the HCFA bureaucracy.
    As this Committee continues to prepare, through our hearings and 
bipartisan seminars, for the development of Medicare improvement 
legislation, we need to keep what we will hear from our witnesses today 
in the forefront of our minds. We must not simply feed the regulatory 
monster--we must instead make it a priority to improve administrative 
responsiveness to beneficiaries and providers. We will work closely 
with Secretary Thompson, who we heard from yesterday, to explore how 
HCFA can be restructured as we work to modernize Medicare.
    As we think about regulatory relief, however, it is vitally 
important that we not allow ourselves to believe that all regulation is 
inappropriate--in fact, patient protections, financial accountability 
standards, and operational guidance are a vital part of the Medicare 
program. Just last week, the Office of Inspector General reported that 
inappropriate Medicare claims had fallen to 6.8% from 14% in 1996. 
That's good news for taxpayers and beneficiaries who are paying the 
bills. However, some of HCFA's 130,000 pages of regulations clearly 
cross a line and place an unnecessary burden on providers--a burden 
that can negatively affect the beneficiaries who rely on them for 
needed services.
    We will have to be sensitive to this balance between accountability 
and relief as we hear from our witnesses today and as we move forward 
in developing legislation. But, I am confident that as we work together 
we will get it right. No matter what shape a modernized Medicare 
program ultimately takes, we all know that one of the most important 
measures of its success will be whether we can protect program 
integrity while ensuring that health care providers can focus on 
patients rather than paper.

                                


    Mr. Stark. Thank you, Madam Chairman.
    Just very quickly, as we begin studying possible reforms to 
HCFA and its regulatory process, I think it is important that 
we remember that we are responsible for providing the resources 
to HCFA and the flexibility they need to fulfill their 
responsibilities. So I am pleased that you are having these 
hearings and that Secretary Thompson agrees with this notion 
and said so, I think, in this room just yesterday that he would 
work with us to see that we get the resources to HCFA to carry 
out the responsibilities with which we have charged them.
    I think it is also important to note, most importantly, 
that Medicare regulations and policy guidance, as issued by 
HCFA, merely implement the laws that we--and, actually, we on 
this Committee--have enacted and that the relative complexity 
and burden of Medicare regulations rests with us, not HCFA. I 
also want to congratulate the Chair because this Committee 
hasn't met for over 6 years to review the regulations and the 
procedures at HCFA. And, Madam Chair, you are to be commended 
because we should have been doing this every year, as it used 
to be done years ago.
    HCFA cannot operate with laws that have not been updated 
and reviewed, and so you are to be credited with understanding 
this process. HCFA can only promulgate regulations that we tell 
them to promulgate. They have no independent authority, which 
means we have to look at ourselves when we look at the problem.
    I would also like to point out that, in regard to this 
burden of paperwork that these poor, overburdened providers 
face, the physicians in this country continue to be the 
highest-paid profession in the United States with median 
incomes of nearly $175,000 a year--exactly those people whom 
the new tax bill will help the most.
    We say nothing about what we are doing to lift the burden 
on children who don't qualify for CHIP or the 42 million 
uninsured Americans who are unable to see these well-to-do 
physicians who are going to complain to us this morning about 
how tough it is to make $175,000 to $600,000 or $700,000 a 
year. The same is true of the hospitals. They have had the 
highest margins, some as high as 45 percent, on their Medicare 
payments, and they are going to be in here whining about it is 
so difficult to run a hospital. Boy, if you could run the 
dotcom businesses with a 45-percent margin today, the stock 
market would be doing a whole lot better.
    We have, because of these regulations, I would like to 
point out, significantly lowered the improper payment rate. 
That is not necessarily all illegal activity. That may be 
mostly mistakes. But the improper payment level has dropped to 
6.8 percent from 14 percent 5 years ago. That is a $12-billion 
saving since 1996. Madam Chair, that these tough regulations 
have saved the taxpayer. That is a lot of money.
    Finally, I would suggest that I have heard from some 
physicians that they are being harassed by HCFA. I suppose that 
could be a good rap song, but there were fewer than 100 
physicians arrested for Medicare fraud last year; just 12 were 
convicted. That is out of about 600,000 physicians in our 
country. My math shows me that that is 0.02 of a percent. Now, 
I happen to be familiar with the one Member of Congress that I 
know is under active criminal investigation. That is 0.23 of a 
percent for our group. So I am saying, Docs, that you are doing 
a lot better than Congress in terms of those of you who are 
subject to arrest for fraudulent behavior, and I would count 
your blessings. When there are as many doctors in jail as a 
percentage as there are Members of Congress, or former Members, 
then you might have a reason to complain.
    So I think that we do have to look to our own Committee and 
our own actions to see how we can continually improve and 
upgrade Medicare, which is the finest, most efficient bill-
paying system in the country today. And I thank you very much 
for beginning these hearings, and I hope it will lead to some 
serious legislation that will help make our system of Medicare 
and Medicare reimbursement to the providers continue to be the 
most efficient, lowest overhead system in the United States.
    Thank you, Madam Chair.
    [The opening statements of Mr. Stark and Mr. Ramstad 
follow:]

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

    As we begin deliberations on possible reforms to the Health Care 
Financing Administration (HCFA) and its regulatory process, it's 
important to provide HCFA with the resources and flexibility needed to 
fulfill its responsibilities. There seems to be broad agreement among 
experts and stakeholders that HCFA's resources need to be dramatically 
increased. I hope we will hear from Gail Wilensky with respect to that 
concern later this morning.
    I am also pleased that Secretary Thompson agrees with this notion 
and has said so in numerous public settings. We should not wait to 
increase HCFA's administrative budget and staffing opportunities until 
there is consensus on whether or how to restructure HCFA or reform 
Medicare. With the budget season upon us, there should be a coordinated 
effort for a significant increase this year.
    During the last five years, Congress has significantly increased 
HCFA's responsibilities, without adding the commensurate, necessary 
resources to accomplish the work.
    In 1996, the Congress enacted the Health Insurance Portability and 
Accountability Act (HIPAA), the Mothers and Newborns Protection Act and 
mental health parity legislation; in 1997, the Congress enacted the BBA 
of 1997; in 1999, the Congress enacted BBRA; and in 2000, the Congress 
enacted BIPA. These laws added hundreds of new provisions for HCFA to 
implement. Yet Congress increased HCFA's administrative budget by only 
2.6 percent since 1997; if you subtract out the earmarks for research 
projects, the increase was only 1.6 percent.
    That leads directly into the point that it is also important to 
remember that the Medicare regulations and policy guidance issued by 
HCFA implement the laws that the Congress enacts, and the relative 
complexity and A burden of Medicare regulations reflect those laws.
    In promulgating regulations, HCFA has only the regulatory authority 
that it is given by the Congress; it has no other independent 
regulatory authority. As we examine these issues today, we should also 
examine the complexity and burden of the Medicare statute.
    There are steps we can take to improve HCFA's ability to fulfill 
its responsibilities under the law, while easing legitimate concerns 
about regulatory burden. But it is critically important that we do not 
do so in a vacuum. Regulations and other guidance materials are needed 
to protect beneficiaries from abuse and to assure the financial 
integrity of the Medicare and Medicaid programs.
    The Department of Health and Human Services (HHS) has very recently 
reported that improper Medicare payments to doctors, hospitals and 
other health care providers declined in fiscal year (FY) 2000 to an 
estimated level of 6.8 percent. This level compares favorably with an 
error rate of approximately 8 percent in FY 1999, and is roughly half 
of the original FY 1996 rate of approximately 14 percent.
    This continued decline in the Medicare payment error rate 
demonstrates the success of HCFA's efforts to reduce billing errors in 
Medicare over the past five years. According to the Inspector General, 
the significant, sustained improvement reflects HCFA's improved 
oversight, its efforts to clarify Medicare payment policies, and its 
insistence that doctors and health care providers fully document the 
services that they provide. Other factors have been new initiatives and 
resources to prevent, detect and eliminate errors and fraud in 
Medicare.
    Many criticized HCFA when the payment error rate was 14 percent and 
demanded that HCFA reduce it. Now many criticize HCFA for the actions 
it has taken to reduce payment errors and for insisting that providers 
file claims accurately. It is my understanding that fewer than 100 
physicians were arrested for Medicare fraud last year B and only 12 
were convicted. That is out of more than 600,000 physicians across the 
country. I say that we should praise HCFA for its efforts to reduce 
Medicare payment errors, and we should ensure that HCFA does not 
diminish its efforts to reduce those errors still further.
    Finally, while I know today's hearing is not specifically focused 
on HR 868, the Medicare Education and Regulatory Fairness Act, many of 
the providers testifying before us have endorsed that legislation. 
While I agree that there are some legitimate issues relating to 
provider regulation that need to be addressed, the over-reach of MERFA 
as introduced undermines the credibility of its champions. And could 
easily return us to the days of 14% overpayment rates.
    Attached is a much more detailed list of broad ideas and principles 
for consideration in the debate on HCFA reform. I look forward to 
hearing from our panelists this morning.

1. First, do no harm
    Along with Social Security, Medicare is the most effective and 
popular government program in existence today. It provides health and 
financial security for nearly 40 million persons with disabilities and 
senior citizens that was not available prior to its enactment.
    Every major poll reaffirms the popularity of Medicare among seniors 
and their families. HCFA announced December 22nd that for the second 
year in a row, Medicare beneficiaries had rated the agency A excellent 
in the way it provides information, the usefulness of that information, 
and the courtesy and professionalism of its staff.
    In 2000, HCFA went up three points from last year's score of 74 out 
of 100 on the American Customer Satisfaction Index (above the average 
Federal score of 68.6).
    In addition, surveys show that Medicare is more popular among 
providers, including physicians, than private insurance or Medicaid.
    While improvements are needed in HCFA's management of Medicare, 
Congress should proceed with caution and with the acknowledgment that 
we are examining ways to improve a program that already does well 
according to many objective measures and has strong public support.

2. Increase HCFA resources B and give priority to information 
        technology (IT) modernization
    We cannot discuss the problems associated with Medicare regulations 
and guidance without discussing the lack of resources given to HCFA to 
carry out its regulatory responsibilities, and to educate affected 
parties about the rules of the game.
    In the January/February, 1999 issue of Health Affairs, 14 of our 
nation's leading Medicare policy analysts--ranging from conservative to 
liberal--published an open letter titled, ``A Crisis Facing HCFA & 
Millions of Americans,'' regarding the lack of resources allocated to 
administer Medicare. The Medicare Payment Advisory Commission (MedPAC) 
agreed with that letter, and published it in their March 1999 Report to 
Congress.
    In MedPAC's March 2001 Report to Congress, MedPAC makes the 
following points that are particularly relevent to this discussion:
          A HCFA cannot do everything at once. The BBA required many 
        changes in Medicare's payment policies within a very short 
        period. . . . HCFA lacked the staff resources and time to fully 
        prepare new payment systems and make necessary changes in its 
        administrative systems.
          As a result of Congressional time deadlines, some tasks, such 
        as delivery of critical coding, patient assessment, and billing 
        software to HCFA's billing agents and providers for pre-
        testing, and the development and dissemination of edit 
        standards--were often delayed until new payment systems were 
        about to go into effect. . . . leaving providers little time to 
        prepare.
          A second lesson is that you get what you pay for. Many of the 
        data limitations that cause problems in establishing accurate 
        payments for some settings are due, at least in part, to 
        chronic under funding of HCFA's administrative budget. 
        Activities that help to improve the accuracy and reliability of 
        providers' reported data--such as auditing cost reports or 
        developing and disseminating coding instructions--have received 
        inadequate support for many years. HCFA's administrative 
        expenses generally have accounted for less than 2 percent of 
        total outlays in recent years, well below the comparable 
        proportion of private insurers' expenses for similar 
        activities. The lack of adequate monitoring tools and data is a 
        major problem. This problem will be difficult and costly to 
        remedy. Consequently, additional resources will be needed.
    While critics of HCFA may complain about HCFA's performance, MedPAC 
and other independent experts have pointed out that they have been 
tasked with the impossible under the circumstances.

Information technology (IT) systems
    We need to undertake a ``Manhattan Project'' in Medicare 
information technology (IT) to improve quality, fight fraud, and slash 
paperwork costs.
    As we all know, HCFA's IT systems are obsolete. HCFA has tried for 
more than a decade to develop new IT systems, and we still haven't 
achieved that goal.
    Without modern information systems, HCFA cannot effectively and 
efficiently administer the Medicare program--regardless of 
administrative structure or process. We cannot pay bills efficiently, 
we cannot limit paperwork hassles, we cannot monitor and assure 
coordination of services and quality, and we cannot identify fraud and 
abuse.
    Equipment alone won't solve the problem. Information technology 
experts are needed, too. Problems attracting and retaining good 
personnel to work on IT issues are not limited to HCFA. Agencies and 
departments throughout the entire Federal government are having 
difficulty hiring and keeping IT staff. Good computer personnel can 
make many times more in the private sector than we can pay in the 
Federal government. While we may never be able to pay enough to attract 
and retain good computer professionals, we clearly need to do better 
than we are doing now.
    Medicare is not alone in facing these challenges. The entire health 
sector needs to make major advances in this area. In general, American 
business spends about 7.1% of its gross company revenue per year on IT 
improvement.\1\ The health care sector spends about 3.2%, yet IT 
improvements are the key to error reduction, quality improvement, and 
paperwork savings.
---------------------------------------------------------------------------
    \1\ From Dr. Howard A. Rubin's A Industry Watch, 1998.
---------------------------------------------------------------------------
    HCFA provides FREE software to physicians via the Internet to 
enable electronic claims filing. In addition, Medicare carriers help 
teach physicians how to file their claims electronically. It costs 
Medicare an extra dollar to process each paper claim that is filed. 
It's not too much to make electronic filing the default for all 
providers, while allowing those who may to file paper claims to do so 
for a fee consisting of the extra dollar that it costs to process that 
claim.
    I have asked GAO to review current HCFA activities to develop new 
IT systems for Medicare, and to make recommendations on how to proceed 
in terms of hardware, software, and staffing. I expect the report later 
this Spring.

Direct Appropriations
    We should consider funding HCFA's administrative budget through a 
direct appropriation. Currently, HCFA staffing and administration must 
be approved through the appropriations process, where HCFA resources 
must compete for scarce resources with NIH, education, and other 
Congressional and Administration priorities.
    However, for many years, Peer Review Organizations (PROs) have been 
funded through a ``direct appropriations'' process, in which the 
Secretary of HHS (with OMB approval) simply transfers funds from the 
Medicare Trust Funds to fund the activities of the PROs.
    We should consider this approach for all Medicare management 
functions and needs, and not just the PROs. All funds for Medicare 
management already are appropriated from the Trust Funds, so the only 
change would be to shift the oversight of funding from the 
Appropriations Committees to the authorizing committees.

3. Regulations Process
    When Medicare began in 1965, Congress wrote:
    ``No rule, requirement, or other statement of policy (other than a 
national coverage determination) that establishes or changes a 
substantive legal standard governing the scope of benefits, the payment 
for services, or the eligibility of individuals, entities, or 
organizations to furnish or receive services or benefits under this 
title shall take effect unless it is promulgated by the Secretary by 
regulation under paragraph (1).'' (Section 1871(a)(2))
    The statute requires HCFA to make policy changes through the 
regulatory process, which provides for public involvement. However, 
HCFA for years has made policy changes and issued guidance through 
``manual instructions''. Manual instructions are not subject to a 
public comment process, which has frustrated some providers. In 
addition, because manual instructions can be issued more easily than 
regulations, providers feel that HCFA is overwhelming them with new 
policies.
    Too many directives have been issued that have had to be corrected 
and re-issued, and I am sympathetic to rational efforts to improve 
coordination of the various components of policy guidance.

4. National v. Regional Policies
    Throughout the history of Medicare, we have relied on contractors 
to establish many Medicare policies B including Medicare coverage 
policies.
    In addition, the 10 HCFA regional offices establish separate 
policies on many issues, and often offer differing interpretation of 
national policies.
    Although that approach worked well for many years, we should 
consider a move toward more national policies in Medicare, and minimize 
B as appropriate-- regional variations in policies.
    Clearly, we need fewer contractors processing claims, and we need 
to separate contractor activities along functional lines (e.g., bill 
paying, anti-fraud, quality, appeals, and beneficiary services) rather 
than geographic lines. In addition, we should continue to move toward 
specialized contractors for specific services, such as the four DME 
carriers and the five home health intermediaries.
    The Congress needs to reform Medicare contracting rules, as 
supported by many experts and repeatedly proposed by previous 
Administrations, including the previous Bush Administration. This 
Committee should pass that legislation.

5. Information and Education
    We need to do more to help beneficiaries and providers understand 
the rules and options under Medicare.
    We must find a way to simplify and consolidate the information 
being provided to physicians and other providers, and to provide 
adequate funding for these activities.
    Funding and operating the recently reinstated toll-free telephone 
service for providers and physicians is but one step that we can take 
to help increase HCFA's communication efforts.

6. Reduce Complexity of Medicare Laws
    In large measure, regulatory burden is a direct result of 
legislative complexity. Frequently when Members of Congress criticize 
HCFA, they are really criticizing laws that Congress has passed and, in 
some case, that they have voted for.
    As MedPAC has pointed out, the Congress should give HCFA more lead 
time to implement changes, and should listen to technical experts about 
the feasibility of legislated changes. For example, in the BBRA 1999, 
the Congress added legislation creating the hospital outpatient 
department pass through provision for medical technology, which greatly 
added to the complexity of the Medicare payment system. In BIPA 2000, 
the Congress added a new-technology DRG, making the inpatient hospital 
PPS more complex.
    Too often, Congress legislates failure; yet, when the agency is 
unable to fulfill an impossible demand on deadline, Members accuse the 
agency of incompetence.

7. Payment Errors/CFO Audit
    Just last week Department of Health and Human Services (HHS) 
reported that improper Medicare payments to doctors, hospitals and 
other health care providers declined in fiscal year (FY) 2000 to an 
estimated level of 6.8 percent. This level compares favorably with an 
error rate of approximately 8 percent in FY 1999, and is roughly half 
of the original FY 1996 rate of approximately 14 percent.
    The FY 2000 payment error rate represents improper payments of 
$11.9 billion out of total payments of $173.6 billion in the 
traditional fee-for-service Medicare program.
    This continued decline in the Medicare payment error rate 
demonstrates the success of HCFA's efforts to reduce billing errors in 
Medicare over the past five years. According to the Inspector General, 
the significant, sustained improvement reflects HCFA's improved 
oversight, its efforts to clarify Medicare payment policies, and its 
insistence that doctors and health care providers fully document the 
services that they provide. Other factors have been new initiatives and 
resources to prevent, detect and eliminate errors and fraud in 
Medicare.
    Many criticized HCFA when the payment error rate was 14 percent and 
demanded that HCFA reduce it. Now many criticize HCFA for the actions 
it has taken to reduce payment errors and for insisting that providers 
file claims accurately. I say that we should praise HCFA for its 
efforts to reduce Medicare payment errors, and we should ensure that 
HCFA does not diminish its efforts to reduce those errors still 
further.
    To achieve further reductions in Medicare payment errors, we must 
reduce the complexity of Medicare payment rules and improve provider 
education, but we must also continue to insist on the filing of 
accurate claims. HCFA should have additional resources to help 
providers file their claims properly and to monitor claims for 
accuracy.

8. Simplifications for Beneficiaries
    We need to look for simplifications not only for providers, but 
also for beneficiaries. As a result of the BBA, HCFA recently 
established the toll-free number, 1-800-MEDICARE, that has been a great 
success by all accounts. HCFA should consider expanding it to become a 
single entry point to Medicare for beneficiaries. For example, the 
latest national Medicare handbook includes 14 pages of telephone 
numbers for beneficiaries to call with specific questions. It seems 
reasonable to allow beneficiaries to call one number for triage to the 
appropriate person or department.
    In addition, HCFA should establish or support caseworkers to help 
beneficiaries with their Medicare problems. In the past, HCFA has 
relied on the contractors, but many of the problems are with the 
contractors themselves. HCFA now relies on State Health Insurance 
Counseling and Assistance Programs (HICAP) organizations to help 
beneficiaries. While I am a strong supporter of these organizations, 
they are underfunded, staffed by volunteers and cannot accommodate the 
demand for assistance. It is absurd for a huge public program the size 
of Medicare to rely on volunteers to be the main source of assistance 
for its beneficiaries.
    We need only to look to Social Security to learn other ways to help 
beneficiaries--for example, Social Security has regional teleservice 
centers to staff their national toll-free line and help beneficiaries 
with their questions. SSA also has Program Service Centers to perform 
casework for Social Security beneficiaries with specific problems. We 
need a similar effort for Medicare beneficiaries.
    Currently, Medicare casework is handled by Congressional offices, 
since no casework office exists in Medicare. We should consider whether 
to station Medicare staff in Social Security field offices to help 
answer Medicare questions.

                                


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

    Madam Chairwoman, thank you for calling this important hearing on 
regulatory reform within the Medicare system.
    In my meetings with health care providers in Minnesota, I hear 
every time about the crushing paperwork burden imposed on providers by 
HCFA. Why should duplicative documents and redundant forms be necessary 
to treat patients and obtain reimbursements?
    Too many providers are spending too much time struggling with 
paperwork rather than treating patients. In my view, it is time to 
introduce a little common sense into the HCFA bureaucracy. Clearly, 
130,000 pages of rules and regulations are excessive and must be 
streamlined.
    Too often, providers are considered guilty until proven innocent 
and it seems that HCFA is more interested in enforcing arcane 
regulations than in patient care.
    Our health care dollars should be spent on care not so heavily on 
administration. A hospital or doctor's office should spend their scarce 
resources on patients not on excessive paperwork.
    I also believe that this unreasonable regulatory burden is delaying 
and even denying new technologies to seniors. This is simply 
unacceptable.
    I certainly believe it is a necessary to have a reasonable level of 
documentation to prevent fraud and improve patient care. However, I 
believe it is time for HCFA to start focusing on working with the 
health care industry in a collaborative way, rather than working 
against honest providers in an adversarial way.
    Of course, this requires a careful balancing act and I hope today's 
hearing will begin to shed light on this subject.
    Thanks again, Madam Chairwoman for calling this important hearing. 
I look forward to today's testimony.

                                


    Chairwoman Johnson. Thank you.
    I would like to call the first panel forward: Dr. Richard 
Corlin of the American Medical Association; Gary Mecklenburg, 
Northwestern Memorial Healthcare from Chicago for the American 
Hospital Association; Mary Ousley, the senior vice president of 
health services for the Marriot Senior Living Services for the 
American Health Care Association; and Susan Wilson, from my own 
hometown in New Britain, a person I have worked with many years 
on home care issues and I am particularly pleased to welcome 
here today for the National Association of Home Care.
    Let me just say as you start that I do wholeheartedly agree 
with Mr. Stark that this is an important time for us to try to 
do our work fairly. We do seem to have the backing of the 
administration in looking at both resources and legal authority 
for HCFA, and I think we do need to do some serious work in 
that area.
    Dr. Corlin, let me just remind you that because we have two 
long panels, you do have 5 minutes each, and then the lights 
will go on, as you can see there, and then we will have time 
for questioning.
    Dr. Corlin.

STATEMENT OF RICHARD F. CORLIN, M.D., PRESIDENT-ELECT, AMERICAN 
                      MEDICAL ASSOCIATION

    Dr. Corlin. Thank you. Good morning, Madam Chairman and 
Members of the Subcommittee. My name is Richard F. Corlin, M.D. 
I am president-elect of the American Medical Association, and I 
am a practicing gastroenterologist from Santa Monica, 
California. On behalf of the AMA, I would like to thank you, 
Madam Chairman, for your commitment to making Medicare more 
effective and less bureaucratic. Physicians want to spend time 
on what matters--patient care--and not on paperwork.
    We welcome the opportunity to work with the Subcommittee on 
regulatory relief, the need to modernize the Medicare Program, 
and to create a prescription drug benefit. The AMA recognizes 
that one of HCFA's most important functions is to maintain 
program integrity. We also recognize that post-payments audits, 
if they follow sincere education efforts, can ensure that 
improper payments do not occur.
    I want to emphasize that the AMA in no way condones the 
behavior of fraudulent providers. We support the government's 
effort to root out true causes of fraud from the system.
    At the same time, it is becoming increasingly difficult for 
physicians to comply with Medicare rules. We have reached a 
point where there are over 110,000 pages of Medicare rules, 
policies, and regulations. In a recent AMA survey, more than 
one-third of the responding physicians reported spending an 
hour completing Medicare forms and administrative requirements 
for every 4 hours of patient care.
    We have also reached the point where physicians are 
creating documentation in their patients' charts not for the 
patient's benefit, but simply to meet the Government's demands. 
Extraneous documentation in patients' charts can lead to 
unnecessarily delayed care for the critically ill.
    Tuesday night I was on call. I spent all except 2 hours of 
it in the hospital in Santa Monica, and the one patient who was 
in the intensive care unit, hemorrhaging from an ulcer, it took 
me 20 minutes longer to go through an unnecessarily long chart 
to figure out what was going on with that patient before I 
could get to the patient to take care of him.
    Medicare requirements are not only complex, but they are 
constantly changing so that even carrier employees are not 
aware of all the current Medicare standards. In the AMA survey, 
80 percent of physicians stated that carriers do not give them 
clear guidance on Medicare requirements with which they are 
expected to comply. Physicians who call their carriers face 
personnel who give incorrect answers, refuse to divulge what 
their names are, and refuse to send physicians written 
confirmation of the conversations so that they can be used as 
guidelines in that physician's practice.
    In my written statement, I have described in detail the 
situation physicians face when a carrier alleges they have 
received an overpayment by mistake, and I want to stress that 
these situations involve carrier allegations regarding 
unintentional billing errors, not fraud. When fraud is alleged, 
HCFA requires the carrier to refer these cases directly to the 
OIG, and we strongly support the continuation of this policy.
    To address these egregious situations, the AMA urges this 
Subcommittee to support the bipartisan Medicare Education and 
Regulatory Fairness Act (MERFA), which was recently introduced 
by Representatives Pat Toomey and Shelley Berkley and which 
currently has nearly 60 cosponsors. Under MERFA, HCFA 
contractors would educate physicians and providers on Medicare 
requirements so that fewer billing errors occur.
    On a separate note, we commend Representative Stark for his 
recognition of the need for this education in his recent 
comments before the National Academy of Social Insurance.
    MERFA would also provide physicians and providers with 
greatly needed due process rights in these post-payment audit 
situations and require HCFA to pilot test documentation 
guidelines to minimize the burden and focus on clinically 
relevant documentation before they are put into effect 
nationwide.
    Recently, a cardiologist reported that when he made 
hospital rounds, he found two nurses taking care of patients 
and six nurses checking documentation, and this simply does not 
serve patients well.
    We also heard from a critical care physician whose practice 
group staffs a local hospital on a 24-hour-a-day basis, and who 
was actually the advisor to the local carrier on coding issues. 
He is now going through a post-payment audit because the 
carrier has denied all of that physician's nighttime critical 
care billing charges. The idea that a patient may be critically 
ill during the day but not critically ill at night is an 
absurdity.
    MERFA provides incremental, modest reforms that should 
provide immediate relief to physicians and providers who are 
extremely frustrated with the Medicare program. These changes 
would help ensure that patients continue to have access to a 
wide range of physicians and providers in the Medicare Program, 
and we look forward to working with Congress and Secretary 
Thompson to reform Medicare so that it effectively continues to 
meet the needs of patients now and in the future.
    Thank you.
    [The prepared statement of Dr. Corlin follows:]

Statement of Richard F. Corlin, M.D., President-Elect, American Medical 
                              Association

RE: Patient Care, Not Paperwork--the Need for Medicare Regulatory 
Relief

    Good morning Chairwoman Johnson and members of the Subcommittee, my 
name is Richard F. Corlin, M.D., and I am President-Elect of the 
American Medical Association (AMA). I am a practicing 
gastroenterologist from Santa Monica, California. On behalf of the AMA, 
I would like to thank you for holding this hearing regarding regulatory 
reform for physicians and providers. This issue is a top priority for 
America's physicians, who want to spend time on what matters--patient 
care--rather than paperwork.
    We very much appreciate the new Administration's recognition, 
during Secretary Thompson's confirmation hearings and in the 
President's Budget Blueprint, that the growing complexity of the 
Medicare program's rules and policies is driving physicians from the 
program. We were gratified that one of the President's first steps was 
to place a 60-day stay on the numerous Department of Health and Human 
Services (HHS) regulations impacting physicians that were issued in the 
final weeks of the last Administration, pending a new review.
    The AMA recognizes that one of the most important functions of the 
Health Care Financing Administration is to maintain program integrity, 
and that post-payment audits, if they follow sincere education efforts, 
can be a valid way of ensuring that improper payments do not occur. In 
addition, the AMA wants to emphasize that it in no way supports or 
condones the behavior of fraudulent providers. We support Medicare's 
efforts to root true fraud out of the system.
    At the same time, we have several concerns regarding some the most 
recently-issued regulations, as well as more longstanding regulatory 
burdens, which we have shared with the new Administration, and which we 
would like to share with the Subcommittee.
    For example, we have reached the point where there are now over 
110,000 pages of Medicare rules, policies, and regulations. In a recent 
AMA survey, more than one-third of the 653 responding physicians report 
spending one hour completing Medicare forms and meeting administrative 
requirements for every 1-4 hours of patient care.
    We have also reached the point where physicians are creating 
documentation in their patients' charts often not for the benefit of 
the patient's care, but purely to meet the government's demands. These 
regulatory requirements have resulted in voluminous charts filled with 
layers and layers of extraneous information. All this additional 
documentation in patients' charts can actually result in unnecessarily 
delayed care for the critically ill while physicians are attempting to 
access the truly relevant information.

Regulatory Overload Has Resulted in Allegations of Overpayments
    Due to the overly complex nature of Medicare documentation 
requirements, physicians are often not entirely certain if they are 
submitting the correct information to their carriers. Medicare 
requirements are constantly changing, so that even carrier employees 
are not aware of all the current Medicare requirements. Physicians who 
try to contact their carriers are faced with carrier personnel who give 
incorrect answers, refuse to divulge their true names, and refuse to 
send physicians written confirmation of their conversations upon which 
they can rely. In the AMA survey, ``80% of physicians believe that 
carriers do not give them clear guidance as to the Medicare rules and 
requirements (with which) they are expected to comply . . .'' 
Physicians with rural practices are 7% more likely than non-rural 
practices to experience this lack of communication from the carrier.
    As a result, carriers and physicians understandably can disagree 
over the correct coding, documentation, and billing requirements. At 
this point of disagreement, physicians have found that under the 
current system, they receive no education from the carrier and that 
they have very few rights to contest these overpayment accusations.
    Madam Chairman, I would like to give the Subcommittee an example of 
what physicians are faced with when a carrier alleges that a physician 
has received an overpayment by mistake. As background, I must stress 
that such situations involve carrier allegations regarding 
unintentional billing errors--not fraud. When fraud is alleged, the 
Health Care Financing Administration (HCFA) requires the carriers to 
refer these cases directly to the Office of the Inspector General.
    (1) The carrier identifies a suspected billing error involving 
significant payment amounts. Without making an effort to educate Dr. 
Smith or other physicians about the problem, the carrier sends Dr. 
Smith a request for records and documentation surrounding 20-40 claims 
the carrier has selected. Dr. Smith sends the requested documents to 
the carrier for review within the very short deadline provided by the 
carrier.
    (2) The carrier generally sends another letter (a consent 
settlement letter) to Dr. Smith approximately one year later. 
Frequently, this letter will allege an ``actual overpayment amount'' 
which the carrier uses to ``extrapolate'' \1\ to arrive at a larger 
``projected overpayment amount.'' As an example, a carrier could allege 
an ``actual overpayment'' of $10,000 and then could extrapolate this 
amount to a $150,000 (or even more) ``projected overpayment.''
---------------------------------------------------------------------------
    \1\ ``Extrapolation'' refers to the carrier/fiscal intermediary 
practice of using alleged overpayments amounts to assume that all 
similarly coded claims during the same time period were incorrectly 
submitted. It is analogous to the IRS assuming that a taxpayer has made 
the same mistake on all of her past tax returns.
---------------------------------------------------------------------------
    (3) Once the carrier presents Dr. Smith with the consent settlement 
letter, Dr. Smith has up to 60 days to choose one of three options:

Option One:
    admit liability, waive appeal rights and pay the $150,000;

Option Two:
    admit liability, waive appeal rights and submit additional 
information to ask the carrier to reduce the $150,000 to a lower 
projected overpayment; or

Option Three:
    not admit liability and open up his/her practice to a statistically 
valid random sample (SVRS) in order to maintain his/her appeal rights.
    To address these egregious situations, the AMA urges this 
Subcommittee to support the bipartisan Medicare Education and 
Regulatory Fairness Act of 2001 (MERFA) (H.R. 868), which was recently 
introduced by Representatives Patrick Toomey (R-PA) and Shelley Berkley 
(D-NV), and which currently has over 50 cosponsors. This bill would 
require HCFA contractors to educate physicians and providers as to 
coding, documentation and billing requirements, so that fewer billing 
errors ultimately occur. Passage of this legislation, independent of 
any HCFA reform efforts, would send a clear message to HCFA and its 
contractors that Congress wants them to focus on educating physicians 
and providers about how to bill correctly rather than to conduct heavy-
handed audits of already-submitted claims. Such an approach would be a 
paradigm shift for Medicare contractors, whose focus has been punitive 
rather than preventive.
    MERFA would also provide physicians and providers \2\ with greatly-
needed due process rights in these post-payment audit situations. MERFA 
would also address problems with HCFA's documentation requirements. 
Under MERFA, HCFA would be required to undertake four pilot projects to 
test documentation guidelines prior to any new guidelines being put 
into effect. A Section-by-Section Summary of the legislation is 
attached to my written statement.
---------------------------------------------------------------------------
    \2\ ``Providers'' is defined as hospital, critical access hospital, 
skilled nursing facility, comprehensive outpatient rehabilitation 
facility, home health agency, or hospice program. (Section 1861(u) of 
the Social Security Act). Ambulance Service Providers are also covered 
by the MERFA provisions.
---------------------------------------------------------------------------
    At a press conference held last week by the sponsors of MERFA, we 
heard the following disturbing accounts of how medical care has been 
adversely affected by this type of regulatory overload:
           A cardiologist recounted how when he made rounds on 
        one of the hospital floors, two nurses were taking care of 
        patients, and the other six nurses were checking documentation 
        to make sure that it complied with regulations.
           The same cardiologist had been though prepayment 
        review (when payment is withheld pending review) for 793 
        claims. These claims were worth $50,000. The costs to the 
        practice of processing and producing documentation and 
        reprocessing was $44,000. The eight denied claims (for which 
        services were provided, but for which the physician and his 
        staff concluded that documentation did not exist) were 
        ultimately worth $356.
           A critical care physician whose practice staffs a 
        local hospital 24 hours a day, and who actually advises the 
        carrier on coding issues, is now going through a post-payment 
        audit. In years past, the carrier has cited this physician as 
        providing laudable care; however, the carrier has denied the 
        physician's nighttime critical care claims. Since his practice 
        staffs the hospital 24 hours a day/7days a week, it is absurd 
        to suggest that patients do not require care in the middle of 
        the night. In fact, this 24/7 staffing resulted in the practice 
        being singled out as substantially reducing the mortality rates 
        in this hospital.
           In his audit, 29 records were originally requested. 
        His alleged overpayment was extrapolated from approximately 
        $7,000 to $340,000. To maintain his appeal rights, the 
        physician agreed to an SVRS, which reduced the overpayment 
        projection to $220,000, which the carrier gave his practice 30 
        days to pay. This demand for payment would have put this 
        critical care practice out of business, and would have denied 
        hospital patients access to this type of intensive care, well 
        before this physician had exercised his appeal rights. The OIG 
        recently released a report stating that HCFA had been 
        incorrectly denying payments to critical care physicians. Even 
        so, this physician was still faced with this audit and an 
        alleged overpayment demand that would have shut down his 
        practice.
    We hope to work with members of this Subcommittee during the coming 
months to advance MERFA through the House. These are incremental, 
modest reforms that should provide immediate relief to physicians and 
providers who are extremely frustrated with the Medicare program. These 
changes would help ensure that patients continue to have access to a 
wide range of physicians and providers in the Medicare program in the 
future.
    The following are other substantial AMA regulatory concerns upon 
which we urge the Subcommittee to take action:

Office of Civil Rights Policy Guidance on Persons with Limited English 
        Proficiency
    The AMA strongly disagrees with the ``policy guidance'' issued last 
August by the previous Administration that would require physician 
practices treating Medicaid patients and other public program 
beneficiaries to incur, at their own expense, the cost of hiring 
trained clinical interpreters to assist the physician's patients who 
have limited English proficiency.
    The cost of retaining an interpreter vastly exceeds the Medicaid 
payment for an office visit. As an example, one physician reported 
recently that he had to pay $237 to hire an interpreter for a non-
English speaking patient, while his Medicaid reimbursement for the 
visit amounted to $38. Such a policy, which also prohibits using the 
services of family members (who are often most familiar with the 
patient's history), is an unfunded mandate which is likely to 
discourage physicians from treating Medicaid patients. It will have the 
opposite results of its intention by exacerbating problems with patient 
access to needed physician services. There are other more appropriate 
ways to deal with this issue which include, but are not limited to: 
demonstration projects with community and faith-based organizations, 
allowing family members to serve in this capacity, and providing full 
federal reimbursement for these translator services.
    This is an instance where HHS has issued a new directive without 
any physician or provider input. This new requirement will have 
substantial negative consequences on the population it was intended to 
aid. The AMA recognizes that valid and important issues exist regarding 
patients with limited English proficiency, but we have called upon the 
new Administration to withdraw this ill-conceived initiative and to 
work with the physician and provider communities to fashion a desired 
workable solution.

Pending Regulations Expanding the Scope of the Emergency Medical 
        Treatment and Labor Act (EMTALA)
    HCFA has been attempting to expand the scope of EMTALA to reach 
well beyond hospital emergency departments to encompass non-emergency 
inpatient facilities and hospital outpatient department care. This 
expansion will result in extremely serious implications for hospital-
owned physician practices and outpatient facilities, which may have to 
maintain emergency personnel on site as a result of these guidelines 
and impending regulations. There are many additional issues surrounding 
follow-up care and transfer requirements that may also be addressed by 
these new guidelines.
    Congress expressed serious concerns last year regarding the 
direction and impact of EMTALA on the physician and provider community. 
In fact, in the Beneficiary Improvement and Protection Act, Congress 
required the General Accounting Office (GAO) to conduct an important 
assessment of EMTALA by May of 2001. The Office of the Inspector 
General (OIG) also recently published a report on EMTALA which urged 
the HHS to create a multidisciplinary group of public and private 
sector representatives to address issues associated with EMTALA. This 
type of communication between the agency and physicians and providers 
is essential prior to the Agency moving forward with the promulgation 
of new regulations. We urge the Subcommittee to evaluate carefully 
HCFA's efforts in this regard and the attendant, disproportionate 
burdens being placed on the country's physicians and providers.

HHS Rules on Administrative Simplification Provisions of the Health 
        Insurance Portability and Accountability Act (HIPAA)
    The AMA strongly supports the principles of standardization 
embedded in the HIPAA Administrative Simplification provisions. 
However, we have urged the Administration to create a uniform 
compliance date of two years after the last Administrative 
Simplification rule is published (with exception for the individual 
identifier rule, which may be significantly delayed).
    These HIPAA provisions are intended to address the multitude of 
conflicting rules and requirements imposed by public and private payers 
which result in physicians spending more time on the administrative 
requirements of their practices and allowing them less time for patient 
care. Initially, the volumes of regulations that comprise these HIPAA 
provisions will entail significant financial and staff expenditures. To 
minimize this burden and to realize the goals of administrative 
simplification, an orderly implementation process will be needed. 
Physicians need to know which aspects of their administrative practices 
need to be modified, as well as how and in what manner this should 
occur. Adjusting to moving targets with rolling deadlines is neither 
cost effective nor efficient for small physician practices.

HCFA Final Rule on Hospital Conditions of Participation for Anesthesia 
        Services
    HCFA issued a Final Rule late last year that would eliminate 
physician supervision of nurse anesthetists from the Medicare/Medicaid 
Conditions of Participation for hospitals and ambulatory surgical 
centers. The AMA strongly supports the position of the American Society 
of Anesthesiologists and the Anesthesia Patient Safety Foundation that 
revision of the current physician supervision requirement should be 
considered only after the development and review of current scientific 
outcomes data. We are deeply troubled by the position of the Department 
that the elimination of physician supervision can be presumed to be 
safe--without scientific proof--especially in light of the overall 
improvement of anesthesia safety over the past several years during 
which physician supervision has been required. We believe that Medicare 
and Medicaid beneficiaries deserve better than a mere presumption of 
safety that has no basis in the scientific literature.
    We appreciate the opportunity to testify before the Subcommittee, 
and we are heartened that the Subcommittee has held this hearing to 
examine the regulatory burdens on physicians and providers. We look 
forward to working with you to craft solutions to these issues, and we 
believe that MERFA would provide an effective solution to physicians' 
most immediate concerns.

    [The attachments are being retained in the Committee 
files.]

                                


    Chairwoman Johnson. Thank you very much, Dr. Corlin.
    Mr. Mecklenburg.

 STATEMENT OF GARY MECKLENBURG, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, NORTHWESTERN MEMORIAL HEALTHCARE, CHICAGO, ILLINOIS, 
           ON BEHALF OF AMERICAN HOSPITAL ASSOCIATION

    Mr. Mecklenburg. Madam Chairman, Members of the 
Subcommittee, my name is Gary Mecklenburg. I am CEO of 
Northwestern Memorial Hospital, a large teaching hospital in 
downtown Chicago. But I am here today as chairman of the board 
of the American Hospital Association, representing the AHA's 
nearly, 5,000 hospital and health system members. Thank you for 
the opportunity to testify.
    To be clear, the American Hospital Association does not 
believe that all regulations are bad. But we do think 
government regulations should do at least one of three things: 
improve the delivery of health care services to patients, 
enhance patient safety, or facilitate the timely and 
appropriate distribution of Federal funds to the health care 
system. Our experience, however, shows that regulations often 
do not achieve the desired effect. We are subject to 132,000 
pages of rules that govern the Medicare and Medicaid program. 
That is 3 times the size of the IRS Code and its Federal tax 
regulations.
    In addition to Medicare and Medicaid, we face rules from an 
alphabet soup of Federal agencies, from OSHA and the EPA, to 
the FDA, the FAA, and the IRS, just to name a few. We have a 
chart before you that helps show the more than 30 agencies 
hospitals must answer to.
    Complying with standards of this many agencies and so many 
regulatory tasks is no small task, especially in our small and 
rural hospitals. For example, I am told that Memorial Hospital 
in Gonzales, Texas, a 33-bed hospital, has 20 billing staff. At 
my hospital, I can tell you we spend more than 3,200 staff 
hours per month sorting through Medicare billing requirements 
alone. In total, we employ more than 100 full-time staff solely 
to ensure compliance with a variety of regulatory requirements, 
26 of whom have been added just this year. This includes new 
staff hired to work exclusively on the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) and new 
Medicare outpatient billing requirements.
    But the impact of excessive regulation goes far beyond 
finances. As you know, the health care system is facing a 
critical, long-term shortage of nurses and other patient care 
personnel. We also know that one of the significant factors 
driving staff away from hospitals and making health care a less 
attractive field for students is the diminished time for 
bedside care and increasing responsibility for paperwork and 
compliance. If we are going to meet the future needs of an 
aging population, we have to get a scarce number of caregivers 
back to what they were trained for and want to do, that is, 
patient care.
    Excess regulations also affect our patients and families 
who become frustrated and confused when we can't explain 
billing procedures or why they must answer the same question 
over and over again.
    To tackle these issues, the AHA Board of Trustees formed a 
30-member advisory committee. Allow me to share a few of our 
suggestions with you now.
    First, implementation of regulations should be better 
coordinated. Hospitals have had to implement too many 
regulations at the same time that have required wide-ranging 
impact on our operations. Therefore, we recommend enhancement 
of the duties of the Office of Information and Regulatory 
Management at OMB to allow for the more orderly release of 
regulations to ease these transitions.
    Second, hospitals must be able to challenge attempts by HHS 
to overstep their authority. Today, if hospitals wish to seek 
judicial review of a regulation, they must knowingly violate 
Medicare law and risk exclusion from the program. That is too 
high a price to pay. We are not looking to bring every 
disagreement to court, but when rulemaking procedures are not 
followed, hospitals deserve due process. Congress should enact 
legislation to provide hospitals and other providers with a 
specific opportunity to appeal decisions made by HHS on 
questionable Medicare policies.
    Third, MedPAC should be required to include hospitals' 
compliance costs when recommending payment rates. Complex 
regulations are an increasing hospital cost. An AHA-
commissioned study found that the cost of implementing HIPAA 
could cost as much as $22.5 billion over 5 years for just three 
of the rule's proposed provisions.
    Fourth, paperwork requirements should be streamlined. For 
example, patients must fill out the 25-question Medicare 
Secondary Payor questionnaire every time they come to the 
hospital. We recommend altering this standard to require 
completion of the MSP every 90 days for recurring services.
    Finally, Congress should enact the Regulatory Fair Warning 
Act, introduced by the 106th Congress. This bill would help 
stop the enforcement of ambiguous and conflicting regulatory 
pronouncements.
    Though most of the examples I have given today come from my 
hospital's experience, I believe I speak for hospitals across 
the country. We need to carefully examine the impact regulation 
is having on our organizations. We pledge to work to make the 
health care system better for patients, but need the assistance 
of the regulatory agencies and Congress to achieve this goal.
    Thank you again for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Mecklenburg follows:]

 Statement of Gary Mecklenburg, President and Chief Executive Officer, 
   Northwestern Memorial Healthcare, Chicago, Illinois, on behalf of 
                     American Hospital Association

    Madam Chairman, I am Gary Mecklenburg, president and CEO of 
Northwestern Memorial Healthcare in Chicago. I am here today on behalf 
of the American Hospital Association's (AHA) nearly 5,000 hospital, 
health system, network, and other health care provider members. We are 
pleased to have the opportunity to testify on the complexity and burden 
of Medicare's regulations on providers.
    Though Northwestern Memorial Hospital's history dates back to the 
mid-1860s, the Northwestern of today was created in 1972 when two 
leading Chicago hospitals, Wesley Memorial and Passavant Hospital, 
consolidated their services. Today, Northwestern Memorial is the 
primary teaching hospital for the Northwestern University Medical 
School and enjoys a national reputation as a strong, well-managed 
organization. The hospital is staffed by more than 5,000 caregivers, in 
addition to 1,200 physicians in 30 medical and surgical specialties, 
all dedicated to the organization's mission of putting ``Patients 
First.'' In 2000, Northwestern Memorial provided care for more than 
304,000 outpatients and admitted more than 35,000 patients. The 
hospital has a diverse patient population in its urban locale, serving 
patients with many ethnic and socioeconomic backgrounds.

MAZE OF REGULATIONS
    As a large urban hospital, Northwestern Memorial is well acquainted 
with the maze of regulations Medicare and Medicaid requires us to 
comply with on a daily basis. Government regulations should improve the 
delivery of health care services to patients, enhance safety, and 
facilitate the timely disbursement of federal funds in the health care 
system. However, regulations can also have the opposite effect. 
Regulations that miss the mark can force a wedge between patients and 
their caregivers. They divert limited resources to administrative 
paperwork and create a morass of complicated and duplicative 
requirements that confuse those they are supposed to guide.
    Allow me to share with you the regulatory maze that hospitals, 
health systems and other providers must navigate every day. In addition 
to Medicare and Medicaid, hospitals and health systems face laws, 
regulations and guidance from the Occupational Safety and Health 
Administration (OSHA), the Environmental Protection Agency (EPA), the 
Food and Drug Administration (FDA), the Federal Aviation 
Administration, Federal Communications Commission, the Internal Revenue 
Service (IRS), and other regulatory agencies. The attached chart 
depicts the web of regulators to whom hospitals must answer. There are 
at least 30 entities issuing some type of rules, regulations or 
instructions to hospitals.
    The Mayo Foundation estimates that we are subject to 132,720 pages 
of rules that govern the Medicare and Medicaid programs--that's three 
times the size of the IRS Code and its federal tax regulations. Besides 
federal regulations, hospitals must comply with state and local 
regulations, which can be complex and costly. For example, hospitals in 
California are required to meet sweeping seismic safety regulations 
that require hospitals at risk for collapse during an earthquake to be 
retrofitted, rebuilt or closed by 2008. These requirements are 
estimated to cost $24 billion.
    Complying with this many pages of regulation is clearly no small 
task. In fact, some rural hospitals have almost as many billing clerks 
as they do beds. In Gonzales, Texas, Memorial Hospital has 33 beds and 
a billing staff of 20 employees. At Northwestern Memorial, our patient 
financial services department spends more than 3,200 staff hours per 
month, or 38,400 staff hours per year sorting through Medicare billing 
requirements alone. This year, Northwestern Memorial Hospital is adding 
26 new FTEs solely to ensure compliance with regulations. This includes 
new staff hired to work exclusively on the Health Insurance Portability 
and Accountability Act (HIPAA) and our staff devoted to Quality 
Strategies and Management. Our estimated costs for these activities 
thus far, excluding space and support expenses, is nearly $5 million 
annually.
    Hospitals are drowning in this sea of government rules and 
regulations. Lost is a sense of fairness, due process and common sense. 
And the real victims are patients, because regulatory burdens are 
impeding the efficient delivery of health care. Hospitals are forced to 
direct more and more resources to paperwork--resources that could be 
better used on direct patient care. It is time to make the regulatory 
process make sense.
    We are not the only ones who feel this way. Health and Human 
Services (HHS) Secretary Thompson echoes our concerns. In his 
confirmation hearings, he expressed strong views about Medicare's 
regulatory overload. ``Patients and providers alike are fed up with 
excessive and complex paperwork . . . Complexity is overloading the 
system, criminalizing honest mistakes and driving doctors, nurses and 
other health professionals out of the program,'' he said. It is 
important to note that the regulatory burden is a contributing factor 
to the health care staff shortage the United States is experiencing--
nurses, doctors and technicians are leaving health care professions in 
pursuit of other opportunities.
    Earlier this year, the AHA Board of Trustees formed a 30-member 
Advisory Committee on Regulatory Reform and Relief to address the 
problems that hospitals face in trying to comply with federal rules and 
regulations. To date, the AHA has identified five areas for process 
reform, and four instances for refinement of current regulations. Allow 
me to share these suggestions with you now.

PROCESS REFORMS
    Improve coordination in the release of federal regulations. First, 
we urge the government to better coordinate the release of regulations. 
In 2000, hospitals received numerous complex regulations from the 
Health Care Financing Administration (HCFA), OSHA, HHS, EPA and FDA, 
several of which required sweeping changes to our information systems. 
For example, to implement prospective payment systems for Medicare 
skilled nursing care, home health care, outpatient care, and transfers 
of inpatients, hospitals have had to make significant changes to their 
patient data collection, coding and billing systems. This is in 
addition to other regulations hospitals are currently in the midst of 
implementing, such as uniform electronic transactions standards, 
privacy standards and prospective payment for rehabilitation services. 
Such extensive and frequent systems updates are especially troublesome 
for small and rural hospitals that have limited information systems 
staff.
    We believe that the implementation of regulations should be better 
coordinated in and amongst the various federal agencies. To that end, 
we recommend enhancement of the duties of the Office of Information and 
Regulatory Management at the Office of Management and Budget to allow 
for the orderly release of regulations so that providers' 
administrative and information systems are not overwhelmed.
    Allow providers their day in court. Hospitals must also be able to 
challenge in federal court any attempt by HHS to overstep its authority 
or to enforce questionable policy in the Medicare program without 
following established rulemaking procedures. Today, if hospitals wish 
to seek judicial review of a regulation, they must knowingly violate 
Medicare law and risk exclusion from the program. That's too high a 
price to pay for the opportunity to question rules that so 
fundamentally affect our operations. It's interesting to note that 
regulations promulgated by any other agency permit a challenge under 
the Administrative Procedures Act. Hospitals are not looking to bring 
every disagreement to court. However, the law requires that HHS issue a 
regulation and act within certain parameters. When these procedures are 
not followed, hospitals deserve due process in court. Therefore, 
Congress should enact legislation to provide hospitals and other 
providers with a specific opportunity to appeal decisions made by HHS 
with respect to questionable Medicare policy.
    Require MedPAC to include hospitals' compliance costs when 
recommending payment rates. The cost of caring for patients continues 
to increase as a result of complex regulations such as HIPAA and 
greater technological advances in such areas as pharmaceuticals and 
blood products. An AHA-commissioned study, looking at hospital costs 
alone, found that the cost of implementing HIPAA could be as much as 
$22.5 billion over five years, for three of the rule's proposed 
provisions. In addition, new advances in blood filtration are expected 
to increase the price of blood by 50 percent.
    The costs incurred by hospitals to comply with federal regulations 
and standards are simply part of our costs to provide care to patients. 
Therefore, MedPAC should be required to annually aggregate the 
estimated impact of a regulation on providers' payments and costs, and 
to incorporate this aggregated impact into the Medicare inflationary 
market basket update.
    Consult health care professionals on rule development. Early in the 
development process, regulatory agencies should consult those affected 
by a regulation--the caregivers--so practical implementation issues and 
problems can be identified and resolved before a particular regulatory 
approach is locked in. An example of this problem is last year's 
ambitious implementation schedule of the outpatient prospective payment 
system. Despite providers' warnings, late changes to the implementation 
caused updated software to be unavailable in time. Fiscal 
intermediaries (FIs) were then unable to process outpatient claims for 
more than six months. For Northwestern, this meant $2.3 million in late 
reimbursement.
    To facilitate improved rule development, agencies should be 
required to publicly release databases, cost estimates, assumptions and 
methodologies at the time notice is given of a proposed rule. Regulated 
entities could then conduct their own studies and analyses, and 
possibly suggest alternate regulatory models that would be more 
appropriate. We fully support Secretary Thompson's recent 
recommendation that HCFA pilot test new regulatory measures for 
feasibility and workability before requiring them of providers 
nationwide.
    Enact the Regulatory Fair Warning Act. Today's highly regulated 
health care environment demands that federal rules and regulations are 
issued in a timely manner, and made available and understood not just 
by those who are regulated by them, but also by those who enforce them. 
Passage of bipartisan legislation similar to the Regulatory Fair 
Warning Act, introduced by Rep. George Gekas (R-PA) in the 106th 
Congress and reported favorably by the House Judiciary Subcommittee on 
Commercial and Administrative Law, would help stop ambiguous and 
conflicting regulatory pronouncements. Specifically, the Regulatory 
Fair Warning Act would prevent federal agencies from penalizing 
businesses or entities for alleged violations if:
     the rule was not published in a public document;
     the agency did not give fair warning that a type of 
conduct is prohibited or required; or,
     the agency had already given specific guidance that 
contradicts an inspector's claim that the regulation had been violated.

CURRENT REGULATIONS IN NEED OF REFINEMENT
    Streamline paperwork. Much time, effort and expense could be saved 
if paperwork requirements were streamlined. For example, patients must 
fill out the 25-question Medicare Secondary Payor (MSP) questionnaire 
every time they come to the hospital for recurring services, such as 
chemotherapy or blood work. Altering this requirement to require 
completion of the MSP every 90 days for recurring services would be a 
substantial improvement. We commend Rep. Saxby Chambliss (R-GA) for his 
efforts in convincing HCFA to no longer require a MSP questionnaire be 
completed for every outpatient rehabilitation therapy encounter. 
However, the agency has yet to implement this improvement and some FIs 
still require completion of the MSP.
    In addition, hospitals to which doctors' offices forward specimens 
for laboratory analysis are required to contact a beneficiary whose 
specimen was submitted, and collect information about possible 
secondary insurance coverage. Beneficiaries often react with suspicion 
when contacted by a hospital lab asking them personal questions. They 
naturally assume that their physician is handling the lab tests. 
Independent labs are not required to collect this information. Hospital 
labs should be treated no different than independent laboratories 
providing the same service.
    Fix the costly and needlessly burdensome HIPAA medical privacy 
regulation. Hospitals are encouraged by Secretary Thompson's decision 
to re-open the privacy rule for comments and urge him to suspend the 
effective date and fix the rule. We believe a better privacy rule would 
benefit patients and providers alike. Many provisions in the final rule 
and the aggressive implementation schedule were written without 
consideration of the impact on patient care and the high costs of 
compliance. As I mentioned earlier, an AHA-study looking at hospital 
costs alone, found that the cost of only three key provisions of the 
proposed rule could be as much as $22.5 billion over five years.
    The AHA has long supported the development of uniform national 
privacy rules. However, HIPAA's privacy rule, as currently written, is 
overly burdensome and its implementation schedule too aggressive. We 
believe concerns about the rule's complexity, costs and implementation 
timetable must be addressed prior to the rule's effective date.
    Emergency services needed to stabilize patients should not be 
denied payment. As a participating provider in the Medicare program, 
Northwestern is required to screen any individual who comes to the 
emergency department to determine whether that person has an emergency 
medical condition or is a woman in active labor and, if so, to 
stabilize him or her. To adequately screen and stabilize the patient, 
we often employ ancillary services that are routinely available to the 
emergency department. Medicare sometimes denies payment for the 
services furnished in the emergency department because they exceed the 
local medical review policies (LMRPs) or utilization guidelines for 
coverage and frequency established by the Medicare fiscal 
intermediaries. However, we are prohibited from billing beneficiaries 
for such services unless we notify patients in advance that the service 
may not be covered (advanced beneficiary notice). Conversely, we cannot 
notify patients in advance because the Inspector General interprets 
this advance notification of possible non-coverage as a delay in 
screening and stabilization. Hospitals, caught in a Catch-22, are often 
left with an unpaid bill for emergency care.
    To reconcile these conflicting requirements, services furnished in 
the emergency department should be exempt from denials based on LMRPs, 
and Medicare should pay for all services necessary to screen and 
stabilize patients.
    Limit data collection to what is necessary for payment and quality. 
Prospective payment systems should be simple, predictable and fair. 
Unfortunately, the patient assessment tools for skilled nursing, 
rehabilitation and home health are far from ideal. In fact, HCFA has 
devised three separate instruments, the Outcome and Assessment 
Information Set (OASIS), Minimum Data Set (MDS), and MDS-PAC, which 
collect much extraneous information, lack statistical reliability, and 
are extremely burdensome on hospitals. We concur with MedPAC's 
recommendation in its annual report to Congress (March 2000) that ``the 
secretary should review all post-acute data collection requirements. 
Each item should have an explicit rationale, and only information 
needed for accurate billing, risk adjustment, or quality measurement 
should be required.''

COMPLIANCE COSTS ARE HIGH
    Complying with this growing mountain of rules and regulations comes 
with a high administrative price tag.
    At Northwestern Memorial, we take corporate compliance seriously. 
We have committed a great deal of time and resources to ensure that we 
follow state and federal regulations. We have a corporate compliance 
department headed by a corporate compliance officer, who is also an 
experienced health care attorney. The hospital's corporate compliance 
committee includes 10 senior officers who meet monthly to discuss 
regulatory changes and compliance initiatives. We have an internal 
audit department with a staff of six, who actively focus an increasing 
amount of time on Medicare-related compliance issues. Northwestern 
employs several outside consultants to help us prepare for review by 
HCFA and other agencies. In addition, we have numerous internal cross-
functional task forces dedicated to ensuring compliance with 
regulations covering the Emergency Medical Treatment and Active Labor 
Act (EMTALA), coding, laboratory tests, patient observation and 
employee education, among others.
    Besides the known expense of time and resources, burdensome 
regulations incur hidden costs--a prime example being the toll they 
take on employee morale. People choose to work at hospitals because 
they want to help others. The current regulatory environment buries 
dedicated employees in bureaucratic paperwork. In today's tight job 
market and shrinking caregiver workforce, we face employee exodus to 
jobs that involve less red tape and hold the potential for greater job 
satisfaction. Constantly training and educating new staff in the 
intricacies of these burdensome regulations is another hidden cost that 
hospitals must bear.

CONCLUSION
    Hospitals' first priority is to provide high-quality care to our 
patients. Many regulations contribute to our efforts to provide quality 
patient care, but others simply drain resources away from that goal, 
placing a financial strain on providers.
    Madam Chairman, we all agree the health care industry should be 
regulated. There are valid reasons why HCFA, the Joint Commission on 
Accreditation of Healthcare Organizations, the IRS and OSHA should 
monitor hospitals' activities. However, the strain of 30 or more 
organizations issuing thousands and thousands of pages of often 
conflicting and complex rules, instructions and laws is hurting the 
health of our nation's hospitals. There is no coordination among 
agencies that regulate providers, and rules appear to be issued in a 
vacuum with no regard to the fiscal consequences of compliance and the 
impact on our daily operations.
    Though most of the examples I have given today come from 
Northwestern Memorial's experience, I speak for hospitals across the 
country, large or small. The AHA is ready and willing to continue our 
work with HHS, HCFA and other agencies to improve the way rules and 
regulations are promulgated and implemented. We pledge to do all we can 
to help make the regulatory system work better not just for hospitals 
and health systems, but also for the patients and communities we serve. 
But we need the assistance of the regulatory agencies and Congress to 
achieve this goal.
    I thank the Committee again for the opportunity to describe the 
regulatory difficulties hospitals face. I welcome any questions you may 
have.

[GRAPHIC] [TIFF OMITTED] T4213A.001

                                


    Chairwoman Johnson. Thank you very much, Mr. Mecklenburg.
    Ms. Ousley.

  STATEMENT OF MARY K. OUSLEY, SENIOR VICE PRESIDENT, HEALTH 
SERVICES, MARRIOTT SENIOR LIVING SERVICES, BETHESDA, MARYLAND, 
         ON BEHALF OF AMERICAN HEALTH CARE ASSOCIATION

    Ms. Ousley. Good morning, Madam Chairman and Members of the 
Subcommittee. My name is Mary Ousley, and I am here today on 
behalf of the American Health Care Association. I have been in 
the caregiving profession for nearly three decades. I am a 
registered nurse and a licensed nursing facility administrator.
    I would like to commend you, Madam Chairman, on your vision 
for long-term care and for taking the time to know our 
profession and the care needs of the beneficiaries we serve.
    I have worked both formally and informally with the Health 
Care Administration for many years, representing the long-term 
care profession. I am not here to bash HCFA. I consider the 
individuals that I have worked with to be not only my 
colleagues but also my friends.
    However, there is a storm approach long-term care. We have 
a demographic crisis brewing, and we need to address that 
today. The baby boomers are retiring, the supply of care givers 
is dwindling, and recruitment has become virtually impossible.
    Financially, nursing facilities are treading water. We are 
facing dual fronts with government financing care at less than 
cost and a staffing crisis of epidemic proportions. A primary 
contributor to this crisis is the regulatory oversight system. 
The system demoralizes care givers, burdens them with endless 
paperwork, and perhaps far, far more importantly, affords the 
long-term care professional very little respect for their hard 
work and dedication to the seniors of America.
    I am not here today to ask for less government. I am here 
to ask for smarter, more accountable government.
    We all know that however well intended this system for 
oversight for nursing facilities has been, it has failed to 
measure or improve quality in our Nation's nursing facilities. 
What was originally envisioned by the Institute of Medicine in 
1986 to be residence-centered, outcome-oriented, and 
consistent, there is little resemblance today with what care 
givers deal with.
    What has evolved is a regulatory system that is subjective, 
process oriented, a snapshot that focuses on punishment. After 
three decades in this profession, I can absolutely tell you 
that we cannot punish our way to improvement. We can only 
improve if we do that internally and we do it collaboratively.
    Let me be clear about one thing. Chronic poor providers, if 
they are unable or unwilling to meet the standards, should be 
terminated from the program. But with such a failed system, how 
can we know what is the right action?
    The questions before us are: What is the role of government 
in quality? And what reforms would garner the most meaningful 
improvements?
    Number one, we believe that the Health Care Financing 
Administration must adopt new technologies that create an 
objective system that provides useful, real-time, accurate 
information to consumers and providers alike. Such technologies 
are being used today by health care providers to improve our 
quality of care. The bottom line is, as quality measurement has 
improved, HCFA's inspection system has stagnated.
    I would like to highlight a few specific recommendations. 
Number one, as we move forward, allow and create a 
collaborative system so providers and regulators can work 
together. Investigators and surveyors must respect the 
parameters of clinical practice for both physicians and nurses. 
Prevent HCFA from closing nurse aide training programs unless 
the deficiencies are tied directly to those programs. And 
implement a fair and impartial system of appeals that will 
dispose of grievances in an equitable way, quickly impose 
citations that are merited, and do away with those that are 
not. Allow additional care givers that can demonstrate 
competency to perform such tasks, such as feeding and 
hydration, to meet the needs of residents under the direction 
of a registered nurse. And please stop the punitive approach 
that is driving care givers and professionals out of long-term 
care and help us facilitate a system back to what was 
originally envisioned of residence-centered.
    Second, as we look to the future, I think that the Health 
Care Financing Administration should grant waivers for States 
that have innovative ways to improve better oversight.
    My third recommendation for reform is broader restructuring 
and, yes, focusing on resources. We do not believe that the 
Health Care Financing Administration today has all the 
resources that they need to get the job done as they are 
expected to do. And we believe as we move forward that it is 
imperative that we move toward one primary objective: that 
policy and oversight of providers be housed together with a 
distinct philosophy of partnership.
    I have confidence that as we all work together in this new 
spirit of partnership, we can establish a fresh start and 
provide positive dialog with the interests of patients always 
first.
    Thank you very much for the opportunity to testify.
    [The prepared statement of Ms. Ousley follows:]

 Statement of Mary K. Ousley, Senior Vice President, Health Services, 
   Marriott Senior Living Services, Bethesda, Maryland, on behalf of 
                    American Health Care Association

    Good morning Madam Chairman, and Members of the subcommittee. Thank 
you for inviting me here today to provide perspective on reform of the 
Health Care Financing Administration. I am honored to be here.
    My name is Mary Ousley, and I am here today on behalf of the 
American Health Care Association. The American Health Care Association 
is a non-profit association representing more than 12,000 non-profit 
and for-profit skilled nursing, assisted living, subacute facilities, 
and facilities treating the developmentally disabled nationwide.
    Let me briefly tell you about myself. I have been in the caregiving 
profession for nearly three decades. I am a registered nurse, a 
licensed administrator, and someone with first-hand experience on the 
front lines of caregiving. I am not here to beat up on HCFA. I have 
worked with them both informally and formally, in many capacities, and 
on many issues. However, it is critical that we enlist them as partners 
in serving the beneficiaries through a more active role in quality 
improvement.
    I would like to commend you, Madam Chairman, on your vision for 
long term care, and for taking the time in the last few years to roll 
up your sleeves and get to know the intricacies of the care needs--and 
care environment--of our nation's frail, elderly and disabled 
population.
    There is a storm approaching in long term care. We have a 
demographic crisis brewing that, if not addressed today, will severely 
threaten the quality and availability of care for the baby boomers who 
are now entering retirement. While this generational bubble begins to 
strain the long term care system, the supply of caregivers dwindles to 
crisis levels, and the oversight system serves to promote distrust of 
providers, demoralizes caregivers, and scares families.
    Financially, nursing homes are treading water. We appreciate the 
Medicare PPS adjustments you made in BIPA last year because these 
adjustments are providing some stability to our Medicare patients. But 
it is imperative to note that nearly 70% of our residents are Medicaid 
beneficiaries, and that is where our real financial trouble lies.
    You spoke eloquently a few short month's ago about the state of 
caregiving in this country, and your words have been appreciated by 
those hard working women who perform a very difficult and demanding 
job. You said, ``We're going to drive people out of the caregiving 
environment--because they came there to give care, not to do 
paperwork.''
    All I can say is, how right you were. We are facing a staffing 
crisis of epidemic proportions in every part of the United States. 
Turnover rates in our profession are more than 80%. Recruitment is 
nearly impossible. This crisis is compounded exponentially by a 
regulatory system that forces caregivers to focus an extraordinary 
amount of time on cumbersome paperwork and complex, confusing 
regulatory requirements.
    This burdensome system is having a negative impact on patient care 
by driving good providers out of the business. Caregivers who enter 
this profession today quickly find themselves spending more time on 
paperwork describing their care, and justifying their actions on behalf 
of patients--than on actually delivering care.
    I am not here today to ask for less government--I am here today to 
ask for smarter, more accountable government--government that works in 
the best interest of promoting and maintaining quality care for 
beneficiaries.
    Since the Institute of Medicine (IOM) study in 1986 and the Nursing 
Home Reform Act of 1987 (OBRA '87), nursing facilities' daily 
operations have been inextricably linked to the Health Care Financing 
Administration (HCFA). The system of oversight that exists today--
though well-intended--grew like a vine, and evolved into an ineffective 
bureaucracy.
    The result of this evolution is that what was originally envisioned 
by the IOM to be a resident-centered, outcome-oriented, consistent 
system of oversight, was implemented in a manner that meets none of 
those criteria, and in many cases, does just the opposite.
    Today, providers face a system of oversight that is an entirely 
subjective, process-oriented snapshot inspection system that focuses on 
punishment--not quality improvement. This system bears very little 
resemblance to what OBRA '87 envisioned.
    The current system is susceptible to political forces, and 
providers are caught in the crossfire. The result of the current 
political climate is a type of ``catch-22'' scenario, in which a low 
number of citations is interpreted as poor oversight, while a high 
number of citations are seen as poor care. Clearly the incentive for 
inspectors is to cite more deficiencies.
    The subjectivity of the survey system makes it unpredictable. This 
means that no provider, even if they have done everything correctly, 
can predict whether they will receive citations on any given 
inspection. This helps explain the wide variation in the charts 
attached to my testimony.
    The Institute of Medicine (IOM) in their December 2000 report 
``Improving the Quality of Long Term Care,'' discovered that ``forty 
concurrent surveys in ten states found that state surveyors were 
inconsistent in detecting problems related to outcomes of care . . .'', 
and that ``At the same time, states surveyors also cited some 
facilities for deficiencies that appeared to be a function of their 
high prevalence of seriously impaired residents rather than poor 
quality care.'' In our view, a system that consistently fails to 
measure quality has little hope of improving it.
    Let me again be very clear about one point: We are not talking 
about less regulation, we are talking about better, more intelligent 
regulation.
    We need regulation that holds, as its ultimate goal, the 
improvement of care quality we provide to our frail, elderly and 
disabled patients. We absolutely believe that the underlying concepts 
in OBRA'87 are sound. Yet, we as providers know that it has been the 
implementation and evolution of that statute-- through HCFA regulation 
and related policy-- that has missed the mark.
    Dr. William Scanlon of the GAO, when asked by Senator Grassley last 
September if the quality of the surveys and the data derived from them 
is reliable enough to make judgements about the level of quality 
provided in nursing homes, answered: ``I am afraid it is not.''
    Over four years ago, HCFA itself, when writing about the same 
subjective inspection system used in hospitals wrote, ``. . . there are 
no data supporting the link between structure and process requirements, 
and positive patient outcomes. The combination of process-oriented 
requirements with an enforcement approach that focuses on identifying 
providers that do not have the required structures and procedures in 
place, no longer represents the best available method for assessing and 
improving hospital quality of care.''
    I would ask then, how could it represent the best available method 
for assessing and improving nursing home quality of care?
    So, the questions before us are: What is the role of government in 
quality? What reforms would garner the most meaningful improvements? 
And, how can we ensure these reforms will provide continuous 
improvement in quality of care while protecting residents?
    First, let me state that chronic poor performers that are unwilling 
or unable to improve the level of quality they provide should be 
closed. But this is extremely hard to judge because as the GAO 
testified, our oversight system does not provide a reliable measure of 
quality, only compliance with process requirements. It also does not 
reward excellence in caregiving with incentives to providers that 
achieve great outcomes.
    HCFA must adapt to new technologies that create an objective system 
that provides useful, accurate information to consumers and providers 
alike.
    In many states, the oversight bodies that contract with HCFA to 
inspect nursing homes have applied for waivers from HCFA to use modern 
technology in quality measurement, to use outcome measures, or provide 
a collaborative approach to quality improvement. Unfortunately, all of 
these waivers have been denied.
    The American Health Care Association (AHCA) has also worked toward 
meaningful improvement of the oversight system for years. We have 
developed software that gives providers information on their 
performance on key ``quality indicators'' (QIs) measured against 
national and local benchmarks. As opposed to the current snapshot, this 
system monitors actual resident conditions continuously over time. We 
have also developed customer satisfaction tools that measure residents' 
and families satisfaction with the care received.
    However, these efforts have been stymied by HCFA's refusal to share 
the aggregate data (MDS) that each provider transmits to them 
electronically every month. Members of this subcommittee have called 
HCFA asking them to provide these data to facilities to improve quality 
internally. We have even filed a Freedom of Information Act (FOIA) suit 
to get this quality information, with no response. This makes little 
sense, and is emblematic of the overall problem where HCFA can not 
move, and retards quality improvement.
    The bottom line is that as quality measurement technology has 
advanced, and HCFA's inspection system has stagnated--As a result it 
has become out of date, a more subjective and more punitive system.
    It is imperative that the focus of HCFA oversight be changed to one 
of quality improvement in which government becomes a true stakeholder 
in improved quality for beneficiaries.
    We urge you to adopt three types of reform of nursing home 
oversight:
          One is making the much-needed incremental changes in the 
        current regulatory system.
          The second is to allow the regulators in the states to make 
        advances in oversight without facing certain denial by 
        Washington--to approve state waivers.
          The third is broader restructuring of the role and 
        responsibilities--and resources--of the HCFA. Yes, we believe 
        they do not have adequate resources or training to do what is 
        expected of them adequately.
    With regard to the incremental improvements to the current system, 
the following are key areas in which minor changes could be made that 
would improve the quality of regulation, and also the quality of care 
we can provide. Below are 10 recommended steps:
          1. Allow Collaboration--Create a collaborative system so 
        providers and regulators can work together to address problems. 
        In such a system, providers would retain responsibility to fix 
        problems, but surveyors would play a supportive role to help 
        providers achieve improvements. Currently, when surveyors find 
        a problem, they are not allowed to discuss possible causes, 
        provide technical assistance, or to suggest solutions. This 
        ``no collaboration'' policy is an obstacle to ongoing 
        improvements in quality. This is directly opposite of the 
        approach taken with other providers such as clinical 
        laboratories. Solution: Guidance must be given to inspectors 
        through the State Operations Manual (SOM) to encourage 
        collaboration and compliance-assistance toward quality 
        improvement.
          2. Allow providers to follow physician orders--All too often, 
        providers are cited for deficiencies for simply following the 
        orders of the residents' physician. Nursing home inspectors, 
        who are rarely physicians and do not have medical training, 
        often cite providers for giving medication as prescribed, but 
        that the inspector might not understand is appropriate and, in 
        the physician's judgement, is in the best interest of the 
        patient. This is the only instance in health care where less-
        skilled personnel are allowed to second guess the orders of 
        physicians, and nursing home care providers get punished. This 
        system has forced providers to choose between government fines 
        and the well being of those for whom they care. Most of the 
        time, they pay the fine and protect the resident, but this 
        system must be changed. Providers need to be allowed to follow 
        the patients' doctor's orders without fear of citation.
          3. Prevent HCFA from closing Nurse Aide Training Programs--We 
        are currently operating in a severe shortage of nursing home 
        workers. This shortage is predicted to rapidly escalate until 
        there are far fewer caregivers than needed. In this 
        environment, HCFA is terminating the in-house nurse aide 
        training programs for facilities with certain deficiencies or 
        enforcement actions (even if completely unrelated to the 
        training programs themselves). Clearly this ``punishment'' only 
        hampers the providers' ability to fix the problem and hire and 
        train adequate staff to improve quality. Termination of Nurse 
        aide training must only be an option when there is a deficiency 
        directly related to the training program itself.
          4. Implement a fair and timely appeals process--Currently, 
        providers who want to dispute citations they believe have been 
        issued in error first appeal to the agency that issued the 
        citation. This process is not objective, and more often than 
        not, a decision is rendered against the facility. Next, they 
        must go through an administrative process that takes, on 
        average, 1 year and 2 months. If appealed further, the next 
        level, the Departmental Appeals Board (DAB) takes, on average, 
        1 year and 6 months. We must establish a fast and impartial 
        system of appeal that will dispose of grievances in an 
        equitable way, quickly impose citations that are merited, and 
        dismiss those that are not.
          5. Enlist Resident Assistants--Allow additional caregivers to 
        help meet resident's daily needs. Currently, HCFA allows 
        untrained volunteers to perform nursing-related tasks, but the 
        paid staff of the facility can not help dress, feed, or even 
        push a wheelchair (even under direct RN supervision) unless 
        trained to become a full CNA. During this severe shortage of 
        caregivers, and amid concern about nutrition and hydration, we 
        need every caring hand we can find to help meet resident needs. 
        Legislation is being drafted by Members of this Committee to 
        address this problem through a demonstration program, and we 
        look forward to working with you to pass this into law.
          6. Remove disincentives to improving facilities--Allow new 
        owners to improve facilities without threats of closure due to 
        previous problems. Today, a new owner who purchases a troubled 
        facility inherits the track record, fines, enforcement 
        penalties, and the termination status of the previous owner. In 
        some cases, facilities have been closed within months of the 
        takeover due to compliance problems that were cited before the 
        turnover. This policy discourages companies from taking over 
        problem homes and improving care. The government should work 
        towards improving care for residents--not prevent it. A 
        positive step forward would be to allow a new owner to start 
        with a chance to improve care.
          7. Spend fine money improving care for residents--Funds 
        collected from nursing facilities through fines for care 
        problems should be spent on fixing the problem, not sitting in 
        state and federal coffers ready to be diverted to other 
        purposes. In the last 2\1/2\ years, funds collected from 
        nursing facilities by states alone amounted to over $20 
        million--and this does not include a large amount of federal 
        fines. The overwhelming majority sits in state coffers and is 
        not spent on the improvement of care. This is a significant 
        amount of money to take from the facilities that need it most, 
        and unconscionable to allow it to go unused for care 
        improvement. The federal government should mandate that fines 
        collected from troubled facilities be spent improving care in 
        those facilities. HCFA must review and find appropriate 
        citation levels for fines. At what level is correction less 
        desirable than punishment?
          8. Prevent mandatory termination--Current law dictates that 
        if a facility has been cited for substantial deficiencies, the 
        clock starts running, and they must be found in compliance 
        within six months or face mandatory termination of their 
        Medicare certification. This may sound reasonable, but the 
        effect has been that homes fix all problems cited in the 
        initial survey, but have very minor new deficiencies in follow-
        up surveys--for which they are terminated. Most homes cannot 
        remain open without being paid, and therefore residents are 
        forced to give up their home. The statute must be changed to 
        allow providers and regulators to consider other options for 
        the residents' benefit, and to give residents and their 
        families more voice in those decisions.
          9. Prevent the labeling of Chains--It is inappropriate to 
        label all facilities that have common ownership as poor 
        performers just because of the shortcomings of one facility. 
        This is misleading to consumers and in no way fosters care 
        improvement. ``Guilt by association'' should not be tolerated, 
        nor allowed.
    With regard to the second issue, I can be brief and keep it simple. 
The oversight system works best when people closest to the beneficiary 
have a stake in the decision making process. HCFA does have the 
authority to grant Medicaid waivers to states, and should approve good 
waivers. HCFA should also be granted similar authority for oversight of 
dually-certified providers who serve Medicare beneficiaries as well.
    Lastly, in terms of broader HCFA restructuring, we feel it is 
imperative that any new structures put in place be targeted toward 
achieving two major goals. The first is that policy and oversight for 
providers of care be housed together, but with a distinct philosophy of 
partnership. That government be a real stakeholder, accountable with 
providers and dedicated to working collaboratively to improve quality 
for beneficiaries.
    The second major goal must be that the continuum of long term care 
be made more seamless so that the mass of baby boomers needing benefits 
can access services in a clear, rational manner. As the needs of 
seniors shifts the benefits should follow the individual without 
excessive paperwork and hand-offs between regulators.
    In the final analysis Madam Chairman, it is imperative that the 
HCFA of the future have the resources and the structure to meet the 
needs of the millions of retiring seniors as the system meets the 
challenge of this demographic boom.
    I have confidence that government and health care providers seek 
the same goal of ensuring quality care. With a new Administration, new 
leadership at HHS, HCFA, and even right here on this Committee, we look 
forward to establishing a fresh start, and a new, positive dialogue in 
which caregiver and regulator alike always puts the interests of 
patients first.
    Thank you.

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    [GRAPHIC] [TIFF OMITTED] T4213A.003
    
                                


    Chairwoman Johnson. Thank you very much.
    Ms. Wilson.

   STATEMENT OF SUSAN WILSON, R.N., M.P.H., VICE PRESIDENT, 
  CLINICAL OPERATIONS, AND CHIEF OPERATING OFFICER, VISITING 
 NURSE ASSOCIATION OF CENTRAL CONNECTICUT, INC., NEW BRITAIN, 
    CONNECTICUT; PRESIDENT, BOARD OF DIRECTORS, CONNECTICUT 
ASSOCIATION FOR HOME CARE; AND MEMBER, NATIONAL ASSOCIATION FOR 
                           HOME CARE

    Ms. Wilson. Thank you, Madam Chairman, Representative 
Stark, and Committee members, for inviting me to present 
testimony today on behalf of Medicare beneficiaries and their 
home health providers. I am Susan Wilson, vice president of 
clinical operations for VNA of Central Connecticut, president 
of Board of Directors for the Connecticut Association for Home 
Care, and a Member of the National Association for Home Care.
    In preparing for this testimony, we provided you with 
extensive written testimony in reference to the issues that 
face us today. If you refer to Attachment 1, it references the 
8,000 pages of regulation under which home care is presently 
working, which was published just between June 1999 and March 
of this year. It primarily addresses the two most significant 
regulations impacting home health care today: the Outcome 
Assessment Information Set, or OASIS, and the implementation of 
the prospective payment system.
    I would like to just highlight a few areas, one of which, 
obviously, is the overall concern for the prospective payment 
system. The stringent payment limits that we experienced under 
an interim payment system resulted in the closure of 
approximately 3,400 agencies, and NAHC's preliminary PPS 
reveals that 45 percent of the remaining agencies are now 
reporting losses and difficulty in billing. It is 
understandable that with any new system there are going to be 
problems; however, the extent of the problems have created a 
huge impact on cash flow and an overwhelming environment of 
frustration. We literally have requested hundreds of 
clarifications from HCFA in reference to the regulations, and 
essentially they have remained unresolved.
    Under PPS, we are mandated to refer to a common working 
file which was intended to provide us with information 
regarding the beneficiaries and the benefits they have 
utilized. It is, however, cumbersome to use, as some providers 
do not have access to the common working file, and the 
information that is there is frequently difficult to access, 
untimely, and inaccurate.
    Home health agencies also have difficulty in processing 
claims. When subject to medical review, they may be denied in 
part or in full, and HCFA has issued no instructions for what 
we are to do with partial denials. Also, there are errors which 
occur, human errors which occur in the processing of claims, 
and it can take up to an additional 30 days to resolve these, 
if not more.
    Also, beneficiaries are now receiving Medicare summary 
notices which explain the changes; however, we found that they 
often overstate the information by as much as 10 times. Notices 
have been received in which the sum of the episodic payment and 
the charges are lumped together, giving the appearance that the 
home health agency has been overcharging or has been overpaid. 
Although HCFA is in the process of correcting this information, 
there is no plan to suspend these notices.
    Just as the beneficiaries receive notice, we also receive a 
notice called a remittance advice report. They are fraught with 
errors and are often incomprehensible, leaving the reports of 
little value to the providers.
    Finally, the case mix adjustment system which is presently 
used is difficult to use, at best, and found to be slightly 
better than 30 percent accurate. Changes are definitely needed 
in this to reflect more in terms of clinical care and clinical 
factors rather than the service provision itself.
    In my own agency, we have had the great fortune of having a 
highly skilled staff that provide acute clinical interventions 
and also extensive coordination to the community. I bring to 
your attention an example of a 102-year-old woman in our 
community who had pressure ulcers due to an ill-fitting brace. 
Our intervention was requested twice a day, and the related 
supplies were extensive. Today, that wound is healing, the 
family has once again resumed the majority of her care, and 
inpatient care has been avoided. However, the average cost of 
supplies was $680 per episode, although we were only reimbursed 
approximately $50. The agency sustained an average loss on a 
total reimbursement of $1,410.
    We have provided you with a list of recommendations that 
would help in most of these regards. I do bring to your 
attention in particular the elimination of the mandatory 15-
percent cut.
    There are other issues which we face: an extensive 
assessment form, which in combination can be upward of 20 pages 
and duplicative in nature. The other issue which we face has 
just come upon us: the home health advanced beneficiary notice. 
This is primarily intended for duly eligible clients. We have 
found that HCFA failed to provide accurate instruction in a 
timely manner. It has been very costly for agencies to provide, 
the forms are confusing, and, in particular, we are asked to 
provide this information and submit claims on services that we 
know full well are not provided, for example, home health aide 
services only. We also have to deal with medical claims 
reviews, technical denials, and sampling methodology.
    In conclusion, on behalf of the National and Connecticut 
Association for Home Care, we recognize the workload that HCFA 
presently faces, as we all do. However, it also indicates 
longstanding operational weaknesses, but we look forward to 
working with the Committee and with HCFA to help resolve these 
and would hope in the future that we can work together. I am 
deeply honored today by the opportunity to represent not only 
the work of home care providers throughout the Nation but, more 
importantly, the interests and concerns of the sick, the frail, 
and the elderly. And I thank you once again, Madam Chairman, 
and the Committee.
    [The prepared statement of Ms. Wilson follows:]

   Statement of Susan Wilson, R.N., M.P.H., Vice President, Clinical 
Operations, and Chief Operating Officer, Visiting Nurse Association of 
 Central Connecticut, Inc., New Britain, Connecticut; President, Board 
   of Directors, Connecticut Association for Home Care; and Member, 
                   National Association for Home Care

    Thank you, Madam Chairman, Representative Stark, Committee members, 
for inviting me to present testimony on ways to bring regulatory relief 
to beneficiaries and providers and restructure the Health Care 
Financing Administration (HCFA). My name is Susan Wilson. I am Vice 
President of Clinical Operations and Chief Operating Officer of the 
Visiting Nurse Association (VNA) of Central Connecticut. I am also the 
President of the Board of Directors of the Connecticut Association for 
Home Care (CAHC), the voice of homecare in Connecticut, and a member of 
the National Association for Home Care (NAHC).
    NAHC is the largest national organization representing home health 
care providers, hospices, and home care aide organizations. Among 
NAHC's nearly 6,000-member organizations is every type of home care 
agency, including nonprofit agencies like the VNA, for-profit chains, 
public and hospital-based agencies and free-standing agencies. CAHC 
represents 61 providers, delivering greater than 75 percent of all home 
health and hospice services provided in the state.
    Home health care providers that participate in Medicare are 
required to be knowledgeable of and comply with a vast number of 
statutes, regulations and policies, including Medicare coverage rules, 
reimbursement guidelines, and quality of care standards. However, for 
over the last two years, this burden has increased with a proliferation 
of new requirements.
    In preparing for this hearing, NAHC has compiled many of the 
regulatory directives governing the Medicare home health program. These 
include the Medicare Conditions of Participation, coverage rules, 
standards for payment and appeals process (all found in Title 42, Code 
of Federal Regulations); Interpretive Guidelines (HCFA Publication 7, 
Appendix B); Home Health Agency Medicare Manual (HCFA Publication 11); 
as well as numerous HCFA Program Memoranda and Transmittals. We have 
included for your review a listing of these regulations and notices 
comprising more than 8,100 pages of instructions (Attachment 1). The 
majority of the listings published between the time period of June 19, 
1999-March 5, 2001 principally address two most significant regulations 
impacting home health agencies--the Outcome and Assessment Information 
Set (OASIS) for home health and the implementation of the home care 
prospective payment system (PPS).
    In addition to the regulations and policies imposed by HCFA, home 
health agencies (HHAs) must comply with all other applicable federal, 
state and local laws and regulations. Some examples of the federal laws 
include:
           Occupational Safety and Health Administration (OSHA) 
        standards for:
           protection against illness due to bloodborne 
        pathogens;
           prevention of needlesticks;
           prevention of transmission of tuberculosis; and
           recording of work-related injuries and illnesses.
           Department of Health and Human Services (HHS) 
        standards for:
           Health Insurance Portability and Accountability Act 
        of 1996;
           Culturally and Linguistically Appropriate Services; 
        and
           Limited English Proficiency Guidelines.
           Food and Drug Administration (FDA) standards for:
           Medical devices.
    For the purposes of this written testimony, I will highlight 
several Medicare regulations and policies that impact the home care 
provider's ability to deliver efficient patient care. These include the 
requirements associated with PPS, OASIS, Home Health Advance 
Beneficiary Notice (HHABN) and demand billing, medical claims review, 
appeal of technical denials, sampling procedures for post-payment and 
audit reviews, branch office designation, and Medicare cost reporting.

REGULATORY BURDENS
    A. PPS
    Under the Balanced Budget Act of 1997 (BBA), Congress mandated a 
number of dramatic changes in the Medicare home health benefit, 
including requiring that home health move to a PPS, and imposed an 
interim payment system (IPS) until PPS could be put in place. The 
stringent payment limits under IPS, which were in place from October 
1997 through September 2000, reduced home health outlays far more than 
expected, resulting in widespread home health agency closures 
(approximately 3,400) and problems for beneficiaries in obtaining 
access to care. The implementation of PPS represented a dramatic change 
in billing and payments procedures for home health agencies under 
Medicare. Now, when a home health agency admits a patient for services, 
the agency submits a request for anticipated payment, or RAP, to 
Medicare and receives a portion of the full payment for the 60-day PPS 
episode. At the conclusion of the episode of care, the HHA submits a 
final claim to Medicare and receives the remainder of the episode 
payment. Payment is based upon a series of OASIS assessment questions, 
which categorize a patient into one of 80 categories that are intended 
to reflect differences in care needs.
    While Congress has made several significant BBA modifications, many 
agencies around the country continue to feel the financial constraints 
imposed by the BBA coupled with the administrative adjustments required 
for adaptation to the PPS.
    NAHC's preliminary PPS survey of HHAs found that about 45 percent 
of the agencies are reporting losses and difficulty with billing their 
regional home health intermediary (RHHI), resulting in cash flow 
problems. Although it is understandable that some problems would occur 
in a new system, the extent of the problems has created an overwhelming 
environment of frustration and increased stress within the HHAs. At the 
same time, HHAs are experiencing record difficulty in recruiting and 
retaining staff needed to adequately serve the growing population of 
disabled and elderly patients. Financially burdened HHAs are hard-
pressed to compete with other employers that offer better wages, better 
benefits, lighter workloads, and better hours.
    HCFA has worked with the home care community to facilitate the 
implementation of these new regulations and policies through meetings, 
conference calls, Web site postings and list serves. However, due to 
the breadth of these changes over the past two years, these efforts 
have not been sufficient to ensure a smooth transition. NAHC, state 
home care associations and HHAs have had to request literally hundreds 
of clarifications from HCFA since the implementation of PPS. These 
clarifications pertain to several areas, including information systems, 
common working file, billing codes, claims review issues, explanation 
of benefits to beneficiaries, payment remittances, and case-mix 
adjustment.

Common Working File (CWF)
     The (CWF) is a database that allows agencies to access information 
about the enrollment status of Medicare beneficiaries and their 
utilization of Medicare benefits. It is an important component of the 
Medicare reimbursement system for home health agencies because PPS 
bundles payment for all services related to home care during an episode 
of coverage. In order to avoid duplicate billing, it is necessary that 
all providers of services have access to the CWF and that the CWF is 
actively updated. HCFA envisioned the CWF would provide accurate, up-
to-the-minute information about Medicare beneficiaries, but there are 
problems. For example:
          --When a Medicare beneficiary is discharged with services 
        completed from an HHA prior to the 60th day of an episode, the 
        CWF may still incorrectly show them as being under a home 
        health plan of care thus preventing other providers (such as 
        another HHA, medical supplier or outpatient therapy provider) 
        from being paid for services provided during the 60-day period.
          --Other providers whose services should never be considered 
        bundled under the home health PPS rate have had claims rejected 
        due to a combination of instructional errors and system errors.
          --It takes about 10 days for the CWF, which primarily 
        responds to regionalized queries, to verify a beneficiary's 
        admission status from the full national database.
          --Certain providers and suppliers have no access to the CWF. 
        As a result, providers and suppliers report avoiding home care 
        patients for fear of claims denials.

Claims Processing and Review
     HCFA has been diligent in its efforts to work with home health 
agencies to resolve claims processing problems. In addition, HCFA has 
developed new procedures for medical review under PPS. Nonetheless, a 
number of problems continue to negatively impact cash flow.
          --When claims are subject to medical review, they may be 
        denied in full or in part. HCFA has issued no instructions for 
        partial denials under PPS and some providers report claims 
        being held in suspense.
          --Although HCFA reports that a fix is under way, RAPs 
        submitted by an agency that provided the initial care to a 
        patient have been rejected when the patient transfers to 
        another agency, and the second agency happens to bill first.
          --When a provider makes a clerical error in the beneficiary's 
        Health Insurance Claim (HIC) number, payments can be delayed 
        for an additional 30 days in order for the erroneous 
        information to be purged from the system.

Medicare Summary Notice Over Billing Errors
    The Medicare Summary Notice (MSN), also known as an explanation of 
benefits, is issued to Medicare beneficiaries every month explaining 
charges to Medicare. The MSN is required to provide information about 
services and charges. However, the current MSNs overstate charge 
information by as much as 10 times the actual charges. Although HCFA is 
in the process of correcting MSN information, there is no plan to 
suspend the erroneous notices, causing beneficiaries to complain about 
excessive charges.
    Some specific problems with MSNs are:
          --Issuing an MSN after a single visit to the beneficiary, 
        based on a RAP submission. These MSNs include charge 
        information for a full episode payment.
          --MSNs for final claims that erroneously report payments as 
        the sum of episodic payments and charges, giving the appearance 
        that the HHA has either overcharged or been overpaid by 
        Medicare.
          --MSNs include nonsensical statements and single-line 
        listings of all services, making them cumbersome and difficult 
        to understand.

Remittance Advice Errors
    The remittance advice (RA) was designed to provide detailed 
accounts receivable information on Medicare payments and adjustments. 
Since the implementation of PPS, HCFA altered the RA in order to 
accommodate the changes in payment methodology. HCFA has been working 
on correcting remittance advice information but providers and fiscal 
intermediaries alike are still having problems using the RA to 
reconcile payments.
          --Intermediaries have instructed HHAs to manually track 
        payments since the first payments under PPS but this is time 
        consuming and is not an adequate solution. Manual tracking does 
        not allow agencies to determine how much they have been paid 
        for individual patients or what amounts have been withheld and 
        for what reasons.
          --There is no indication that HCFA has a plan to address the 
        remittance advice problems that occurred in the first six 
        months of PPS.
    At the Visiting Nurse Association of Central Connecticut (VNACC), 
we have found that the problems with remittance advices are further 
compounded because our intermediary has told us that it can adjust the 
RAP despite the calculated case-mix grouper. The RAP is then not 
reconciled until the final payment.

Case-Mix Adjustment
    The home health PPS base rate is inadequate because of the budget 
neutrality requirement compounded by a case-mix adjuster system that 
needs refinement. The budget neutrality requirement for the first year 
of PPS artificially lowers PPS payment levels by requiring that they be 
based upon outlays for home health under the disastrous interim payment 
system. As a result, there is widespread concern that existing payment 
levels will fall short of agencies' actual expenditures in serving 
patients. The PPS includes an 80-category system of case-mix adjuster 
groupings (Home Health Resource Group or HHRG) that serves as the basis 
of determining the episode payment. The system utilizes selected OASIS 
data elements and features three domains, clinical/functional/service 
utilization and therapy needs. The reliability of the case-mix adjuster 
in explaining the variations in resource use by patients is slightly 
better than 30 percent.
    There are a number of refinements that need to be made to the case-
mix adjuster.
          --More work must be done on diagnostic issues. Although the 
        case-mix research only identified three diagnostic conditions 
        (orthopedic, neurologic and diabetes), significantly impacting 
        costs, more research is needed on other historically high-cost 
        conditions, such as congestive heart failure, cancer and 
        stroke.
          --Co-morbidities have not been taken into account. For 
        instance, a patient with diabetes, hypertension, and end-stage 
        renal disease, is much sicker than a patient with just 
        diabetes. Also, a stroke patient with Alzheimer's requires much 
        more care than a patient whose only condition is a stroke.
          --Caregiver availability is not included in the case-mix 
        system.
          --HCFA did not identify sufficient clinical factors, which 
        resulted in use of proxy information, such as number of therapy 
        visits and use of services prior to home health admission.
          --Medical supplies, which can be very costly depending upon 
        the medical condition and supply needs of the patient, are not 
        case-mix adjusted. Instead, each episodic payment contains 
        approximately $50 for medical supplies, regardless of patient 
        needs.
          --PPS requires that home health agencies provide all supplies 
        to the beneficiary during an episode of care, regardless of 
        whether they are on the plan of care or needed by home health 
        agency staff to carry out the plan of care. Many of these 
        supplies were used by the patient prior to initiation of home 
        health services, resulting in a disruption between the patient 
        and the prior medical supplier.
    Following are some examples of case-mix and supply concerns faced 
by the VNACC:
    The population served by VNACC is older and generally lives alone 
or with a caring spouse who suffers from an equal number of frailties. 
It is not unusual to admit a client with five (5) or more co-morbid 
conditions, all which significantly impact their well being, their 
safety and the intervention required by staff to meet professional 
standards of care. Under the present system of case-mix groupings, it 
is the primary diagnosis alone that adjusts the level of reimbursement. 
Many of our clients have other primary diagnoses, such as congestive 
heart failure, hypertension, chronic obstructive lung disease and 
atrial fibrillation, as co-morbidities. Because these diagnoses are not 
in those three diagnostic categories that produce higher reimbursement 
in the case mix system, the reimbursement rate is not adequate to meet 
the high costs of their care.
    In addition, VNACC provides care to a demographically older 
population. Due to the provision of highly intensive, skilled clinical 
interventions and the extensive coordination of community resources, 
this agency is very successful in maintaining our older citizens in the 
comfort of their home rather than in an inpatient setting. One such 
example is a 102-year-old woman and her 74-year-old daughter, both of 
whom required extensive and prolonged intervention. Due to pressure 
ulcers induced by an ill-fitting brace, our intervention was requested 
initially two times a day and the related supplies were extensive. 
Today, that wound is healing, the family has once again resumed the 
majority of her care, and inpatient care was avoided. On average, the 
cost of supplies was $680.60 per episode and the agency sustained an 
average loss on the total reimbursement of $1,410.04 per episode.
    This client's 74-year-old daughter is also a client of this agency. 
Her story is similar. While caring for her mother, this agency also 
cared for her. Under the PPS system, the financial loss to this agency 
was $1,934.22 inclusive of $395.03 in supplies alone.
    Recently, our agency admitted an elderly woman, status-post total 
hip replacement. Her plan of care for rehabilitation required the 
intervention of a physical therapist only. In addition to her recent 
surgery, this woman had also had a colostomy several years prior. She 
was totally and proudly independent in her colostomy care. While her 
additional health care needs were recognized and addressed, no further 
intervention was required by the staff of VNACC. Under the present 
system of reimbursement, however, this agency became financially 
responsible for her ostomy supplies throughout the course of the 
rehabilitation plan of care.

Legislative and Administrative Recommendations
    Congress should safeguard the viability of the home health PPS by:
          1. Directing HCFA to continually update the CWF and make this 
        data available to all health care providers on an expedited 
        basis.
          2. Directing HCFA to maintain a listing of outstanding PPS 
        problems/issues complete with anticipated fixes for publication 
        on their Web site and on NAHC's home health list serve.
          3. Establishing expedited payment schedules for Medicare home 
        health services such that initial episode payments to agencies 
        are equal to 90 percent of the anticipated episode 
        reimbursement amount and exempt home health agencies from the 
        14-day payment floor.
          4. Directing HCFA to fix the errors on the Medicare 
        remittance advice.
          5. Ensuring an equitable PPS with an adequate case-mix 
        adjuster by requiring ongoing, in-depth study and appropriate 
        adjustments as necessary.
          6. Developing a case-mix methodology to account for variation 
        in costs of medical supplies.
          7. Restricting the ability of HCFA to modify payment rates 
        and revise the PPS case-mix adjustment system so as to prohibit 
        any adjustments without adequate advance notice.
          8. Ensuring continued care access for high-cost and medically 
        underserved patients under PPS by monitoring the adequacy of 
        payments, adjusting overall home health outlays as needed, and 
        developing a more adequate system of outlier payments.
          9. Limiting the responsibility of the HHA for medical 
        supplies to those that directly relate to the patient's current 
        treatment plan.
          10. Reimbursing agencies for costs incurred in complying with 
        regulatory and legislative requirements that were not included 
        in the initial calculation of the PPS rates.
          11. Requiring HCFA to develop criteria for case-mix 
        adjustment corrections on a prospective basis through public 
        rulemaking, as authorized under the Benefits Improvement and 
        Protection Act of 2000 (BIPA).
          12. Restoring the full market-basket updates for home health 
        services that were reduced under BBA and the fiscal year 1999 
        omnibus appropriations measure.
          13. Eliminating the mandatory 15 percent cut, in home health 
        reimbursement scheduled for October 1, 2001, and pass 
        legislation introduced by Senator Susan Collins (R-ME) and 
        Representative Wes Watkins (R-OK) the ``Home Health Payment 
        Fairness Act of 2001'' (S.326 and H.R.975).

    B. The Outcome and Assessment Information Set (OASIS)
    In July 1999, HCFA implemented mandatory use of a uniform patient 
assessment instrument, OASIS, for all patients served by home health 
agencies participating in Medicare. Under the Medicare home PPS, 
episodic (60-day) payments include $4.32 for ongoing agency OASIS 
expenses, including telephone, computer hardware, editing and auditing 
data entry, and supplies. During fiscal year 2001, an additional $5.50 
is also added to the episodic rate for adapting OASIS forms to PPS use. 
The HCFA OASIS User's Manual consists of 700 pages of instructions.
    This assessment instrument is required to be used for all patients 
regardless of payor source. While there are valid reasons to use a 
uniform patient assessment instrument, the extensive administrative 
responsibilities with OASIS must be streamlined to reduce costs, 
increase direct patient care time, and improve staff satisfaction and 
retention. HCFA has now indicated that it will be issuing to home 
health agencies patient-identifiable, adverse event reports and report 
cards on the agencies. This planned action raises numerous concerns 
relative to patient privacy and report accuracy. Home health agencies 
have had limited time to adjust to the OASIS method of patient 
assessment and uses of the report. Further, the use of a first 
generation adverse event report, which is not case-mix adjusted, is 
occurring without adequate training of providers and the state 
surveyors who will use these reports to survey agencies.
    Recently the General Accounting Office (GAO) published a report, 
``Medicare Home Health Care: OASIS Data, Use, Cost, and Policy 
Implication, (GAO-01-205) which was mandated by the Medicare, Medicaid, 
and SCHIP Refinement Act of 1999. GAO found that use of the OASIS has 
made documentation of home health patient information more consistent, 
while adding approximately 40 minutes to the start-of-care assessment. 
GAO also reported that previous studies did not capture the additional 
50 minutes per OASIS needed to check and edit collected data, enter and 
transmit the information electronically, and train new staff. Eighty-
four percent of agency survey respondents disclosed that they provide, 
on average, eight hours of training for newly hired staff. The GAO 
thinks, however, that agencies receive adequate compensation for these 
activities. In their opinion, the episode payment ``could provide an 
ample cushion for many agencies, which can be used to offset the costs 
associated with the OASIS mandate.''
    With respect to privacy concerns, GAO stated that, while HCFA's 
policies and procedures regarding disclosure of personally identifiable 
information were generally consistent with the Privacy Act, they found 
weaknesses in HCFA's implementation of them. Among their concerns were 
some agencies failures to clearly inform beneficiaries of the purposes 
for which their information may be disclosed and failure to routinely 
monitor contractors and researchers use of the information. Further, 
GAO found little or no oversight of how effectively the state agencies 
and third-party payors are maintaining the privacy of OASIS 
information.
    While the report correctly notes an underestimation of the burden 
of OASIS, the GAO conclusion regarding adequate financing for OASIS is 
based on an incorrect understanding of PPS rates. The GAO neglects to 
acknowledge that, while payment rates are based on 1998 utilization, 
those payments are reduced significantly to comply with the ``budget 
neutrality'' requirement in place during the transition to the PPS, 
which reduced the base payment rate by approximately 25 percent. This 
oversight leaves the public and policymakers with a mistaken impression 
regarding the level of reimbursement provided under the PPS. 
Furthermore, with respect to the GAO OASIS survey, the costs of newly 
instituted requirements, such as additional assessments beyond those 
required prior to OASIS, are not taken into account. These new 
requirements have added significant costs to agencies as they continue 
to comply with the burdensome and paper intensive OASIS mandate.
    The VNACC incurred the following costs, which have not been 
recognized, other than data entry costs, in the PPS payment rate:
    Oasis Training Costs exceeded $9,000.00 for classroom training 
alone. This does not include the 4 month preparation and implementation 
by administrative staff, the individual conferencing and joint home 
visits after orientation to assure staff competency in completing the 
assessment and ongoing education and updates.
    External Printing Costs = $15,000.00. Note: When revisions were 
made to the assessment tools in preparation for PPS, all existing stock 
needed to be destroyed and new tools set and printed.
    Scanners/Software/Computers = $18,000.00
    OASIS Data Entry Personnel Salaries = $25,000.00
    OASIS Clinical Reviewer Salary-- $47,000.00
    Additional non-billable visits to complete OASIS assessments = 228
Legislative and Administrative Recommendations
          1. Congress should appropriately compensate providers to 
        cover the full cost of OASIS data collection and reporting of 
        Medicare home health skilled patients.
          2. Congress should amend the Medicare Conditions of 
        Participation for Home Health and eliminate the requirement to 
        collect OASIS data on non-Medicare patients.
          3. HCFA should provide training in the use of adverse event 
        and outcomes reports for quality improvements and focus on a 
        supportive, rather than a punitive, approach.
          4. HCFA should strengthen its oversight of state agencies and 
        third-party payors' privacy maintenance of OASIS information.

    C. Home Health Advanced Beneficiary Notices
    Formal written notice is required to advise Medicare beneficiaries 
when the home health services they need will not be covered under 
Medicare, either in whole or in part. After several false starts, the 
Home Health Advance Beneficiary Notice (HHABN) was implemented on March 
1, 2001. The Medicare Conditions of Participation for home health 
mandate that agencies notify the patient, orally and in writing, about 
changes in Medicare coverage. The HHABN is HCFA's mandatory form.
    When a beneficiary is given a HHABN notifying them of non-coverage, 
the beneficiary has three options: (1) the patient wants the specified 
home health services, agrees to be fully responsible for payment, and 
asks for an official Medicare decision (demand bill); (2) the patient 
does not want to receive the service; or (3) the patient wants home 
health services, agrees to be responsible for payment but does not want 
the HHA to submit a demand bill.
    A HHA must submit a RAP when a patient requests that a demand bill 
be filed with Medicare. Medicare pays the RAP even though the HHA 
considers the care to be non-covered. Under PPS, a demand bill can only 
be submitted at the end of a 60-day episode of care. Some state 
Medicaid agencies have suggested that the HHABN must be given every 
subsequent 60 days. Further, third party payers, such as Medicaid or 
another insurance, refuse to pay until Medicare makes a payment 
determination. This is a particular problem in the New England states. 
This process for making the initial determination takes a minimum of 90 
days, partly due to the fact that a determination cannot be requested 
until the end of a 60-day episode or discharge of the patient. In those 
states where the Medicaid agencies have taken an aggressive approach to 
Medicare payment, the process will take longer because the states 
exercise their appeal rights, including requests for reconsideration 
and administrative law judge hearings. This process could take an 
additional 60 days to two years. While Medicaid exercises its appeal 
rights, the home health agency receives no payment for the care 
provided, since Medicare recoups the RAP payment upon determinations of 
non-coverage.
    The financial implications for beneficiaries and agencies could be 
enormous. Beneficiaries who do not have Medicaid or other insurance 
must pay out-of-pocket for the services. Home health agencies must 
continue to provide care they believe to be non-covered. By the time 
the HHA receives Medicare's official determination, the beneficiary may 
have already moved into a second, or third, episode of care.
    Following are related HHABN issues and unresolved problems:
          --The process imposes an additional paperwork burden on HHAs, 
        which must complete Medicare paperwork for patients who, in 
        fact, are not eligible for Medicare services or Medicare 
        payment.
          --Intermediaries initially issued incorrect instructions to 
        providers resulting in the development of HHABN forms that 
        could not be used, and confusion regarding the scope of the 
        notification process.
          --Although HHABN requirements were implemented March 1, 2001, 
        there are still many unresolved concerns, including: (a) 
        whether the HHABN must be provided to patients receiving only 
        personal care; (b) whether the HHABN must be provided every 60 
        days to ongoing patients; and (c) whether beneficiary-requested 
        demand bills must be submitted on an ongoing, 60-day cycle.
          --If HHAs are directed to complete the notice every 60-days 
        for ongoing patients, agencies will have to complete additional 
        paperwork (e.g., discharge OASIS and start of care OASIS forms) 
        to discharge the patient from Medicaid and readmit them to 
        Medicare every 60 days. For VNACC, the two OASIS forms that 
        would be completed comprise 28 pages of documentation and 183 
        repetitive questions.
          --Cash flow will be significantly impacted since the pre-
        demand bill RAP payment will be recouped and, in many cases, 
        the HHA cannot pursue Medicaid payment until an official denial 
        is obtained from Medicare.
          --During the time that a beneficiary's coverage determination 
        is under consideration by the intermediary, other providers 
        such as outpatient therapy providers and medical supply vendors 
        will have their claims rejected by Medicare B.
          --In addition, some state Medicaid agencies will refuse to 
        pay for medical supplies until the official Medicare coverage 
        determination is obtained, because of the consolidated billing 
        requirement under PPS.
    The VNACC found that HCFA failed to provide accurate instruction in 
a timely manner, creating an environment that makes providers prone to 
errors. These can be very costly, because agencies will be liable if 
proper notice is not given. The process and forms are confusing to 
Medicare beneficiaries, particularly in regard to their failure to 
include other payer options, such as Medicaid. Other payers may 
exercise the option to appeal adverse Medicare determinations to the 
highest level. In Connecticut, due to our experience with Medicaid 
third party liability (TPL) recovery efforts, we know the delay to 
reach an administrative law judge (ALJ) could take a year or more. Due 
to the delays in getting a determination, and then pursuing the appeals 
process, along with the medical supply issues, many providers in 
Connecticut are considering whether they can afford to provide services 
to the Medicaid population. In addition to the reduction of 32 (24%) of 
the agencies in Connecticut, this creates a serious shortage for the 
clients.

Legislative and Administrative Recommendations
          1. HCFA should clarify and simplify the HHABN and demand 
        billing notice procedures and allow for a single notice.
          2. HCFA should, in an effort to decrease the paperwork burden 
        on health care providers, get states to honor single notices.
          3. HCFA should clarify expeditiously the outstanding issues 
        and questions from the HHAs.
          4. HCFA should allow HHAs to submit a final claim for 
        determination immediately after delivery of at least one visit 
        rather than at the end of the episode.

    D. Medical Claims Review
    Home health providers are experiencing increasing difficulties in 
processing claims through the RHHIs for services provided to Medicare 
beneficiaries. Problems cited by agencies include increased 
inappropriate and excessive random and focused medical reviews, medical 
review inconsistencies, and technical denials.
    A wide variety of inconsistencies exist in payment decisions by the 
RHHIs reviewing medical claims. Differences in interpretation of 
homebound, technical requirements, and medical necessity requirements 
have resulted in confusion among many home care providers. In addition, 
local medical review policies (LMRP) are often more restrictive than 
the coverage policy dictates, complicating coverage decisions further.
    Given the current financial uncertainties related to intensified 
audits and disallowances and inconsistent medical reviews, coupled with 
the PPS billing problems, thousands of Medicare claims are currently in 
dispute or on appeal. This has created severe cash flow problems for 
many providers. Agencies are under severe financial hardships when 
payments are delayed weeks or months while under review and appeal.
    Reduced payment levels have a direct impact on agency ability to 
respond to mandatory documentation and claims compliance. The costs to 
comply with Medicare regulations are consuming a greater portion of the 
PPS base payment rate. In order to keep losses to a minimum while 
meeting increased compliance pressures, HHAs must implement more 
sophisticated information systems that can adapt to the ever-changing 
regulatory environment. The need for systems upgrades to capture 
accurate data once for use by multiple users while protecting the 
confidentiality and security of patient information is acutely needed 
within HHAs. The long term viability of HHAs hinges on their ability to 
file accurate and timely claims, treatment plans, and outcome 
documentation.
    At the VNACC, the business staff has shared that the increased 
level of medical review and the financial constraints on agencies are 
compounded by the difficulty in accessing intermediary staff, poor 
response time (as long as two weeks), and conflicting information from 
the intermediary. In addition, at a recent meeting between the 
intermediary and Connecticut agencies, we were told that several errors 
in the system have not been resolved. However, HHAs are responsible for 
tracking claims and payments manually, because the intermediary is 
unable to do it at this time. This would not be accepted in reverse. 
When providers are mandated to comply, no excuses are tolerated.
    Last April, the VNACC was notified that a focused medical review of 
30 records resulted in the denial of 20 home visits. The penalty was a 
30% prepayment review for a full quarter. Approximately 150 records 
were selected for review every month. We had to copy each page of 
documentation, mail them to the intermediary and wait for their 
determination. No payment was received until each record was reviewed 
and any appeal process finalized. During our ongoing communication with 
the intermediary, their office made 18 errors ranging from sending 
lists of client denials and copies of final determinations belonging to 
other agencies, to claiming denial of visits previously reviewed and 
approved by their own medical review department. Our denials were 
reduced to 4 nursing and 4 home health aide visits, but we remained on 
the 30% prepayment review.

Legislative and Administrative Recommendations
    1. Congress should reform the home care provider's claim review 
process by passing legislation that contains the following principles:
          --Time limits should be imposed on intermediaries for review 
        of claims.
          --Additional Development Requests (ADRs) should be 
        coordinated within the intermediary systems to avoid 
        duplication.
          --HHAs should be provided with the standards by which the 
        intermediary initiates and discontinues focused medical review.
          --Use of prepayment review should happen only after a 
        provider has demonstrated non-compliance.
          --Successful appeal determinations should be factored into 
        decisions on continuing focused medical review.
          --Sampling should be used only as a last resort.
    2. Congress should authorize HHAs to utilize PPS payments in a 
flexible manner in order to achieve system efficiencies without adverse 
consequences relative to payment, coverage, and compliance with the 
Conditions of Participation.
    3. Congress should enact legislation that reforms the claim audit 
process and sets standards for providers that would diminish extensive 
prepayment claim reviews.
    4. Congress should enact a temporary ``technology'' pass-through to 
upgrade and modernize HHAs information systems.
    5. Congress should enact the ``Medicare Education and Regulatory 
Fairness Act of 2001'' introduced by Senator Frank Murkowski (R-AK) and 
Representative Pat Toomey (R-PA) (S.452 and H.R.868).

    E. Appeal of Technical Denials
    Home health care benefits under Medicare involve a combination of 
technical and substantive requirements. For example, as a substantive 
requirement, a patient must be homebound in order to be entitled to 
benefits. A technical requirement includes that the patient's physician 
must certify, in writing, that the patient meets the homebound 
requirement. However, if the certification is not signed and dated 
prior to the billing for coverage, a claim denial is issued. While the 
technical error can easily be corrected, HCFA forces both types of 
denials into the time consuming and expensive appeals process. This 
delays payment by at least three months and as much as a year and a 
half in some cases.
    The VNACC has found such excessive scrutiny of technical errors to 
be costly, both in financial terms, as well as in administrative and 
staff time. The repeated duplication of mountains of paper only 
scratches the surface. It is difficult enough to hire staff to meet the 
needs of the community, much less dedicate staff to the preparation of 
all of the documents necessary to appeal technical denials caused by 
simple, clerical errors.

Legislative And Administrative Recommendations
          1. HCFA should reject the technically non-compliant claims, 
        but allow for resubmission when the claim is technically 
        appropriate. Such approach would continue to encourage 
        compliance while significantly reducing administrative burdens.
          2. Congress should require HCFA to allow physician assistants 
        (PAs) and nurse practitioners (NPs) to certify and make changes 
        to home health care plans. PAs and NPs are oftentimes more 
        familiar with a patient's case and more readily available than 
        physicians to expedite the processing of paperwork, ensuring 
        that home health agencies will be reimbursed in a timely manner 
        and that care to the beneficiary and cash flow to providers 
        will not be interrupted.

    F. Statistical Sampling Methodology For Post-Payment Audit and 
Review
    In March 1999, HCFA published an RHHI manual update outlining new 
procedures for comprehensive medical review using statistical sampling 
(Transmittal Number 1770). The updated instructions provide details for 
conducting comprehensive medical reviews, medical review audits, and 
for statistical sampling and overpayment projections.
    The use of sampling procedures involves the RHHI identifying a 
specific portion of claims from among an agency's claims submitted 
during a specified period of time. The proportion of denied claims in 
the sample would be extrapolated to all claims for the period, 
resulting in denial of claims that were never reviewed individually.
    Sampling imposes significant risks to agencies and eliminates some 
providers' appeal rights. Under HCFA's sampling policy, the 
overpayments projected through the claims reviews are recouped by 
Medicare prior to any rights of appeals. Since the projection can 
involve millions of dollars, home health agencies are unlikely to 
survive long enough to access the appeals process. Appeals are 
important because reversals of claims have routinely exceeded 80% over 
the years.
    The HCFA Region V Associate Regional Administrator registered a 
protest alleging that the statistical methodology used is invalid and 
irresponsible. This claim is supported by the Region V statistician and 
the statistical consultant to the Department of Justice in Chicago. 
Documents have been submitted to this committee regarding this 
allegation. With an improper sampling methodology, the risk of 
erroneous overpayment projection is dramatically heightened.
    HCFA has rejected the majority of recommendations made by home care 
providers to stop sampling and overpayment projections. In addition to 
opposing the use of statistical sampling, NAHC objects to the manner in 
which HCFA implemented this policy. At a minimum, policy changes of 
this nature should be subject to public review and comment, as required 
under the Administrative Procedures Act, before it is finalized. NAHC 
recommends that HCFA suspend its instructions to the intermediaries on 
statistical sampling of home health claims until appropriate 
modifications are made in policy.
    In March of 1998, the VNACC was randomly selected for a financial 
Medicare audit. We were told in advance that several auditors would 
remain in our office for five days to scrutinize all aspects of our 
financial record as they relate to our cost report. We asked if 
clinical records would be audited as well, and were told no. One hour 
before the financial auditors were expected, two clinical surveyors 
arrived and announced their intention to remain for three days to 
review records and meet with clients. We provide the clinical records 
from their pre-determined list. Home visits to randomly selected 
clients revealed that we had properly exercised the regulatory 
provisions for home care. We were commended for the quality of care we 
provided. However, the surveyors did announce that three visits, from 
the hundred reviewed, would be denied. In their opinion, two home 
health aide visits represented more homemaking activity than personal 
care. The third visit was clearly a human, billing error. The actual 
total of these home visits was less than $90.00. Medicare however 
extrapolated this figure ``to the universe of claims'' and demanded a 
$5,000.00 repayment, for which we had no recourse.
Legislative and Administrative Recommendations
          1. HCFA should develop a sampling regulation through public 
        notice and comment.
          2. HCFA should use sampling only as a last resort and only 
        with statistically supportable methods.
          3. HCFA should not undertake recovery of payments until all 
        appeals have been exhausted.

    G. Branch Office Designation
    HCFA has established new criteria for branch offices that emphasize 
the distance of the branch locations from the parent without reasonable 
consideration of the parent entity's actual supervisory capabilities. 
The policy does not recognize the use of modern methods of 
communication such as faxes, telephones, pagers and telecommunications 
that are used by every other business in the country as acceptable 
methods of communications and supervision. HCFA's branch office 
policies are contrary to regulatory reform initiatives and the proposed 
conditions of participation which espouse the need to care. In many 
cases, agencies have closed branch offices because of the added costs 
of complying with the conflicting and unnecessarily restrictive branch 
office policies, producing access problems for beneficiaries. NAHC 
drafted a petition for rulemaking on behalf of Medicare-certified home 
health agencies, requesting HCFA to institute a new rulemaking 
procedure and establish a single set of national criteria for defining 
``branch office'' of a home health agency under the Medicare program. 
After two years, HCFA has failed to respond to this rulemaking 
petition. Last year the Congress prohibited use of time or distance as 
sole criteria for determining branch office designation. Unfortunately, 
that falls short of what is needed.
Legislative and Administrative Recommendations
    Congress should amend the definition of branch office by:
          1. Recognizing that technological advances provide efficient 
        and effective ways to ``distance-manage'' branch offices and 
        workstations.
          2. Eliminating the criteria of time and distance for 
        designating branch offices.

    H. Medicare Cost Reporting
    The onset of the Medicare home health prospective payment system on 
October 1, 2000 did not end cost reporting responsibilities for home 
health agencies and audits of cost reports. It will be several years 
before cost reimbursement reaches its effective end as there are 
thousands of home health agencies still subject to cost report audits 
and cost disallowances. It is reasonable to assume that it will be 
three to five years before most of these issues are eliminated.
    Cost reporting has long been a contentious area between the 
Medicare program and affected health care providers. Differences 
regarding the interpretation of cost reimbursement principles have 
existed for years. At the same time, the cost reporting and audit 
process has imposed needless administrative burdens on home health 
agencies' directing operational expenditures away from patient care and 
into paperwork. These administrative burdens continue today with home 
health transitioning to PPS since HCFA has chosen to continue their 
requirement for cost reporting even in the absence of cost 
reimbursement.
    Listed below are the most notable of unnecessary administrative 
burdens.
          --After nearly six months into PPS, HCFA has yet to finalize 
        a revised cost report and instructions. However, the proposed 
        revisions require that home health agencies maintain 
        significantly different statistical information compared to 
        past years without providing any notice prior to the fiscal 
        year that such information would be required. As such, home 
        health agencies run the risk of providing unreliable data or 
        need to retroactively construct a database to satisfy the cost 
        reporting demands.
          --The proposed revisions to the cost report provide for the 
        use of inconsistent standards regarding the rule that providers 
        are paid the lesser of their costs or charges. Under this 
        proposed revision, aggregate costs are determined on a full 
        twelve-month basis while customary charges are based on the 
        charges imposed only during the portion of the year during 
        which Medicare cost reimbursement applies. As a result, home 
        health agencies may face retroactive payment disallowances that 
        were unpredictable and unforeseeable.
          --Auditors from Medicare intermediaries are requiring some 
        home health agencies to produce complete financial records that 
        are under common ownership or control with the home health 
        agency. These demands are made despite the fact that the home 
        health agency has no financial transactions or shared 
        operations with the other organizations. Medicare law requires 
        access to the financial records of related organizations that 
        do business with the home health agency. However, there is no 
        law requiring access to these records where there is no 
        business relationship.
          --The audit process often leads to demands that home health 
        agencies produce documentation that is not specifically 
        required by the Medicare program. For example, home health 
        agencies have been requested to produce time and function logs 
        for staff in 15-minute increments even though the job 
        description for the staff squarely fits within Medicare 
        allowable cost standards. These documentation demands have 
        forced home health agencies to immediately create an expensive 
        record keeping system.

Legislative and Administrative Recommendations

    Congress should reduce the administrative burdens placed on home 
health agencies at cost reporting process by:
          1. Directing HCFA to utilize pre-existing statistical 
        reporting standards to support revisions in the home health 
        cost reporting process. Any changes in required data should be 
        made prospectively.
          2. Directing HCFA to utilize a consistent standard for the 
        calculation and application of the lower of cost or charges 
        rule during the transition from cost reimbursement to PPS.
          3. Eliminate the inappropriate demands for documentation to 
        support reimbursement claims by requiring fiscal intermediaries 
        to adhere to professional auditing standards and generally 
        acceptable accounting principles.
          4. Restricting HCFA's ability to demand financial records 
        from commonly-owned or controlled organizations that do not 
        have financial transactions with a Medicare home health agency.

Conclusion

    The comments of the National Association for Home Care and the 
Connecticut Association for Home Care, as set forth above, should not 
be construed as critical of the Health Care Financing Administration or 
its hard working staff. Instead, NAHC and CAHC offer these comments 
with constructive intent and the recognition that HCFA has been 
overwhelmed with an unprecedented workload that began with the dramatic 
reforms of the Balanced Budget Act of 1997 and continued since that 
point. Many of the concerns expressed herein could be alleviated if 
HCFA were provided with sufficient resources. However, there are others 
that indicate long-standing operational weaknesses within HCFA relating 
to the performance of in-depth impact analyses and full consideration 
of alternative approaches prior to the implementation of new policies 
and procedures.
    HCFA has routinely opened its doors to suggestions from NAHC and 
CAHC. We hope that HCFA's recognition of the value of provider input 
can be maintained, if not enhanced, over the coming years. NAHC and 
CAHC look forward to the opportunity to work with the Subcommittee and 
with HCFA personnel to eliminate unnecessary administrative burdens and 
alleviate necessary ones where acceptable, but more efficient 
alternatives exist to accomplish the same policy goals.

                         Supplemental Statement

    This statement supplements testimony given on March 15, 2001, by 
Susan Wilson of the Visiting Nurse Association of Central Connecticut, 
Inc. on behalf of the National Association for Home Care at a hearing 
before the Subcommittee on Health of the House Ways and Means 
Committee. Chairwoman Nancy Johnson has requested the submission of 
this statement in response to the testimony and supplemental statement 
of Toby S. Edelman of the Center for Medicare Advocacy regarding its 
efforts to pursue Medicare payment on behalf of the state Medicaid 
program.

    MEDICARE: MAXIMIZATION: CAUGHT BETWEEN TWO PAYORS
    The National Association for Home Care takes no issue with the bona 
fide beneficiary-related advocacy provided by the Center for Medicare 
Advocacy in Connecticut. However, NAHC disputes the claim of the Center 
for Medicare Advocacy that it, as well as its client, Connecticut's 
Department of Social Services, have undertaken reasonable efforts to 
avoid the use of costly, time-consuming, and paperwork-intensive 
methods of pursuing Medicare payment on behalf of Medicaid-eligible 
recipients of home health services in Connecticut. Instead, the 15-year 
history of the so-called ``Medicare maximization effort'' in the state 
of Connecticut demonstrates a dominant interest in continuing to pursue 
Medicare payment through retroactive demands for claim submission and 
high volumes of appeals. The inefficiencies of this method of pursuing 
potential payment from the Medicare program fails to serve any patient 
related interest and only leads to higher administrative costs that are 
borne by patients, providers of services, and the Medicaid and Medicare 
programs.
    In its supplemental statement, the Center for Medicare Advocacy 
(CMA) touts its success in securing over $133 million from the Medicare 
program as a recovery of funds originally paid by Connecticut's 
Medicaid program for home health services since 1988. It neglects to 
offer any reference as to the costs of the efforts, including the costs 
of the state, Medicare, and the home health agencies. It is NAHC's 
understanding that the Medicare program expends significant 
administrative monies to process demand bills, reconsideration appeals 
and administrative law judge hearings. For example, NAHC believes that 
each reconsideration costs approximately $300 and each hearing 
approximately $1000 to process from beginning to end. For home health 
agencies, the costs of patient chart compilation, review, and copying 
to respond to the demand bills of Connecticut Medicaid ranges from $50 
to $100 for each billing period. These costs, as well as the state's 
own internal and contracted costs must equal several millions of 
dollars each year.
    At the same time, the Center references that ``Connecticut's 
activities to obtain proper Medicare for dually eligible clients have 
always included efforts to obtain appropriate benefits in the first 
instance.'' However, if there were a true interest in avoiding 
unnecessary Medicaid payments, the Medicare maximization efforts of 
demand bills and appeals should be gradually shrinking over the past 13 
years. Instead, the state of Connecticut and its contractor, the Center 
for Medicare Advocacy, continue to push high levels of demand bills 
months after Medicaid payment has been made, file hundreds of 
administrative appeals each year, and initiate litigation to establish 
the state's role as a party in interest in the Medicare appeals 
process.
    In contrast, home health agencies in Connecticut have attempted to 
advance alternative, more efficient methods of insuring that Medicare 
meets its responsibility as the primary payor of services, with 
Medicaid as a payor of last resort. It must be understood, that home 
health agencies in Connecticut generally consider that the level of 
Medicare payment for services rendered is preferable to the payment 
rates made for the services under Medicaid. Home health agencies have 
no financial or operational interest in receiving Medicaid payment over 
Medicare. The recent implementation of Medicare home health prospective 
payment (PPS) adds further complications since Medicaid maintains a per 
service payment method in contrast to the 60-day episodic payment under 
Medicare PPS. In addition, the current nursing shortage is exacerbated 
by diverting clinical resources to paperwork. Home health agencies have 
a strong interest in avoiding unnecessary administrative burdens that 
in no way improve access to care or the quality of services.
    In reality, home health agencies in Connecticut are simply victims 
in a fight between two huge bureaucracies, each of which may have an 
interest in shifting responsibility for necessary home health services 
to the other. Home health agencies have not voluntarily chosen to take 
on the nearly impossible task of distinguishing Medicare-covered home 
health services from that care covered under the state Medicare 
program. The role of an informal Medicare coverage decisionmaker has 
been forced upon home health agencies with the threat that the home 
health agency could be liable for the cost of care whenever it fails to 
determine that care, before it is provided, is outside of Medicare 
coverage. Through the so-called limitation on liability provision of 
Medicare law, 42 USC Sec. 1395pp, the Health Care Financing 
Administration has created a system which shifts the financial 
liability for the cost of home health services to the provider in most 
circumstances where Medicare is billed for non-covered care. Using 
ambiguous Medicare coverage standards that are inconsistently applied 
within the Medicare intermediaries, the home health agency must notify 
the patient that care is noncovered by Medicare before the services are 
rendered or end up assuming the liability for the cost of care. In such 
circumstances, the home health agency will receive no payment from 
Medicare and is prohibited from billing the patient or other third-
party payors. With the current retrospective review method by Medicaid, 
home health agencies face double jeopardy--service costs without 
payment from Medicare or Medicaid.
    It is hoped that with the recent changes in Medicare's criteria for 
determining homebound status, as contained in the Benefit Improvement 
and Protection Act of 2000 (BIPA), that some of the difficulties 
experienced with this confusing concept will be reduced. For example, 
under BIPA, Medicare patients regularly receiving adult day facilities 
services may retain homebound status. Prior to BIPA these patients were 
generally disqualified from Medicare home health services coverage as a 
result of their absences from the home. CMA had successfully appealed 
such cases on behalf of Medicaid. However, these appeals did not alter 
the standard applied by Medicare on its initial review of claims. Home 
health agencies are caught between a Medicare program that rejects the 
claims and a Medicaid program that pursues them.

    THE INEFFICIENT DEMAND BILLING/APPEAL PROCESS
    In the event where a dual eligible Medicare/Medicaid beneficiary 
receives home health services paid under the state Medicaid program, 
Medicare payment is pursued through a process known as ``demand 
billing.'' This process entails a retrospective demand from the state 
Medicaid program to submit individual Medicare claims on behalf of the 
dual eligible beneficiaries. Where that demand bill claim is not fully 
paid by Medicare, an appeals process is utilized. That process involves 
three administrative appeals steps and the opportunity for a federal 
district court review. In circumstances where Medicare coverage is 
awarded, the state recoups Medicaid payment directly from the provider 
of services, which then receives the appropriate Medicare payment. As a 
result of the timing of the process, home health agencies are often 
required to submit revised annual cost reports to Medicare and await 
settlement of the cost report before payment is made.
    The demand bill process for home health agencies encompasses the 
preparation of Medicare claims for multiple time periods for each 
beneficiary, extensive medical records review, a high volume of 
document copying and transmittal, and the management of a complex 
accounting and financial system to properly reconcile retroactive 
Medicare with earlier Medicaid payments. When a claim proceeds into the 
appeals process, the workload magnifies as duplicative documentation 
requests are issued at each stage.
    A central feature in the demand bill process is the new Home Health 
Advance Beneficiary Notice (ABN). While NAHC fully supports timely and 
appropriate Medicare coverage notices, the integration of the ABN with 
the state's Medicare maximization efforts has fostered improper 
payments, confused patients and providers, and increased paperwork. The 
ABN may work with patients that have no potential payer source other 
than Medicare, but it doesn't fit for a patient that has access to 
continued care and payment under Medicaid.
    In the 13 years in which the state of Connecticut has pursued 
Medicare maximization on home health services through the Center for 
Medicare Advocacy, the process has been essentially unchanged. In the 
beginning, the Center for Medicare Advocacy made large-scale requests 
for demand billings to home health agencies at certain points in the 
year while also pursuing a high volume of administrative appeals. A 
semblance of a claim selection process was utilized by the Center for 
Medicare Advocacy based upon the dollar amount involved and the volume 
of services provided to the patient. In most respects, that same system 
is in place today. While the efforts have recovered significant 
Medicare payments for the state Medicaid program, no advances have been 
made in reducing the administrative burden or preventing a Medicare 
disallowance in the first instance.

    RECOMMENDATIONS
    Over the years, home health agencies in Connecticut have made 
numerous recommendations as to steps that could be undertaken to 
significantly reduce the administrative burden related to dually-
eligible patients. These recommendations require cooperation between 
the Health Care Financing Administration and the state Medicaid 
program. Most can be undertaken under current authority. However, there 
may be a need for legislative change to authorize some of the 
recommendations. These recommendations include:
          1. Eliminate the threat of shifted liability for a provider 
        of services on dual-eligible Medicare/Medicaid beneficiaries. 
        In these circumstances, there is no question as to the 
        necessity of the services to the patient, only the identity of 
        the payor source.
          2. Provide front-end billing of dual-eligibles to the 
        Medicare program with any residual claims transmitted from 
        Medicare to Medicaid. This process would require structured and 
        expedited time frames for claims processing in order to 
        maintain reasonable cash flow for home health agencies. To 
        reduce the volume of dual eligible claims submitted in this 
        process, selection criteria established by the state Medicare 
        program could be utilized to pre-screen claims.
          3. Establish a reconciliation process between Medicare and 
        Medicaid relative to any disputed claims. Through this process, 
        a sample of the claims in dispute would be appealed and a 
        financial reconciliation occurs between Medicare and Medicaid. 
        The home health agencies need not be part of the appeals 
        process except for the potential of providing a copy of the 
        patient's record. There would be no cost report adjustments or 
        shuffling of payments between the provider, Medicare, and 
        Medicaid. The process would be similar to the subvention method 
        utilized to reconcile VA and Medicare obligations.
          4. In Connecticut, those Medicaid services authorized through 
        the state's case management contractor would be excluded from 
        the process because they would involve a pre-screening to 
        determine whether the plan of care is, in full, or in part, 
        covered under the Medicare program.
    In summary, NAHC supports an efficient and accurate process which 
properly assigns payment responsibility to Medicare or Medicaid. 
However, the concerns with the Medicare maximization efforts is that 
they rely upon inefficient, burdensome, and costly processes that do 
not include preventative action and instead utilize a system designed 
for individual claims to pursue a high volume of disputes. The home 
health community continues to recommend that a new process be 
established to address these mass payment disputes as distinct from 
that process originally intended to address the small number of 
circumstances where an individual beneficiary requests the submission 
of a demand bill.

    [The attachments are being retained in the Committee 
files.]

                                


    Chairwoman Johnson. I thank the panel for your testimony 
and for the speed with which you were able to move through the 
highlights. Indeed, I hope the Members of the Committee will 
take time to read these papers in detail because they are very 
thoughtful. They do focus on very real, practical problems that 
I think we really must tend to.
    Dr. Corlin, I wanted to mention that the inspector general 
believes that the bill that you support introduced by 
Representative Toomey would undermine his ability to eliminate 
fraud. How do you respond to that?
    Dr. Corlin. We are aware of that interpretation, and we are 
a bit surprised by it. Nothing could be further from the truth, 
Madam Chairman.
    In any case where fraud is suspected or alleged, that would 
have to be referred immediately to the OIG, as it is now, and 
would not be different in any way, shape, or form from the 
present situation.
    Our concerns and the reason we support this legislation are 
to deal with how inadvertent billing errors are dealt with. We 
want fraud to be dealt with just as vigorously as it is now and 
would not impede the OIG in any way in anything they do in a 
fraud investigation.
    Chairwoman Johnson. Dr. Corlin, when an inspector general 
comes into a physician's office, do they differentiate between 
billing errors that represent an undercoding and billing errors 
that represent an overcoding?
    Dr. Corlin. Initially, not at all. And what was happening 
is that assessments were being made based just on overpayments 
rather than the net of overpayments and underpayments.
    Now, at least there is some net charge based on the two, 
but it just strikes me that if I was an investigator and I went 
in and I saw a pattern where most of the bills were correct but 
some of them were wrong, and if all of them were wrong in the 
positive direction, I would have some real suspicions. But if 
all of them were wrong and there was a pattern of some being 
overbilled and some being underbilled, if that is fraud, that 
is the dumbest fraud I have ever seen in my life. And to me, 
that should be evidence of the fact that there are problems in 
lack of education and inefficiency in the billing process, not 
a deliberate attempt to defraud.
    Chairwoman Johnson. I don't remember quite how long it took 
for the inspector general to realize that he needed to offset 
underpayments and overpayments, but it did take a couple of 
years. I just want to put on the record the experience of a 
physician in one of my small towns who had the inspector 
general come in, and he found $1,742 in overcharges. But 
through Medicare's methodology, this resulted in a demand to 
repay $74,000.
    So there is a methodological problem there with the way 
they move from the problems that they have seen and the 
conclusion that they come to. There also is, I think, just for 
the Committee's knowledge, no way that a physician can even 
challenge a single review of a case and say to the overseer, 
the inspector general's person, that actually this is what the 
case really was, challenge his interpretation of that case. He 
really has to abdicate his right. As this doctor says, ``I had 
to choose to either abdicate my rights of appeal and other due 
process protections, or challenge the Medicare to an 
adversarial conflict on their turf by their rules.''
    So there are some significant problems here.
    Dr. Corlin. Madam Chair, we agree absolutely and have seen 
horror show after horror show take place. One group, if I may 
give an instance----
    Chairwoman Johnson. Actually, I don't want to take too much 
time as chairman, so I would appreciate it if I could just move 
on to the others.
    I just want to mention that I was interested that 
Northwestern added 26 full-time employees this year solely to 
comply with new regulations. True?
    Mr. Mecklenburg. That is correct. We added 16 additional 
utilization review staff and 10 additional billing coders this 
year, primarily for HIPAA and outpatient payment coding.
    Chairwoman Johnson. And then I would like to ask Ms. Ousley 
to comment just very briefly, because I would like to ask Ms. 
Wilson to comment very briefly.
    On this issue of the turnover rates in the nursing homes, I 
know it is almost impossible to recruit new nurses, but this 
turnover rate, you say, of 80 percent, is that unusual? How 
many years ago was it that you had a lower turnover rate? And 
what have been the changes that have caused this?
    Ms. Ousley. It is unusual and it is growing by unbelievable 
dimensions today. And as I said, I do believe that it is 
related very much to the atmosphere in which we are asking our 
nurses to work. They, again, are afforded so very little 
respect, and as I indicated, the oversight process that the 
nurses go through is just almost unbelievable.
    There is such a demand for write it down, write it down, 
document it, that they are getting so frustrated that they 
absolutely cannot do what they were trained to do, their 
profession, to provide the care for residents.
    A personal example. In one of my facilities just a few 
weeks ago during the survey process, two of the nursing 
supervisors--and this is a facility that has been essentially 
deficiency-free for the last 20 years. One of the nursing 
supervisors actually got physically sick in the middle of the 
survey and said, ``I have to go home.'' Another nursing 
supervisor said, ``When it is over, I am done. I can't stay 
here anymore. I can't go through this again. We work too hard 
to have to deal with this.''
    Both those nurses, thank goodness, are still with us today 
because it is a good and it is a stable community, and the 
administrator was able to convince them. But that is the type 
of thing that is happening that is driving good, caring people 
out of this profession. And I firmly believe that is one of the 
reasons that it is increasing.
    Chairwoman Johnson. This is a very big issue, the change 
that has happened in the survey and certification process over 
the last 5 or 6 years, and I urge members to go visit their 
nursing homes and talk to the people who have been through 
these surveys, talk about what the impact has been on the 
quality of care of this kind of survey versus the kind of 
survey work we were doing in a more collaborative environment a 
few years ago. You can only really get the flavor of the 
change. There is no question in my mind but that it is forcing 
people out of the business.
    Ms. Wilson, let me just ask you--and thank you for your 
detailed testimony. It was extremely useful. But one of the 
things that disturbed me the most is that Congress mandated 
that there be a case mix adjuster. Now, in your testimony, you 
mentioned that comorbidities were not taken into account. Could 
you just describe to us what impact this had? And then save 
just 1 minute to also describe what kinds of cases some to you 
that couldn't possibly be covered by Medicare, and yet you have 
to go through this time-consuming process that results in a 
delay for service payment of at least 2 months, and often as 
much as year. So just would you comment on that comorbidity 
issue? Because it is astounding to me that this would not have 
been built into case mix adjustment.
    Ms. Wilson. On the issue of comorbidities, when the OASIS 
data set is completed--and at the start of care, OASIS 
assessment is comprised of about 83 separate questions. One of 
the very small factors is, in fact, the diagnosis. There are 
only three primary diagnoses, which pertains to orthopedics, 
neurological issues, and diabetes, which are drivers of a 
differentiation in reimbursement.
    Having a population in New Britain which is an older 
population, our agency primarily serves an older population. Of 
course, we see people with comorbidities: congestive heart 
failure, chronic obstructive lung disease, et cetera. It 
requires intensive intervention on the part of the clinicians. 
We have to organize many community resources, and obviously all 
of those factors impact the individual's safety and well-being.
    The cost in time and money is astronomical. However, it has 
absolutely no impact on the cost of reimbursement. Only if, in 
fact, a primary diagnosis of diabetes, an orthopedic, or a 
neurological diagnosis were primary would that have any impact 
whatsoever.
    Chairwoman Johnson. So the bottom line is that there is 
very little relationship between the cost of care that senior 
needs and actually your reimbursement level?
    Ms. Wilson. Correct.
    Chairwoman Johnson. Let me move on now and not go to the 
other question and give Mr. Stark an opportunity.
    Mr. Stark. Thank you, Madam Chair. Just a couple of issues 
here because I need a little more data from some of our 
witnesses.
    I think, Dr. Corlin, you indicated--and we are going to 
have a little difference, I suspect--in the testimony today 
that Medicare's rules and policies are driving physicians from 
the program.
    Now, what we are finding, for example, is that in every 
State except Missouri, the participating physician rate is 
higher in 2000 than it was in 1999; MedPAC did a study of 
physicians, and they found, in questioning physicians about the 
difficulty of finding a referral, that only 4 percent of the 
physicians said it was very difficult to find a referral for a 
Medicare patient, but 3.7 percent had the same difficulties 
finding referrals for privately insured patients. So there is 
almost no difference in finding a referral for a Medicare 
patient. If we were driving the docs out, one would suspect 
that it would show up there.
    By the way, this is a 1999 survey; there is another one in 
the works. When they surveyed physicians about their attitudes 
about Medicare and comparisons to Medicaid--which I think is 
probably the worst in terms of physicians' preference-fee-for-
service, PPOs, and private HMOs, Medicare does pretty well. In 
other words, 54 percent felt that the billing paperwork was a 
very serious problem for patients served by HMOs, and only 29 
percent gave this answer for Medicare. So one could say 
Medicare is doing better than private HMOs, which should not 
come as any surprise because the physicians have been 
supporting our efforts to get the Patient's Bill of Rights 
passed. That has sort of fallen off.
    Dr. Corlin. No, sir, it has not.
    Mr. Stark. OK, good. But what I guess I am saying is that, 
while I am perfectly willing to urge my colleagues to move 
efficiently and to improve Medicare, I think it is fair to say 
Medicare is--in your own practice, I will bet you--one of the 
two best or least hassling payers you have got. And I find this 
is true from many physicians. In Connecticut, for example, the 
AMA affiliate there is suing Aetna for paying claims slowly.
    Now, let's say that a doctor's practice grosses 2 million 
bucks. That is before it pays all the nurses and rent and 
everything else. We pay--we, being HCFA-clean claims in 30 
days. You are lucky if you could tell me with a straight face 
that managed care plans pay you in under 120 days.
    I am suggesting that you get to float a half a million 
bucks with us that you are not getting out of these other 
plans. And if you can earn 6 or 8 or 10 percent on that. You 
don't do so badly. Again, I am not suggesting that we can't 
improve, but I think you have got to compare us to the others. 
I don't think, Doctor, that you would ask me to turn Medicare 
over to Aetna without any change in regulation and let them pay 
you under their plan for all your patients. I just think that 
you would probably have trouble getting re-elected as 
president. I might have trouble getting re-elected----
    Dr. Corlin. I am only allowed to serve one term, sir.
    [Laughter.]
    Mr. Stark. Don't mention that to the good folks in the 13th 
District of California, please.
    There is no business operation--and that is what HCFA is--
that can't stand improvement and doesn't need constant revision 
to see that we are using current technology. In fact, we are 
offering you a buck off, I think, if you will file 
electronically. Maybe we should charge you a buck--you being 
your group and other participating doctors--if you don't file 
electronically to urge you to get out and buy that laptop and 
help us be more efficient.
    There are a lot of ways we can cooperate, but the MERFA may 
very well completely eliminate any ability to enforce our laws 
and regulations. It is not the way to go. And I would urge you 
to--which is unlike previously, 10 years ago with the AMA--
continue to be in the tent with us as we write any improved 
legislation, and I think we can go a long way together.
    But, please, you know, for a lot of the guys who work hard, 
this argument 135,000 pages of regulations is baloney. We have 
counted them. There are about 35,000, which is maybe too many, 
but it isn't 135,000. That number came from Mayo, who have 
refused to send us any documentation of where it came from. 
But, believe me, I want to stay out of the Mayo Clinic if they 
can't tell the difference between 135,000 and 35,000, or when 
they read my cholesterol level, I am going to have a real 
problem.
    So thank you for your organization's support to stop 
smoking, to get kids insured, to reform managed care. But 
remember that one of the complaints you have that are fixed in 
the Patients' Bill of Rights is that you get paid by the 
private insurers on time. At least we do that. We may come back 
after you later, and maybe we have to change that. But be 
careful what you wish for. It could come to pass. And I look 
forward to working with you.
    Now, if I have misstated any of your position or the 
difference--if you want to shed any light on the difference in 
our statistics, please do. Sorry, Madam Chair.
    Dr. Corlin. Thank you, Mr. Stark----
    Chairwoman Johnson. Dr. Corlin, if you will be quite brief, 
as the red light is already on.
    Dr. Corlin. Yes, I will. I would be pleased to respond.
    We are not here today to talk about specifically just 
payment issues. I can tell you that in virtually every 
community in which I speak, there are at least one or two of 
the senior internists who have said, ``I have had it with the 
kind of audit process that they have put me through, and I am 
not going to see Medicare patients anymore,'' and that is a 
shame.
    I would like to respond by giving two very, very brief 
responses which focus on our concerns today, and one has to do 
with a six-person group dealing in one subspecialty with 
internal medicine. And I have seven lines that I want to read 
you about what they went through. They are recognized in the 
entire area in which they practice as being the most high-
quality group in that specialty.
    The carrier audited 80 claims from their practice--this is 
six doctors in a very active practice--and demanded all the 
supporting documentation within 45 days, which they sent. The 
carrier then extrapolated from those 80 claims and said that 
that practice owed somewhere between $99,000 and $285,000, and 
they would accept the $99,000, but it had to be paid within 30 
days, and they had to admit liability.
    Also, if they wanted to try to get an extended payment 
system, they would have to provide financial documents that 
they were turned down for loans at the bank in order to do it.
    The physicians appealed the audit finding after paying the 
$99,000, with interest, and 3 years later after the initial 
audit was done, the administrative law judge held that the 
carrier was wrong and that there was no overpayment and ordered 
their $99,000 returned to them, without interest.
    The other issue we find ourselves in is we are told 
repeatedly that if you contact the carrier and ask a question 
and get an answer, you can only rely on that answer if you are 
subsequently audited, as we did it the way the carrier told us, 
if you are given a written confirmation of the answer. We are 
never able to get those.
    I would love to be able to tell you that I can go to 300 
physicians around the country, ask them to ask the same 
question of their carrier 10 times each over 3 months, and get 
3,000 answers the same. I suspect we would have 1,200 different 
answers to that same question.
    Help us with those issues, and the financial factors that 
we are concerned about will not be as great.
    Mr. Stark. And just a follow on, Madam Chair, a quick 
comment. We have about 50 different carriers across the 
country. They are not government employees. Generally, they are 
Blue Cross or Aetna employees who contract with the Government, 
and each one has a different set of standards. And we recognize 
that as do you. This is not ``the government.'' This is 50 
different contractors. It is like dealing with 50 different 
banks around the country chasing you for your visa card bill. 
And we and HCFA recognize that we don't have common computers.
    I mean, I could go on----
    Chairwoman Johnson. Mr. Stark, we do need----
    Mr. Stark. The Chair knows this----
    Dr. Corlin. HCFA, when they say they can't control the 
carriers----
    Chairwoman Johnson. I believe the whole point of this 
hearing is to get this kind of problem on the record, because 
while in the old days you might be able to tolerate it, now 
with the incredibly complex cases, the variety of diagnostic 
treatment and technologies, you cannot put people through this 
and expect them to participate in the program, and we really 
have an obligation to hear this and deal with is 
constructively. Mr. McCrery.
    Mr. McCrery. Thank you.
    I think Mr. Stark does raise a legitimate question, though, 
and I would like for you, Dr. Corlin, and maybe Mr. Mecklenburg 
to elaborate.
    What is the difference in paperwork requirements or the 
burden of compliance between HCFA and Medicare and the private 
sector in your private-pay patients? Dr. Corlin?
    Dr. Corlin. Thank you, Mr. McCrery. It is all across the 
board with the private payers. Some are very good and respond 
very quickly and are very efficient. Others, the situation is 
terrible. And I think probably if you want to characterize 
managed care, the best thing you can say is if you have seen 
one managed care plan, you have seen one managed care plan. 
Some of them work through a delegated model, either fee-for-
service or capitation, and work very efficiently with minimal 
disruption to the practice. We are fortunate in our community 
that that is the way we work. I have never had a circumstance 
where I have had to do anything more, if I got a rejection, 
than call and speak to a medical director over the phone and 
got it taken care of very quickly. I am talking about 
authorization, not payment. And many of ours in our own 
practice are capitated. Some are not. We are much more 
fortunate than some. It ranges from very good to very bad.
    The Medicare payments themselves, the payment system, at 
least for physicians, is not the problem. We are not 
complaining that there is slow pay for Medicare.
    Now, we had in southern California 4 months of slow pay, 
and many physicians didn't get paid at all for 3 months when 
they switched from one intermediary to another. That is a 
specific issue. It is not likely to happen again.
    But our concern is we want the auditing process that it is 
the carriers that do to be efficient, appropriate, and 
businesslike. I would love to be able to come back here near 
the end of my presidency and congratulate you for making HCFA 
the Nordstrom of Government agencies.
    Mr. Mecklenburg. Mr. McCrery, I would concur with the 
assessment that we have problems with most of our payers in 
terms of slow pay, burdensome requirements, added paperwork. I 
think in terms of Medicare and Medicaid, in our own 
organization right now we have had two major impacts by 
example: one, implementation of new outpatient payment 
regulations that have been very difficult for us to get to a 
completed and clean claim; second, we have had a change in 
intermediaries, which has already been discussed, with 
dramatically different paperwork requirements, dramatically 
different interpretations of Medicare payment restrictions, 
that have led to dramatic increases in receivables and in our 
allowance for bad debts.
    Mr. McCrery. Well, generally, though, can you help me with 
my question, which is: How does the burden of complying with 
Medicare compare with the burden of complying with the private 
sector in general?
    Dr. Corlin. That burden is much, much worse in the 
standpoint of having----
    Mr. McCrery. What burden is worse?
    Dr. Corlin. The burden regarding Medicare.
    Mr. McCrery. Is worse than the private sector?
    Dr. Corlin. It is much worse based upon the uncertainty and 
inexactitude of knowing what to do. At least with managed care 
plans, whether we like it or not, we know exactly what has to 
be done. And if we call and ask a question, chances are we are 
going to get the same answer time after time. We may not like 
the consistency, but there is consistency and we know the 
rules.
    There are circumstances in dealing with the Medicare 
intermediaries where the rules are confusing, the wording is 
confusing, and when we call we get different answers without 
the substantiation.
    Mr. McCrery. So you disagree with Mr. Stark's 
characterization that the private sector is just as bad as 
Medicare in terms of the burden it places on you for paperwork 
and compliance?
    Dr. Corlin. Absolutely. With regard to those aspects of it, 
I do.
    Mr. McCrery. Mr. Mecklenburg, how about hospitals?
    Mr. Mecklenburg. I would agree with that conclusion. If I 
can give you one simple example of a difference between 
Medicare and many of our other payers, every time a Medicare 
patient receives service, we are required to ask a series of 
questions about secondary payers. It has 25 questions on it. We 
have to ask it every single time a patient receives services, 
whether it is a physician service or a laboratory test. That is 
not only a burden for our personnel----
    Mr. McCrery. Private payers don't require that.
    Mr. Mecklenburg. Not this kind of questioning. The first 
question I have to ask a patient every time is: Are you 
receiving black lung benefits and will services being performed 
be paid by black lung? A patient that is seeing us every couple 
weeks for a lab test gets very tired of answering that 
question.
    Mr. McCrery. Well, Madam Chair, evidently these witnesses, 
who are from the health care sector, disagree with the 
information that Mr. Stark provided us. Maybe we should ask Mr. 
Stark to provide some witnesses to substantiate the claims that 
he is making so we could clear this up.
    Mr. Stark. If the gentleman would yield?
    Mr. McCrery. Sure.
    Mr. Stark. Most of that comes from MedPAC, and we will hear 
from them, and they are doing another study. So I think that is 
right on. We should find out. We will have MedPAC as a witness 
later.
    Mr. McCrery. Good.
    Ms. Wilson. May I add a comment in reference to your 
question as it pertains to home care?
    Mr. McCrery. Sure.
    Ms. Wilson. Certainly in terms of the private sector, we 
definitely have our problems, and there is definitely a 
financial burden that comes with contracts at substandard pay 
rates, et cetera. However, when it comes to the coverage, very 
often, as has been said, we can call, we can discuss what the 
situation is, and seek some resolution. There is also a very 
clear process in terms of appeal, and we have utilized that.
    One example that we have had with our agency is that the 
fiscal intermediary routinely does focused medical reviews, and 
we are not aware of when those are taking place. In April 1999, 
we were notified that our agency had undergone a focused 
medical review of 30 records which resulted in--now, 30 records 
can total hundreds and hundreds and hundreds of visits. It 
resulted in a denial of 20 home visits. The penalty was a 30 
percent prepayment review for a full quarter, which is going to 
total about 450 records for our agency.
    What that meant was we needed to copy each and every 
record, send it to the intermediary, have it reviewed, wait for 
their determination, appeal if necessary. This is a process 
that goes on for weeks, months, and sometimes could last for a 
year or more.
    However, during that process, what we found was that the 
intermediary made 18 errors ranging from sending lists of 
client denials and copies of final determinations belonging to 
other agencies to claiming denial of visits previously reviewed 
and already approved by their own medical review department. 
When this was clarified, what they originally said was 20 home 
visits was actually a total of eight. However, we still were 
subjected to the 30 percent prepayment review. There was no 
getting away from that process.
    That I don't believe would have occurred with the private 
sector.
    Ms. Ousley. If I could also add, just on behalf of the 
nursing facilities----
    Chairwoman Johnson. Very brief, Ms. Ousley. That red light 
is on.
    Ms. Ousley. For Medicare, for us, in justifying the 44 
category claims requires, again, tremendous documentation, and 
like my colleagues, with review many times comes numerous 
denials for paperwork reasons.
    Chairwoman Johnson. Thank you very much. Mr. Kleczka.
    Mr. Kleczka. Thank you, Madam Chair.
    Mr. Mecklenburg, the form that you refer to that has to be 
asked of every patient coming into the hospital, is that a 
verbalized form or is it given to the patient and you just 
check the various questions?
    Mr. Mecklenburg. Depending on the patient, it may be done 
either way.
    Mr. Kleczka. But for the most part, it is given to them and 
they will just go and check it off? Then also there is another 
form: Do you use insulin? Are you allergic to anything? Have 
you seen a doctor? You know, that type of info is also 
requested, right?
    Mr. Mecklenburg. Yes, there is a variety of information----
    Mr. Kleczka. All right. So on the 25 questions, that is 
probably just given to the patient and they check yes or no, 
and so that, you know, isn't an overly--I think the 
presentation here is overly exaggerated on that.
    Madam Chair, I think it is important that we look at the 
regulatory burden of the program. I know full well there are 40 
million-plus people getting the services of the program. So, 
naturally, it is going to be somewhat cumbersome. But to blame 
all the woes in the medical profession on the regulations of 
the Medicare program I think is going a little above and beyond 
where we should be going today. The only thing I haven't heard 
from this panel is blaming the recent demise of the stock 
market on the Medicare burdens, but that may come maybe from 
the second panel, Gail.
    Nevertheless, the point I wanted to make is if, in fact, we 
are going to talk about the issue, I think we better get some 
facts straight and start with the database that we somewhat 
agree with. And I think Mr. Stark brought up the fact that 
there are not 132,000 pages of regulation. That sounds good to 
the public, and they will scratch their head and say, oh, my 
gosh, we have got to do something about it. But I am told by 
the former HCFA Administrator Nancy Ann DeParle that the actual 
pages, including the manuals, comes out to be about 35,000 
pages, which is no small number but, nevertheless, a lot less 
than 132,000.
    Do you agree with that, Mr. Mecklenburg, or not?
    Mr. Mecklenburg. I don't know that I do agree with that, 
but I would be happy to get back to you on that.
    Mr. McCrery. Where did the 132,000 come from?
    Mr. Mecklenburg. I think as Mr. Stark said, it came from a 
study at the Mayo Clinic.
    Mr. McCrery. OK. And are you aware that Nancy Ann DeParle 
wrote the Mayo Clinic to ask for justification, which they 
never responded to?
    Mr. Mecklenburg. Not until----
    Mr. McCrery. It is nice to use the number, but I would just 
make sure we use it with some accuracy.
    Dr. Corlin, you indicated a recent situation with your 
practice, we had to do some paperwork before attending to the 
patient. I can't find that in your printed statement. Could you 
just re-relate that to the Committee real quick?
    Dr. Corlin. The circumstance occurred that--and it was 
Tuesday night. It was one of the three hemorrhaging patients 
that I got called to see. It was someone who had been in the 
intensive care unit for several days, and because of the 
requirements to have each and every physician who sees the 
patient put documentation that is unnecessary and repetitive, 
instead of about four or five pages of progress notes, there 
were 33 pages of progress notes. Simply to find out what had 
gone on with that patient in the last 72 hours, those had to be 
read before I could----
    Mr. McCrery. But the inference was that you were filling 
out this paperwork while the patient was bleeding. Was that----
    Dr. Corlin. No, no. I didn't say that. I was called in and 
I had to go over that patient's chart. Prior to a couple of 
years ago, the same amount of medical information would have 
all been on the chart in probably four or five or six pages. 
Now it is over 30 pages.
    I would invite you, if you ever come to Southern 
California, I will take you on rounds with me for a day, and we 
can go through some of the charts, after I cover the patient's 
name for their confidentiality, and you can----
    Mr. McCrery. And you are saying those numerous pages are 
because of the Medicare rules and regulations?
    Dr. Corlin. Absolutely.
    Chairwoman Johnson. If the gentleman will yield?
    Mr. McCrery. Sure.
    Chairwoman Johnson. We will provide you with a list that 
the Mayo Clinic actually did of Medicare regulations and 
supporting documents.
    Mr. McCrery. OK.
    Chairwoman Johnson. And all of the coding books and those 
kinds of things that are absolutely essential, plus the laws, 
and that 137,000 does come from that study.
    Mr. McCrery. OK. Well, I haven't seen that, and I would 
like to take a gander at it. But I am told there are 900 pages 
of statutes, so Congress is not bashful by any stretch. To 
implement those statutes, there are 1,700 pages of Medicare 
regulations, and then we do have some HCFA program manuals, and 
that totals about 32,000. And I am told that is the sum and 
substance of the Medicare regs that you folks have to adhere 
to.
    But, again, Madam Chair, it is something we should look at. 
But to blame all the woes, including nursing shortages, on the 
paperwork I think is a real stretch. I have a niece who is an 
RN--in fact, I have a couple nieces who are RNs back in 
Milwaukee, and one is a critical care RN. And the shortage 
there is a shortage in the nursing profession and not 
paperwork. And when these nurses have to mandatorily work 
either another half shift or another full shift at the expense 
of the family, that gets pretty burdensome. And that is not a 
Medicare problem.
    So I think what we have to do as a nation and possibly as a 
Congress is look into the actual nursing shortage, which is, I 
think, more dominant than paperwork having nurses quit the 
business.
    Thanks.
    Chairwoman Johnson. I think certainly our goal here in this 
hearing is not to claim that the change of administrative 
burden is the whole problem or solving it the whole answer. But 
it is important, and it is the first time in my experience--and 
I have been on this Subcommittee for 12 years--that we have 
ever had a panel like this. It is the first time, I think, that 
we have ever faced the dimension of problems and, therefore, 
needed to have this. So it isn't the whole answer, but it 
certainly is one of our obligations to deal with, Jerry. I 
didn't mean to imply that it was the only thing. But I think 
their testimony does help you to see that it is an element in 
the nursing----
    Mr. Kleczka. Madam Chair, again, I agree with you for the 
most part that it is something we should look at. The program 
is getting bigger, and it is going to double in size in our 
lifetime. But to blame everything in the world on HCFA, I am 
just not ready to do that.
    Chairwoman Johnson. I would hope that you would take from 
this--go visit your nursing homes, go visit doctors who----
    Mr. Kleczka. Oh, I am there all the time.
    Chairwoman Johnson. Talk with them firsthand. Mr. Ramstad.
    Mr. Ramstad. Thank you, Madam Chair, and thank you for your 
leadership in this area. If anything needs to be changed, it is 
the overregulation of HCFA.
    I wish my good friend from California, Mr. Stark, were 
still here. I would remind him that the Mayo Clinic is 
recognized as one of the foremost medical centers in the world 
by virtually everyone in medicine, and I certainly respect and 
take seriously their concerns with regard to overregulation by 
HCFA and the overly burdensome, cumbersome Medicare 
regulations. I meet ever week, virtually, with health care 
providers in Minnesota. I am home every week. And I hear 
virtually every time about the crushing paperwork burden 
imposed on providers by HCFA, as has been testified to here 
today, duplicative documents, redundant forms that are 
unnecessary to treat patients, unnecessary for quality health 
care. Too many providers are spending too much time struggling 
with paperwork rather than treating patients, and it is time, I 
believe, to introduce common sense into the HCFA bureaucracy; 
130,000 pages of rules and regulations are clearly excessive.
    For the first 6 or 8 years I was in office, the IRS managed 
to garner the most complaints among my constituents. Over the 
last several years, it has certainly been HCFA.
    I just was at a nursing home several weeks ago where the 
administrator explained to me they just hired two new nurses to 
do nothing but fill out forms. Two new nurses that could be 
helping patients, working on health care issues, to do nothing 
but fill out Medicare forms.
    This regulatory burden is unacceptable. Certainly it is 
necessary to have a reasonable level of documentation to 
prevent fraud, to improve patient care, but it is time, Madam 
Chair, for HCFA to start focusing on working with patients, 
working with the health care industry in a collaborative way, 
rather than working against health providers in an adversarial 
way. And from your testimony and from the firsthand accounts of 
providers in Minnesota in my district, it is certainly the 
consensus, if not the unanimous feeling, of my providers that 
they are burdened, overly so, by paperwork. And certainly they 
corroborate your testimony today, every one of you, despite 
what some of my friends who sometimes--and they are my friends 
on the other side. Sometimes I think they are operating on a 
different planet. I couldn't believe what I was hearing, and I 
wish they were still here to respond.
    But I want to thank you, all four of you here, for telling 
it like it is. Congress needs to hear from you who are 
operating in the real world and who deal with patients, who 
represent the best in providers, and I appreciate your coming 
forward and being helpful to this Committee, because this 
Committee is very serious about changing the overly 
bureaucratic, overly burdensome regulatory scheme, regulatory 
regime of HCFA. This must change because the current regime is 
totally unacceptable to quality and cost-effective health care. 
As you suggest, too many people are being driven out of health 
care because of HCFA.
    Let me just ask Mr. Mecklenburg, if I could, do you have 
any idea--have you quantified this? What percentage of 
administrative staffs employed in hospitals today deal for the 
most part, for most of their time, with Medicare reimbursement 
issues and regulations? Can you estimate the number or the 
percentage and/or the cost of the Medicare regulations?
    Mr. Mecklenburg. I don't know that I can give you that 
number. I would be happy to try and find that for you and get 
back to you.
    I would just go back to my testimony. In my organization 
alone, which is a large teaching hospital, we can identify 
specifically 100 employees--that ranges from utilization review 
coordinators, billing coders, corporate complaint staff, 
internal auditors, various billing folks--that are full-time in 
compliance. That does not include the staff nurse, the 
management staff who spend some part of their day. So it is a 
significant amount of the effort. And what is unfortunate, I 
think what you can look at, if you are looking at a hospital 
like mine or many others across the country, if you look at 
where staff have been added over the years, the high proportion 
has been made in administrative services, mostly to comply with 
regulation.
    Mr. Ramstad. Just like the two nurses just hired by that 
Dakota County, Minnesota, facility to do nothing but paperwork.
    Mr. Mecklenburg. That is correct.
    Mr. Ramstad. Thank you again. I see my time has expired. 
Thank you, Madam Chair.
    Chairwoman Johnson. Thank you.
    I am going to recognize Mr. McDermott, and you see people 
leaving because we have a vote on. I, too, am going to go and 
vote, but after Mr. McDermott questions, it is my hope that one 
of the other Members who has not had a chance to question will 
have returned so we can proceed promptly and move on to the 
next panel. Mr. McDermott.
    Mr. McDermott. It is kind of a weird experience sitting up 
here by myself, nobody listening to what I ask.
    [Laughter.]
    Mr. McDermott. In listening to this debate here today, one 
could come down only, it seems like, in extremes, on one side 
or the other. Either there is an enormous amount of fraud, 
waste, and abuse out there, and, by God, we are going to find 
it; or else we are all doing just fine, and why are you being 
so intrusive. As a practitioner myself, I can feel for what 
that is like.
    I have a couple of questions that I have been thinking 
about. One is, it seems to me that in 1995 HCFA put out some 
rules for evaluation and management documentation guidelines, 
and they barely got those in, and then in 1997 we started with 
another provision, and in 1998 another set of rules came out, 
and we are doing it again.
    It seems to me that one of the problems may well be that we 
haven't taken the time to let anything settle in and for people 
to actually figure out how it works. But I was reading in the 
MedPAC recommendations where they suggest that HCFA should 
pilot test documentation guidelines for evaluation and 
management services before their implementation and/or pilot 
test any alternative method.
    It seems to me that that is partly what is missing here. I 
was in medicine when we put on the DRG system. It just came out 
of nowhere, boom. And it was a research tool at Rutgers or some 
place, and they were looking for something in the Congress on 
how to deal with costs, so, bang, that is the answer.
    When you do it to the whole system without testing, it 
seems to me that there is a real problem, and I wonder if my 
perception is correct. And if it is, what kind of pilot test do 
you think would give HCFA the capacity to figure out what they 
want to know without running over the doctor-patient 
relationship and setting the IG at encouraging senior citizens 
to call in when you find somebody who has mis-paid a bill?
    We have created an atmosphere in medicine which I don't--
and in health care in general. It is also with hospitals and 
with home health and so forth, and in nursing homes, that I 
don't think is a very healthy one. I don't think it is good for 
the patients.
    I wonder what kind of pilot testing you think, starting 
with you, Dr. Corlin, and perhaps others have some ideas.
    Dr. Corlin. Thank you, Dr. McDermott. And I very much 
appreciate your comments and that kind of an attitude. I think 
it is a thing that we look forward to working with and 
cooperating with. And unlike Mr. Kleczka's comments, we are not 
blaming everything in the world on this. HCFA does a lot of 
things very, very well, but it does some things not well and 
some things that we think are really counterproductive. And we 
would like to see those things corrected so that there can be 
better focusing of HCFA's resources as to where the problems 
are.
    With regard to the specific question you ask, first, I 
think there has to be the realization that, whatever the 
regulations are, while there has to be clear uniformity and 
equality in how they are applied, there also has to be a 
realization that in dealing with medical practices and in 
patients, this is not a one-size-fits-all situation.
    We would like to see one pilot done in a teaching setting 
where you have physicians in training supervised by staff 
physicians, to see what kind of requirements are appropriate 
there.
    We would like to see one pilot done in a far rural setting 
where there are much more limited resources, both on the 
practitioners there and the patients having fewer resources in 
terms of do I go to this practitioner or that practitioner or 
the other practitioner. They may only have one source that they 
can go to, and we would like to see one setting done there.
    We would like to see one pilot done which is the result of 
a peer-reviewed development, almost a clinical vignette 
setting: Is this the right way to get the documentation?
    I think there has to be the realization that while the 
public and the Government clearly have the right to say we need 
to prove that when something is billed for it was actually 
done, by the same token the patients and the physicians have 
the right to say, you know, this is not just an accounting 
exercise where you do double-entry bookkeeping and make sure 
the numbers add up. It has to be relevant to the medical 
practice, it has to be clinically appropriate, and it has to 
not interfere with what the patients need.
    We would love to be able to sit down out of the glare of 
lights and cameras and say: How can we work out these pilot 
studies? And let's put them into working for a while and have 
people who are, you know, disinterested and are not biased on 
either side evaluate the results and see what we come up with.
    Mr. McDermott. Did I misunderstand? Did not the AMA and 
HCFA work together in putting these E&M criteria together or 
this classification together?
    Dr. Corlin. The AMA urged a lot of the classification and 
criteria to be developed. We did not work with the development 
of a lot of the overly burdensome ones. And in many cases, we 
will come forth and I believe--I am going to have to check with 
staff because I was not personally involved with that. We may 
well have been involved in requesting some of the general 
category to be addressed, but were not involved in the 
development of the details.
    Now, many of the specialty societies put forth individual 
items for it, and we coordinated some of that. But we were most 
distressed, particularly with the 1997 guidelines, because of 
how clinically inappropriate they were in comparison with what 
has to be on the chart meeting HCFA's requirements versus what 
has to be on the chart to document good medical care that is 
easily retrievable the next time that chart is picked up.
    Mr. Crane. The time of the gentleman has expired.
    Mr. McDermott. Would you extend it for just 1 second?
    Mr. Crane. All right. One second. One thousand one.
    Mr. McDermott. One of the cases that--the fraud and abuse 
initiative started in 1998, and an example used as an 
unsupported service for physician payment was ``a routine 
physical exam.'' And to put that into the improper payments 
implies it is bad or fraudulent. How do we get around that? I 
mean, the IG says he is looking for improper payments.
    Dr. Corlin. I think, sir, that right now there is a 
reasonably good understanding on everybody's part as to what 
fraud is. When fraud occurs, fall on them like a ton of bricks, 
and we will be there clapping. No question about it.
    Beyond that, there are the inadvertent billing errors that 
occur by people who they or their office staff may not know the 
proper way to do it, and then there is a third thing, which I 
think, Dr. McDermott, gets to the point you raise, which is the 
coverage issue. If a routine physical is not a covered 
benefit--and I am a gastroenterologist; up until July 1st, 
when, fortunately, it will change--routine colonoscopy may not 
be a covered benefit, if it is done, if it is needed by the 
patient for good medical care, if it is documented that it was 
done but it is not a covered benefit, then simply reject that 
as not being a covered benefit, send back an EOB saying it is 
not a covered benefit, and the issue is done with. That is a 
different category of situation.
    Mr. McDermott. Did I understand, then, they wouldn't have 
paid for the routine physical exam?
    Dr. Corlin. They shouldn't have. Whether they did or not 
may be another matter.
    Mr. McDermott. Is there any way it could have gotten paid 
for? I mean, it would seem to me that the intermediary would 
have a screen that said any time that comes up, no.
    Dr. Corlin. Well, they probably do and I hope they do. And, 
again, being a gastroenterologist, let me get back to one 
example that has caused a lot of confusion in people's minds 
with regard to the issue of screening colonoscopy, which has 
gotten a lot more publicity because of Katie Couric and the 
tragedy of her husband. In the long run, it is going to help 
people enormously.
    People consider screening colonoscopies and don't know what 
it really means. That doesn't mean a patient who has had, say, 
an episode of rectal bleeding and comes in to a doctor. That is 
not a screening test. That is in regard to a specific symptom. 
A screening test is somebody who is completely healthy, who has 
no family history of colon cancer, who says I am 50 and I want 
the test just because I think it is good to have it when I am 
50, good medical care says, yes, that is right. Is that a 
covered benefit of any given program? That is another issue 
completely, and we would--you know, the coverage issues are the 
coverage issues. But that is just for screening, not for when 
someone has symptoms, and one of the difficulties we have had--
and I am sure Mr. Mecklenburg can relate the same thing--is 
confusion in the part of a lot of reviewers' minds of care 
given on a truly screening or surveillance basis as opposed to 
the same care given in response to someone who has some history 
or symptoms that indicate it is specifically necessary.
    Mr. McDermott. If a patient--I am stretching my----
    Mr. Crane. Two seconds.
    Mr. McDermott. Two seconds. With respect to a patient who 
would come in and say, ``I feel bad and I don't know what it 
is, I just don't feel right,'' you would so a physical exam. 
Would that be considered a routine physical exam?
    Dr. Corlin. To my way of thinking, no. A routine exam of 
any sort, whether it be a general physical, a colonoscopy, a 
mammogram, a Pap smear, this is something that someone says I 
am well, I have learned either from my physician or from the 
media, or whatever, that it is good to have this test every so 
often, and I want to have mine to be sure I don't have a 
problem, that is routine screening.
    When a patient comes in with any symptoms, that is not 
routine screening anymore.
    Mr. McDermott. Thank you.
    Chairwoman Johnson. Mr. Crane.
    Mr. Crane. Thank you, Madam Chairman.
    Dr. Corlin, just last week the Office of Inspector General 
reported that nearly $12 billion in Medicare spending was lost 
last year to improper payments. And while this represents a 
welcome improvement over the previous years, it remains 
unacceptably high.
    The OIG has claimed that this bill substantially undermines 
the program's integrity. How do you respond to that assertion?
    Dr. Corlin. First, let me say that I agree with your 
initial statements. We are glad the amount is down, it is still 
far too high, and would support any reasonable efforts to get 
it even lower. We would disagree with the OIG's conclusion 
because nothing in this bill would in any way deter or 
interfere with the investigation of suspected fraud, whether 
that is the most blatant of fraudulent billings or even--there 
are certain provisions in the bill that would say if the 
physician or the practice brings forth concerns about claims 
that may have been paid improperly, that they cannot be held 
accountable on fraud for that since they brought it forth.
    The OIG complained that, well, the physician could just 
take all their bills for the year, bring them forth, and say, 
gee, I may have done it wrongly, can you help me, get the 
advantage of the float, the way Mr. Stark described it, and 
immunize themselves on all their claims. That is not true 
because that pattern of behavior in itself is fraudulent. That 
clause is given to the physician who finds in an occasional 
case or, gee, in this one code I just realized I may have been 
billing it wrong, and I want to get it corrected.
    We in no way want to do anything to limit their 
investigation or prosecution of fraud when it occurs. And if 
there is anything in this bill that inadvertently would have 
that result, we would look forward to be supportive of changing 
language to see to it that that doesn't occur.
    Mr. Crane. And, I don't know, Gary, should I call you ``Mr. 
President''?
    Mr. Mecklenburg. Whatever you wish, Mr. Crane.
    Mr. Crane. All right. You mentioned several burdensome 
operational processes that hospitals are required to do by 
Medicare. Do other payers, private insurance companies or HMOs, 
ask you to do the same task but in a less onerous way? And if 
so, could you elaborate a little?
    Mr. Mecklenburg. I think as we talked a little bit before, 
I think the requirements of each payer can be highly variable. 
That is another operational problem that we have of 
inconsistency in the forms, in the data, in the way that we 
must submit claims.
    I would submit that the regulations that come from Medicare 
and Medicaid are often longer, more onerous, more subject to 
interpretation perhaps by a variety of people than we 
experience with most of our payers.
    Mr. Crane. In your testimony, you suggest that hospitals 
must be able to challenge in Federal court any attempt by HHS 
to overstep its authority or to enforce questionable policy. 
Could you please tell us specifically what you are referring to 
and what sort of questionable Medicare policy have you 
encountered? And why should your provider seek legal rather 
than regulatory or legislative remedies?
    Mr. Mecklenburg. The problem that we have with this part of 
the Medicare regulations is that, in order for us to exhaust 
the administrative processes under Medicare, we have to first 
be in violation of the Medicare rules or law. And if we are in 
violation, then we risk being banned from participation in the 
program. We certainly think that that is not the proper way for 
us to go about determining whether or not a specific rule or a 
specific regulation is appropriate or inappropriate inside the 
law. So we simply think we ought to have the opportunity from 
time to time to be able to challenge in a due process sense 
what has been proposed.
    Mr. Crane. Thank you for your testimony, and I yield back 
the balance of my time, Madam Chairman.
    Chairwoman Johnson. Thank you very much, Mr. Crane. Miss--
Mrs. Thurman from Florida. Sorry about that.
    Mrs. Thurman. It is OK. It has already been a long morning.
    I want to add my thanks to the chairwoman for bringing this 
particular issue to the forefront, because we have all seen 
this to be a problem.
    Dr. Corlin, one of the interesting things, though, that I 
did notice in one of the responses was that you mentioned that 
you had gone from about six pages to 33 pages in the last 5 to 
6 years. Was that correct? In the paperwork that you were 
doing?
    Dr. Corlin. Actually, it is probably a more recent 
timeframe. It is probably within about the last 3 or 4 years.
    Mrs. Thurman. So we could actually say that some of this 
has coincided with the major changes that have been happening 
here in Congress through the BBA, the buybacks, and then again 
over the last couple of years where these regulations have 
actually gone up.
    Dr. Corlin. I think probably related to the 1997 HCFA 
regulations. If there is any one point that they are key to, it 
is probably more the 1997 E&M guidelines than anything else, 
yes.
    Mrs. Thurman. One of the things that I would just caution 
with this Committee is that we have just also done one this 
last year, again, and, you know, it is probably apropos that we 
are talking about this now, because there is probably going to 
be a whole other set of guidelines out there that potentially 
will also have an impact on what you are doing, plus the 
information I know that we are asking from all of the providers 
now because we, you know, stopped some of the things that have 
been put in place so that we could gather additional 
information, so that we could make a better decision on how we 
might implement any of that. I mean, I think that is true.
    So the question that I would ask all of you then is: In the 
time that we have gone through these transitions, have you used 
the process of, you know, when the rules are set out there, and 
are you using the process to give your comments on review as to 
where you think there are problems? And if you can, can you 
cite some of those for us so that we can find out potentially 
from this Committee what has happened to those rule suggestions 
and how they have been implemented that have not been, you 
know, what you might have put down as the providers?
    Mr. Mecklenburg. I think we consistently comment on various 
rules and regulations that come out, and we would be happy to 
provide you back with very specific examples of where we have 
done so and where we believe the outcome hasn't been 
appropriate.
    Ms. Ousley. Certainly, we spend a lot of time commenting on 
the rules and regulations as it pertains to nursing facilities. 
One of the issues that we have faced over these last several 
years, especially with the implementation of the Medicare 
prospective payment system for nursing facilities, is that we 
essentially implemented the system with an interim final rule. 
So it can be said that we were actually flying the airplane as 
it was being built. So as we would train our nurse aides, train 
others on exactly what would be required, as we were getting 
them trained and getting one process implemented, then the 
process would start to change. So that was very, very 
difficult, and it really has contributed tremendously to the 
burdens and some of the issues that we have talked about today.
    HCFA certainly listened to our comments and worked with us 
to try to accomplish all of that under a very short time frame, 
but it was very, very difficult to accomplish.
    Mrs. Thurman. But they also were given directive by the 
Congress----
    Ms. Ousley. Correct.
    Mrs. Thurman. To, in fact, do certain things to have an 
outcome, which has created--even with the comments sometimes, 
you know, was maybe not the outcome that you wanted, but 
certainly might have been the outcome that Congress wanted, I 
would suggest.
    Ms. Wilson, I want to say that you all do have an awful lot 
of paperwork, and I think probably of all of the areas that 
beneficiaries see that, more is from your particular area of 
the visiting nurses or home health care, because I can tell you 
from just sitting down with my mother, you know, up here and 
then in Florida, I did the same paperwork ten times. There was 
no difference. And I was just transferring her from, you know, 
here to there, and, you know, you do 2, 3 hours as the 
caregiver to the person who is going to be responsible for 
taking care of them in your home. And I found that just 
incredibly----
    Ms. Wilson. Well, thank you for mentioning that, because 
not only am I an administrator of a home health agency, I am 
also a daughter and a daughter-in-law of aging parents, and it 
has been astronomical to sit down and try to explain what it is 
that we are presenting.
    One of the common complaints that we have from our clients 
is that there are too many questions, there are too many 
papers, I have to sign my name too many times, and I don't know 
what I am signing.
    Mrs. Thurman. And I heard that from your nurses as well, 
and they have said to me, if you could do one thing, do that. 
However, in saying all of that, the other thing that I would 
ask from all of you is, you know, part of the problem that I 
think has come to our attention and one of the problems that we 
face is that at the same time that all of these issues were 
going on, we were having Operation Trust out there, we had all 
of this fraudulent activity just recently in Florida under 
Medicaid. We have now found payments that, you know, could 
average up to as much as $10 million in the Medicaid fund 
because people who have died have actually still--Medicaid is 
still being billed for them.
    So I think one of the things that, as we go through any of 
these changes, is that you have to understand I believe from 
our side over here that we are also responsible for the dollars 
that are coming in and that are being spent. You are taxpayers. 
You understand that. And over the years it has been our 
responsibility to hold that accountability and to make sure 
those things aren't happening. And we constantly see from every 
organization, from all of our constituents, saying I know there 
is fraud, you know, I have been here, I have done that, we have 
started programs. And so we are, you know, trying to be 
helpful, but on the same side of it, we are the protectors of 
the taxpayers' dollars, and they demand a certain amount of 
accountability from us to show that we are not allowing these 
kinds of actions to take place.
    Ms. Wilson. May I comment in reference to that? I 
absolutely agree with you. I do believe that there needs to be 
oversight. I do believe that there needs to be protection. I 
absolutely believe that regulations that are in place are there 
for a purpose.
    We did go through a period of time where certainly fraud 
and abuse was on the front page of every single newspaper in 
the country. However, in speaking particularly about the 
Northeast, many of the surveys that were done, the audits that 
were done, found very, very little. However, agencies continue 
to be under scrutiny.
    Our agency alone, within a period of 18 months, had 12 to 
13 different surveys. Every single one of them came out 
perfectly clean. We turned around and the next proverbial knock 
would be at the door.
    I had one of the staff people say that it got to the point 
where, while we absolutely agree with zero tolerance as far as 
fraud and abuse is concerned, that we are now in a system where 
the best is never enough and everything you do is suspect. And 
that the staff find intolerable.
    Mrs. Thurman. If I could just say, Madam Chairman, one of 
the things that I would think that, as Secretary Thompson said 
yesterday, that we certainly needed to be giving more money to 
HCFA, that one of the things that I think that we should look 
into--and I don't want to mandate anything more to HCFA, but is 
to look at what is happening in the training aspects of both 
those that are going out to inspect and those that are doing 
the coding.
    I remember in the early 1980s when every government agency 
started going on computers, and we spent all this money on 
computers, but we spent no money on training. So a lot of the 
computers would sit there because people couldn't use them. And 
I think we have got a similar situation going on here, and 
maybe we should be putting a moratorium on any kind of 
regulations until we can figure out where we are today.
    Chairwoman Johnson. Thanks very much, Congresswoman 
Thurman. I thank the panel very much for your excellent 
testimony and for your patience in answering questions.
    We will move on to the next panel now: Toby Edelman, 
attorney for the Center for Medicare Advocacy; George Grob, the 
Deputy Inspector General, the Office of the Inspector General; 
and Bob Moffit, the director of Domestic Policy Studies at the 
Heritage Foundation; and the Honorable Gail Wilensky, Project 
HOPE.
    As is our usual procedure, you will each have 5 minutes, 
and then we will turn to questions. As soon as you are ready, 
Ms. Edelman, if you will proceed.

   STATEMENT OF TOBY S. EDELMAN, ATTORNEY, HEALTHCARE RIGHTS 
PROJECT, CENTER FOR MEDICARE ADVOCACY, INC., AND MEMBER, BOARD 
  OF DIRECTORS, NATIONAL CITIZENS' COALITION FOR NURSING HOME 
                             REFORM

    Ms. Edelman. Good morning. I am Toby Edelman, an attorney 
with the Center for Medicare Advocacy, and a Member of the 
Board of Directors of the National Citizens' Coalition for 
Nursing Home Reform. Thank you for the invitation to testify on 
behalf of Medicare beneficiaries and their advocates. I would 
like to summarize my written testimony and three points and 
then elaborate briefly on each of them.
    First, Medicare beneficiaries and advocates view HCFA's 
rules and the regulatory process somewhat differently from the 
providers who have testified this morning. We see the rules 
promulgated by HCFA as helping to assure that beneficiaries 
have full access to high-quality health care.
    Second, we know that law and regulations can work. In the 
area of nursing homes, the nursing home reform law and Federal 
rules have improved the quality of care for residents in some 
important respects. The good care practices mandated by the 
reform law and rules are also cost-effective and save Medicare 
dollars.
    We have seen other examples where HCFA's rules and 
guidelines are criticized by providers, including this morning 
the home health advanced beneficiary notice. But these give 
beneficiaries important information that helps them get the 
health care they need and are entitled to receive under 
Medicare.
    Third, we believe that HCFA is often overly deferential to 
the health care industries it regulates and that beneficiaries 
can be seriously harmed as a result.
    Medicare beneficiaries see the rulemaking process, at its 
best, as both open and highly democratic. The process allows 
all sectors of the public to participate, to express their 
views, and to be heard. Beneficiaries as well as providers can 
influence HCFA's rules and guidelines. The rulemaking process 
also requires HCFA to respond to these public comments and to 
explain its rationale in making regulatory decisions.
    The reform law enacted in 1987 and its implementation by 
HCFA are a clear example of how law and regulation work 
effectively. They established a high level of care as the 
Federal standard and helped improve the quality of care for 
residents.
    The reform law was based in large part on good practices 
that had been tried and proven effective in States and 
facilities, and I would like to discuss just two of the 
practices this morning: reduction in the use of restraints and 
resident assessment.
    When the law was enacted, nursing practice and the nursing 
home industry in general believed that restraints would protect 
residents from injuries and falls. As a result, in the late 
1980s an estimated 41 percent of all residents in the country 
were physically restrained. The reform law changed that 
paradigm. Based on practices of facilities that had 
demonstrated that removing restraints was a better and safer 
way to provide care, Congress and HCFA made restraint reduction 
a priority concern. In 1999, only 11.2 percent of residents 
were physically restrained.
    The Institute of Medicine report on long-term care that was 
issued earlier this year called restraint reduction ``the 
greatest improvement in nursing home care.'' And the Institute 
of Medicine credited HCFA's regulations and oversight for this 
tremendous improvement. Being restraint-free is better for 
residents and it is cheaper for government payers.
    The second example is the requirement from the law that all 
facilities assess residents using a comprehensive, 
standardized, reproducible assessment instrument. The minimum 
data set, or MDS, was developed by HCFA through an intensive 
public process that involved all sectors of long-term care, and 
I would add parenthetically that, although the nursing home 
reform law explicitly authorizes States to develop their own 
assessment instrument, all States in the country have chosen to 
use the MDS process that HCFA developed.
    An evaluation in 1996 found that MDS improved care outcomes 
for residents. There were more positive outcomes--more 
residents had hearing aids; more of them were involved in 
meaningful activities--and fewer negative outcomes--fewer 
residents had catheters, for example.
    Not only was care better, it cost less. Hospitalizations 
were reduced by 26 percent, reflecting an annual estimated 
savings to the Medicare Program of $2 billion in hospital costs 
in 1992 alone.
    As I describe in my written testimony, clinical staff and 
administrators continue to resist using the MDS and have 
complained about it, even as they acknowledge that it gave them 
better information about residents and helped them provide 
better care.
    Despite improvements, we know that serious and 
unconscionable care problems remain in too many nursing homes. 
Many of these problems were documented by Senators Grassley and 
Breaux in the extraordinary series of hearings they held in the 
Senate Special Committee on Aging between July 1998 and 
September of last year. But these hearings also demonstrated 
that the care problems resulted primarily from lack of strong 
public enforcement of the care standards and not from the 
statutory and regulatory standards themselves. And the recent 
IOM report agreed with this analysis.
    I would like to turn briefly to my third point, that HCFA 
is too timid in exercising its rulemaking authority and overly 
deferential to health care providers. In the nursing home area, 
HCFA at first had difficulty implementing the strong 
enforcement approach of the reform law in the face of fierce 
and aggressive opposition by the industry. The weak enforcement 
system initially established by HCFA's guidelines tolerated 
high levels of facility non-compliance with care standards. The 
General Accounting Office reported in July 1998 that 99 percent 
of facilities that had deficiencies were not subject to any 
remedy at all. The GAO called this an amnesty program for 
providers and said they were given a chance to correct their 
problems.
    The weak enforcement of the care standards was a major 
cause of the care crisis that Senators Grassley and Breaux's 
hearings vividly documented. Strong congressional oversight and 
the administration's nursing home initiative have now helped 
redirect the agency's approach to enforcement to some extent. 
The enforcement system is now more consistent with Federal law 
and more likely to achieve its purposes of assuring correction 
of deficiencies, sustained compliance by facilities, and, of 
course, most important, high quality of care for residents.
    Nevertheless, many beneficiaries have been hurt by what the 
GAO described as the lax and overly tolerant enforcement system 
that HCFA at first created in deference to the industry.
    I would just like to say something very briefly about 
benefits of other HCFA rules beyond nursing home care. This 
morning we heard criticism of the new home health advanced 
beneficiary notice, which requires home health agencies to use 
a standard form in notifying beneficiaries when they believe 
the Medicare Program will not cover particular home health 
benefits. I have three comments about that.
    First, this requirement is not new. HCFA has required home 
health agencies to provide beneficiaries with notice of non-
coverage since at least 1975. What is new is the requirement 
that home health agencies use a form specified by HCFA.
    But the second point is that home health agencies had been 
informed in advance that HCFA intended to mandate use of the 
HHABNs, and they have been fully involved in the regulatory 
process since September 1999 in developing that form.
    Finally, and I think most importantly, receiving notice 
about non-coverage of care is critical to beneficiaries. Once 
beneficiaries receive such a notice, they can require that 
their home health provider submit what is called a demand bill 
to the Medicare Program. This is the first step in the appeals 
process. But even at this early step, more than half the 
beneficiaries who submit demand bills win their claims and get 
coverage for home health care from the Medicare program. In 
other words, the home health agencies were wrong in more than 
half the cases in saying that the services needed by 
beneficiaries would not be covered by Medicare. The HCFA-
mandated notice from the provider and the demand----
    Chairwoman Johnson. If you would please conclude?
    Ms. Edelman. Yes, thank you. That----
    Chairwoman Johnson. I know how important this is to you, 
and we will get back to it in the question period.
    Ms. Edelman. Yes, well, thank you very much. The final 
point about this is that this notice helps beneficiaries pursue 
their right to Medicare coverage, and without the notice and 
without the system, beneficiaries would not receive the 
Medicare coverage of home health care that Congress intended.
    Thank you very much.
    [The prepared statement of Ms. Edelman follows:]

  Statement of Toby S. Edelman, Attorney, Healthcare Rights Project, 
  Center for Medicare Advocacy, Inc., and Member, Board of Directors, 
          National Citizens' Coalition for Nursing Home Reform

INTRODUCTION
    Good morning. I am Toby Edelman, an attorney with the Healthcare 
Rights Project of the Center for Medicare Advocacy, Inc. and a member 
of the Board of Directors of the National Citizens' Coalition for 
Nursing Home Reform. Thank you for the invitation to testify before the 
Subcommittee on behalf of Medicare beneficiaries and their advocates.

OVERVIEW
    Rules promulgated by the Health Care Financing Administration to 
implement federal Medicare legislation have helped to assure that 
Medicare beneficiaries have access to high quality health care. In the 
area of nursing homes, the nursing home reform law and federal rules 
have improved aspects of quality of care for residents. In addition, 
the good care practices mandated by the reform law and rules are cost-
effective and save Medicare dollars.
    However, while HCFA can and does play an important role in 
protecting beneficiaries' access to high quality care, too often, the 
agency is timid and overly deferential to the health care industries it 
regulates. Beneficiaries can be harmed as a consequence.

THE PURPOSE OF THE MEDICARE PROGRAM IS TO PROVIDE HEALTH CARE SERVICES 
        TO BENEFICIARIES, NOT PAYMENTS TO HEALTH CARE PROVIDERS
    Congress enacted the Medicare program in order to provide health 
care benefits to older people and people with disabilities. Courts have 
repeatedly recognized and stated that the program is designed for 
beneficiaries, not providers. Home Health Services, Inc. v. Currie, 531 
F. Supp. 476, 479 (D.S.C. 1982), aff'd 706 F.2d 497 (4th 
Cir. 1983) (``[T]he statute was obviously not enacted primarily for the 
benefit of the provider of services, but rather for the recipients of 
medical care benefits.''); Gartman v. Secretary of the United States 
Department of Health and Human Services, 633 F. Supp. 671, 679 
(E.D.N.Y. 1986); Mays v. Hospital Authority of Henry County, 582 F. 
Supp. 425 (N.D. Ga. 1984).

THE ADMINISTRATIVE RULEMAKING PROCESS ENABLES BENEFICIARIES AS WELL AS 
        HEALTH CARE PROVIDERS TO PRESENT ISSUES AND CONCERNS TO THE 
        HEALTH CARE FINANCING ADMINISTRATION
    Due to the complexity of health care programs and the expertise 
needed to administer them, Congress delegates responsibility to the 
Department of Health and Human Services to provide the details for its 
legislative enactments. The Health Care Financing Administration is the 
component within the Department that has expertise and is given the 
authority to implement the Medicare statute. HCFA meets its duty to 
implement federal legislation, including Medicare, through a public 
rulemaking process.
    While the rulemaking process is lengthy and time-consuming, it is 
also, at its best, both open and highly democratic. The rulemaking 
process allows all sectors of the public to express their views and to 
be heard. Beneficiaries and their advocates, as well as health care 
providers, participate in the rulemaking process in order to bring 
their experiences and concerns to the attention of HCFA. Through their 
comments on rules, they explain the impact of rules on all segments of 
the public and offer suggestions to improve or strengthen rules to 
achieve their statutory goals. When HCFA publishes final rules, it is 
required to respond to these public comments and to explain its 
rationale in making regulatory decisions. HCFA is publicly accountable 
for its decisions.

MEDICARE BENEFICIARIES AND THEIR ADVOCATES SEE RULES AND THE RULEMAKING 
        PROCESS AS HELPING TO ASSURE BENEFICIARIES' FULL ACCESS TO HIGH 
        QUALITY HEALTH CARE
    While providers may see various aspects of the laws and rules as 
burdensome and excessive, beneficiaries often view these same laws and 
rules quite differently. Beneficiaries see the laws and rules as 
establishing a system that protects their rights and interests in 
receiving full access to high quality health care.

          NURSING HOME CARE
    The nursing home reform law enacted by Congress in December 1987 
and its implementation by HCFA are a clear example of how law and 
regulation work effectively both to establish a high level of care as 
the federal standard of care and to help improve the actual quality of 
care that residents receive. I follow nursing home law closely, having 
spent nearly 25 years advocating on nursing home issues on behalf of 
residents, particularly Medicare and Medicaid beneficiaries.
    The 1987 reform law was the most comprehensive revision to federal 
nursing home law since the Medicare and Medicaid programs were enacted 
in the 1960s. Congress based the detailed legislation on a series of 
hearings in 1987 in the three committees with legislative 
responsibility for the Medicare and Medicaid programs; on the 1986 
report of the Institute of Medicine, Improving the Quality of Care in 
Nursing Homes, which itself was the result of several years of 
exhaustive research; and on recommendations of the Campaign for Quality 
Care, an ad hoc coalition of nursing home provider associations, health 
care professionals working in nursing homes, and residents' advocates, 
convened by the National Citizens' Coalition for Nursing Home Reform to 
identify areas of consensus about how best to translate the IoM's 
recommendations into federal law.
    The nursing home reform law was based in large part on good 
practices that had been tried and proven effective in states. Requiring 
the training of nurse aides (who provide the majority of direct care to 
residents) and comprehensive assessment and care planning, guaranteeing 
residents' rights, and authorizing a broad range of intermediate 
sanctions that survey agencies could impose against facilities that 
failed to meet care standards were among the innovations of the 
legislation. These good practices involved both the care practices that 
nursing homes had developed and used with success as well as survey and 
enforcement practices that states had successfully used. The reform law 
made these good practices mandatory for all states and all facilities 
that chose to participate in the Medicare and Medicaid programs.
          The Law and Implementing Regulations Promulgated by HCFA Have 
        Promised Residents High Quality of Care and Have Led to Some 
        Significant Improvements in Care.
    The nursing home reform law and regulations and guidelines 
published by HCFA to implement the law have led to demonstrable 
improvements in the care that residents receive. While the series of 
hearings held by Senators Charles Grassley and John Breaux in the 
Senate Special Committee on Aging, between July 1998 and September 
2000, documented that grave and unconscionable problems remain in the 
quality of care provided by too many nursing homes, the hearings 
demonstrated that these problems result primarily from the lack of 
strong public enforcement of the care standards, not from the statutory 
and regulatory standards themselves.1
---------------------------------------------------------------------------
    \1\ The Institute of Medicine's 2001 report Improving the Quality 
of Long-Term Care also identified ``serious deficiencies'' in 
assessment and enforcement of care standards as the cause of continuing 
serious care problems in nursing homes. Institute of Medicine, 
Improving the Quality of Long-Term Care, 251 (2001) [hereafter IoM, 
Improving the Quality of Long-Term Care].
---------------------------------------------------------------------------
          The Reform Law Required Reduction in the Use of Physical and 
        Chemical Restraints.
    The requirement to reduce the use of physical and chemical 
restraints was based on good care practices in some nursing homes that 
had reduced or entirely eliminated restraints. At the time the law was 
enacted, however, a more common view in the nursing profession and the 
nursing home industry was that restraints would protect residents from 
injuries and falls. As a consequence, in the late 1980s, an estimated 
41% of all residents were physically restrained.2
---------------------------------------------------------------------------
    \2\ Id. 79.
---------------------------------------------------------------------------
    The reform law adopted the best practice from the restraint-free 
movement (which recognized that restraints in fact caused more injuries 
to residents than restraint-free care), changed the paradigm of care on 
a national scale, and led to a reduction in restraint use for 
residents. The most recent national data indicate that in 1999, 11.2% 
of residents were restrained.3 Freeing residents from 
restraints was documented to be not only better from residents' 
perspective, but also a less costly way of providing care.
---------------------------------------------------------------------------
    \3\ Charlene Harrington, et al, Nursing Facilities, Staffing, 
Residents, and Facility Deficiencies, 1993 Through 1999, 85 (Oct. 
2000), at http://www.hcfa.gov/medicaid/nursingfac/nursfac99.pdf.
---------------------------------------------------------------------------
    As Joani Latimer, a nursing home residents' advocate, wrote in the 
Journal of the American Society on Aging, ``good law takes everyone to 
a higher standard.'' 4 The reform law set a new standard 
regarding restraints. When the New York-based Commonwealth Fund 
supported a project several years ago on restraint reduction in nursing 
homes, project staff asked facility staff why they participated in the 
research. Many answered that since the reform law now required 
reduction of restraints and facilities would be evaluated by the survey 
agency by this different standard of care, they were motivated to learn 
how to comply with the new rules most effectively. The project gave 
them that opportunity.
---------------------------------------------------------------------------
    \4\ Joani Latimer, ``The Essential Role of Regulation to Assure 
Quality in Long-Term Care,'' Generations, Vol. XXI, No. 4, 13 (Winter 
1997-1998) [hereafter Latimer, ``The Essential Role of Regulation'']. 
---------------------------------------------------------------------------
    In a report issued this year, the Institute of Medicine attributed 
the reduction in the use of physical and chemical restraints 
nationwide, which it called ``the greatest improvement in nursing home 
care,'' 5 to the requirements of the reform law:
---------------------------------------------------------------------------
    \5\ IoM, Improving the Quality of Long-Term Care, supra note 1, 79.
---------------------------------------------------------------------------
          [M]any facilities have successfully reduced the inappropriate 
        use of physical and chemical restraints. The focus of increased 
        regulatory scrutiny on these two areas of care was a major 
        contributing factor in reductions in both of these.6
---------------------------------------------------------------------------
    \6\ Id. 77.
---------------------------------------------------------------------------
    Reducing the use of restraints is good care; it is also a less 
expensive way to provide care to residents.7
---------------------------------------------------------------------------
    \7\ Charles D. Phillips, Hawes, C., and Fries, B., ``Reducing the 
Use of Physical Restraints in Nursing Homes: Will It Increase Costs?'' 
American Journal of Public Health, Vol. 83, 342-348 (Mar. 1993).
---------------------------------------------------------------------------
    The new survey process that was put in place in July 1999 included 
six new investigative protocols addressing adverse drug reactions, 
pressure sores/ulcers, hydration, unintended weight loss, dining and 
food service, and sufficient nursing services.8 With the 
restraint experience as a model, it can be hoped and expected that the 
new regulatory attention on these care areas will also lead to 
improvements in care outcomes for residents.
---------------------------------------------------------------------------
    \8\ HCFA, Transmittal No. 10 (Jul. 1999). The survey protocol is at 
http://www.hcfa.gov/pubforms/pub07pdf/part-07.pdf.
---------------------------------------------------------------------------
        The Reform Law Required Standardized Resident Assessments.
    Another beneficial aspect of the 1987 reform law was the 
requirement that all facilities assess residents using a comprehensive, 
standardized, reproducible assessment instrument. The assessment would 
identify ``potentially treatable or reversible causes of functional 
impairment'' and would be used to plan each resident's care in the 
individualized care-planning process.9
---------------------------------------------------------------------------
    \9\ Charles D. Phillips, Hawes, C., Mor, V., Fries, B.E., and 
Morris, J.N., ``Geriatric Assessment in Nursing Homes in the United 
States: Impact of a National Program,'' Generations (Journal of the 
American Society on Aging), Vol. XXI, No. 4, 15, 16 (Winter 1997-1998) 
[hereafter Phillips, ``Geriatric Assessment''].
---------------------------------------------------------------------------
    The new resident assessment instrument, known as the minimum data 
set, or MDS, was developed through an intensive public process that 
involved all sectors of long-term care and included extensive testing. 
Although the nursing home reform law explicitly permitted states to 
develop their own assessment instruments, all states have chosen to use 
the assessment instrument and process that were developed by HCFA.
    An evaluation of the impact of the MDS in 1996 found that the new 
assessment process improved care outcomes for residents. The study 
found, among other changes:
           ``a 24 percent increase in the accuracy and 
        comprehensiveness of information in the residents' nursing home 
        records.''
           ``a 17 percent increase in the number of problems 
        that are addressed in residents' care plans.''
           ``a 30 percent increase in the use of hearing aids 
        for persons with hearing difficulty.''
           ``a 27 percent increase in the use of behavior 
        management programs for residents who wander, display physical 
        aggression, or resist nursing care.''
           ``Residents with bowel incontinence were almost 
        twice as likely to receive a toileting program.''
           ``a 29 percent decrease in the use of indwelling 
        urinary catheters.''
           ``a 28 percent decrease in the proportion of 
        residents with little or no activity.'' 10
---------------------------------------------------------------------------
    \10\ Catherine Hawes, ``Assuring Nursing Home Quality: The History 
and Impact of Federal Standards in OBRA 1987,'' 6-8 (Commonwealth Fund, 
Dec. 1996).
---------------------------------------------------------------------------
    The increase in positive care outcomes and decline in negative care 
outcomes that resulted from implementation of the MDS had a price tag--
they saved Medicare dollars. Providing good care to residents and more 
accurately identifying and meeting residents' care needs also led to 
reduced instances of hospitalization. Dr. Catherine Hawes reported that 
introduction of the MDS led to a 26% reduction in hospitalization of 
residents, resulting in an annual estimated savings to the Medicare 
program of two billion dollars in hospital costs in 1992 
alone.11
---------------------------------------------------------------------------
    \11\ Id. 8.
---------------------------------------------------------------------------
    While use of the MDS led to an increase in positive health outcomes 
for residents and, at the same time, significantly reduced costs to the 
Medicare program, administrators and nurses who were questioned about 
the MDS reported mixed feelings about the new assessment tool. Dr. 
Charles Phillips, et al., reported that 43% of clinical staff were 
``resistant'' to using the MDS and that 68% of administrators 
complained about the ``excessive paperwork burden.'' 12
---------------------------------------------------------------------------
    \12\ Phillips, ``Geriatric Assessment,'' supra note 9, 16.
---------------------------------------------------------------------------
          However, a majority of both administrators and nursing 
        directors agreed that the RAI had positive effects on quality: 
        some 59 percent of nursing directors reported that the RAI 
        improved the quality of residents' clinical assessments, 69 
        percent that their staff's assessment of residents' functional 
        status improved, and 75 percent acknowledged that the RAI was 
        more useful than the assessment system used in the past. 
        Finally, 78 percent of nurses reported that the RAI improved 
        their ability to detect clinically meaningful changes in 
        resident functioning.13
---------------------------------------------------------------------------
    \13\ Id. 16-17.
---------------------------------------------------------------------------
    Health care providers may find fault with regulations even when 
they recognize the improved health care for beneficiaries (and cost 
savings to the Medicare program) that result.

          ACCESS TO CARE

    Some of the Medicare regulations that health care providers 
complain about are intended to assure that beneficiaries receive the 
health care benefits that Congress mandated.
    In the area of home health care, for example, home health agencies 
have recently been critical of the home health advance beneficiary 
notice (HHABN) issued by HCFA through a program memorandum. Effective 
March 1, 2001, HCFA requires home health agencies to use a standard 
form to notify beneficiaries when they believe that the Medicare 
program will not cover particular home health benefits. This 
substantive requirement is not new. In fact, HCFA has required home 
health agencies to provide beneficiaries with notices under these types 
of circumstances since at least 1975. The recent program memorandum is 
different from prior notices only in its specification of the actual 
language that home health agencies must use in the HHABNs that they 
give to beneficiaries to advise them of their rights under the Medicare 
law.
    Home health agencies were well-informed in advance that HCFA 
intended to mandate use of the HHABNs and were fully involved in the 
process. The model notice was issued through the Paperwork Reduction 
Act process, which requires public comment and review by the Office of 
Management and Budget. Beginning in September 1999, transmittals and 
draft notices were issued and withdrawn several times, in large part, 
in response to comments from home health agencies. OMB and HCFA held a 
public hearing in July 2000, in which representatives of the home 
health industry actively participated and expressed their concerns 
about the burden imposed by the HHABNs.
    Receiving notices about non-coverage of care is critical to 
beneficiaries, however, and outweighs the minimal burden imposed by 
using a standard notice form. Beneficiaries who are able and willing to 
pay for home health services can do so after receiving a notice of non-
coverage from their home health agency. If they choose, they can also 
require their home health provider to submit what is called a ``demand 
bill'' to the Medicare program. Once the Fiscal Intermediary receives a 
demand bill, it makes a formal determination whether a particular home 
health service is covered by the Medicare program.
    Beneficiaries who request that a home health agency submit a demand 
bill are often successful in getting Medicare coverage of their home 
health services. According to HCFA data, between 1994 and the first 
three months of 1998, beneficiaries who had demand bills submitted on 
their behalf were fully or partially successful at the initial claims 
stage in getting home care coverage in 50.2% of the cases.14
---------------------------------------------------------------------------
    \14\ Healey v. Shalala, 2000 WL 303439, at 4, 68 Social Security 
Reporter Service 212 (D.Conn. Feb. 11, 2000). This statistic does not 
include beneficiaries who were successful in getting coverage at later 
stages of the appeals process.
---------------------------------------------------------------------------
    Without the HCFA-mandated notice from the provider and the demand 
bill process that enables them to request that Fiscal Intermediaries 
review their health care needs, beneficiaries would be unable to pursue 
their rights to receive their statutory entitlement to home health care 
under the Medicare program. As the court said in Healey v. Shalala, ``A 
demand bill is the key to the administrative process.'' 15
---------------------------------------------------------------------------
    \15\ Id.
---------------------------------------------------------------------------
    A second example illustrates the importance of the Medicare 
program's providing information to beneficiaries about their rights 
under the Medicare statute. A recent report by the Office of Inspector 
General recommends that HCFA ``educate beneficiaries on the options and 
consequences of assigned and non-assigned claims and purchasing medical 
equipment and supplies from participating and non-participating 
suppliers.'' 16
---------------------------------------------------------------------------
    \16\ Office of Inspector General, Department of Health and Human 
Services, Balance Billing for Medical Equipment and Supplies, ii, OEI-
07-99-00510 (Jan. 2001).
---------------------------------------------------------------------------
    Under Part B of the Medicare program, suppliers of medical 
equipment may choose to submit assigned or non-assigned claims. For 
assigned claims, where suppliers agree to accept the amount allowed by 
Medicare as payment in full, Medicare pays 80% of the allowed amount 
and the beneficiary pays 20% of the allowed amount (plus any 
outstanding deductible). For non-assigned claims, Medicare pays 80% of 
the allowed amount, but sets no limit on the charge that the supplier 
may charge the beneficiary. The beneficiary must pay all the supplier's 
charges after Medicare pays its amount. Balance billing is the term 
used to define ``the portion of the charge in excess of the Medicare 
allowed amount.'' 17 Suppliers may also ``participate'' in 
Medicare or not. Participating suppliers submit assigned claims for all 
items and services provided to beneficiaries; non-participating 
suppliers submit either assigned or non-assigned claims to Medicare, 
decided on a case-by-case basis.
---------------------------------------------------------------------------
    \17\ Id. i.
---------------------------------------------------------------------------
    The Inspector General's recent report indicated that Medicare 
beneficiaries paid $41 million above the Medicare-allowed amounts for 
equipment and supplies and that most beneficiaries are unaware of the 
cost implications of purchasing equipment and supplies from 
participating and non-participating suppliers.18 Informing 
beneficiaries about the cost implications of their purchases could help 
beneficiaries reduce their health care costs. Since non-participating 
suppliers are unlikely to advise beneficiaries that they could purchase 
the same supplies for less money elsewhere, only the government is 
likely to inform beneficiaries of their rights under the Medicare law.
---------------------------------------------------------------------------
    \18\ Id. i-ii.

---------------------------------------------------------------------------
          QUALITY OF HEALTH CARE

    Rules and regulatory systems also require and promote high quality 
of care for beneficiaries. This purpose of the regulatory system is 
also of critical importance to beneficiaries.
    Ms. Latimer reports that regulation is necessary in the health care 
area, particularly in long-term care, because market forces may be 
unable, alone, to assure high quality of care for 
beneficiaries.19 The factors that may make the marketplace 
work as a mechanism assuring high quality of products are largely 
absent in health care. Health care consumers may be inadequately 
informed; may have little choice among health care providers (because 
of insurance limitations or provider discrimination against program 
beneficiaries); and may be required to make decisions at a hurried, 
stressful time. Moreover, the consequences of their decisions often 
cannot be reversed. People can choose to buy a different television set 
if the one they buy breaks. Similar opportunities are unlikely in 
health care. Health care that is denied or inadequately provided may 
not be able to be fixed or corrected.
---------------------------------------------------------------------------
    \19\ Latimer, ``The Essential Role of Regulation,'' supra note 4, 
10.

    The Institute of Medicine's 1986 report on nursing home quality 
rejected reliance solely on market forces to improve the quality of 
long-term care:
          [H]istorical experience hardly supports an optimistic 
        judgment about the effects on quality of care of allowing 
        market forces to exert the primary influence over nursing home 
        behavior. Nursing homes were essentially unregulated in most 
        states prior to the late 1960s. Their operations were governed 
        almost entirely by market forces, and the quality of care was 
        appalling.20
---------------------------------------------------------------------------
    \20\ Committee on Nursing Home Regulation, Institute of Medicine, 
Improving the Quality of Care in Nursing Homes 5 (Mar. 1986).
---------------------------------------------------------------------------
    As noted above, the IoM's report was the blueprint for the nursing 
home reform law that Congress enacted in December 1987. Fifteen years 
later, the Institute of Medicine reiterated its support for a 
regulatory model to assure quality in long-term care.21
---------------------------------------------------------------------------
    \21\ IoM, Improving the Quality of Long-Term Care, supra note 1, 
141.
---------------------------------------------------------------------------
    The value of a regulatory system to assure quality of care for 
nursing home residents was also firmly recognized by the California 
Supreme Court. In a 1997 decision, the Court recognized that regulatory 
systems are intended to prevent avoidable bad outcomes for residents: 
``the very purpose of the statutory scheme'' is ``preventing injury 
from occurring.'' 22
---------------------------------------------------------------------------
    \22\ California Association of Health Facilities v. Department of 
Health Services, 16 Cal.4th 284, 940 P.2d 323, 336, 65 Cal. Rptr.2d 
872, 885 (1997).
---------------------------------------------------------------------------
    Public support for regulation of nursing homes to address quality 
continues. The New England Journal of Medicine reported this month that 
a strong majority of Republican voters (57%) and Democratic voters 
(68%) in 2000 supported increasing regulation of nursing home 
quality.23
---------------------------------------------------------------------------
    \23\ ``Health Policy 2001: The Implications of the 2000 Election,'' 
The New England Journal of Medicine, Vol. 344, No. 9, 679, 681 (Mar. 1, 
2001).
---------------------------------------------------------------------------
    AT TIMES, HCFA HAS BEEN TOO TIMID IN EXERCISING ITS RULEMAKING 
AUTHORITY AND OVERLY DEFERENTIAL TO THE HEALTH CARE PROVIDERS IT 
REGULATES
    Although Medicare beneficiaries and their advocates recognize 
HCFA's ability to implement federal legislation in ways that improve 
access and quality of care, we are concerned that the agency at times 
defers excessively to the health care providers it regulates.
    In the nursing home area, HCFA had difficulty implementing the 
strong enforcement approach of the nursing home reform law in the face 
of fierce and aggressive opposition by the nursing home industry. The 
weak enforcement system initially established by HCFA's guidelines 
tolerated high levels of facility non-compliance with federal standards 
of care, leading to the care crisis that Senator Grassley's and Senator 
Breaux's hearings vividly documented. Strong Congressional oversight 
and the Administration's Nursing Home Initiative have now redirected 
the agency's approach to enforcement, making it more consistent with 
the law and more likely to achieve its goals of assuring correction of 
deficiencies and sustained compliance by facilities.
    While beneficiaries and their advocates would not disagree that 
HCFA has experienced problems and delays in implementing federal 
legislation, we would contend that some of the agency's difficulties 
result from the increased numbers of mandates from Congress and 
inadequate resources to meet those mandates. HCFA and the state 
regulatory agencies need more money to do their jobs well. HCFA should 
not be asked to do more work with insufficient funding and then be 
criticized for not doing it well. The agency needs adequate financial 
support to do its work.
    HCFA underwent an extensive reorganization just a few years ago. 
Another reorganization would consume considerable agency resources 
without sufficient benefit. Any organizational structure is always 
inherently artificial to some extent because of the agency's extensive 
and overlapping areas of responsibility. What is needed is good 
coordination within the agency and adequate support for the staff who 
work there.
    Thank you for the opportunity to appear before you today.

                         SUPPLEMENTAL STATEMENT

    This statement supplements testimony given on March 15, 2001 by 
Toby S. Edelman of the Center for Medicare Advocacy, Inc. (the Center) 
on behalf of Medicare beneficiaries and their advocates. At the 
hearing, Chairwoman Nancy Johnson expressed considerable 
dissatisfaction with the work of the Center. The Chairwoman's comments 
reflected a misunderstanding of the Center's work on behalf of Medicare 
beneficiaries and Connecticut's Department of Social Services and about 
the Medicare demand bill process. Since the Center was not allowed an 
opportunity at the hearing to respond to the Chairwoman's concerns, 
this Supplemental Statement is submitted to explain both the work of 
the Center in Connecticut and the Medicare demand bill process.
    About the Center for Medicare Advocacy
    Since 1986, the Center for Medicare Advocacy has been providing 
legal assistance and education on behalf of Medicare beneficiaries and 
their community. Our work is focused on frail elderly people, 
individuals who are disabled or chronically ill, and those who need 
Medicare coverage in order to receive home care, long-term care, and 
rehabilitative services. The Center's goals are to:
           Increase proper Medicare coverage, and, therefore, 
        access to health care, for beneficiaries who are most 
        vulnerable and most in danger of unfair Medicare denials;
           Promote the ability of Medicare beneficiaries 
        themselves and those who care about them to advocate 
        effectively for proper Medicare coverage.
    Our Medicare advocacy services, which are available at no cost to 
all Connecticut residents, include a toll-free telephone line, dozens 
of educational and self-help materials, brochures, manuals, and 
training and legal support for Connecticut's ``CHOICES'' health 
insurance and assistance program. Each quarter our attorneys, 
paralegals, and nurses respond to approximately 2,000 calls from 
Medicare beneficiaries, their family members, and the community. We 
staff the toll-free line each day from 9:00 a.m. until 5:00 p.m. and 
provide assistance ranging from information to advocacy materials to 
direct legal representation.
    The Center offers information and training sessions throughout the 
state for older people, health care providers, case managers, Area 
Agencies on Aging staff, advocates, and others in the Connecticut elder 
network. On many occasions, we have responded to requests from members 
of the Connecticut Congressional delegation to participate in health 
fairs and to provide assistance to constituents on questions involving 
Medicare-covered services.
    The Center produces two quarterly newsletters, the Center News and 
the Healthcare Rights Review, and maintains a web site at 
www.medicareadvocacy.org. Last quarter alone, we had 15,450 
``visitors'' to the web site and 12,113 requests for printed 
information.
    In 1997 the Center was recognized by the Health Care Financing 
Administration (HCFA) for its Medicare advocacy when it received HCFA's 
Beneficiary Service Certificate of Merit award. In March 2001, the 
Connecticut General Assembly issued an official citation commending the 
Center for its fifteen years of advocacy on behalf of Connecticut's 
elders and people with disabilities.
    The Center is a small business located in northeastern Connecticut 
where we employ 23 Connecticut residents. The Center is staffed by 
attorneys, paralegals, nurses, computer experts, and administrative 
support personnel. Funding is secured largely from competitively-
awarded contracts with the Connecticut Department of Social Services, 
and from writing, consulting, and training.
          Work on Behalf of Medicare Beneficiaries Who Are Not Also 
        Entitled to Medicaid
    Pursuant to grants, won competitively from the Connecticut 
Department on Aging and its successor agency, the Department of Social 
Services, the Center designed a Medicare advocacy and education 
project, which we currently implement.
    Through our Medicare Advocacy Project, from 1986 through February 
2001, the Center responded to more than 69,910 WATS calls, formally 
opened 3,772 cases, and recovered more than $12,512,476 in previously-
denied Medicare benefits. This work was all performed on behalf of 
individuals who are not entitled to Medicaid and who rely upon Medicare 
as their primary source of health insurance.
          Work on Behalf of Dually-Eligible Medicare Beneficiaries
    Since 1988, the Center has also worked with the State of 
Connecticut to assure that dually-eligible Connecticut residents have 
full access to the Medicare benefits to which they are legally 
entitled. By virtue of their low income, dually-eligible beneficiaries 
are entitled to Medicaid as well as to Medicare. Federal law makes 
Medicaid the payer of last resort and requires state Medicaid programs 
to assure that other payers, including Medicare, pay for health care 
services first. 42 U.S.C. Sec. 1396a(a)(25)(A); 42 C.F.R. Sec. 433.138.
    Under contract with the State of Connecticut, the Center pursues 
Medicare coverage for certain skilled nursing facility, chronic disease 
hospital, and home health care services which were provided to dually-
eligible beneficiaries and paid for by Medicaid. The Center chooses 
cases for Medicare appeals on the basis of a selection process that 
involves careful analysis of legal merit and medical facts. These cases 
are identified from a larger set of dually-eligible cases referred to 
the Center by the Department of Social Services. Another group of cases 
has been considered coverable by the providers and is submitted by them 
for Medicare coverage. The process for home health care appeals was 
reviewed and approved by the United States District Court in 
Connecticut:
          . . . . Given the reversal rate to which the defendant 
        [Secretary of the US Department of Health and Human Services] 
        admits, . . . the steps taken by plaintiffs to ascertain 
        liability meet the standard of ``all reasonable measures.'' 
        Therefore, plaintiffs are not barred from administrative review 
        of these claims by reason of failure to abide by third party 
        liability provisions of Medicaid.
          . . . Medicare must provide the administrative review 
        necessary to determine ultimate liability . . ., if its 
        providers choose not to submit claims for payment and if the 
        state reasonably determines that there is a high likelihood 
        their Medicare coverage was improperly denied.
    DIM v. Shalala, CA No. 2:91CV00546, 25-26 (AHN) (D. Conn. 1994).
    Connecticut's efforts to obtain proper coverage for dually-eligible 
beneficiaries have been extremely successful. Significantly, in the 
majority of cases, benefits are won at the initial stage of review, 
which is performed by the Fiscal Intermediary. From the inception of 
the Center's dually eligible work through February 28, 2001, the 
organization's Medicare appeal efforts have resulted in recovery of 
$162,246,776. These were funds originally paid by Connecticut's 
Medicaid program. Of this total, $133,277,840 are attributable to home 
health cases. According to figures from the Connecticut Department of 
Social Services, the sources of the favorable decisions resulting in 
these recoveries are as follows:
          80% from Fiscal Intermediaries
          20% from Administrative Law Judges
    In addition, Connecticut's activities to obtain proper Medicare for 
dually-eligible clients have always included efforts to obtain 
appropriate benefits in the first instance. Through provider education, 
the advocacy programs described above, and the long-standing CHOICES 
program, the State of Connecticut and the Center have taken many steps 
to assure that Medicare meets its legal obligation to Connecticut's 
dually-eligible population. For example, in 2000-2001, the Center and 
the Department of Social Services provided three Medicare coverage 
training seminars, one for home health agencies and two for skilled 
nursing facility staff. Another seminar is scheduled for May 2001.
    The ultimate goal of the Department's Medicare maximization efforts 
is to increase the number of cases properly submitted for Medicare 
initially, thereby reducing the need for a Medicare advocacy effort. It 
is our hope that training efforts and a history of successful appeals 
will serve to change provider claims submission practices. Since so 
many of the cases are covered at the Fiscal Intermediary review stages, 
providers should feel increasingly comfortable submitting similar cases 
for Medicare coverage themselves, making appeals in those cases 
unnecessary.
    Connecticut's Medicare advocacy has meant very significant 
financial savings for the State's Medicaid program and has increased 
access to Medicare and to medically necessary care for Connecticut's 
elders and disabled citizens.
    As in the past, the Center for Medicare Advocacy is ready to do all 
it can to provide training and to help increase the proper submission 
and initial coverage of meritorious claims for Medicare. When pursuing 
Medicare coverage remains necessary and appropriate, the Center will 
continue to make every effort to perform these tasks as effectively and 
efficiently as possible. We welcome the opportunity to work with 
providers and HCFA towards accomplishing these goals.
    Demand bill process
          The federal Medicare statute and implementing regulations 
        require providers to give beneficiaries advance notice of non-
        coverage.
    When a Medicare health care provider makes a determination that a 
particular home health service will not be covered by the Medicare 
program, the Medicare statute requires that the provider give the 
beneficiary notice. 42 U.S.C. Sec. 1395bbb(a)(1)(A) (Medicare 
beneficiaries have ``the right to be fully informed in advance of any 
changes in the care or treatment to be provided by the agency that may 
affect the individual's well-being . . .'').
    In implementation of the Medicare statute, HCFA requires that 
providers give beneficiaries advance notice of changes in care. 42 
C.F.R. Sec. 484.10(c)(1). The notice must be ``fair and reasonable.'' 
Healey v. Shalala, 68 Soc. Sec. Rep. Ser. 212, 2000 WL 303439 (D.Conn. 
Feb. 11, 2000).
          Official Medicare coverage decisions are made by Medicare's 
        Fiscal Intermediaries and can only be made upon submission of 
        claims, including demand bills.
    Only a Medicare Fiscal Intermediary can decide whether a particular 
service is covered by the Medicare program; the provider's 
determination of non-coverage is not conclusive. However, in order for 
a Home Health Fiscal Intermediary to review a home health care claim 
that the provider believes is not covered by the Medicare program, a 
bill must be submitted to the Intermediary.
    Only health care providers can legally submit claims to Medicare 
for payment. Therefore, in order to obtain an official Medicare 
determination, beneficiaries must depend upon their health care 
providers to submit claims. Medicare regulations and policy require 
Medicare providers to submit claims and documentation when requested by 
a beneficiary. Beneficiaries are said to request submission of a 
``demand bill.'' The demand bill process is the vehicle that is used to 
obtain official review of beneficiary-initiated coverage and claims 
disputes.
    A further limitation on the demand bill process is that 
beneficiaries can request that a demand bill be submitted to an 
Intermediary only if they pay for the health care service. 
Beneficiaries cannot appeal provider denials of coverage unless they 
first receive and pay for the health care service. Reimbursement to 
beneficiaries under the Medicare program is made only on a 
retrospective basis.
    The requirement for health care providers to give beneficiaries 
advance notice of non-coverage, which informs them of the demand bill 
process, has existed since at least 1975.
          Success rates are high when demand bills are submitted to 
        Fiscal Intermediaries.
    When demand bills are submitted to Fiscal Intermediaries, 
beneficiaries are often successful. According to data from the Health 
Care Financing Administration, between 1994 and the first three months 
of 1998, ``the success (full or partial) rate for all demand bills 
submitted at the request of home health care beneficiaries was 50.2%.'' 
Healey v. Shalala, 68 Soc. Sec. Rep. Ser. 212, 2000 WL 303439, page 4 
(D.Conn. Feb. 11, 2000), approved by the judge March 7, 2000.
          Health care providers frequently fail to give beneficiaries 
        advance notice of non-coverage.
    Although the requirement for health care providers to give 
beneficiaries advance notice of non-coverage has existed for more than 
25 years, the available evidence, from beneficiaries themselves, 
complaint logs, contact reports, and deficiency reports, indicates that 
providers frequently fail to give beneficiaries written advance notice 
and often give no notice at all.
    Moreover, since beneficiaries must pay for the health care services 
in order to request submission of a demand bill, relatively few 
beneficiaries request that demand bills be submitted. Demand bills are 
a minuscule portion of claims processed for home health beneficiaries. 
From 1994 through 2000, demand bills represented less than one-half of 
one percent of claims submitted to Fiscal Intermediaries.
          Successful litigation by the Center for Medicare Advocacy 
        assures that Medicare beneficiaries receive notice of their 
        right to have demand bills submitted on their behalf.
    A nationwide class of homebound elderly and disabled Medicare 
beneficiaries, represented by the Center for Medicare Advocacy, the 
National Senior Citizens' Law Center, AARP, Greater Boston Legal 
Services, and Northern California Lawyers for Civil Justice, filed a 
lawsuit in 1998 alleging that beneficiaries did not receive meaningful 
notice and appeal rights when their home health care benefits were 
reduced or terminated. Healey v. Shalala, supra.
    The court granted plaintiffs a declaratory judgment stating that
          . . . plaintiffs have a legal right to a written: ``(1) pre-
        deprivation statement why the HHA believes Medicare may not or 
        may no longer cover their services; (2) explanation of the 
        circumstances in which a beneficiary has the right to have a 
        demand bill submitted, and (3) disclosure of information 
        regarding a patient's right to appeal . . .''
    Id. 2.
    The court also recognized that a ``demand bill is the key to the 
administrative process.'' Id. 4.
    The court declined to issue an injunction because the Secretary of 
the Department of Health and Human Services advised the court that she 
was ```in the process of developing and implementing mandatory notice 
language which all HHAs will be required to use and which will provide 
beneficiaries with all the information that even plaintiffs insist is 
required as a constitutional mandate.''' Id. 9.
          The home health advance beneficiary notice (HHABN) clarifies 
        health care providers' Medicare notice responsibilities and 
        makes the specific text of the notice mandatory, but creates no 
        new obligations on providers.
    HCFA has been developing the mandatory notice language for the home 
health advance beneficiary notice (HHABN) since September 1999. Home 
health agencies have been fully involved in the public process of 
developing the text of the notice.
    On September 29, 2000, HCFA published its proposed HHABNs in the 
Federal Register (65 Fed. Reg. 57,821). HCFA solicited public comments 
through the public process required by the Paperwork Reduction Act. On 
December 1, 2000, the Office of Management and Budget, exercising its 
authority under the Paperwork Reduction Act, approved the HHABNs.
    During this period, HCFA also continued to affirm home health 
agencies' obligation to provide beneficiaries with advance notice of 
changes or termination of benefits. For example, on September 29, 2000, 
HCFA sent the Regional Home Health Intermediaries a memorandum 
clarifying that home health agencies remain obligated to provide 
advance beneficiary notices, including an explanation of the demand 
bill process as set forth in HCFA Program Memorandum Transmittals A-99-
52 and A-99-54. HCFA provided additional clarification on this 
obligation at 65 Federal Register 58,858 (Oct. 6, 2000).

    Conclusion
    The Center has a 15-year history providing effective assistance and 
representation to Medicare beneficiaries in Connecticut and nationwide. 
The demand bill process is the method that enables Medicare 
beneficiaries to receive appropriate Medicare coverage of their health 
care services.

                                


    Chairwoman Johnson. Mr. Grob.

   STATEMENT OF GEORGE F. GROB, DEPUTY INSPECTOR GENERAL FOR 
 EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. 
            DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Mr. Grob. Madam Chairman, thank you so much for the 
invitation to come before this Committee and to present our 
views on a daunting challenge that you placed before us, which 
was to make specific recommendations on how to make the 
Medicare program better, without increasing, and possibly 
simultaneously decreasing the burden on our medical care 
providers. We have taken your charge seriously, and my 
testimony contains many such specific recommendations. Let me 
highlight just a few for you right now.
    The first recommendation that we have concerns the payment 
error rate, a subject which you yourself raised in introducing 
the subject of this hearing. Our office has just reported that 
the Medicare payment error rate for the year 2000 was 
approximately $11.9 billion, with a 6.8-percent error rate, a 
quite significant reduction from the first year in which we 
prepared the study, where we had a $23.2 billion problem and a 
14-percent rate. And I would like to emphasize--I think I said 
it in my testimony, but you said it, too--that the best way to 
solve that problem is to reduce the error. And where we have 
made this kind of accomplishment, the hassle has gone down 
along with the reduction, and let me give you one example from 
that.
    Out of the 5 years in which we conducted that study, in the 
last two we did not detect in the hospital industry any payment 
error that was due to improper documentation. It did not happen 
that we detected in the last 2 years that the hospital industry 
was deprived of one dime because their documentation wasn't 
correct. They got all the money that was due to them, and 
Medicare did not have to hassle anybody about that. It was a 
savings to Medicare, and the hassle factor was reduced. And I 
am absolutely convinced that if we could reduce that hospital 
error rate by half, and if we can solve the documentation 
problem through education and discussion with the hospital 
industry, then we can solve each and every one of the problems 
that we have identified for that payment error rate, and that 
will reduce a lot of hassle for everyone and save us all a lot 
of money.
    We also raised in our report some severe problems with the 
accounting systems that are used by the contractors. Elementary 
accounting systems, such as double-entry accounting and use of 
integrated supporting documents, are missing for this very 
expensive program. That should be fixed. This controls perhaps 
$8 billion a year of expenditures, which are not under the 
control that they should be placed under.
    If these accounting systems were fixed, there would be much 
better control, and that kind of control and that kind of 
professionalism would not create a single more moment of hassle 
for any Medicare provider, but it would greatly improve the 
Medicare Program.
    Another thing which I would like to call attention to that 
has come up in the testimony of several of our speakers has 
been problems with the appeals process, and in legislation now 
before the Committee, there are different provisions, and in 
recent legislation to put tighter time periods on the time that 
it would take to consider appeals at various levels of appeal, 
different processes for perhaps skipping a step in order to get 
things looked at.
    We really believe that a major problem in the Medicare 
program right now is the appeals process, and in my testimony 
you will see that we lay forth some rather major reforms to 
that appeals process that go far beyond the changes that are 
advocated in the legislation that you have before you. And, in 
fact, they go in a somewhat different direction.
    We believe that the major problem with the appeals process 
right now is that there are not adequate resources to consider 
the appeals, that the administrative law judges who are 
responsible for that do not even work for the Medicare program; 
they work for the Social Security Administration. The guidance 
that they follow is not as uniform as it should be. The way 
patients are treated in their appeals and the way providers are 
treated should not be the same, and currently it is. And there 
are other such reforms that need to be made.
    We believe that what the appeal system needs right now is 
not more deadlines. The problem isn't lack of deadlines. The 
problem is its inability to meet the deadlines. And if we can 
meet the deadlines with understandable and more uniform 
provisions, then the hassle will go away, and then the payments 
will be made right, and everyone will be in much better shape.
    We also believe that HCFA ought to have much more 
flexibility in how it chooses its contractors and how it 
manages them.
    I would like to raise now a more fundamental issue which 
has to do with the infrastructure. I do believe that we should 
not skimp on the infrastructure as we look at reforms to be 
made, and I believe that there has been some skimping on that, 
particularly in the field of survey and certification. I 
believe that there has never been enough resources for the 
reviews of the nursing homes to be carried out as well as it 
should, or home health or other providers. In fact, nursing 
homes are reviewed every year, as they should be. But in order 
to make that happen, we had to reduce the reviews of home 
health agencies from every year to every 3 years, for example. 
And in the nursing home field, there are often delays in 
conducting follow-up visits to nursing homes after deficiencies 
have been found.
    I believe that the best thing to do to reduce the hassle in 
the nursing home arena is not to provide more venues for 
appeals and more litigation but, rather, to establish better 
standards and training for the people who conduct the reviews 
so that there is not as much dispute about them to begin with, 
to find those deficiencies, to raise them quickly, to resolve 
them rapidly, and then to have the survey teams get back in 
there and find out if they have been corrected. It is like the 
payment error rate. The best way to reduce the hassle is to 
eliminate the deficiencies, to correct the ones that are there, 
and to resolve problems as they arise quickly.
    There are other problems with the infrastructure as well 
which I will not have time to discuss in the 5 minutes that I 
have.
    I would like to make one matter of clarification now with 
regard to the pending legislation. I had planned to spend more 
time in the time that I have right now to go over the pending 
bill, because we were asked to please give our comments on that 
bill, and our comments are there. But perhaps it would be 
better if I were to use this opportunity to introduce to you 
the notion of what we were trying to do in our comments.
    With the Inspector General's Office, we do, in fact, have 
an obligation to look at fraud, waste, and abuse. But we have 
broader responsibilities in there, too. Our responsibilities 
include--and they are in the Inspector General Act--to evaluate 
the various processes which the Medicare Program and other 
programs use to be managed and integrity processes that we 
ourselves don't run but that others do run. We are obligated to 
review them and evaluate them and make sure that they work very 
well.
    A lot of the studies that we do then, and a lot of the 
comments that we have, don't go so much to our own authority as 
they do to our evaluation of what is happening in the 
Department. And some of the comments that you will see in there 
about our concerns about granting people immunity and not being 
able to get the return of money we have is not simply because 
of the investigations that we conduct, but we are worried that 
that immunity may be lost in the appeals process for the 
contractors as well.
    Perhaps with more time or in another circumstance we can 
provide much more detail and explanation here to solve a 
problem which I think we all see as a common one.
    Thank you so much.
    [The prepared statement of Mr. Grob follows:]

 Statement of George F. Grob, Deputy Inspector General for Evaluation 
and Inspections, Office of Inspector General, U.S. Department of Health 
                           and Human Services

    Good morning, Madam Chairman. I want to thank you for your 
invitation to address this panel on Medicare reform. You asked us to 
discuss how the government can do its job better, to ensure that 
beneficiaries are protected and that tax payer dollars are used wisely 
and responsibly without placing undue burdens on providers. I am very 
pleased to do so.
    Medicare is a national treasure. But it would be even more valuable 
if it were operating more efficiently and effectively. Despite 
herculean efforts to modernize it and recent success in doing so, there 
is a sentiment, especially among health care providers, that it is not 
as efficient as it should be. In fact, discussions in policy circles 
and in the national and professional media emphasize its administrative 
burdens, inefficiencies, and aggravations. There is some talk of major 
reforms.
    The Medicare program has been evolving since its creation. It has 
been ``reformed'' and modernized many times--including the gradual 
abandonment of cost and charge based reimbursement in favor of 
prospective payment systems and fee schedules, and the introduction of 
managed care. The Balanced Budget Act of 1997, with its new payment 
systems for nursing homes, home health agencies, and hospital 
outpatient departments and the new beneficiary options and protections 
in Medicare+Choice, is the most recent and substantial reflection of 
these movements. The program as it is, including the most recent 
reforms, which are not yet fully implemented, is our starting point for 
further reforms.
    It is with this history in mind, and with insights drawn from more 
than twenty years of audits, program evaluations, and investigations 
conducted by the Office of Inspector General (OIG) that I would like to 
offer our own suggestions on where to go from here.
    First, I will identify facets of Medicare program administration 
which require immediate and continuing attention; then I would like to 
address some concerns which have been raised about recent initiatives 
to address waste, fraud, and abuse.

PROGRAM ADMINISTRATION
    Following are the recommendations of the Office of Inspector 
General (OIG) to promote the efficient and effective operations of the 
Medicare program. We believe that these proposals will also reduce 
administrative burdens and frustrations for providers. You asked us to 
be specific; I hope this is helpful.
    Further Reduce and Control Improper Payments. Continue, even 
intensify, ongoing efforts to help further reduce improper Medicare 
fee-for-service payments. Billions of dollars are at stake, and years 
of Medicare solvency will be lost if oversight is reduced. As we 
announced last week in our most recent annual report on this subject, 
Medicare made $11.9 billion in improper payments in FY 2000, 6.8 
percent of all Medicare fee-for-service payments. This is down 
substantially from the $23.2 billion, or 14 percent, first reported for 
1996. But it is still too high. Then as now, most of the error is due 
to unsupported services and lack of medical necessity for services 
rendered.
    The reasons for these improper payments could range from 
inadvertent mistakes to outright fraud and abuse. We cannot quantify 
what portion of the error rate is attributable to fraud. The vast 
majority of health care providers are honest, hard working 
professionals dedicated to the care of their patients. I will repeat 
this later in my testimony, since it deserves emphasis.
    Reducing errors would be one of the best ways to turn down the 
frustration and sense of hassle felt by health care providers and the 
Medicare contractors who administer the program. For example, our 
annual reports show that hospital documentation errors have been 
completely eliminated for the last two years. This not only shows that 
such improvements can be made, but it also illustrates how one source 
of controversy and irritation can be minimized for all parties 
involved. To further achieve such improvements, we recommend more 
training for providers, further refinement of Medicare guidelines and 
regulations where needed, concerted efforts to reduce errors with 
respect to specific codes most frequently found in error, selected 
surveillance by peer review organizations (PROs) of high risk areas, 
and adoption by health care providers of compliance plans that promote 
adherence to Medicare program requirements.
    Overhaul Medicare Contractor Structures and Authorities. Allow the 
Health Care Financing Administration (HCFA) greater flexibility in the 
methods it uses to select, organize, and supervise the contractors who 
handle the day-to-day operations of the Medicare program. This includes 
authorities to use entities other than insurance companies, select them 
competitively, pay them on other than a cost basis, organize them 
according to functions or benefits areas, and hold them accountable for 
performance.
    The Medicare program is administered by the Health Care Financing 
Administration with the help of 50 contractors (Part A intermediaries 
and Part B carriers) that handle claims processing and administration.
    Over the years we have detected serious problems with contractor 
operations, including fundamental problems with accounting, electronic 
data processing, and fraud control. We have even uncovered integrity 
problems with some of the contractors themselves--altering documents 
and falsifying statements that specific work was performed. In some 
cases, contractors prepared bogus documents to demonstrate superior 
performance, which Medicare then rewarded with bonuses and additional 
contracts. Our investigations have resulted in 15 civil settlements and 
criminal convictions since 1993, with total settlement amounts 
exceeding $350 million. Two contractors pled guilty to obstruction of 
Federal audits. A number of investigations are ongoing. HCFA has been 
working to correct problems with contractors. However, some serious 
concerns remain.
    Under the Health Insurance Portability and Accountability Act of 
1996 (HIPPA), HCFA was granted new authority and flexibility in 
contracting for program integrity functions. It may enter into 
contracts or work orders for specific program safeguard functions, such 
as medical review, fraud detection, cost report audits, and reviews to 
identify primary payers to whom Medicare is the secondary payer. We 
support this authority and look forward to the changes in Medicare 
contracting that are taking place under the new Medicare Integrity 
Program.
    In contrast to these new and promising developments for integrity 
functions, the Medicare statute places substantial limits on how HCFA 
obtains contractor assistance to administer the Medicare program. For 
example, it limits HCFA to choosing only insurance companies to process 
Part B claims. As for intermediaries, most of them are selected by the 
National Blue Cross/Blue Shield Association from companies nominated by 
providers (e.g., hospitals). All contracts must be cost based; other 
reimbursement methods such as firm fixed price cannot be used. 
Furthermore, beyond the program integrity functions mentioned above, 
HCFA is not allowed to let contractors specialize according to 
function.
    HCFA has proposed broader, more flexible contracting authority in 
the past, but these proposals were not approved. Intrinsically, more 
flexibility makes sense and we support it. So does the General 
Accounting Office.
    Another promising development is the designation of specialty 
contractors such as the durable medical equipment regional carriers. 
They review and pay all claims for medical equipment and supplies. 
There are only four of them, which appropriately concentrates their 
expertise in this complex area. They are bolstered by a data analysis 
unit, staffed by one of these carriers but supporting them all. This 
enables them to analyze payment and usage patterns which may suggest 
possible improper or questionable conduct. They are also able to 
effectively collaborate on the formulation of national coverage 
policies and payment control systems. A recent OIG evaluation found 
that these entities are effective. This approach, however, has not been 
used elsewhere, except for home health and hospice care. However, even 
these specialized intermediaries are not supported by the kind of data 
analysis unit that the medical equipment carrier utilize. We believe 
that specialty contractors, with a supporting analytic unit, would make 
sense for problematic areas and recommend that they be more widely 
used.
    More flexibility and specialization will, we believe, bring greater 
expertise and efficiency to contractor operations. This will, in turn, 
improve their relations with providers and facilitate provider 
education and understanding of Medicare rules and regulations.
    Improve Accounting Systems. Speed up current efforts to establish a 
modern, integrated, dual entry accounting system for accounts 
receivable to accurately portray and control the billions of dollars in 
transactions in this category annually.
    Medicare accounts receivable primarily represent overpayments owed 
by health care providers to the Health Care Financing Administration 
and funds due from other insurers when Medicare is the secondary payer. 
For FY 2000, HCFA reported a net accounts receivable balance of $3.8 
billion, comprised of gross outstanding receivables of $8.1 billion and 
an aggregate allowance for uncollectible accounts of $4.3 billion.
    In FY 1998, we had to qualify our audit opinion on the Department-
wide financial statements, primarily because of serious problems in 
Medicare contractors' ability to report accounts receivable. For 
example, they could not support beginning accounts receivable balances; 
they reported incorrect activity and collections; and they could not 
reconcile reported ending balances with subsidiary records. We reported 
Medicare accounts receivable as a material internal control weakness 
because Medicare contractors used rudimentary, single-entry accounting 
systems that lacked general ledger capabilities for Medicare program 
activity and reported receivable activity to HCFA based on ad hoc 
spreadsheets.
    In collaboration with the Office of Inspector General, HCFA 
initiated a major effort in FY 1999 to address these deficiencies. As a 
result of this effort, the receivables balance was fairly presented as 
of the end of FY 1999. However, internal controls are still not 
adequate to ensure that future receivables would be properly reflected 
in Medicare financial reports. The contractors still use ad hoc, 
single-entry accounting systems, do not accrue liabilities in 
accordance with generally accepted accounting principles, and do not 
use proper cutoff procedures.
    A project team, formed under the guidance of HCFA's Chief Financial 
Officer and Chief Information Officer, expect to complete the 
development and implementation of an integrated system by the year 
2007. Every effort should be made to advance this expected completion 
date.
    Improving the accounting systems will reduce financial errors, 
thereby improving the soundness of the trust funds, with no additional 
burden on providers.
    Adequately Support the Infrastructure. Do not skimp on resources 
needed to ensure efficient and effective claims processing, policy 
development and regulation, and quality assurance. Make a top-to-bottom 
review of the adequacy and use of currently available resources, seek 
realistic budgets for the Medicare infrastructure, and maintain 
reliable funding in the future. Establish reasonable time frames for 
implementing new reforms to balance the need for consultation with 
stakeholders and timely introduction of new systems and benefits. Some 
areas deserving special attention are:
    Policy Development and Regulation. The Medicare program has always 
been subject to considerable legislative change as it has evolved over 
the years. But the legislative changes in the last several years, 
particularly those in the Balanced Budget Act of 1997 and the two 
subsequent years of amendments, have been especially extensive and 
complex. The HCFA staff scrambled to implement regulations timely, 
consulting with industry and beneficiary representatives in the 
process. Their achievements in meeting this work load is impressive. 
But their limited resources will always place them in an unenviable 
dilemma. To issue the regulations timely they may have to curtail 
consultation; to carefully consider industry and beneficiary concerns 
they may have to miss deadlines. The third alternative is to fall 
behind on other administrative responsibilities. No matter which path 
they choose, frustrations will abound among all parties. Ironically, 
HCFA's requests for staff increases are sometimes portrayed as wasteful 
bureaucratic layering. Clearly, adequate resources need to be provided 
and effectively utilized.
    Quality Assurance Reviews. More troubling, perhaps, has been the 
unreliability of resources for quality assurance. There have never been 
adequate resources to meet the needs for State run but federally 
supplemented survey and certification reviews of nursing homes, home 
health agencies, end stage renal dialysis facilities, and the 20 
percent of Medicare certified hospitals not accredited by the Joint 
Commission. Only nursing homes are generally reviewed yearly. But this 
has been at the expense of the other institutions whose reviews have 
been curtailed in order to shift survey and certification resources to 
address the severe problems that were becoming apparent there. For 
example, home health agencies which were once reviewed annually are now 
reviewed every three years. This change occurred at the same time that 
the payment system was being reformed. We have documented gaps in the 
reviews of psychiatric hospitals and dialysis facilities. Even for 
nursing homes, which get the annual reviews, follow-up visits when 
deficiencies are found are often delayed. And above and beyond periodic 
reviews, resources to investigate complaints in all types of facilities 
are inadequate.
    Patient Care Data Sets. The introduction of prospective payment as 
the method that Medicare will use for paying skilled nursing homes adds 
incentives and complications to the medical care system. For example, 
the calculation of the prospective payment is derived from a patient 
assessment tool called the Minimum Data Set. This tool has been under 
development for many years, primarily as a patient care planning 
system. Now that it is being used to calculate Medicare payments, a 
financial incentive to control data entry is now present. We recently 
studied this system and found a significant number of coding problems 
which could adversely affect both care planning and reimbursement. 
Nevertheless, nursing homes seem to be trying to learn to use the 
system, which if properly implemented will be quite useful. A 
commitment to the refinement and implementation of this system and 
other systems like it is needed to improve patient care and ensure 
accurate billing and payment.
    Claims Processing Systems. Additional improvements are needed for 
HCFA data systems used to process claims. For example, studies by our 
office have found excessive numbers of unused but un-retired provider 
identification numbers, which increase Medicare's vulnerabilities to 
false claims. Routine maintenance of data systems could remove such 
vulnerabilities, but such ``household'' chores are naturally accorded 
low priority and are not tended to.
    Providing HCFA with the staff that is needed to operate the program 
will not result in more hassle for providers. It will enable HCFA to 
respond better to their needs. Improving the critical data systems will 
reduce payment errors, improve patient care, and make program 
operations more efficient.
    Fully Implement Recently Enacted Payment Reforms. Do not let the 
growing interest in new reforms distract Departmental policy makers and 
program administrators from systematically completing the 
implementation of Medicare+Choice and other reforms, such as those 
related to nursing homes and home health care. Monitor, and take 
appropriate actions to correct, any deficiencies discovered along the 
way regarding payment integrity and beneficiary protections, including 
access to services.
    While providers worry about being swamped by Medicare rules, 
beneficiaries and their advocates worry about barriers to service 
access and poor quality care. This concern stems partially from the 
growth of managed care (discussed later) and from the new prospective 
payment systems for nursing homes, home health agencies, and hospital 
outpatient departments. They also fear that the fixed rates discourage 
treatment of individuals with complex, expensive medical problems. 
Structural shifts in the health care industry, including the withdrawal 
of thousands of home health agencies from the program and announcement 
of actual or pending bankruptcies in the nursing home industry, have 
added to the concerns of all parties.
    It is overly simplistic to put all the blame on the Medicare 
program. Prior to the reform of the home health payment system, OIG 
studies had found a steep rate of improper payments (40 percent) in 
Medicare home health payments, and investigations had turned up massive 
fraud involving millions of dollars among some home health agencies at 
that time. The industry, through its own actions, coupled with reforms 
of the Medicare payment method and actions taken by HCFA, has done much 
to address this problem, although the percent of services for which 
improper payments are made is still too high at 19 percent.
    The nursing home industry's financial problems were due, in part, 
to imprudent, and excessive purchases of nursing homes by private 
chains. They were expecting continued high profits under predecessor 
Medicare payment systems. Thus, many of the industry problems resulted 
from actions taken prior to the reforms taking place. Furthermore, 
Medicare pays only about 10 percent of the cost of the nation's nursing 
home care. The remaining 90 percent is funded through Medicaid and 
private pay sources.
    In response to concerns about availability of care under these 
circumstances, we undertook systematic studies in the last two years to 
measure access to care. These studies found that few Medicare patients 
being discharged from hospitals were unable to get home health care or 
nursing care when they needed it. There was no evidence of patients 
backing up in hospitals waiting for a home health or nursing home 
treatment slot. However, some patients with complex and expensive 
medical conditions did experience some delays. In the last two sessions 
of Congress, legislation was enacted to increase payment rates for 
these programs.
    Overall, the nursing home and home health program reforms enacted 
by the Balanced Budget Act of 1997 seem well suited to the problems 
they attempted to address. For both programs, payments for patients 
with expensive, complex problems are higher than those for patients 
with less severe problems. Home care is paid on a 60 day cycle, so 
there is no limit to the care of individuals with longer term problems. 
For nursing homes, the payment is made on a daily rate basis, again 
providing adaptation for patients with longer term needs. The new 
payment systems reduce vulnerabilities inherent in the previous 
systems, which promoted unnecessary care in some cases. But these 
reforms are not yet fully implemented. The danger to avoid is that with 
new policy initiatives on the front burner, policy makers and 
administrators may get distracted from the management of previously 
legislated reforms.
    HCFA needs to monitor these changes carefully, particularly to 
insure that payments are made timely and correctly. We will continue 
and even expand our own annual reviews, particularly those intended to 
ensure that beneficiaries have access to nursing home and home health 
care and receive quality services while the new payment systems take 
hold. We will report what we find, one way or the other, so that the 
Congress, HCFA, and the medical care industries involved can respond 
accordingly.
    The most chaotic phase of program implementation--the initial one--
is now nearly over. Methodical completion of implementation can be done 
smoothly if the health care industry and Medicare program 
administrators monitor developments and are open to adjustments when 
needed.
    Follow Through on Quality of Care Initiatives. In particular, 
carefully monitor nursing home reforms to insure a safe environment and 
high quality of care for residents.
    Not all quality of care problems are related to recent changes in 
payment systems. The Omnibus Budget Reconciliation Act of 1987 
contained a major section on nursing home reforms intended to address 
longstanding patient care issues. Unfortunately, ten years later the 
Office of Inspector General as well as the General Accounting Office 
continue to expose serious quality of care problems. We found increases 
in the incidence of bed sores, nutrition problems, and conditions 
conducive to accidents. The survey and certification system was found 
to be fundamentally flawed, allowing nursing homes with serious 
deficiencies to continue operations despite repeated violations. The 
methods used to schedule visits eliminated the element of surprise, 
making it possible for nursing homes to prevent discovery of 
deficiencies.
    Quality of care problems are not limited to nursing homes. Recent 
national studies identified troubling levels of medical errors in 
hospitals. Our own program evaluation studies revealed weaknesses in 
the review system used by the Joint Commission on Accreditation of 
HealthCare Organizations (JAHCO), which Medicare relies on for quality 
oversight of 80 percent of participating hospitals. We found that their 
surveys are unlikely to detect substandard patterns of care or 
individual practitioners with questionable skills. There were few 
random, unannounced reviews and little opportunity for surveyors on 
site to probe hospital conditions or practices. The whole review 
process was more collegial than independent and objective. For the 20 
percent of Medicare certified hospitals which are not accredited by 
JAHCO, we found that half had gone without a State survey for more than 
3 years (the industry standard) and some for as long as 8 years. 
Troubling shortcomings have also been discovered in quality oversight 
systems for psychiatric hospitals, again highlighted in OIG reports.
    The Department and the Joint Commission have prepared responsive 
initiatives to correct the problems identified. However, the corrective 
actions are complex and have not yet been fully implemented. 
Furthermore, these problems are the kind that require constant 
vigilance.
    For nursing homes, this means more unannounced onsite reviews, more 
frequent and intensive reviews of repeat offenders, more follow-up on 
serious deficiencies, imposition of fines and penalties for serious 
offenders, with fewer ``second chances'' to correct their problems, 
special initiatives to focus on selected serious problems like 
bedsores, and general improvements in training of State reviewers. For 
hospitals this means public accountability for JAHCO and State agencies 
for their performance and determining the minimum appropriate cycle for 
conducting surveys of nonaccredited hospitals and special reviews by 
contracted psychiatric review teams for psychiatric hospitals.
    Continuous quality oversight does not burden providers the way 
inconsistent, sporadic, infrequent, and unfamiliar oversight does. 
Patient care is enhanced, reducing disputes between providers, advocacy 
groups, and Medicare administrators on the most fundamental aspects of 
the program.
    Restructure Appeals and Grievance Systems. Overhaul Medicare 
appeals and grievance systems by establishing a dedicated corps of 
Medicare Administrative Law Judges (ALJs); providing adequate resources 
to handle current and projected caseload; making guidelines more 
uniform; adopting separate procedures for beneficiaries and providers; 
making Departmental Appeals Boards decisions precedential; and 
improving timeliness of reviews.
    Current Medicare appeals and grievances systems are not 
sufficiently responsive to the needs of beneficiaries, health care 
providers, or the Medicare program itself. Originally designed with 
beneficiaries in mind, most appeals are now generated by providers. The 
non-adversarial nature of the procedures, which were originally 
intended to simplify matters for beneficiaries, leaves the Medicare 
program with no representative once the appeal process starts.
    The current system was started when the program first began. At 
that time, Medicare was in the same Department as the Social Security 
Administration (SSA) and was relatively small in comparison to the 
Social Security program. It made perfect sense to use the appeals and 
grievance system of SSA to handle Medicare's needs. Since then, the SSA 
became an independent agency, and Medicare has grown in size and 
complexity. But the ALJs who handle Medicare are still attached to SSA 
with only a small corps dedicated to Medicare. Many ALJs who handle 
Medicare cases do so in addition to their duties as SSA judges.
    These two features of the original appeals and grievance system--
its focus on beneficiary complaints, and its status as an adjunct to 
SSA--have left it ill prepared to deal with the growth and complexity 
of Medicare and the prominent role, needs, and expectations of 
providers. As a result, providers experience delays and inconsistent 
rulings. Medicare has a very limited role in representing the interests 
of the program.
    Compounding the intrinsic weakness of the system is a recent 
significant growth in workload. For example, the number of ALJ hearings 
increased from 28,515 in 1996 to 49,253 in 1998. The Departmental 
Appeals Board reports that appeals to it rose from 46 in 1994 to 670 in 
200. Yet, minimal resources have been allocated to this hearing 
function.
    Overall, the system has few champions and needs a top to bottom 
overhaul.
    The recently enacted Benefits Improvement and Protection Act of 200 
(BIPA) modified the appeals process by establishing time limits on 
earlier stages of the appeals process which, if breached, provided for 
automatic referral to the next higher level. These new provisions, 
which will go into effect on October 1, 2002, could lead to 
inappropriate decisions due to unrealistic time spans to address 
complex questions, a clogging of the appeals channels, and an inability 
to prioritize decision making.
    The BIPA provisions were intended to address legitimate concerns of 
providers to get prompt answers to their appeals and coverage 
questions. However, these new procedures are likely to cause additional 
rather than fewer burdens and aggravations by overwhelming the appeals 
and review channels. While well intended, they do not address the 
weaknesses in the fundamentals of the appeals and grievance systems--
resources, guidance and standards, organizational locus of ALJs, rules 
of precedence, appropriate adaptation of procedures to beneficiaries 
and providers, and timeliness of reviews. A better approach, we 
believe, would be to conduct a more comprehensive study of the entire 
process with input from all the affected parties. New recommendations 
can be considered and implement before the BIPA provisions take effect. 
The latter can be modified through legislation based on the results of 
the study.
    Build the Monitoring and Assessment Tools Into Future Reforms. 
Specify the cost and encounter data that the Department, the Congress, 
and health care industry and Medicare beneficiary stakeholders will 
need to annually assess the cost, effectiveness, and efficiency of any 
new reforms enacted. Establish a new independent body, or use an 
existing one, to analyze and periodically make public reports and 
recommendations regarding adjustments needed for new programs.
    Managed care options have been available to Medicare beneficiaries 
in some areas since 1982. The original ideas behind this concept were 
that a single organization being responsible for a patient's care, with 
financing in the form of capitation payments, would create incentives 
for preventive care, elimination of unnecessary services, and more 
efficient administration. Managed care providers would compete for 
Medicare business by offering Medicare beneficiaries additional 
benefits beyond those available under the regular fee-for-service 
Medicare program. The result would be better health care and improved 
health status, at lower costs.
    At the end of each of the last three years, a significant number of 
health maintenance organizations (HMOs) have withdrawn from the program 
or reduced their coverage areas. Many have also restructured their 
benefit and coinsurance provisions. For example, at the end of the year 
2000, 65 HMOs chose not to renew their contracts and 53 reduced service 
areas, affecting more than 934,000 beneficiaries. Approximately 83 
percent of affected beneficiaries were able to enroll in another HMO; 
the remainder had no choice but to return to Medicare-fee-for-service 
coverage.
    There are other issues connected with managed care options, 
including shortcomings in the understandability of marketing materials 
and handbooks of information provided to beneficiaries, and issues 
surrounding appeals and grievance processes.
    The Medicare+Choice legislation improved data and information 
collection aimed at assessing the costs of managed care. Managed care 
plans are now reporting actual costs in a way that for the first time 
makes it possible to assess the reasonableness of their cost rates and 
benefit packages.
    Some of the key lessons learned from the current Medicare managed 
care program are that: market forces alone cannot be depended upon to 
ensure reliable benefits at reasonable cost; accurate cost is essential 
for the analysis of proposed new contracts; and reliable, easy to 
understand member materials are essential to ensure intelligent choice 
by beneficiaries. Any future Medicare reforms designed to offer 
additional flexibility to Medicare beneficiaries will need to provide 
similar transparency about costs and benefits to both beneficiaries and 
Medicare administrators.
    This will enable Medicare to avoid the kind of turmoil recently 
experienced in managed care, thereby preventing administrative burdens 
and aggravations for both providers and beneficiaries.

PAYMENT CONTROLS: PROVIDERS' CONCERNS
    As previously noted, the OIG annual Medicare payment error rate 
audit does not determine whether an inappropriate provider payment 
request is the result of an innocent error, a misunderstanding of 
Medicare coverage, pricing, or payment rules, carelessness, 
mismanagement, or outright fraud. It is not a ``fraud error'' rate and 
should not be construed as such.
    Despite our best and continued efforts to emphasize the nature of 
the payment error rate and our respect for the integrity of health care 
providers, some of them have become more vocal in their objections to 
what they regard as overzealous scrutiny. Particularly in the physician 
community, some providers express fear that they will be prosecuted as 
criminals for making honest billing errors while trying to interpret 
regulations of an increasingly complex Medicare program.
    Let me repeat what I said earlier. The vast majority of physicians 
and other health care providers are honest, dedicated individuals who 
work hard for their patients. Their concerns deserve our attention. I 
would like to take advantage of this opportunity to respond to them. To 
do so, I must first explain the nature of the Federal fraud and abuse 
control program, and I need to put it into the context of broader 
reforms that have been occurring in the Medicare program.
    Fraud and Abuse Control Program. To address fraud and abuse, a 
Health Care Fraud and Abuse Control Program (HCFAC), jointly 
administered by the Secretary of the Health and Human Services (HHS) 
through the Office of Inspector General and the Justice Department, was 
enacted into law as part of the Health Insurance Portability and 
Accountability Act of 1996. That same law provided HCFA with increased 
funding for a Medicare Integrity Program (MIP).
    The Act provided both new authorities and critical resources to 
enable HHS, the Justice Department, and the many Federal, State, and 
local programs and agencies engaged in health care fraud enforcement to 
better detect, investigate, prosecute, and prevent fraud and abuse. In 
Fiscal Year 2000 alone, the Federal Government won or negotiated more 
than $1.2 billion in judgments, settlements, and administrative 
impositions in health care fraud cases. Actual collections for the year 
in health care cases exceeded $715 million, with more than $577 million 
returned to the Medicare Trust Fund. Since inception of the program in 
October 1997, over $2.1 billion has been returned to the Trust Fund.
    The program has also enabled this Department to step up its efforts 
to exclude from Medicare, Medicaid, and other Federal health care 
programs providers and suppliers that engage in certain prohibited 
conduct. During Fiscal Year 2000, over 3,300 individuals and entities 
were excluded from program participation. Exclusions were based on 
criminal convictions for crimes related to Medicare or other health 
care programs, patient abuse or neglect, license revocation, and other 
misconduct.
    Program Structure and Controls. Perhaps more important than 
fraudulent billings are large but unnecessary payments stemming from 
perverse incentives and weak controls. For example, much of the 
historical double digit growth rates of hospital payments in the late 
1970's was the product of government policy to pay on the basis of 
costs and charges, not the result of provider misconduct. Those 
excessive growth rates were curbed not so much by audits and payment 
controls but by changing to a new reimbursement model, the prospective 
payment system. More recently, the Balanced Budget Act of 1997 mandated 
prospective payment systems for home health care, nursing home 
services, and hospital outpatient services. These program reforms, 
along with tougher scrutiny of providers seeking to enroll in the 
program, increased audit and medical necessity reviews, and provider 
education reduced Medicare payments by tens of billions of dollars. For 
example, home health expenditures dropped from $18 billion in 1996 to 
$9.5 billion in FY 1999.
    Provider Concerns. Continued participation of health care providers 
of all kinds--physicians and other health care professionals, 
hospitals, nursing homes, home health agencies, laboratories, equipment 
manufacturers and suppliers--is crucial to the success of the Medicare 
program. All of them have been profoundly affected by recent Medicare 
reforms. They are also affected by current regulations and 
administrative procedures.
    However, provider concerns relating to inappropriate investigations 
are unfounded and both HCFA and the Office of Inspector General are 
reaching out to physician groups to reassure them. First, under the 
law, physicians and other health care providers are not subject to 
civil or criminal penalties for honest mistakes, errors, or even 
negligence. The government's primary enforcement tool, the civil False 
Claims Act, covers only offenses which are committed with actual 
knowledge, reckless disregard, or deliberate ignorance of the falsity 
of the claim.
    The False Claims Act simply does not cover mistakes, errors, or 
negligence. The other major civil remedy available to the Office of 
Inspector General, the Civil Monetary Penalties law, has exactly the 
same standard of proof. For a criminal case, the standard is higher. 
The Office of Inspector General is very mindful of the difference 
between negligent errors and mistakes on one hand, and reckless or 
intentional misconduct on the other. As a result of the relatively high 
standards of proof needed to establish liability, the number of civil 
and criminal penalty actions initiated against physicians is fairly 
small, averaging less than 50 penalty actions per year. Last year, as a 
result of OIG efforts, only 12 of the more than 600,000 physicians who 
participate in the Medicare program were convicted of health care 
related crimes.
    Both HCFA and the Office of Inspector General have also been 
engaging health care providers to join in a national effort to 
eliminate fraud and abuse and have undertaken numerous outreach efforts 
to help the medical care industry avoid getting into trouble. The 
cornerstone of OIG efforts has been the publication of voluntary 
compliance program guidances (developed with industry input) to assist 
and encourage the various sectors of the private health care industry 
to voluntarily fight fraud and abuse. In addition, we issue special 
fraud alerts and advisory bulletins advising medical care providers on 
topics that warrant their attention. All this information, as well as 
the results of our audits, investigations, and evaluations, are 
routinely made available through public presentations and on our web 
site.
    HCFA too has enhanced its provider education efforts and has 
expedited its process for issuing new regulations, such as those 
required by numerous program changes mandated by the Balanced Budget 
Act and subsequent legislation. Their web site has been upgraded to 
make program information more widely and quickly available than ever 
before. And they use numerous technical advisory boards made up of 
health care professionals to advise on policy. In addition, HCFA has 
organized a ``Physician Regulatory Issues Team'' to assess the weight 
of Medicare regulatory burden on physicians. Its goal is to recommend 
changes to reduce administrative burden.
    Program Complexity. Providers are concerned about the complexity of 
Medicare, even without reference to their potential liability for 
fraudulent or abusive behavior. Since the inception of Medicare, 
numerous legislative changes have been made and amendments added to the 
Social Security Act which have led to substantial changes to the 
Medicare program. With each addition, HCFA is required to develop new 
regulations as well as update its contractor and provider rules and 
guidelines. For example, the Balanced Budget Act of 1997 contained 335 
provisions related to Medicare programs, which required the development 
of a substantial number of new regulations.
    Much of the complexity in the Medicare program is not inherent in 
the program itself, but rather it parallels the ever increasing 
complexity of our health care system. For example, the development of 
various forms of managed care and new kinds of vertical and horizontal 
integration have led to the need for Medicare rules and regulations to 
evolve along with them.
    As noted earlier, the way Medicare pays for health care has 
changed, through time, from primarily cost/charge based payment systems 
to new fee-schedule and prospective based arrangements. For example, 
hospital inpatient, physician, then lab and durable medical equipment 
services were the first areas of the program to switch to prospective 
payment or fee-schedule based payment systems. More recently, skilled 
nursing facility, home health, and hospital outpatient services have 
moved or are moving to prospective payment systems as well. This 
transitioning from one payment system to another inevitably involves an 
intensive and somewhat uncomfortable learning period. In the long run, 
it is hoped that these new payment systems will simplify and reduce the 
administrative burdens of providers.
    Is the Medicare payment system too difficult to understand? In some 
cases, our audits and evaluations do indicate that some rules are 
unnecessarily complex and burdensome. In such cases, we make 
recommendations for simplification. However, our recent error rate 
review indicates that providers are doing a very good job of 
negotiating their way through Medicare payment systems, and we 
estimated 93 percent of all Medicare payments to health care providers 
were free of error. In the substantial majority of cases, legitimate 
providers are billing for legitimate services.
    Nevertheless, providers remain concerned. Their legitimate concerns 
about program complexity, inconsistency, burdens, and hassles need to 
be considered. Providers need high level reassurances that they will 
not be assessed penalties for honest errors. At the same time, 
regulations to implement new programs need to be issued in a timely 
manner, and program integrity concerns need to be addressed.

PROPOSED LEGISLATION
    The Medicare Education and Regulatory Fairness Act of 2001 (HR 868) 
has just been introduced to address some of the concerns of providers 
which were discussed in the previous section. I was asked to comment on 
this bill in my testimony, and appreciate the opportunity to do so.
    Given what I just said about our appreciation of providers' 
concerns, we would support some action by HCFA and possibly the 
Congress to address valid problem areas. However, the Office of 
Inspector General cannot support this bill as written. While its 
objectives are worthy, we are concerned that many of the provisions 
will subject the Medicare Trust Funds to a high level of risk and 
possibly result in harm to beneficiaries. I will provide summary 
comments here, but hope that our staffs can meet to discuss these 
provisions in greater detail. Hopefully, we can find ways to address 
the concerns that this bill was meant to address without endangering 
the integrity of the Medicare program, as this bill would.
    First, I will identify the provisions which we believe are most 
problematic. Then I will identify some provisions which appear to us to 
be more promising and which merit additional consideration. Our primary 
concerns are related to:

Judicial and Regulatory Challenges
    The bill would nullify longstanding legal doctrines requiring 
``exhaustion of administrative remedies'' and a ``case or controversy'' 
in order to appeal matters to Federal court. It would eliminate these 
requirements for cases challenging the constitutionality and statutory 
authority of HCFA regulations. This would clutter the Federal courts 
with hypothetical, possibly trivial cases and deny the courts the 
advice, insight, and judgement of Federal agencies and administrative 
appeals bodies in making decisions.
    The bill would establish of unreasonable timeframes for hearings by 
ALJs and the Departmental Appeals Board. While the goal of this 
proposal may be to expedite the review process, it is highly unlikely 
that this result will be achieved. In all likelihood, the result will 
be the premature elevation of appeals to the Departmental Appeals Board 
and Federal courts, which are not in a position to conduct ``de novo'' 
fact finding hearings on an expedited basis.
    The bill also requires an additional layer of review or 
reconsideration if a provider is dissatisfied with a finding that the 
provider is out of compliance with a particular standard or condition 
of participation. This would delay the imposition of sanctions and 
would increase the risk of jeopardizing the health and safety of 
Medicare beneficiaries.

Repayment Period
    The bill would entitle providers to a three year repayment period 
for overpayments. While repayment plans make sense in some cases (and 
are already allowed under current law), they could greatly reduce the 
ability of Medicare to recover overpayments in others. An exception for 
cases where the Secretary finds clear and convincing evidence of fraud 
would be difficult to administer and could allow offenders to flee, 
declare bankruptcy, or otherwise place funds out of reach until such a 
determination can be made.
Repayments During Appeal
    The bill would prohibit recovering past overpayments if appeal is 
pending. This has the same risks as the previous provision.

Document Requests
    The bill would prohibit the carriers from requesting the production 
of records or documents prior to payment absent cause. This would 
prevent review of documents supporting the claim prior to payment, even 
in programmatic areas where past histories of abuse are present. 
Without this well established and recognized tool the integrity of the 
Medicare program would be seriously jeopardized.

Voluntary Repayment
    The bill would establish an unprecedented new form of immunity from 
investigations to a provider who voluntarily returns overpayments. The 
intent of this provision is understandable. Providers who make 
unintentional errors or discover overpayments which they had not sought 
should be encouraged, not penalized, for voluntarily returning them 
without fear of penalty or prosecution. However, there is no need for 
new legislation in this regard. As I mentioned earlier, physicians and 
other health care providers are not subject to civil or criminal 
penalties for honest mistakes, errors, or even negligence. However, 
those relatively few providers who would deliberately and fraudulently 
steal from the Medicare program would not hesitate to use this 
provision to immunize themselves from investigation and prosecution, 
and, in essence, obtain interest free loans from Medicare.

Extrapolation
    Extrapolation is the scientifically valid method of statistical 
sampling, and has been fully accepted by the Federal courts as a method 
of estimating liability for overpayments. The bill would prohibit 
recoupments or offset payment amounts based on extrapolation for the 
first time that a provider is alleged to have received overpayments or 
when a provider submits a claim for advice of suitability (as provided 
for later in the bill in the section on education components). These 
provisions would eliminate an important tool in evaluating overpayments 
and deprive the trust fund of the full amount owed to it. Ironically, 
the bill would greatly increase the burden on providers if, instead of 
using scientifically drawn samples of claims to determine the amount of 
overpayment, carriers and intermediaries would be required to review 
the entire universe of suspect claims of a provider. This would also 
increase Medicare's administrative costs. The provisions would also 
increase the amount the provider would have to repay, since when 
scientific samples are used instead of universe reviews, the amount of 
the overpayment to be collected is often based on the lower end of the 
sample's confidence level rather than the midpoint, the most likely 
estimate of the overpayment amount. Most importantly, it provides an 
inappropriate ``safe harbor'' immunizing a provider from full 
liability. Finally, the few fraudulent providers that there are would 
not hesitate to use these provisions to protect their ill gotten gains 
from recovery and themselves from surveillance or prosecution.

Claims Processing Screens
    The bill would require HCFA to reveal claims processing screens to 
providers. Honest providers do not need to know the screens. Explaining 
them to dishonest providers is the equivalent of instructing them how 
to avoid detection and successfully exploit the program. Fraud 
detection through prepayment review would be nullified.

Advisory Services
    The bill would give providers immunization from investigation as a 
result of seeking advice on billing and cost reporting provisions of 
the Medicare program. It is reasonable for honest providers to be able 
to seek advice about their claims without fear of investigation or 
prosecution. However, this provision would provide a dishonest provider 
immunization from investigation, a result which is not at all 
desirable.

Long Term Care
    The various provisions relating to appeals in connection with long 
term quality improvements cause us to have many of the same kinds of 
concerns raised in the sections above--unnecessary, additional levels 
of review, unrealistic timeframes for moving to the next higher level 
of review, and suspension of remedies. All of these could seriously 
jeopardize patient safety and quality of care.

Promising Proposals
    It is obvious that parts of the proposed bill are intended to 
assure honest providers that they will not be subject to investigation, 
prosecution, or harassment as a result of good faith efforts to comply 
with Medicare requirements. Unfortunately, many of these same 
provisions would play into the hands of the small number of 
unscrupulous individuals who use sophisticated means to exploit 
weaknesses in the Medicare program. Honest providers do not need the 
additional protections provided here. However, they certainly deserve 
practical assurances that their good efforts will not result in their 
being punished.
    While I believe that most providers concerns can be addressed 
through administrative rather than legislative means, those sections of 
the bill relating to educational programs, advisory services, deferral 
of penalties until exhaustion of appeals, repayment periods, and 
appeals and grievances are worthy of additional review.
    More provider education would be especially valuable. We have 
already seen the beneficial effects of HCFA educational initiatives. 
They have a lot to do with the substantial drop in the payment error 
rate and clarification of documentation standards. Our own efforts in 
working with the provider community in developing compliance guidelines 
have convinced us of the usefulness of outreach and education.
    Similarly, providers ought to be able to get answers when they have 
questions about submitting their bills. A program through which HCFA 
can provide them advisory services would be very useful. Our own 
experience in administering such a program has convinced us of the 
benefits. We urge that any such initiative be fully funded. As noted 
earlier, however, we would not support the granting of immunity in 
connection with requests for advice.
    Other provisions of the bill could be helpful if substantial 
changes were made to them. For example, extended payback periods would 
make sense if they were necessary to prevent bankruptcy or severe 
hardship to a provider who received overpayments innocently. However, 
an automatic three year privilege would not be appropriate in all 
cases. Similarly, while deferral of penalties until final 
determinations are made could be reasonable in many cases, this would 
not be desirable if patient care were placed at risk. For both of these 
provisions, consideration should be given to the payment of interest to 
the Medicare Trust Funds--for example, for overpayment amounts 
sustained after appeal and during a repayment period.
    As noted earlier, the Office of Inspector General fully understands 
the need to improve the appeals and grievance system. However, we 
propose a thorough overhaul of this system. Simply specifying time 
limits for review, especially unrealistic ones, will not correct the 
underlying problems, as described earlier.
    Finally, I would also point to the various recommendations which 
are included in the first part of my testimony. Their implementation 
would reduce frustrations and improve Medicare payment systems.
    I hope that we can find ways, primarily through education and 
communication, to provide the honest providers with the understanding 
and assurance they deserve in their medical practice. We look forward 
to working with the medical care community in finding ways to do this.

CONCLUSION
    Medicare is important to all of us. I hope that the suggestions 
provided here from the Office of Inspector General will be useful in 
streamlining the program, reducing frustrations of providers and 
administrators alike, and making the program better for Medicare 
beneficiaries. We are ready to help this committee and all parties 
involved to find a better way to manage this program. Thank you for the 
opportunity to present these ideas to you.

                                


    Chairwoman Johnson. Thank you.
    Dr. Moffit.

STATEMENT OF ROBERT E. MOFFIT, PH.D., DIRECTOR, DOMESTIC POLICY 
                  STUDIES, HERITAGE FOUNDATION

    Dr. Moffit. Madam Chair, my name is Robert Moffit. I am the 
director of Domestic Policy Studies at the Heritage Foundation. 
I want to express my sincere appreciation to you for the honor 
to testify before the House Ways and Means Subcommittee on 
Health. I want to stress that the views that I am expressing 
today are entirely my own and should not be construed as 
representing any official position of the Heritage Foundation.
    My professional interest in Medicare and the delivery of 
health care services is more than academic, although I spend an 
awful lot of time studying health care policy. I served as 
Deputy Assistant Secretary for Legislation at the Department of 
Health and Human Services during the Reagan administration, and 
I also served as Congressional Relations Director at the Office 
of Personnel Management, the agency that runs the Federal 
Employee Health Benefits Program, which, as you know, is a 
prominent model for Medicare reform. So I have practical 
experience in dealing with both programs and responding to 
congressional inquiries on problems in both health care 
systems.
    I want to make a few observations on this conversation we 
are having this morning. One of them is obvious. It is that 
Medicare's regulatory complexity is not the fault of the Health 
Care Financing Administration, the agency that administers 
Medicare. On this I agree with Congressman Stark. 
Parenthetically, it is a Historic occasion when the Heritage 
Foundation and Congressman Stark find themselves in agreement. 
Perhaps a solar eclipse will shortly follow. But the criticism 
of the Medicare regime should not be a criticism of the career 
staff of HCFA or HCFA as an agency of the Federal government.
    The reason why we are having these discussions is because 
of the structure of the Medicare Program. Medicare is an 
entitlement program. More importantly, it is a defined benefits 
program. If you have a defined benefits program, Congress must 
determine what benefits Medicare patients will get, and 
subsequent to congressional authority, HCFA and its contractors 
determine what is or is not covered for purposes of 
reimbursement, and what specific medical services, treatments, 
and procedures Medicare patients will get and how and under 
what circumstances they will get them.
    This is endemic to today's Medicare Program. It means that 
HCFA must write increasingly detailed rules to the extent to 
which medical benefits modify or change. If Congress doesn't 
want to change this structure, there is no simple way around 
these regulatory problems.
    A second observation: HCFA is overwhelmed by the size and 
scope of its current regulatory responsibilities and is in a 
state of managerial crisis. HCFA also has responsibilities 
beyond Medicare: for Medicaid, the State Children's Health 
Insurance Program, and enforcing provisions of the Health 
Insurance Portability and Accountability Act. HCFA oversaw a 
total estimate payment of about $370 billion for health 
services last year. As GAO and others have noted, it is 
becoming progressively harder for HCFA to fulfill all of these 
responsibilities.
    This managerial crisis has been developing over time. Our 
colleague, Lynn Etheredge, at George Washington University, 
wrote in the October 2000 edition of Health Affairs that the 
management crisis at HCFA has arrived.
    A third observation: Medicare's regulatory complexity is 
compromising the quality and delivery of medical services and 
insurance products. In my written testimony, I detail this. But 
this is becoming evident in at least two areas: the access to 
medical technology and the use of private plans in the Medicare 
Plus Choice program.
    Fourth: Medicare's regulatory complexity is bound to get 
worse. With the rising demand for medical services by a rapidly 
aging population, a Medicare-eligible population that will 
double over the next three decades, the pressures to 
accommodate those increased demands and increased costs within 
the existing framework of administrative pricing and benefit 
setting will intensify. Congressional debates over physician 
and hospital payment or reimbursement for home health care or 
skilled nursing facilities or prescription drugs, or how to 
cover or whether to cover new medical devices or procedures, is 
going to require even more congressional time and attention and 
will require even greater administrative effort and even more 
detailed rule-making on the part of the Health Care Financing 
Administration.
    Finally, the expansion of Medicare benefits, including the 
addition of a prescription drug benefit, without addressing the 
managerial and regulatory problems plaguing the program, I 
think, would be a profound mistake. We have managerial problems 
in Medicare part A, B, and C right now. If you had a 
prescription drug benefit, without dealing with the current 
regulatory regime, you are asking for much more trouble.
    My colleagues at the Heritage Foundation think that the 
best way to solve this problem is to change the program's 
structure, and the way to do that is to go to a tested model 
that has been proposed by the President and by the Bipartisan 
Commission, and that is the Federal Employee Health Benefits 
Program (FEHBP).
    I just would like to make one observation before I close on 
the governance of the FEHBP. Students of the Federal employee 
program have found that among its most attractive features is 
the brevity and simplicity of its statutory authority. The 
program is characterized by a notable absence of heavy 
regulatory control, the relative ease with which the program 
adopts new health care benefits and absorbs new medical 
technologies, its relative flexibility in benefit setting. From 
the standpoint of governance, the Federal employees' system 
also enjoys a relative freedom from the bitter politics of 
administrative pricing, the medical income redistribution, and 
the attendant congressional micromanagement that afflicts the 
traditional Medicare Program. And the major reason is, in stark 
contrast to the Medicare Program, the Federal Employees Program 
is largely a market-driven system, which relies on private 
sector plans to structure their offerings each year to satisfy 
consumer demand and compete with each other directly in 
promoting patient satisfaction. This is in sharp contrast to 
Medicare. The crucial decisionmaking in the FEHB is not 
centralized; it is diffuse.
    While there are negotiations between OPM staff and major 
plans, and hundreds of routine transactions between OPM and 
private plans in the several States, there are literally 
millions of decision points in the system governed by the 
diverse wants and needs of Federal employees and their families 
and the dynamic conditions of supply and demand.
    I would close, Madam Chairman, by emphasizing that you are 
going to have a major political challenge with Medicare reform. 
But there are going to be technical difficulties no matter what 
you do. If you decide that you do not want to reform the 
Medicare system, that is your decision. But all of these 
regulatory and managerial problems that you heard about this 
morning are going to intensify and they are going to get worse. 
If you decide to go to a new system, you are going to have new 
problems. But you are also going to have a lot of new 
opportunities as well.
    Thank you very much.
    [The prepared statement of Dr. Moffit follows:]

    Statement of Robert E. Moffit, Ph.D., Director, Domestic Policy 
                      Studies, Heritage Foundation

    Madame Chair, Members of the Subcommittee:
    My name is Robert E. Moffit. I am Director of Domestic Policy 
Studies at the Heritage Foundation. I wish to express my sincere 
appreciation to you and Members of the Subcommittee for the opportunity 
to testify on the subject of Medicare regulations. I must stress, 
however, that the views I express are entirely my own, and should not 
be construed as representing any official position of the Heritage 
Foundation.
    My professional interest in Medicare regulation, and how to improve 
the financing and delivery of medical services to American citizens, is 
far from academic. During the Reagan Administration, I not only served 
as Deputy Assistant Secretary for legislation at the Department of 
Health and Human Services (1986-1989), handling congressional requests 
and constituent problems related to Medicare, but I also served as the 
Director of Congressional Relations at the United States Office of 
Personnel Management (1981-1986), the agency that administers the 
Federal Employees Health Benefits program (FEHBP), the model for reform 
embraced by the Bush Administration, the majority of the National 
Bipartisan Commission on the Future of Medicare and the model embodied 
in the legislative reform proposals recently introduced by Senators 
John Breaux (D-LA) and Bill Frist (R-TN). I have thus had a practical 
experience in monitoring and responding to congressional inquiries on 
both programs.
    Concerning the Medicare's regulatory problems, I have several 
observations.
    First, Medicare's regulatory complexity is not the fault of the 
Health Care Financing Administration (HCFA), the agency that 
administers Medicare. Criticism of the Medicare's regulatory regime 
should not be a criticism either of the career staff or HCFA as an 
agency of the federal government. This is not to exonerate the agency 
or its officials from some serious mistakes, or lapses in judgment. But 
much of the understandable anger directed at HCFA by doctors and 
medical specialists, and even Members of Congress is too often 
misplaced.
    Growing dissatisfaction among providers over Medicare's regulatory 
burdens is not merely attributable to HCFA's managerial efficiency, or 
its lack of managerial efficiency. Rather, it is attributable to the 
seemingly incessant Congressional delegation of ever greater regulatory 
responsibilities to the agency, and, more importantly, to the very 
structure of the Medicare program itself. Medicare is an entitlement 
program; it is a defined benefits program, where Congress determines 
what benefits Medicare patients will get; and, subsequent to 
Congressional authority, HCFA and its contractors, determines what is 
or is not covered for purposes of reimbursement, and what specific 
medical services, and treatments and procedures Medicare patients will 
get and how, and under what circumstances they will get them. HCFA, 
again subject to Congressional authority, determines what is or is not 
appropriate or medically necessary. This is formidable regulatory 
authority. But it is difficult to imagine how Medicare, given its 
current structure, could function otherwise. Surely, HCFA's most severe 
critics would not want to surrender to the agency unlimited flexibility 
to carry out its mandate. If Congress wishes to retain this structure, 
then Congress must authorize, and HCFA must implement and enforce 
increasingly detailed regulations that guarantee universal access to a 
set of legislatively or administratively defined benefits, medical 
treatments or procedures.
    Given this structure and this process, there will be numerous 
disagreements, powerful and angry dissents, and strong objections from 
medical providers, seeking exceptions or expansions to these rules. The 
regulatory exceptions simply complicate the regulatory environment.
    So, HCFA's problems are not rooted simply in the absence of a 
superhuman wisdom, or any inherent deficiencies in HCFA staff to do the 
necessary regulatory job, or because the agency suffers from an absence 
of information technology specialists, or aging and outdated 
information systems unable to cope with the rapidly changing 
conditions. It is rooted in a work overload that, given the 
Congressional authorization, is unavoidable. These problems are not 
going to be solved simply by appropriating funds so that HCFA can 
acquire the right software or the right hardware, or the right 
specialists in whatever field of health care policy that is required. 
Given the current structure of the Medicare program, there is simply no 
way to avoid these difficulties.
    Congress specifies what it will pay for benefits and services, and 
authorizes HCFA to make any adjustments in accordance with its 
legislative determinations, or the formulas, that govern Medicare's 
complex system of administrative pricing plus price caps, including the 
Prospective Payment System (PPS) for hospital payment and the Resource 
Based Relative Value Scale (RB-RVS) for physician reimbursement. As my 
colleague Dr. Len Nichols, a senior economist and health care policy 
analyst at the Urban Institute has noted, the task imposed on HCFA is 
to set roughly 10,000 prices in 3000 counties across the United States, 
a task which it does not, and cannot, do very efficiently or 
effectively.
    On payment issues, as on the benefit issues, as Members of this 
Subcommittee know, far better than I would even be able to imagine, 
there are intense pressures to readjust constantly this formula driven 
Medicare payment system; carve out exceptions; and revise and refine 
the reimbursements upward. These pressures are invariably intensified 
after Congress has taken actions to reformulate reimbursements 
downward, in perennial attempt to control costs in the program. This 
annual political process also invariably adds to the growing complexity 
of the system, and makes it progressively less comprehensible for 
doctors, hospitals and other providers, and, of course, patients.
    For the most part, Medicare patients are the passive recipients of 
this arcane and complicated decision-making process. Medicare's 
regulatory regime directly impacts only doctors, hospitals and other 
providers. Compared with the private sector, Medicare's administrative 
costs, as a percentage of payment for benefits, appears very low, 
roughly between 1 and 2 percent. But this calculation does not take 
into account the transactional costs of health providers in complying 
with this regulatory regime. A major econometric analysis of these 
costs, and their impact on patients, would be welcome.
    Altogether, this process not only frustrates providers--doctors, 
hospital administrators or home health care officials--but also yields 
some very odd economic results. The General Accounting Office has done 
a number of studies on the subject, which make for interesting reading. 
Once again, if Congress retains the current structure of Medicare, 
there is simply no way around these problems or political pressures.
    Second, HCFA is overwhelmed by the size and scope of its regulatory 
responsibilities, and is in a state of managerial crisis. Once again, 
the regulatory responsibilities of HCFA are not, of course, generated 
by HCFA; they are imposed by Congress. And, as noted, they are 
elemental to the very structure of Medicare as a defined benefit 
entitlement program.
    Medicare today covers almost 40 million persons, at an estimated 
cost of $220 billion. As the General Accounting Office and others have 
pointed out, HCFA also administers the Medicare Plus Choice program 
with over 300 managed care plans, and contracts out for the services of 
others, particularly intermediaries or insurance carriers, in every 
state in the union. HCFA pays approximately 6000 hospitals, and roughly 
700,000 physicians and other providers. Moreover, HCFA must write 
standards, as a condition for participating in the Medicare program for 
a variety of institutions and specialties, such as hospitals, home 
health care agencies, clinical laboratories, nursing homes, skilled 
nursing facilities, among others. And beyond Medicare, HCFA also has 
responsibilities for running Medicaid, overseeing the State Children's 
Health Insurance Program, and enforcing certain provisions of the 
Health Insurance Portability and Accountability Act. Altogether, HCFA 
oversaw a total estimated payment of almost $370 billion for health 
care services last year. As GAO and others have also noted, it is 
progressively harder for HCFA to fulfill all of these responsibilities.
    This managerial crisis has been developing over time. The General 
Accounting Office (GAO) told Congress in 1998 that ``. . . substantial 
program growth and greater responsibilities appear to be outstripping 
HCFA's capacity to manage its existing workload.'' In 1999, 14 
prominent health care policy experts, including Dr. Stuart M. Butler, 
my superior at the Heritage Foundation, and three former directors of 
HCFA published an open letter to Congress and the White House in the 
1999 Winter issue of Health Affairs warning of an impending management 
crisis at HCFA. While these analysts differed on what was the best 
approach to Medicare reform, they were all agreed on one point: HCFA 
is, as an institution, in very serious trouble. Following up on this 
notice, in the October 2000 edition of Health Affairs, Dr. Lynn 
Etheredge of George Washington University, wrote, ``The management 
crisis has arrived. . . It is now widely recognized that HCFA has many 
problems. Reformers are frustrated, whether their goals are a 
successful Medicare + Choice Market, modernization of fee for service 
Medicare, enrollment of eligible children in SCHIP, improved computer 
systems, new chronic care programs, or better staff morale. Nearly 
everyone who works with the Medicare or Medicaid programs now 
understands that something needs to be done about HCFA.'' While there 
is an urgent need for action, there is an even more urgent need to do 
it right.
    Third, Medicare's regulatory complexity compromises the quality and 
delivery of medical services and insurance products. This is becoming 
evident in at least two areas: access to medical technology and in the 
use of private plans in the Medicare + Choice program.
    In the area of medical technology, there is solid evidence that 
Medicare's processes are painfully slow and compromising patient access 
to technology that is available to patients in the private sector. Last 
year, the Lewin Group, a Virginia based econometrics firm modeling 
health care policy initiatives, conducted a major study on behalf of 
the Advanced Medical Technology Association that found that Medicare's 
processes of coverage, coding and payment decisions delay patient 
access to medical technology. The study found that it takes between 15 
months to over 5 years or more to add new medical technologies to 
Medicare program. Moreover, according to the Lewin study, Medicare's 
processes for coverage, coding and payment is time consuming and 
complicated, and impedes patient access and discourages innovation in 
breakthrough medical technologies.
    Likewise, the current regulatory regime has damaged the Medicare + 
Choice program. In their 2000 analysis of the Medicare + Choice 
program, The Medicare + Choice Program: Is It Code Blue? Janice Ziegler 
and Bruce Fried, a former Director of the Center for Health Plans and 
Providers at HCFA, wrote, ``The regulatory complexity of the M+C 
program has taken on mammoth proportions and made it difficult for 
M+Cos to comply with all of the many program requirements. Moreover the 
breadth and depth of regulatory requirements have imposed a level of 
micro-management that significantly hampers--or, in some instances, 
restricts altogether--the ability of M+COs to make essential business 
decisions regarding how care should be financed and operations 
structured. This level of micro-management, when coupled with 
constantly changing nature of the program requirements and conflicting 
directions from HCFA, creates a significant disincentive for M+COs to 
remain in the program or become new entrants.''
    As Fried and Ziegler report, beyond the issuance of detailed 
regulations and ``guidance'' and Medicare manual changes, HCFA has 
already issued well over 100 ``operational policy letters'' (OPLs), the 
specific directives governing various aspects of plan administration. 
Moreover, plans have had to meet HCFA's tight deadlines for compliance 
as well as various state regulatory standards, while wrestling with 
conflicting federal and state rules. Fried and Ziegler further note 
that HCFA issues these rules and letters often with little or no 
thought about how they will impact costs. But, of course, every dollar 
required to comply with HCFA's increasingly complex administration of 
the program means one less dollar for drug benefit increases or premium 
reductions for senior citizens.
    Fourth, Medicare's regulatory complexity must get worse. With the 
rising demand for even more specialized and complex medical procedures 
within the current framework of the defined benefits system, the 
regulatory complexity will worsen. With the rising demand for medical 
services by a rapidly aging population, a Medicare eligible population 
that will double over the next three decades, the pressures to 
accommodate those increased costs within the existing framework of 
administrative pricing will intensify. Congressional debates over 
physician or hospital payment or reimbursement for home health or 
skilled nursing facilities, or whether or how to cover new medical 
devices or procedures, prescription drugs will require more 
Congressional time and attention and even greater administrative effort 
on the part of HCFA.
    Fifth, the addition or expansion Medicare benefits, including a 
prescription drug benefit, without addressing the managerial and 
regulatory problems plaguing the program would be a profound mistake. 
HCFA already faces serious challenges in running the traditional 
Medicare program and the beleaguered Medicare + Choice program, which 
is processing roughly a billion claims each year. The addition of a 
Medicare prescription drug benefit to the current structure, whatever 
merits that may have, would also dramatically increase the number of 
transactions HCFA must oversee and thus add to the program's already 
formidable managerial burdens.

    WHY STRUCTURAL REFORM EQUALS REGULATORY REFORM
    If Congress wants to strike at the root of the regulatory problems 
that affect the current Medicare program, then the remedy of choice is 
choice itself; a structural reform that preserves a Medicare 
entitlement to a basic or core set of health benefits, but transfers 
the lion's share of decision-making in the system over to Medicare 
patients and the private plans that they personally choose for 
themselves.
    The best working model for such a structural reform, as the 
majority of the National Bipartisan Commission on The Future of 
Medicare have advised, is a program that is older than the Medicare 
program: the Federal Employees Health Benefits Program (FEHBP), which 
has been serving federal workers and retirees and their families since 
1960. Because the government contributes to the cost of the enrollees 
premium, rather than trying to pay medical providers directly or 
determine the details of health benefits or the precise level of 
medical services, the FEHBP is the quintessential ``premium support'' 
program.
    Having been enrolled in the program personally and having been 
associated with the program professionally in my capacity as an 
Assistant Director at the United States Office of Personnel Management, 
I am acutely aware of the weaknesses of that program, specifically, a 
lack of variation in premiums or government contributions for younger 
workers and older workers and retirees or the absence of any risk 
adjustment mechanism to cope with periodically troublesome problems of 
adverse selection. Moreover, FEHBP does not yet accommodate flexible 
spending accounts, widely available to workers in the private sector, 
and OPM has had an institutional bias against lower cost, high 
deductible options for employees who might want them. There are also 
irrational statutory restrictions on market entry of fee for service 
plans, even though these plans tend to be more popular than HMOs.
    Nonetheless the 40 year record of the FEHBP has been exceptionally 
good. This is particularly so in the area of governance. In 1989, in 
perhaps the most comprehensive analysis of the FEHBP ever undertaken, 
the Congressional Research Service noted that historically, the OPM has 
governed the FEHBP in a fashion that is best described as ``passive 
management''. While some might object to such managerial passivity, a 
positive by-product of OPM's historically light touch has been a 
progressive evolution of benefits packages, that have become richer and 
more varied with the passage of time.
    Other students of the program--ranging from Professor Alain 
Enthoven of the University of California to analysts from the 
Progressive Policy Institute--have found that among its most attractive 
features is the brevity and relative simplicity of its statutory 
authority. The program is also characterized by the notable absence of 
heavily prescriptive regulation, the relative ease with which the 
program adopts new health benefits and absorbs new medical 
technologies, and its relative flexibility in benefit setting. From the 
vantage point of governance, the FEHBP also enjoys a relative freedom 
from the bitter politics of administrative pricing, the medical income 
redistribution and attendant Congressional micro-management that 
afflicts the traditional Medicare program. The major reason: In stark 
contrast to the Medicare program, the FEHBP is a largely market driven 
system, which relies on private sector plans to structure their 
offering each year to satisfy consumer demand and compete with each 
other directly in promoting patient satisfaction. Thus, in sharp 
contrast to Medicare, the crucial decision-making in the FEHBP is 
diffuse. While there are negotiations between OPM staff and major 
plans, and hundreds of routine transactions between OPM and private 
plans in the several states, there are literally millions of decision 
points in the system, governed by the diverse wants and needs of 
federal employees and their families and the dynamic conditions of 
supply and demand. Consider the main features of the program:
           Broad Choice of Plans. Over 300 plans are competing 
        for consumers' business. Unlike the rest of working Americans, 
        federal workers and retirees will have a broad choice of 
        private plans from which to choose. These plans may be fee for 
        service plans, preferred provider plans, (PPOs) or health 
        maintenance organizations (HMOs). Unlike many workers in 
        private sector, federal workers are not forced into one type of 
        coverage, such as HMOs, on a ``take or leave it'' basis, and 
        federal workers and their families can normally choose between 
        a dozen and a dozen and a half plans in most places in America. 
        Unlike Medicare enrollees, their private plans include 
        prescription drug and catastrophic coverage. In fact, virtually 
        all plans cover between 80 and 90 percent of prescription drug 
        costs.
          HMOs attract federal employees and retirees, and they are not 
        forced into them. Consider the pattern of choices among federal 
        retirees, many of whom are covered by Medicare as well. In a 
        recent presentation on FEHBP for the National Academy of Social 
        Insurance, Dr. Kenneth Thorpe and Dr. Curtis Florence, found 
        that 83.3 percent of single retirees chose fee for service 
        plans, while only 16.7 percent chose HMOs; for retired couples, 
        84.2 percent chose fee for service plans, while 15.8 percent 
        chose HMOs.
          Paradoxically, the pluralistic system of competing private 
        plans in the FEHBP is operationally simpler for enrollees than 
        the current Medicare program. Unlike the overwhelming majority 
        of Medicare beneficiaries, Federal workers do not have to go 
        outside of the system to buy supplemental coverage for drugs 
        and catastrophic protection, and pay two premiums for two 
        different plans. Medicare beneficiaries, unlike enrollees in 
        the FEHBP, will end up spending roughly half of their health 
        bills in out of pocket costs.
           Rational Financing. While the government spends 
        about $220 billion for the Medicare program, covering almost 40 
        million retirees, the same government spends about $20 billion 
        for the FEHBP, covering 9 million persons. But FEHBP is a 
        program with a more rational payment system, a form of premium 
        support for individuals and families, and a richer, more 
        progressive and more varied health benefits package than 
        Medicare. Under current law, the government pays 75 percent of 
        the cost of any plan up to a maximum amount, set by formula. 
        For 2001, that amount is up to $2250 for single individuals or 
        $5090 for families. If individuals or families want to buy a 
        more expensive plan, they can, but they will pay more for the 
        richer plan. If they want to buy a less expensive plan, they 
        can do that also. It's their choice.
           Less Bureaucracy, More information, and Higher 
        Satisfaction. Unlike Medicare, which spells out in detail what 
        benefits, treatments or procedures are to be covered, and what 
        prices is to be paid for each medical service, the FEHBP is far 
        less bureaucratic. Within the framework of annual negotiations, 
        private plans present their combinations of benefits and 
        premiums and co-payments to the federal workforce. Plans only 
        do well when they sell a package of benefits at a price people 
        want. Within statutory requirements and OPM approval, plan 
        benefit packages differ, and so do their premiums, co-payments, 
        co-insurance and deductibles. The government does not make 
        everybody pay the same for the same package of benefits. 
        Persons can enroll in any plan they wish; they have access to 
        solid information, not only from the federal government, but 
        also from a variety of private sector sources beyond the plans 
        themselves.
          Not surprisingly, levels of consumer satisfaction in the 
        FEHBP are high. According to a 1997 survey of FEHBP policy 
        holders who rated their plans as good, very good or excellent, 
        87 percent of fee for service policyholders described their 
        plans this way, but 84 percent of HMO enrollees also did so. 
        Not surprisingly, also, enrollees tend to stick with their 
        plans. Based on previous experience, it is likely that no more 
        than 5 percent of FEHBP enrollees will change their plans in a 
        typical year. They pick plans they like, and tend to stay with 
        them, as long as their plans perform on the market basis of 
        price, quality and performance.

HOW SYSTEMIC CHANGE CAN LEAD TO REGULATORY RELIEF
    At least for new retirees, there is no reason why Congress could 
not improve upon the record of the FEHBP and create a superior system 
for America's senior citizens, largely free of the regulatory 
complexities that trouble the current Medicare program. At the same 
time, recognizing there are significant differences between the 
Medicare population and the current federal workforce, the Congress 
would want to make sure that the transition to such a system should be 
undertaken carefully. In the creation of such a system, Congress should 
consider taking the following steps:
          1. Make sure that the newly created administrative agency 
        that oversees a reformed Medicare program--whether it is an 
        independent board or an agency of the Executive branch of the 
        federal government--functions in a fashion broadly similar to 
        the Office of Personnel Management, which administers the 
        FEHBP. The agency should negotiate rates and benefits on behalf 
        of retirees; guarantee that plans offer the statutorily 
        required benefits package; make sure that plans meet fiscal 
        solvency requirements; make sure that plans comply with any 
        statutorily prescribed underwriting rules, including guaranteed 
        issue or renewability requirements; make sure that plans meet 
        consumer protection requirements, including protections against 
        fraud and misleading advertising, and ensure that competing 
        plans provide plan information in plain English. For the FEHBP, 
        OPM performs these functions today, and acts as a referee in 
        setting and enforcing the ground rules among plans. Competing 
        plans themselves do not have to wrestle with an overly 
        burdensome regulatory system in complying with this consumer 
        protection regime.
          If Congress should decide to adopt a new competitive system, 
        Congress may wish to protect the system itself from regulatory 
        erosion. Regulatory creep can undermine legislative intent. In 
        order to prevent the devolution of a competitive system into a 
        powerful regulatory regime like that administered today by 
        HCFA, Congress should consider enacting statutory prohibitions 
        against any such agency from imposing government fee schedules, 
        price controls, or premium caps on plans or providers 
        participating in the new competitive system. Moreover, the 
        Congress should make it statutorily clear that practice 
        guidelines on doctors and hospitals, the adoption of quality 
        standards, or the provision of lawful benefits or medical 
        procedures that private plans may offer, over and above any 
        statutorily required benefits package, are issues to be 
        resolved in the competitive private market.
          2. Promote Plan Flexibility in Benefit Setting. There are a 
        variety of ways to do this. First, Congress could adopt the 
        model that currently exists in the FEHBP. The Office of 
        Personnel Management (OPM) sends out a call letter in the 
        Spring of each year, outlining what it wants to see included in 
        the plan benefit submission for the coming Fall ``Open 
        Season'', when federal workers and retirees make their plan 
        choices. OPM often specifies what benefit additions it would 
        like to see in the plan submissions. And these plan submissions 
        are the subject of sensitive and confidential negotiations 
        between the representatives of the private plans and OPM 
        officials during the summer of each year.
          While OPM has broad authority to negotiate rates and benefits 
        for each year, OPM is governed by specific statutory 
        requirement in Title V of the United States Code that spells 
        out the categories of benefits-such as physician and hospital 
        services--that must be included by law in private plan 
        offering. The law does not specify, however, the precise level 
        of benefit, the duration of medical treatments or procedures, 
        or the mix of premiums, co-payments, coinsurance and 
        deductibles. All of these items are subject to negotiation, and 
        OPM historically, has been flexible on these matters. In 
        creating a new competitive system, instead of setting forth 
        detailed benefits in legislation, Congress could replicate the 
        FEHBP model, and confine itself to setting forth the broad 
        categories of benefits, including catastrophic and prescription 
        drug coverage that private plans competing in the new system 
        must offer.
          There are other possible options. Congress could set forth a 
        core package of benefits that must be required, say, based on 
        the current Medicare benefits package, with a further 
        requirement for catastrophic and prescription drug coverage. 
        But then, Congress could authorize the new administrative 
        agency to allow the plans to offer the actuarial equivalent of 
        that benefits package, with a differing mix of medical 
        treatments or a different combination of benefits, co-payments 
        or, deductibles. Congress could also authorize the new 
        administrative agency to accept automatically, (assuming the 
        inclusion of catastrophic or prescription drug coverage), a new 
        retiree's employment based plan as an approved plan in the new 
        competitive system, thus allowing workers to take their state 
        or ERISA certified employer based plans with them into 
        retirement as their primary coverage and get a government 
        contribution to offset its cost, assuming that the employer 
        would also be amenable to such an arrangement.
          3. Authorize sophisticated information collection. Before 
        entering into negotiations with private plans, the new 
        administrative agency should conduct regular surveys among 
        enrollees to get a clearer idea of what Medicare patients want 
        in their insurance packages. With the coming eligibility of the 
        77 million strong baby boom generation for Medicare coverage, 
        there is likely to be a rich diversity of demand for new and 
        increasingly varied medical services. The new administrative 
        agency should take advantage of sophisticated information 
        technology to assess more accurately the precise nature of this 
        demand, discerning what, precisely, individual enrollees want 
        in terms of access to physicians and specialists, different 
        types of coverage, and different types of benefits and 
        different levels of premium payment and co-payment. This would 
        help the officials to negotiate solid benefits on behalf of 
        retirees at an affordable price. These information programs are 
        already coming to fruition in the private sector. Just as they 
        can be of immense value to employers in fashioning their own 
        health insurance offerings, they could also be invaluable to a 
        new government agency administering a pluralistic system of 
        competing private plans for senior citizens. In this new 
        environment, consumer based information would be the touchstone 
        of all administration decision-making; and persuasion and 
        friendly negotiation would replace regulation.
          4. Ensure a smooth transition to a new competitive system by 
        phasing it in, allowing plenty of time for mid-course 
        corrections, and enabling private plans to adjust to the 
        enrollment of new retirees. If there is any lesson that could 
        be drawn from the damaged ``Medicare+Choice'' experiment, it is 
        the crucial need for a well planned transition. There should be 
        a high level of predictability for private plans, who must 
        develop business plans to accommodate the changes in the 
        system, without the fear that what they are attempting to do 
        will be undercut by precipitous changes in federal regulatory 
        policy. Perhaps the best way to accomplish this objective is to 
        make sure that any new competitive system would be open only to 
        new retirees, allowing it to grow on a year by year bases, and 
        enabling the market to respond and mature. If, after a few 
        years, when the system is up and running, the inevitable 
        wrinkles have been ironed out, the Congress could open the new 
        system up to enrollees in the traditional Medicare program.
          5. Stop overloading HCFA. If Congress does create a new 
        competitive system, HCFA should not be tasked with 
        administering it. Given the culture of HCFA as a regulatory 
        agency, it is not in any case the best candidate for partnering 
        with private firms and administering a new market driven 
        system. HCFA should be confined to administering the 
        traditional Medicare program, and given the managerial 
        flexibility to compete with private plan options for the 
        allegiance of retirees. Congress should also consider creating 
        alternative managerial structures for the administration of 
        Medicaid, SCHIP and enforcement responsibilities under the 
        Health Insurance Portability and Accountability Act.
    A final thought. Reforming the Medicare program will be technically 
difficult, particularly in developing a transition to a new competitive 
system, and it will be politically challenging. But the alternative is 
to continue to manage Medicare through an increasingly complex body of 
statutory law, expanded judicial decision-making, and increasingly 
detailed regulation. Meanwhile, Medicare will face an unprecedented 
demand for medical services within this decade from an increasingly 
well educated, diverse and rapidly growing retiree population. 
Insisting on the status quo, and nourishing the inevitable regulatory 
growth of a fundamentally unchanged Medicare program could prove even 
more difficult and politically challenging.
    Thank you.
    Members of The Heritage Foundation staff testify as individuals 
discussing their own independent research. The views expressed are 
their own, and do not reflect an institutional position for The 
Heritage Foundation or its board of trustees.

                                


    Chairwoman Johnson. Thanks very much, Dr. Moffit.
    Hon. Ms. Wilensky.

  STATEMENT OF THE HON. GAIL R. WILENSKY, PH.D., JOHN M. OLIN 
    SENIOR FELLOW, PROJECT HOPE, BETHESDA, MARYLAND; CHAIR, 
MEDICARE PAYMENT ADVISORY COMMISSION; AND FORMER ADMINISTRATOR, 
              HEALTH CARE FINANCING ADMINISTRATION

    Ms. Wilensky. Thank you, Madam Chair and Members of the 
Subcommittee. I am here as a senior fellow from Project HOPE 
and a former HCFA Administrator. Listening to today's 
discussion makes me glad to emphasize the former.
    I am not here, however, to bash HCFA. What I would like to 
do is to share with you ways in which I believe the regulatory 
environment might be changed so as to reduce some of the 
burdens that we have been hearing about on providers without 
abdicating the fiduciary responsibility of HCFA to be prudent 
stewards of the Medicare trust funds.
    We need to recognize that there is a fundamental tension 
inherent in HCFA's roles. HCFA needs to establish a user-
friendly environment, making sure that seniors get access to 
high-quality health care, but HCFA also needs to be financially 
prudent with the taxpayers' moneys.
    You have been hearing about the increased levels of 
frustration that have been reported by providers regarding 
billing complexities and fears of the billing complexities 
compounded by integrity activities.
    Recently, there has been some empirical evidence that, 
after years of upcoding--that is, billing for more services 
than was provided--there is now some indication of downcoding--
that is, billing for less intense services that were actually 
provided. This is not a good sign for the program or for the 
seniors that are served by Medicare.
    What I would like to do is share with you a few strategies 
that I believe could help reduce provider frustration and also 
some steps that would help HCFA be able to deliver services, by 
restructuring the agency, and, finally, to discuss how to get 
from here to there.
    In the first place, I think it is clear we need to have 
better education for providers; we need to have clearer billing 
procedures and protocols; and we need to have billing 
procedures and protocols changed less frequently and on a more 
regularized basis.
    The second area that I want to mention relates to the 
presumption as to how bills are paid. We have heard this 
morning about some of the variations that are used by the 
carriers and the fiscal intermediaries. But, in general, there 
is a presumption or default that bills are not being submitted 
accurately. That is a presumption that could be changed in much 
the way that there was a change in the Peer Review 
Organization. The presumption would become that bills are 
properly submitted. Then there would be a search for patterns 
of abuse based on statistical analyses.
    Prior to the early nineties, the PROs used to perform a 
case-by-case, retrospective analysis, looking for bad outcomes. 
But once they found one, it was very difficult to figure out 
what it meant. As a result, and in an effort to focus more on 
quality improvement, there was a movement to looking to 
patterns of care and patterns of outcome that differed from 
what their peers experienced. It is precisely this, that kind 
of a change that I think would go a long way to reducing the 
kinds of frustration that we have heard described this morning.
    Finally, I believe that HCFA needs to be more mindful of 
the time and burden imposed on providers from its various 
assessment and data collection efforts. We heard some mention 
made of the minimum data set, the MDS. There is a new data set 
now called the minimum data set post-acute care, MDS-PAC. The 
MDS has 350 items. The MDS-PAC has more than 400 items, with 
seven different timeframes for patient assessment. The MedPAC 
report that was recently delivered to the Congress, indicated 
MedPAC's concern about the amount of time taken away from 
patient care that these assessments tools would require and has 
suggested that for inpatient rehabilitation that the primary 
assessment tool, the functional independence measure (FIM), 
continue to be used. The FIM is much shorter and has been used 
for a number of years.
    Second, restructuring HCFA so that it can focus on 
Medicare. That would mean taking some of the current 
enforcement functions, the survey and certification, the 
clinical lab certification, and the conditions of participation 
and putting them either with the CDC or with the FDA. Second, 
moving either all of Medicaid, or at least that portion 
relating to moms and kids, and the Children's Health Insurance 
Program with the agency that runs welfare. These are all State-
based, income-related programs. Whether or not to move the 
long-term care portion of Medicaid is a little more 
complicated.
    Whether or not the section of HCFA that runs the Medical 
Plus Choice Program should be moved depends somewhat on the 
kind of Medicare reform the Congress chooses to do. As you 
know, I am also a supporter of a Federal Employees Health Care 
model as a reform for Medicare. This would require a number of 
administrative changes. If Medicare does not begin to move 
toward an FEHBP model, the Medicare Plus Choice might remain a 
direct part of HCFA. If the reform does not occur, the 
administration of the Medicare+Choice program should be moved 
to another agency that is within HHS or an expanded part of the 
Office of Personnel Management although there would clearly 
need to be some coordination with HCFA.
    Third, if you choose to use PBMs, the pharmacy benefit 
management groups, to run a pharmacy program for seniors, there 
will have to be much greater clarity about how much independent 
power PBM's are to have, where their oversight should be 
lodged, and resolve many other administrative issues.
    Fourth, a word about getting from here to there. Phase-ins 
for Medicare usually occur over some time when they relate to 
changes in payment and coverage. My advice is that any 
restructuring of Medicare should also be phased in. It is best 
to restructure at the beginning of a term or at the end of a 
term. Moving relatively separable parts of HCFA is less 
disruptive than reorganizing all the people within the agency. 
But even moving separable parts will be disruptive.
    And, finally, Congress and the administration need to 
recognize that there has been a serious mismatch between HCFA 
responsibilities and HCFA resources. HCFA clearly needs to do 
better, but with all due respect, Congress needs to do better 
with HCFA as well.
    Thank you.
    [The prepared statement of Ms. Wilensky follows:]

  Statement of the Hon. Gail R. Wilensky, Ph.D., John M. Olin Senior 
   Fellow, Project HOPE, Bethesda, Maryland; Chair, Medicare Payment 
 Advisory Commission; and former Administrator, Health Care Financing 
                             Administration

    Madam Chairwoman and members of the subcommittee: Thank you for 
inviting me to appear before you. My name is Gail Wilensky. I am the 
John M. Olin Senior Fellow at Project HOPE, an international health 
education foundation and I chair the Medicare Payment Advisory 
Commission. I am also a former Administrator of the Health Care 
Financing Administration. My testimony today primarily reflects my 
experiences as a HCFA Administrator as well as my views as a health 
economist. I am not here in any official capacity and should not be 
regarded as representing the positions of either Project HOPE or 
MedPAC.
    I am here today to discuss ways in which the regulatory environment 
might be changed so as 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 in order to make the agency 
function more effectively. I believe such a reallocation would be 
desirable, irrespective of reforms to the Medicare program but would be 
particularly important with some of the reforms under consideration. It 
would also allow HCFA to concentrate its energies on running Medicare 
more efficiently and effectively.

Fundamental Tensions Faced by HCFA
    HCFA faces certain fundamental tensions with its goals of 
establishing a user-friendly Medicare, 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 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 to a 
program as large and complicated as the current Medicare program, but 
if left unchecked, can mean an important diversion of time 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. This finding is consistent with 
reports by various types of providers regarding their uncertainty about 
how to bill Medicare appropriately and their concerns about being 
charged with making false claims against the Medicare program. While 
government officials should not countenance abusive behavior by 
providers, it should be equally worrisome to the Government that 
providers may be deliberately under-billing Medicare in an attempt to 
stay clear of the HCFA or the IG. Such behavior will not be to the 
long-term benefit of Medicare or the seniors it serves.

Strategies to Reduce Provider Frustrations
    Among the many complaints raised by providers, uncertainty about 
proper billing and coding and discrepancies in treatment by various 
contractors 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 and may require additional resources as well.
    The tension between the desirability 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 also 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.
    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 emphasis 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.
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
    There are a variety of administrative issues that need to be 
considered prior to the implementation of Medicare reform. What 
functions 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?
    The first step, at least in principle, should be to move non-
Medicare related functions as well as some 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 or 
potentially, a new authority that houses both of these agencies.
    The oversight of the Medicaid program, which has always been 
somewhat the stepchild of HCFA, should be moved elsewhere and given 
appropriate resources and leadership. Where coordination with Medicare 
is needed, such as for the dually eligible population, interagency 
agreements can provide the needed exchanges of information and 
coordination. Putting Medicaid and the approval of proposals submitted 
by the states under CHIP together 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. The question is whether HCFA will be 
allowed 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 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.
    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 function 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. 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.

                                


    Chairwoman Johnson. Thank you very much, everyone, for your 
testimony. It has been very helpful, and some of it will 
require, as some of you have noted, further discussion beyond 
this morning's endeavors.
    I did want to ask you, Ms. Edelman, aren't there some home 
care services that our home health agencies provide that are 
clearly, absolutely not covered by Medicare?
    Ms. Edelman. Yes, that certainly would be true. But there 
are so many instances where the home health care agencies are 
making incorrect assumptions or incorrect determinations that 
coverage is not there. More than 50 percent of the time, they 
are incorrect. That is very troubling. The only way that 
beneficiaries can get into the appeals process is through a 
demand bill. And so people do need an opportunity to do that.
    Chairwoman Johnson. I appreciate that, but there are whole 
categories of services that Medicare doesn't cover at all: 
services to families with psychiatric problems, home health 
aides.
    Now, there is a category, a group of patients, about which 
there is no possible controversy. I understand the gray-line 
area. But I don't know that you really understand what it means 
to an agency to now give out a form and the choices on the form 
are: you pay, you stop the services, or you ask for a demand 
bill.
    Now, anybody in their right mind, any senior, is going to 
ask for a demand bill. So it means that agencies have to go 
through the demand bill process and submit the bill to 
Medicare--no, submit to Medicare knowing that they are not ever 
going to get paid by Medicare. And so it involves not only the 
paperwork going to Medicare, waiting for Medicare's decision. 
In Connecticut, it involves your agency then challenging that 
bill, and most all of them get challenged. This is a 2-month, 
4-month, 6-month, 8-month, year, year-and-a-half process.
    And all that time the agency gets paid partially by 
Medicare, then Medicare decides that they aren't going to pay, 
so they get their money back. And then the agency is bare and 
unable to bill any other payer, especially Medicaid, which is 
the primary payer for the dual eligibles, until the thing is 
resolved, which may be many, many months.
    Now, for a small agency, this cash flow problem--never mind 
the volume of just xeroxing is extraordinary. And I think if 
you sat down and sat with our agencies--although, actually, in 
Connecticut, I hate to say that your organization seems more 
interested in money than patient care. It is just appalling 
what has gone on. But it is different than other States. I 
appreciate that.
    But we really have to look at the patient getting service. 
And when our agencies--now, it is true, the intermediary gave 
us different direction than the rest of the country. But, 
truthfully, there are services, there are patients in which 
there is absolutely a clear-cut case that Medicare won't cover 
it. And yet to have no line at all, no way for the agency to 
move ahead, is in my estimation an example of Medicare not 
being able to be rational.
    Now, truthfully, when we talked with them about this, we 
hoped to draw some of those lines, but I think you 
underestimate both the burdensomeness in terms of sheer cost of 
time and money and the irrationality of this process for small 
agencies that serve a lot of dual eligibles.
    Unfortunately, I have to let you comment on that later 
because I need to just mention to Mr. Grob, I like very much 
what I hear you saying, and I think most of what you said I 
don't disagree with. I do think in your comments about the 
appeals process, you are not noticing that there is a whole 
level of dialog that needs to go on between you and the people 
you are overseeing so that we don't have appeals for certain 
reasons.
    There should be a way that a physician can say, wait a 
minute, you are coding it this way and I am coding it this way 
and this is why. There should be a level of collaborative 
discussion before you come to your final conclusions. And 
certainly when you look at the appeals process, it currently 
takes a year to have an appeal adjudicated under Part A, and 
557 days to have it adjudicated under Part B.
    Now, that is what we were trying to address in that bill, 
and I can't believe you would think that tighter time frames 
than that would be a problem for anyone.
    Mr. Grob. First of all, I absolutely agree with what you 
are saying about the need for the discourse. And as far as the 
tighter timeframes are concerned, I think that there certainly 
can be tighter time frames, with two things in mind. One, would 
there really be adequate resources for dedicated and 
professional people to meet those time lines? And, second, 
would the time lines be reasonable?
    I think the ones that are in there now might be a little 
too tight, just given, you know, what the normal process is. 
But the concept of time lines is not at all bothersome. The 
question is: Are they reasonable? Are there resources to meet 
it? And then going back to your point about the discourse so 
that we don't have so many arguments, I really agree with that.
    Chairwoman Johnson. Then we would like--probably you 
wouldn't want to comment right now, but if you would comment on 
Gail Wilensky's recommendations, it would be very helpful. I 
think this kind of view of the system could be far more 
fruitful to us than some of the activities we are involving 
ourselves in.
    Mr. Grob. I would welcome the opportunity, and I really 
have to tell you that just in listening to all the testimony 
that I have heard today, I was impressed on how thoughtful it 
was, covering a wide range of issues. Many subjects that we 
have been studying in our office have come out on the table, 
and I am just delighted to see that they are out here on the 
table.
    Chairwoman Johnson. Mr. Stark.
    Mr. Stark. Thank you, Madam Chair.
    Gail, I think we agree and the Committee agrees that there 
are changes that need to be made, and I am aware of changes 
that were made when you ran HCFA and changes before that, and I 
suppose subsequent to that. In many instances, what we do in 
HCFA leads to changes in the private insurance market. I 
believe that you were there, I think, when we did physician 
reimbursement. Right?
    Ms. Wilensky. Correct.
    Mr. Stark. And I think most private insurance companies now 
take that and use it as a physician reimbursement structure--
not the rates, obviously--in their fee-for-service payment, for 
better or for worse. And I don't know whether imitation is a 
form of flattery or not.
    But, on the other hand, it seems to me that HCFA sometimes 
follows along. Arguably, the way the intermediaries pay is kind 
of left over from the way Blue Cross used to pay before 
Medicare came into existence. They tend in the different areas 
of the country to pay for the procedures in much the way they 
used to.
    In your experience, either with Project HOPE or at MedPAC, 
could you say that there is any one major program-Medicare, 
Medicaid, private insurance? And I will mention the names, but 
I don't know as you have to. But Aetna, one of the--I can't 
think of the largest one now in California, Physician Care, or 
whatever the heck their name is, HCFA. Medicaid I think is 
generally considered to be more frustrating to the hospitals 
and physicians and doesn't pay enough.
    But is there any one that stands out as being outstandingly 
better or worse than another in terms of reimbursing hospitals 
and physicians and clinical labs, in your opinion?
    Ms. Wilensky. I think it depends on what level. When it 
comes to payment, the payment level----
    Mr. Stark. I am thinking of the procedure. I think mostly 
we are talking here about hassle factor----
    Ms. Wilensky. Because I think actually Medicare pays pretty 
well. I think Medicare is one of the better payers when it 
comes to the level of payment.
    My sense is that in the hassle factor there is at least one 
clear difference with the private sector, and that is the local 
discretion that is granted to the carriers and intermediaries, 
which means how rules are interpreted differs significantly 
among carriers.
    When it is for coverage of some new medical procedure or 
technology, there are both positives and negatives. When it 
comes to interpreting amount, duration, and scope, which goes 
to a lot of program integrity and billing activity, I don't see 
much value to discretion. This type of variation is quite 
different for private plans. Private plans may have good rules 
or bad rules, but they don't vary the interpretation. This is 
an example where Medicare causes a lot of uncertainty and 
frustration.
    Another source of frustration is that HCFA makes amendments 
on a far more frequent basis, sometimes in response to 
congressional legislation, sometimes just as a way to roll out 
these changes, far more than private plans. Private plans tend 
to make changes in line with their benefit year, unless a major 
employer comes in midyear and negotiates a different package. 
Frequent billing changes are very disruptive and confusing. It 
is very hard on small physician's offices in rural areas. These 
practices don't have a lot of administrative support. And it is 
also disruptive in very large institutions.
    On the other hand, I am not sure that Medicare pays slower.
    Mr. Stark. Well, to follow along, you recognize the 
resources that we have at our disposal, and it would seem to me 
that we could not fulfill our responsibilities by letting the 
American Hospital Association or the AMA write the rules. They 
certainly should be able to help us. But if we follow along, as 
the chairman I think is doing correctly, to set up a program of 
reforms--I think you are advising us that maybe we ought to 
take a piece at a time.
    Could you suggest, a format that we might follow? For 
example, could we give temporarily additional resources to 
MedPAC or to CRS or to GAO or a consortium who have the 
technicians. We don't have the capacity here--even the majority 
doesn't have that much staff, I don't think--to come back to us 
with suggestions? Can you suggest a procedure we might follow 
to get at taking the most critical reforms first and going down 
the line? Where do we turn to learn that?
    Ms. Wilensky. I think you need to have the individuals who 
are actively involved in actually running practices or 
institutions involved, which is unlikely to be the chairman/CEO 
of major institutions. It will be somebody within the 
organization. It may take a bit of searching to designate the 
right person to bring them together, working perhaps with a 
consortium of CRS, MedPAC, or GAO individuals.
    Mr. Stark. Could MedPAC take the lead on that with 
additional resources?
    Ms. Wilensky. I should probably check whether our executive 
director thinks he has the talent, and the expertise.
    There is some operational expertise in MedPAC, but I will 
certainly be glad to get back to you.
    Mr. Stark. OK, yes.
    Ms. Wilensky. I have found it difficult in the past to get 
specific recommendations from provider groups that complain 
about the regulatory burden. I will be eager to read the 
testimony from the previous panel to see if you have been able 
to get more specific ideas. It was why I tried working with 
some senior career employees at HCFA to see if they could come 
up with two or three very specific ideas. That is why you need 
to have people who are involved in the working operations 
working to try and attack various pieces of the problem.
    I do think there is a lot of complexity inherent to 
traditional Medicare. The Federal government needs to decide on 
the definition of the benefit, the appropriate price for the 
unit or the bundle, the quality and whether it should have 
occurred. The amount of change that resulted from BBA, BBRA, 
and then the Beneficiary Improvement and Protection Act has 
been extraordinary. I don't know whether it is correct, but I 
have heard that there were 700 specific directives to HCFA over 
those pieces of legislation.
    Mr. Stark. From us.
    Ms. Wilensky. From you.
    Mr. Stark. Yes. I have heard that it is a large amount, 
too.
    May I extend for one question to Mr. Grob, Madam Chair?
    Chairwoman Johnson. I thought maybe I would let the other 
two question, and then I am going to come back and you can come 
back.
    Mr. Stark. OK. Thank you.
    Chairwoman Johnson. Mr. McCrery.
    Mr. McCrery. Dr. Moffit, you have said that this burden or 
hassle factor is going to intensify if the basic structure of 
Medicare is not changed.
    Dr. Moffit. Correct.
    Mr. McCrery. I think you were here earlier, and you heard 
the testimony of the earlier panel, and you have heard Dr. 
Wilensky kind of give a middle road of, well, some things could 
be better, but, you know, private sector is not so hot, either.
    Where do you get your conclusion that HCFA and Medicare is 
just really worse than the private sector in terms of the 
hassle factor?
    Dr. Moffit. Well, in terms of the testimony this morning, 
you have heard testimony from private sector providers who have 
told you that Medicare is, in fact, more burdensome than 
private insurance. In my capacity as a policy analyst, I hear 
from doctors almost every week who complain about Medicare. 
Now, they complain about managed care, too, but they also 
complain about Medicare. And in having an opportunity to speak 
and debate about this subject across the country, I have 
opportunities to talk before forums sponsored by Members of the 
medical profession or hospital staffs. My concern is, after 
talking to them, that there is a profound sense of 
demoralization among Members of the medical profession. That is 
to say, they feel that they are losing control over major 
decisions that affect their professional lives. And they are 
also concerned about the requirements that they have to comply 
with just the sheer volume of Medicare rules and regulations.
    I am not certain, however, that Medicare should be isolated 
from the general private health insurance system. Our colleague 
Professor Uwe Reinhardt, at Princeton University, has said it 
best: that we right now have perhaps the most bureaucratic 
health care system perhaps in the world. And the reason: you 
have large employer-based health insurance arrangements as 
well. But the real difficulty is that individual patients have 
less and less control in this system.
    Of course, you can go to any doctor that you want in 
Medicare, assuming he takes Medicare. But that doctor is 
constrained by the rules and regulations of Medicare, and that 
is what the physicians have been complaining about this 
morning.
    Medicine is undergoing a rapid change. We are seeing a 
dramatic change. Biomedical research is advancing rapidly. 
Medical technology is also advancing rapidly. And this is going 
to mean that the pressures on Medicare are going to increase to 
accommodate these changes; and at the same time, Congress is 
going to have to deal with the addition of new benefits 
reflecting scientific changes, but at the same time add such 
new benefits in a cost-effective manner. And the way Congress 
is going to do this is to establish a new administrative 
payment systems or adapt old payment systems to these new 
medical technologies or services. There will be a resulting 
political response by physicians or providers that these new 
payment applications are inequitable, and there will be a 
tendency either for Congress or the Health Care Financing 
Administration, to be under new pressures to make more 
exceptions. The more exceptions you make, the more complex the 
regulatory system becomes.
    My view of the Medicare regulatory system is that it 
resembles the reproductive behavior of rabbits. The rules will 
continue to multiply.
    Mr. McCrery. And is it your conclusion that, left unchanged 
and allowing the hassle factor to intensify, providers, 
particularly physicians, will find it less and less attractive 
to practice medicine and that that may discourage bright young 
people from even going to medical school? I mean, do you see it 
as precipitating that kind of reaction?
    Dr. Moffit. Congressman Stark said this morning that there 
is no solid statistical evidence that doctors are dropping out 
of Medicare. The real concern that I have is that doctors will 
not give up Medicare patients, their current Medicare patients, 
but they are going to be loathe to take on new Medicare 
patients.
    In the past, we have been able to stem that. We have been 
able to prevent that from happening by readjusting the payment 
systems. But we are in the midst of a demographic revolution 
unlike anything we have ever seen. Within the next 10 years, 77 
million baby boomers are going to start to retire, and the 
demand for medical services is going to be unlike anything we 
have ever seen before.
    Now, certainly physicians depend heavily on Medicare simply 
because of the size of the Medicare population. So I don't 
expect a mass exodus. What I do see, and what I am really 
concerned about, is the consequence of this demoralization that 
I talked about. I submit to you, at least from my personal 
experience, that it is very real. Frankly, I think it is one of 
the more serious problems facing the Medicare system, and I 
think it is one of the more serious problems facing the 
country. We have to take this very, very seriously.
    What happens when, the medical profession is demoralized? I 
think you can tolerate some demoralization in many professions. 
Among health care economists or policy wonks, that is fine. 
Among college professors, it is a shame, but if they are 
demoralized, that is not catastrophic. I don't think you can 
afford demoralization on the police force or in the Marine 
Corps or in surgery. This is something that this Committee is 
going to have to address.
    Mr. McCrery. Thank you.
    Chairwoman Johnson. That was a very, very excellent answer, 
according to the demoralization, and it is frankly why we are 
having this hearing. I think the demoralization is profound. I 
think it is a very much bigger part of the nursing shortage 
than we are going to be able to document or that we are willing 
to acknowledge. You cannot treat people whose job it is to 
provide love and skilled care the way we are treating medical 
personnel from bottom to top. Mrs. Thurman.
    Mrs. Thurman. Madam Chairman, let me also say from somebody 
who is from the State of Florida, where we have a higher 
population of seniors, that, you know, part of the thing that 
we are seeing--and maybe it is not going into the practice, 
maybe it is because of Medicare choice. I mean, I think there 
are a lot of other issues going on out there besides Medicare. 
But, you know, we are seeing in many cases where we just don't 
have the physicians to take on new patients. It doesn't have 
anything to do with that they are stopping to see them. It is 
just there is no room in their practices left because of the 
overburden and the demographic shifts that are happening in 
this country. And I think that is part of the issue.
    Ms. Wilensky, let me ask you a couple of questions, because 
I think it is important having you here, both in what you have 
done with health care but also as a former HCFA Administrator.
    In your time, did we have hearings like this about 
overburdened regulations? And do you remember any time when you 
served that, in fact, we had as much change, the 700 ideas that 
were talked about, rules and regulations that had to be put in, 
or that policies were being driven because we were cutting 
budgets? I am just kind of curious to know. This is a framework 
that, you know, I don't believe has always not been there, but 
I do think we have added some burden on it in this last years.
    Ms. Wilensky. I think you have characterized it well. HCFA 
is and always has been a very difficult job. You are under 
intense pressure. Providers--the nature of the program is to 
have pressure to have more payment and less regulation and to 
make sure that seniors feel like they are getting good care. 
That tension is inherent in the program.
    The amount of complaint, the frustration by hospitals and 
physicians, the fact that we were able to document some 
evidence of downcoding and billing by hospitals is really quite 
extraordinary, and I think it has to do with the pace of change 
that has occurred since 1997. I think it has to do with very 
grave concern by physicians and institutions over being charged 
with civil monetary penalties and with potential criminal 
penalties, very aggressive moves to try to go after 
undocumented billing. I think it is partly an attitude, it is 
partly a level of change, and it is the pace of changing 
regulations and the inconsistency.
    When you put all of those together, what you are hearing 
now is a level of frustration that is quite extraordinary, and 
the fact that you have as much interest being expressed by 
various Committees of the Congress is very different. There was 
always some level of interest in this issue by this Committee 
and by the Finance Committee in the Senate, but the level of 
interest among a wide variety of Subcommittees in the Congress 
is extraordinary.
    Mrs. Thurman. Why do you think that is true today than it 
was before?
    Ms. Wilensky. I think it is----
    Mrs. Thurman. I mean, there has got to be a key reason.
    Ms. Wilensky. I think that it is the amount of change that 
has gone on in the last 3 years, and I believe it is very 
aggressive efforts by the inspector general, by HCFA itself in 
terms of program integrity, by the----
    Mrs. Thurman. Directed by----
    Ms. Wilensky. Department of Justice, by the State attorneys 
general in going after abusive practices, in some cases unclear 
practices. I think there is the belief on the provider 
community that they are being charged as being criminals in 
what is a very complex and unclear program, and it has raised 
levels of frustration. But the sheer enormity of the change and 
the regulations and the billing procedures that that has 
engendered is different from anything that existed.
    Mr. Stark mentioned when I was at HCFA we were focusing on 
changing the way physicians were reimbursed, and we worked very 
hard to make sure that that occurred on time, January 1, 1992, 
reasonably accurately. But when BBA came through, HCFA had to 
worry about having prospective payment for skilled nursing 
facilities or home care or outpatient and doing all the other 
changes that went along at a time where what I have been told 
is the administrative budget increased approximately 5 percent 
during a period when the demands were just enormous.
    Mrs. Thurman. And if I remember correctly, there was very 
little time given to HCFA----
    Ms. Wilensky. Very little.
    Mrs. Thurman. To do those regulations before they were 
going to be brought back up here as to why aren't these things 
being done. And it is my understanding from past situations we 
have actually tried to give HCFA the amount of time to actually 
implement.
    The reason I go along this line of questioning is because I 
don't want us to be misled that HCFA and Medicare are in 
trouble. I mean, I actually think they have done some pretty 
good jobs. I think Medicare, whether you all believe it or not, 
has done a good job, and I think people depend on it, and they 
like the program. And, in fact, HCFA has gotten great reviews 
through some surveys saying that beneficiaries have been happy 
with the explanations that they have been given, and they felt 
like they were courteous and got answers.
    But, you know, I am worried that we are setting a stage 
here that is doing something for Medicare reform, maybe just in 
the name of Medicare reform to change the system, that while 
there may be some problems in it and, yes, we have to look at 
it, but we also need to be careful that we don't undo a system 
out there that people are comfortable with in the most part. 
Problems? Absolutely. I mean, we just got done voting on 
paperwork reduction on the floor for small businesses. So we 
know that that is a problem throughout the system. But I just 
want us to be careful that we are not totally throwing out 
something to put something else in and building the case here.
    Ms. Wilensky. I think there is a real--one of the things 
that I worry about is I think there is a major morale problem 
at HCFA, in part because HCFA bashing has been very popular.
    Mrs. Thurman. Absolutely.
    Ms. Wilensky. And I think as much as I have recommended 
restructuring, I hope very carefully, the fact that HCFA had 
just gone through an enormous restructuring before BBA occurred 
meant that the agency was in a very difficult position to 
respond to what was the biggest workload it had ever had placed 
on it.
    But having said that, Medicare is a very important program. 
I believe it can be made better. I believe that it can better 
suit the 78 million baby boomers that are going to start to 
retire. We just have to make sure it is done in a way that 
doesn't put the existing seniors at risk.
    Mrs. Thurman. And the last comment is I know that in both 
BBA and the last one, we have also asked MedPAC to do some 
studies. And we probably ought to also give them the 
opportunity to respond to some of this.
    Ms. Wilensky. MedPAC has been impressed by the number of 
new assignments from BBRA and BIPA.
    Chairwoman Johnson. Thank you, and I appreciate the 
gentlelady from Florida pointing out that this is not about 
HCFA. We have some very, very good people at HCFA. It is also, 
to some degree, about Congress responding to the problems the 
program faced in 1997 with a very, very big bill.
    I think the other thing here--and I think it is important 
for us to acknowledge--we did not anticipate the unintended 
consequences of putting in place criminal penalties, and 
especially putting them in place at a time when loads of new 
regulations were going to come out, where judgments were going 
to be very difficult to make. So now you have people trying to 
make very difficult judgments. They are bound to commit errors, 
and the penalties are their license, their livelihood, and 
their reputation in the community.
    So I think in the 1997 legislation, which we passed and I 
helped write--and I recognize the problems. I remember when Sam 
Gibbons proposed the $800 million more for fraud and abuse, and 
we were able with that money to set up a center in every State. 
We needed to do that. God knows we needed to do that. But I 
don't think we had a chance to really think through what was 
going to be the interaction.
    Now, that leads me to a question I do want to ask, and we 
will do a second round now. In the area of workplace safety, 
some States have used a method where OSHA comes in and can do 
an inspection with you, tell you exactly what you need to do, 
and then they come back in a month or two, and if you have done 
it, fine, there are no penalties.
    Given the enormous complexity of the laws at this time, do 
you think there is any role for an OSHA-type education process 
that would do an inspection, go around with a nursing home or 
work with a home health agency on their billing and so on, and 
then if they clean it up, then that is fine?
    Now, clearly, if you came in successive years and found 
exactly the same problems, you know, that would be a problem. 
But this is a variant of what Dr. Wilensky has talked about. 
And it also picks up on the incredible lack of education that 
we do out there.
    Do you think there is a role for this kind of an oversight 
process as a program integrity component?
    Mr. Grob. I really appreciate your asking that question. I 
absolutely do think there is room--in fact, I actually think 
that for nursing homes, for example, the current rules that 
pertain to the discovery of deficiencies in treatment is very 
much along those lines. And I think where it has fallen short 
is that they simply have not had the resources to meet the kind 
of deadlines that you are talking about and get back out there 
right away----
    Chairwoman Johnson. No, no. The spirit of what has gone on 
in nursing homes is not along the line that I am suggesting at 
all. That is not a problem.
    Mr. Grob. Could I address the question then of spirit, 
since the question of demoralization and the question of 
criminalization has frequently arisen? I really do think it is 
vital, and could I take a minute on that?
    Chairwoman Johnson. Sure.
    Mr. Grob. I do think that there is concern--and I have 
heard it over and over--that physicians are afraid and other 
health care providers are very much afraid of criminalization. 
But I do wish to emphasize that the word can mean many things 
to many people.
    Last year, 12 physicians were found guilty of a crime. One 
of them performed operations, cataract surgery, on people who 
didn't need it.
    Chairwoman Johnson. I am not denying the important role of 
oversight in criminal prosecution.
    Mr. Grob. Agreed. But a lot of what happens is that other 
things that are done get brushed with that brush of 
criminalization. And if I could, I would like to give you an 
example or two.
    Mr. McDermott is not here, but he did ask a question, and 
he was wondering why the inspector general turned down a claim 
for a preventive health office visit. And it was explained, of 
course, that this is not covered by Medicare. But throughout 
that discussion, it never was said that the inspector general 
did not turn down that claim--this was an audit that we did to 
determine the error rate--nor did the inspector general's 
office ever classify any action like that as being criminal. 
But Mr. McDermott thought we did. People are finding that when 
we have our error rate study that we are saying that this is 
all criminal. No. Every time we issue it we say that it is not, 
that it could be a mistake, or it could be criminal.
    The thing that I am afraid of is that we are seeing here a 
self-fulfilling--not prophecy but assessment.
    Chairwoman Johnson. But that is true. I agree with you 
absolutely. There has never been any willingness, from the very 
first time you put out the $34 billion, to talk about what the 
$34 billion really--but that tells you, you must change your 
process so that the message that goes out will be more 
accurate.
    Mr. Grob. Yes. We agree with that, and we have been trying 
very hard to find the words to do that. What I think we would 
like to do is ask for help. We would like everybody here to be 
saying that we are not talking about criminal behavior when we 
check the payment error rate. We would like others to join us 
in saying we are not trying to get you from a criminal point of 
view. We are trying to make the Medicare Program work better.
    And I think if everybody begins talking about it like that, 
that will diminish the feeling that somehow police are looking 
out to find a doctor making a mistake. I think all of us really 
need to help just tone that down. That is a plea that I would 
make in coming before the panel today.
    Chairwoman Johnson. Just let me ask you briefly, why is it 
that HCFA has not used the dual-entry accounting system? In one 
word or less.
    Mr. Grob. I am sorry. I could not hear.
    Chairwoman Johnson. Why is it that HCFA has not adopted a 
dual-entry accounting system?
    Mr. Grob. We are amazed at that. We have been raising this 
point since, I think, the early 1990s. We know that it is a 
very complex matter, but it is just one of these anomalies that 
is very strange. There is not a reputable business in the 
country that wouldn't have it.
    Chairwoman Johnson. Thank you. Mr. Stark.
    Mr. Stark. Well, I think Mr. Grob touched on the issue that 
I wanted to ask him to repeat. I am looking at a letter from a 
county medical society, which probably I should not identify, 
but they are complaining to me about methods used to go after 
fraud. Do your guys wear black leather coats when they go in?
    Mr. Grob. Today, I wore my best----
    Mr. Stark. This letter says they stormed in and arrested 
some physicians. It uses inflammatory language but, as a 
practical matter, it goes on to say that they were arrested and 
they were not aware they were committing a crime, as indicated 
by their attorneys.
    Now, I understand, in checking on this, that there was a 
group of physicians here, and several of them have already been 
convicted of a crime. And I don't believe you could convict 
somebody of a crime if there isn't intent. I am not a lawyer, 
but I somehow remember that intent is required to these 
charges.
    Mr. Grob. We cannot do that. The law will not allow it. The 
intent must be proven.
    Mr. Stark. And I don't think that happens a lot, but we do 
have the Prudential Life Insurance Co. who paid hundreds of 
millions of dollars of felony fines for copping a plea of 
stealing billions of dollars from their clients, or Columbia 
HCA who paid, I think, about $300 million in fines for stealing 
from the Government.
    Crime is not something that we should be shocked about when 
it happens. But it does seem to me that--just like, I suppose, 
for those of us who have been audited by the IRS, rarely is 
there a criminal element, but often they want a lot of money 
out of us. And they may start out a little higher than what 
they expect to get. That seems to be aggressive but, I gather, 
successful in most cases.
    I guess what I want to know, and you touched on it, are the 
facts on arrests. There are arrests from time to time. But 
there has to be a criminal indictment, right?
    Mr. Grob. Yes, a warrant.
    Mr. Stark. You have got to go to either a Federal grand 
jury or--you have got to turn it over the Justice Department. 
Is that not correct?
    Mr. Grob. That is right. We do the investigation and 
coordinate with the Justice Department as far as----
    Mr. Stark. So, basically, you don't arrest anybody?
    Mr. Grob. We do, with deputation.
    Mr. Stark. So this is like the Attorney General.
    Mr. Grob. The Attorney General, FBI.
    Mr. Stark. Who has decided that based on the evidence----
    Mr. Grob. Yes.
    Mr. Stark. So if the doctors are upset, or the hospitals, 
about being, quote, arrested as it were, their beef is with the 
Attorney General----
    Mr. Grob. Well, I think there are many law enforcement 
agencies involved. It could even include local law enforcement 
agencies.
    Mr. Stark. OK.
    Mr. Grob. But I think the point you are trying to make is 
the very same point that I was making. I think that when our 
office, the inspector general's office, becomes involved, 
people think that what we are doing is a criminal kind of 
thing. We also have auditors, and they do auditing.
    Also, if I could comment, a lot of times when the carriers 
take action, they think that the inspector general has shown up 
in their office. Compared to the carriers, the inspector 
general rarely shows up in the physician's office to examine a 
claim, for example. And they are rarely involved in determining 
how much the physician owes that should be paid back to the 
Medicare Program. That is almost always done by the carriers.
    But, yet, people will report that these happen, and they 
will say, well, the inspector general came--I am not trying to 
distinguish our office from all the others. That is not my 
intent. My intent is to show that in the telling of the 
stories, we are adding to the story, that the story-telling 
itself is part of the process of criminalizing things, and all 
I am wishing is--I think we can do it all. I think we can do 
the crime part. I think we can do the accounting mistakes. And 
I think we can do the education.
    I really do think that all of us can do it, and we can all 
keep the crime issue separate. I am just hoping that we all 
talk like we all know that we can keep it separate.
    Mr. Stark. I think that there is this misunderstanding, and 
I hope that we can, both from our side of the podium and your 
side and the providers' side, not decide that each anecdote is 
an indication that we are becoming heavy-handed. It is complex, 
and everybody has added to the complexity, in my opinion. The 
providers have added to the complexity, happily, because they 
have got all kinds of exciting new treatments, much of which is 
new to HCFA, and you have to figure out how to pay for it or 
whether to pay for it. Indeed, how many claims are processed 
each year?
    Ms. Wilensky. I think it is close to a billion. I think 
about a billion.
    Mr. Grob. Eight hundred million.
    Ms. Wilensky. It is close to a billion.
    Mr. Stark. Eight hundred million.
    Ms. Wilensky. More than 800 million.
    Mr. Stark. I mean, that is a lot of claims to grind 
through, and we are probably talking about a million out of--if 
that, 500,000, maybe, where they go awry. So I look forward--
and thank you, again, Madam Chairman. I think we can do 
something, and I think that if we just decide we are going to 
make the system----
    Mr. Grob. Mr. Stark, could I quickly clarify a statement I 
made? We do participate in making the arrests, the IG's Office.
    Mr. Stark. Do you carry a gun?
    Mr. Grob. I do not carry a gun.
    Mr. Stark. OK.
    Mr. Grob. But our agents do when the proper procedures have 
been followed.
    Mr. Stark. Is that true? You really do? That is scary. You 
ought to get hazard pay, it seems to me, but OK. I stand 
corrected. Thank you.
    Chairwoman Johnson. Mr. McCrery.
    Mr. McCrery. Well, the physicians that I have talked with--
and there are numerous physicians--don't just zero in on the 
criminality element. The hassle factor includes a lot more than 
just the criminal penalties that are in the law.
    Much of it is just the paperwork that they have to do. They 
have to hire people to do the paperwork, or they have to assign 
nurses to do it, and that takes them away from the patient 
care. So it is a lot more than just the criminal element.
    Mr. Grob. Yes. I completely agree.
    Mr. McCrery. And I think Mr. Stark hit on part of the 
problem, and so did Dr. Moffit, which is just the sheer size of 
Medicare and the tremendous burden that HCFA has in 
administering that size program. Even though it is dispersed 
somewhat among a number of intermediaries, still, it is 
probably not as dispersed as the private sector, as Dr. Moffit 
pointed out. And that is why I want to get back to Dr. Moffit's 
idea that we can't solve this problem within the current 
structure, we need to change the structure.
    I am sure, Dr. Moffit, you have given some thought as to 
how we transition from the current system to the new system 
that would be more private sector oriented and all these 
decisions would be much more greatly dispersed around the 
country.
    Can you share with us some of your thoughts on how we 
transition to that?
    Dr. Moffit. Yes, I can, Congressman. In my testimony, I 
have outlined certain steps that we ought to take if we pursue 
Medicare reform. The most important is to create a structure, 
as I said, that broadly resembles that of the Federal Employee 
Health Benefits Program, with which I am intimately familiar. 
That system works extremely well.
    However, having said that, I think that because of the 
enormous technical and political challenges that are involved 
in moving toward a reform of the Medicare system, as envisioned 
by Senator Breaux and President Bush and many Members of 
Congress, this ought to be done in a phased-in fashion. If 
there is any lesson we have learned from the Medicare Choice 
experiment, it is that this cannot be rushed; it cannot be 
turned over to an agency whose whole institutional culture is 
to regulate; but, rather, we have to create a relationship 
where there is a culture of friendliness toward private firms 
as competing interests.
    But to answer your specific question, there are two ways, 
to do this. One, is basically insulate the entire current 
Medicare population from Medicare reform; in other words, just 
basically confine Medicare reform to the next generation of 
retirees. Those people who are currently in the Medicare system 
should be treated entirely different than the future 
generation. We should then phase the new system in on a year-
by-year basis, enabling people when they retire to make a 
decision about whether or not they want to go into a new 
competitive system that looks like the Federal Employee Health 
Benefits Program.
    In that transition, they could make a decision about 
whether they want to pick and choose one of the competing plans 
in the new competitive system or whether, they would want to 
keep their current employment-based retirement coverage and 
bring it with them into retirement as their primary coverage 
and get a Government contribution to help offset the cost.
    This approach is very non-threatening. It is the least 
disruptive. But by moving toward a phase-in like that, it would 
enable the new administrative agency-- I don't think that HCFA 
should run a new competitive system--to make the mid-course 
corrections over time that are going to be necessary. There is 
going to be a lot of wrinkles in moving to a new competitive 
system. But at the same time, with a smaller and growing number 
of people in the system, it would give a new agency an 
opportunity to properly manage without a great deal of 
disruption. This way we can avoid the kinds of problems we have 
had in the past with the ``Medicare+Choice'' program.
    You talked earlier about fraud and abuse. There is nothing 
in the Federal Employee Health Benefits Program in terms of 
those problems--the size of the problems in fraud and abuse-- 
that you have had in Medicare. You do not have the same kinds 
of problems with claims disputes that you have in Medicare. You 
don't have the same kinds of grievance difficulties. And, as a 
former Congressional Relations Director for the Office of 
Personnel Management, I dealt with probably the most highly 
educated and sensitive constituency in the world, Federal 
retirees and Federal employees, who know how the system works 
and who write their Members of Congress. And I can tell you 
from my experience, I very rarely was summoned to a 
congressional office where a Congressman sat me down and said, 
``Moffit, you better do something about the Federal Employee 
Health Benefits Program because it is not delivering the kinds 
of services that my constituents want.'' Rarely did that 
conversation happen.
    We had a lot of debates about retirement. We had a lot of 
debates about labor-management relations. We had a lot of 
questions in those areas. But the point is, if you want 
consumer satisfaction and you want good administration, move 
into the new system slowly; phase it in year by year, and give 
the new administrative agency the flexibility to make the mid-
course corrections that will be necessary.
    Mr. McCrery. Well, the fact is that under FEHBP, each 
individual insurance company providing those benefits is going 
to provide the fraud and abuse protection.
    Dr. Moffit. That is right.
    Mr. McCrery. It is in their own selfish interest to do 
that, and they do it.
    Dr. Moffit. That is right.
    Mr. McCrery. I can assure you they do.
    Dr. Moffit. They police it very closely, Congressman.
    Mr. McCrery. And whether they do a better job than HHS or 
HCFA, I don't know. We could have a hearing on that.
    Dr. Moffit. I think that is an excellent idea. Let me just 
make the point, though, that one of the problems you have here 
is that the very structure of the Medicare system does not have 
the same incentives on the part of the carriers to root out 
fraud and abuse in the same way that private sector companies 
competing for consumers' dollars have.
    Mr. McCrery. Right.
    Dr. Moffit. I mean, that is the point. You have Medicare 
contractors, 55 of them around the country. If there is fraud 
and abuse, they don't actually lose the money on their bottom 
line.
    Mr. McCrery. Right. I agree. And I also want to point out, 
Dr. Moffit, that there are certainly in the private insurance 
industry complaints and grievances. As a former practicing 
attorney, I can tell you that there are people who don't think 
they are being treated fairly by a private sector insurance 
company, and there are grievances. Fortunately, they do have 
procedures to go through, and often we can resolve those. But 
to say that there is not any of those I think is probably an 
overstatement. There are a lot----
    Dr. Moffit. Let me offer a point, a response to that, 
though, Congressman. In most private insurance, the employer 
picks your insurance. The employer owns the policy, and if you 
don't like the employer's policy, you cannot do anything about 
it.
    Mr. McCrery. Right.
    Dr. Moffit. In the Federal employees' system, if you do not 
like the rates or the benefits or the premiums or the payments 
or the deductibles or the way in which a plan handles your 
claims, you can fire that insurance plan.
    Mr. McCrery. That is right. Absolutely. Your points about 
the value of consumer choice are well taken, and if we had a 
better health care system in terms of delivering and paying for 
health care than we do--and you know my views on that--then I 
think we would solve a lot of the problem that physicians are 
concerned about and prompts them to push us to do more 
regulation on the Patient's Bill of Rights and things like 
that. Those problems would be solved by the consumer and by 
physicians working with consumers. But that is another hearing 
and another day I hope we will eventually have to restructure 
the entire health care system, but not today. Thanks.
    Chairwoman Johnson. Thanks, Mr. McCrery.
    I did read that recommendation in your testimony, Dr. 
Moffit, about phasing this in slowly. The question that 
occurred to me was that insurance plans depend on a certain 
volume of premium in order to stably offer coverage. If you 
open this as slowly as you are recommending, only to incoming 
seniors, will we have the same kinds of problems we had with 
Medicare Plus Choice? Because that was one of the problems, 
that the Choice programs had no ramp-up time, no consideration 
for the period when they would not have enough enrollees to 
cover their obligations.
    So how do you ramp it up as slowly as you are recommending?
    Dr. Moffit. Well, I agree that is a technical problem, and 
we have to address it.
    Chairwoman Johnson. Well, we can talk about this later, I 
guess.
    Dr. Moffit. Let me say this. I have talked to the Blue 
Cross/Blue Shield people. I have talked to insurance 
representatives from the American Association of Health Plans. 
And the one thing that they stressed to me in terms of the 
Medicare Plus Choice program and Medicare reform is that, if we 
are going to have a Medicare reform, what they need most is 
they need predictability. They need to know how many people are 
going to come on. They want to be able to absorb them. And at 
the same time, they want a sound business relationship with the 
government which is stable, where they can make sound business 
planning decisions.
    So the question is how you phase it in. I suggested perhaps 
on a year-by-year basis. That is also, of course, linked to a 
suggestion that I had made earlier in my testimony, which is 
give Americans who have employer-based health insurance that 
they like the opportunity to take that into a new competitive 
system with them as their primary coverage in retirement, if 
they wish to do so.
    Chairwoman Johnson. Thank you. Well, we do look forward to 
working with all of you as we move ahead. As should be very 
clear by now, we are keenly aware that the explosion of changes 
in the law since 1997 and the remarkable changes in medicine in 
the last 5 or 6 years are all part of having created some new 
problems. But we do need to understand these new problems 
because they are very significant. They are going to put small 
providers out of business, without question in my mind. I don't 
think little can survive with this level of regulatory weight. 
And that would actually have a terrible impact for seniors.
    So this is about senior access to care. It is about the 
quality of care the seniors have access to. And if we don't 
deal with the structural, bureaucratic problems of Medicare and 
don't begin to think about what kind of system can serve the 
retirees as the number doubles, then we will not have done our 
duty.
    So this is not about blame. There is plenty of that to go 
around in life. This is about the prospects of strengthening 
Medicare for the future. And I thank you for your very good 
testimony and look forward to working with you all as we move 
through these issues.
    Thank you.
    [Whereupon, at 1:15 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

 Statement of American Association of Homes and Services For the Aging

    The American Association of Homes and Services for the Aging 
appreciates the opportunity to submit this statement for the record of 
the Subcommittee's hearing on March 15, 2001 on essential regulatory 
relief for health care providers who participate in the Medicare 
program.
    AAHSA is a national organization whose more than 5,600 not-for-
profit providers serve over 1,000,000 individuals on a daily basis. 
Approximately seventy-five percent of AAHSA members are affiliated with 
religious organizations; the other are sponsored by private 
foundations, fraternal organizations, government agencies, and 
community groups. Our members include not only nursing facilities, but 
also independent senior housing, assisted living, continuing care 
retirement communities, and providers of home health care, adult day 
care, respite care, meals on wheels, and other services. AAHSA members 
are characterized by long-standing ties to their communities and a firm 
commitment to quality.
    Although AAHSA's membership spans the continuum of long term care, 
the majority of our members continue to provide nursing care to 
residents, either alone or in combination with other services. We 
actively participated in the development of federal quality standards 
for nursing home care under the Omnibus Budget Reconciliation Act of 
1987 (OBRA), and we continue to support these standards. We were one of 
the initial members of the Campaign for Quality Care, the coalition of 
organizations coordinated by the National Citizens' Coalition for 
Nursing Home Reform (NCCNHR), that worked to reach consensus on twelve 
key areas of nursing home reform. AAHSA has continued to serve on 
various committees and workgroups convened by the Health Care Financing 
Administration to work toward a reasonable and equitable implementation 
of the regulations and interpretive guidance resulting from the OBRA 
requirements.
    AAHSA has several concerns, however, about the ways in which these 
standards have been implemented under regulations promulgated by the 
Health Care Financing Administration (HCFA) and have been enforced 
under the joint state and federal survey and certification system.
Assessments for purposes of Medicare reimbursement
    OBRA '87 requires a full assessment of a resident's condition upon 
entry and at specific intervals thereafter, recorded on the minimum 
data set (MDS). The prospective payment system instituted under the 
Balanced Budget Act requires additional assessments for Medicare 
payment purposes.
    HCFA has determined that these additional assessments must be done 
according to the full MDS, rather than just according to the specific 
treatments for which reimbursement is claimed. HCFA developed a short 
form of the MDS specifically for the RUG-III prospective payment 
system. It is a subset of the full MDS, and it has every item needed to 
calculate the appropriate RUG class under the Medicare regulations. 
HCFA should permit facilities to use this shorter MDS, instead of 
completing the entire MDS, which means filling out items that are not 
needed for reimbursement and are not collected for reasons of quality 
assurance.
    The full MDS is a detailed and time-consuming process, as it should 
be, and requiring the full MDS for Medicare payment purposes when it is 
not required or needed for care planning is an excessive paperwork 
burden that does not contribute in any way to quality of care. The 
current requirements are such that facilities with average Medicare 
volume are forced, as a practical matter, to dedicate the equivalent of 
a full-time RN to completing assessments rather than providing care if 
the facilities are to get all of the paperwork completed and submitted 
on the time schedule required.
    Solution: Allow nursing homes to file the short-form MDS for 
reimbursement purposes under the prospective payment system, while 
continuing to complete the full MDS for care planning and quality 
assurance purposes.

Posting of staffing levels
    The recent requirement in Section 941 of the Benefits Improvement 
and Protection Act, that nursing facilities post numbers of nursing 
staff for each shift, is potentially misleading and administratively 
burdensome. The new law requires nursing homes to post daily for each 
shift the current number of licensed and unlicensed nursing staff, in a 
uniform manner to be designated by HCFA and in a clearly visible place.
    AAHSA members are acutely aware of consumers' need for information 
on indicators of quality care; however, the posting requirement 
provides information that is of minimal to no actual value to the 
consumer. Without any reference to the acuity of the residents being 
served, or an established criterion for appropriate staffing levels 
based on resident acuity, simple staff numbers are meaningless. The 
assumption that quality can be determined by numbers of nursing staff 
rather than by the efficient use of nursing staff and resident outcomes 
is both simplistic and potentially deceptive. Such a policy runs 
completely counter to the philosophy of outcome-based measurement of 
the quality of care.
    Solution: AAHSA strongly urges the repeal of the staff posting 
requirements under BIPA.

Other regulatory agency requirements
    In addition to regulations promulgated by OBRA, nursing facilities 
must comply with worker protection regulations issued by the 
Occupational Safety and Health Administration, wage and hour laws 
enforced by the Department of Labor, environmental requirements 
promulgated by the Environmental Protection Agency, and with 
regulations imposed by a variety of state agencies. All of these 
regulations do not necessarily coordinate with one another, and there 
may even be conflicts among them.
    As an example, OBRA restricts the use of physical or chemical 
restraints on nursing home residents. The Food and Drug Administration 
defines a restraint as something that is attached to the body, while 
HCFA defines a restraint as something attached to or adjacent to the 
body. These differing definitions have created an issue with respect to 
bed siderails. HCFA views siderails as a restraint, while manufacturers 
see no need to label siderails as restraints or provide instructions or 
warnings about their use, since siderails do not fit the FDA's 
definition of a restraint.
    Solution: AAHSA is working with the Medicare Payment Advisory 
Commission (MEDPAC), which is studying the combined impact of federal 
regulations on health care providers, including nursing facilities.

Survey and enforcement
    Besides paperwork reduction, nursing facilities need a more 
balanced and thoughtful system for recognizing and encouraging 
excellence. The current survey system that has developed under OBRA 
forces oversight authorities to expend the same amount of time and 
resources on facilities with exemplary records as they do on those 
demonstrating chronic or serious quality of care problems. Given the 
limitations on resources available for enforcement, the mandate that 
all nursing homes receive surveys of equal frequency and intensity 
effectively means that facilities that consistently fail to provide 
quality care do not receive the attention they need from state and 
federal regulators.
    In addition, the system is plagued with inconsistencies in survey 
results and the imposition of remedies, which nursing facilities have 
only a limited right to appeal. Determinations of the severity and 
scope of an OBRA violation are subjective and vary from state to state 
and from region to region. Nursing homes in one area of the country may 
be severely penalized for infractions that bring far lighter remedies 
in other regions. This subjectivity and inconsistency prevent the 
survey process from serving as an accurate measurement of the quality 
of nursing home care.
    Furthermore, the present regulatory system has developed into an 
adversarial process that pits surveyors against nursing homes, rather 
than allowing them to work together to improve quality. HCFA and state 
survey agencies actively discourage surveyors from discussing their 
findings with nursing facilities or advising facilities how care might 
be improved. Even a deficiency-free survey is no longer necessarily 
accepted as a sign that a nursing home is providing good care. Instead, 
the assumption often is made that the surveyor simply didn't try hard 
enough to find out what the facility was doing wrong. In the current 
environment, it has become almost impossible for a good surveyor and a 
good facility to coexist.
    This negative environment damages employee morale and makes it all 
the harder for nursing facilities to recruit and retain qualified staff 
at every level. As will be discussed below, nursing facilities in all 
areas of the country face a crisis in attracting sufficient numbers of 
certified nursing assistants, who provide the bulk of hands-on care to 
nursing home residents. Moreover, nursing homes are losing substantial 
numbers of directors of nursing, and the decline in new administrators 
is equally alarming. In the last two years the numbers of candidates 
sitting for the nursing home licensure examination in many states have 
dropped by as much as 25%. If nursing homes are unable to recruit and 
keep dedicated professional staff, the quality of care for residents is 
bound to suffer.
    Our present regulatory system recognizes only adequate levels of 
care, not excellence. A perfect inspection simply means that no 
mistakes or violations of the law were observed. It says nothing about 
whatever positive actions the facility is taking for its residents or 
any innovative programs it may have put in place for residents or 
staff. Our current inspection and enforcement system for nursing homes 
cannot give consumers the information they want and need on which are 
the best facilities, and there is no consideration being given to 
developing better measures. To the contrary, the answer to every 
question about quality in nursing homes now is more regulation and 
greater penalties.
    In the short term, a more collaborative approach to surveys needs 
to be developed, one that allows surveyors and caregiving staff to work 
not only on promoting and achieving sustained compliance, but on 
meeting individual care needs and expectations to improve care. In the 
long term, we must create a new system; one focused on outcomes and 
continuous quality improvement, rather than process. The focus of the 
survey and enforcement process should be on fixing problems and 
offering expert guidance rather than on punishment.
Solutions: AAHSA recommends the following changes in the nursing home 
        survey and certification process:
     Less frequent or less intense surveys for good-performing 
facilities: Flexibility is needed to allow facilities with good records 
to be surveyed at intervals beyond the current fifteen-month statutory 
limit. States should also be given the option of doing shorter, less 
intense surveys of facilities that have demonstrated good quality care 
on previous surveys. This would allow over-sight authorities to better 
target their resources on facilities with chronic or serious quality of 
care problems.
     Alternative approaches to enforcement of nursing home 
quality standards: States should be given greater flexibility to 
develop and explore innovative approaches to measuring quality of care 
through state waivers for demonstration projects. These efforts should 
be directed toward increased use of outcome measures, greater 
incorporation of quality of life, and improving consistency in 
deficiency determinations and survey results.
     Informal dispute resolution process: Since severity and 
scope determinations ultimately lead to the imposition of remedies, the 
inability to challenge these determinations under the informal dispute 
resolution process unfairly limits a nursing facility's ability to 
obtain redress for inappropriate penalties. This process must be open 
to consideration of severity and scope for any deficiency as well as to 
the existence of a deficiency. Facilities should also have the right to 
review before an independent, impartial decision-maker and the 
opportunity to request a face-to-face review for those deficiencies 
that cannot be adequately addressed by telephone or in writing.
     Civil Monetary Penalties should be used to enhance quality 
care: States are required to use funds to improve resident care, yet 
many states have not adopted programs to use the funds. In addition, 
HCFA maintains that states cannot use CMPs to provide technical 
assistance or consultation. Funds should be allowed for surveyor 
training, consultation and technical assistance to facilities in 
developing and implementing quality improvement or resident care 
protocols.

Nursing assistant training lockout
    Medicare and Medicaid prohibit nurse aide training by or in a 
nursing facility if the facility within the last two years has: (1) 
operated under a (staffing) waiver; (2) has been subject to an extended 
or partial extended survey; (3) has been assessed a civil money penalty 
of $5000 or more; or (4) has been subject to certain remedies (i.e., 
denial of payment for new admissions, or temporary management, 
termination of provider agreement due to a finding of immediate 
jeopardy, and/or closure of a facility, transfer of residents, or 
both). These provisions are severely restricting the ability of nursing 
facilities to train nurse aides and have proved counterproductive to 
improving quality of care.
    There is little argument for approval of a nurse aide training 
program by a facility that is providing substandard quality of care. 
However, the prohibition on training once compliance has been achieved 
and demonstrated is problematic for providers and residents alike. The 
two-year duration of the nurse aide training ``lock-out'' severely 
impedes the facility's ability to recruit and retain adequate and 
qualified staff, and to assure provision of quality care.
    Opportunities to access alternative training programs are 
frequently limited and many facilities, even after achieving and 
demonstrating compliance, find it difficult, if not impossible, to 
secure training for their aides. The end result can be either new 
compromises to quality of care or a recurrence of the problems that 
initiated the disqualification from training. The effect of this 
particular sanction is counterproductive to the improvement of quality, 
and to the intent of the law that facilities achieve and maintain 
sustained compliance.
    Facilities that correct their deficiencies and demonstrate 
compliance should be permitted to resume their nurse aide training 
programs. Elimination of the 2-year prohibition on providing nurse aide 
training will preserve the ability of the facility to assure the 
ongoing provision of required training and competency evaluation of its 
nurse aides.
    Solution: AAHSA urges the elimination of the present two-year 
prohibition on nurse aide training by or in nursing facilities that are 
found to be out of compliance with certain federal long term care 
requirements [Section(s) 1819 and 1919(f)(2)(B)(iii)(I)(b) of the Act]. 
Once facilities have corrected their deficiencies and demonstrated 
compliance, they should be permitted to resume their nurse-aide 
training programs.
Single task workers
    Nursing facilities across the country are experiencing a staffing 
crisis. Insufficient numbers of staff--licensed vocational nurses 
(LVNs), licensed practical nurses (LPNs) and registered nurses (RNs)--
can endanger quality care for residents. However, one of the greatest 
challenges currently faced by nursing facilities in assuring quality of 
life and care outcomes to residents is the ongoing shortage of nursing 
assistants (CNAs). Higher acuity levels among nursing facility 
residents as well as projected aging demographics point to a demand for 
paraprofessional staff in nursing facilities that will continue to 
escalate. Cornell University's Applied Gerontology Research reports 
that some 600,000 new nursing assistants will be needed within the next 
10 years.
    Current law defines a nursing assistant as ``any individual 
providing nursing or nursing-related services to residents in a skilled 
nursing facility or a nursing facility.'' The statute requires that 
nurse aides successfully complete a training and competency evaluation 
program. The law does not define which specific tasks are considered to 
be ``nursing or nursing-related''; HCFA has determined, under its State 
Operations Manual, which tasks should be so designated. According to 
the State Operations Manual, assisting residents with eating or 
drinking is considered to be a nursing-related task.
    In the nursing home environment, many employees who are neither 
nurse aides nor licensed health professionals also have frequent and 
regular contact with residents. Permitting these individuals to be 
trained to perform certain tasks determined to present little or no 
risk to the resident can offer partial relief to the nurse aide 
shortage and provide more individual attention to residents.
    The area where trained non-nursing assistance is most needed is 
assistance with eating. In addition to providing assistance at regular 
mealtimes, examples include a dietary aide who might be permitted to 
help residents eat birthday cake at a party, or office personnel and 
activity assistants who might assist with eating during a special event 
or outing. The ability to provide assistance would be based on a 
comprehensive assessment of the needs and potential risks to the 
resident. The personnel performing these tasks could be required to 
complete in-service training in dining skills and assistance with 
eating, and demonstrate competence in the duties assigned.
    Solution: AAHSA supports legislation to permit nursing facilities 
to provide specialized or ``single-task'' training to personnel other 
than certified nursing assistants. These employees should augment, but 
not replace existing staff and be allowed to perform certain specific 
resident-centered tasks without having to complete the full nurse aide 
training and competency evaluation program. The interdisciplinary team 
responsible for the care of the resident should determine resident 
appropriateness and employee competence and ability to perform these 
tasks. The training programs should be reviewed and approved by the 
state regulatory authority.

Conclusion
    AAHSA appreciates the Subcommittee's willingness to explore 
regulatory relief that would continue to ensure high quality care while 
allowing nursing homes to maximize the financial and human resources 
devoted to caring for their residents. We want to continue working with 
the Subcommittee on regulatory reform that will recognize the high-
quality care that already is being provided in many nursing homes and 
use them as models for what this field can become.

                                


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

    The American College of Physicians--American Society of Internal 
Medicine (ACP-ASIM) which, representing 115,000 physicians and medical 
students, is the largest medical specialty society and the second 
largest medical organization in the United States, congratulates the 
Subcommittee for holding this hearing. Internists provide care for more 
Medicare patients than any other medical specialty. The most frequent 
complaint received by the organization is that internists are subject 
to too much paperwork and, as a result, do not have enough time to 
devote to patients.

Impact of Medicare Paperwork on Clinical Practice
    Time is the most valuable resource in diagnosing and caring for 
older adults, but it's in short supply due to unnecessary paperwork. 
Research breakthroughs, new pharmaceuticals and improved diagnostic 
equipment are of limited value if doctors lack the time to spend with 
patients.
    Visits from Medicare patients typically begin with a surprisingly 
complex and time-consuming paperwork process. Medicare requires that 
the physicians and their staffs complete a claim form with diagnosis 
and service codes and authorizations for items such as wheelchairs and 
services such as home health care. The Medicare program assumes 
physicians know what it will and will not cover. There is no single 
place to find Medicare's rules, however. The regulations are more than 
100,000 pages long and different carriers, who process paperwork for 
Medicare across the country, have their own rules.
    Once a claim is filed, Medicare might hold it because it tripped 
some random criteria. If Medicare finally pays the claim, carriers have 
four years to change their minds and demand that the physician repay 
it. Appeals require more paperwork and time to present the case.
    Medicare can sample physician's records to determine if certain 
services, such as office visits, were paid incorrectly. If a certain 
percentage were paid wrong, the carrier will demand repayment for 
similar claims--without looking at the records.
    To keep their practices running, many internists simply repay these 
claims. Opening their practices to a post-payment audit can tie them up 
for days--essentially shutting down patient care activities.
    Medicare patients are the ones who suffer when physicians and their 
office staff are diverted from patient care activities to unnecessary 
paperwork. The result can be longer waiting time before being seen by 
the physician, because he or she is busy answering a demand from 
Medicare for more information at a time that could have been spent with 
patients. It can result in the physician seeing fewer patients each 
day--meaning a longer time for a patient to get an appointment. It can 
mean having less time with elderly patients and less time to answer 
questions and discuss new treatments with them. And in the worst cases, 
it can literally shut down a practice for days. Is it any wonder that 
more physicians are deciding that they will no longer see new Medicare 
patients?

The Need for Legislative Relief
    Fortunately, bipartisan legislation, the Medicare Education and 
Regulatory Fairness Act of 2001 (MERFA), H.R. 868/S. 452, has been 
introduced in both houses of Congress that would greatly improve this 
state of affairs. ACP-ASIM has strongly endorsed the MERFA legislation 
and urges Congress to give it prompt and favorable consideration. The 
bill, introduced by Representatives Toomey and Berkley and Senators 
Murkowski and Kerry would address these problems by better targeting 
current Medicare education dollars to provide needed outreach and 
education to physicians and by instituting common-sense reforms:
    1. Medicare rules and policies and answers to frequently asked 
questions would be made more accessible. The bill would require that 
carriers respond in writing to requests for guidance on how to bill for 
services. The written advice provided by the carrier would be binding 
in any subsequent reviews. (This means that if the carrier told a 
physician how to bill a service correctly, it couldn't later deny 
payment or audit the physician's practice because he or she did it 
wrong based on the carrier's original advice). Similarly, the bill 
would allow physicians to voluntarily send medical records to the 
carrier to get a ruling from the carrier on whether or not the 
documentation is adequate to support the billed service, and carriers 
could not use this to subsequently target the physician for review. 
Carrier employees would also be required to give their true names 
(first and last) when answering questions to assure accountability. HHS 
would be required to post responses to ``frequently asked questions'' 
submitted by health associations in a way that is readily accessible to 
physicians. Carriers would be required to make prepayment review 
criteria (screens) and other coverage and audit criteria available to 
physicians. Physicians would be given a minimum of 30 days advance 
notice about changes in rules.
    2. Medicare would be required to pay claims, without demanding more 
paperwork, unless there is evidence that the bill is incorrect. Random 
audits and pre-payment screens that trigger further review would be 
prohibited.
    3. For a first time post-payment audit, Medicare would be required 
to actually look at the records, rather than making an assumption that 
some claims were billed incorrectly based on a statistical sample. 
(Carriers would be allowed to use statistical sampling--or 
extrapolation--for subsequent reviews of the same physician.)
    4. Medicare and its carriers would be required to invest 
substantially more money in physician education and outreach.
    5. Medicare's ability to investigate fraudulent claims would be 
preserved--the bill specifically applies only to audits in which there 
is no allegation of fraud. Inadvertent overpayments due to errors or 
misunderstanding of the rules would be reduced by educating physicians 
on how to prevent mistakes in the first place, rather than auditing 
them after the fact.
    6. Medicare would be prohibited from collecting alleged 
overpayments until all appeals are exhausted and a final determination 
is made. Physicians would also have the option of entering into several 
different type of re-payment plans if a final determination is made 
that they billed incorrectly for certain services (rather than 
automatically having to pay the money all at once within 30 days, or 
alternatively, having the money taken out as a reduction in payments 
for future claims).
    7. Medicare would be required to conduct at least four pilot tests 
of the evaluation and management documentation guidelines that would 
include a variety of settings. The bill specifies that one of the goals 
of the pilot tests should be to reduce the need to document non-
clinically relevant information.

The Need for Administrative Relief
    There are other changes that can and should be made by the 
administration to reduce administrative red tape, changes that can be 
implemented by HHS--directly or through instructions to its 
contractors--without the need for new legislation. The following is a 
list of recommendations that fall outside the scope of MERFA and can be 
implemented by HHS Secretary Thompson:
    1. The Secretary of the Department of Health and Human Services 
should create a single source document explaining Medicare regulations 
that combines the Medicare provider manual, Medicare operational policy 
letters, and other regulatory documents to clearly communicate to 
physicians and other medical providers the rules of the Medicare 
program. This document should be made publicly available via the 
internet and contain links to local Medicare carrier policies as well.
    2. The Secretary of the Department of Health and Human Services 
should develop a clear mechanism to assess complaints about Medicare 
policies, make the complaints subject to public scrutiny, and address 
these complaints in a timely manner. The complaints should be cataloged 
by type and regulatory response to measure frequency of problems and 
their solutions.
    3. The Secretary of the Department of Health and Human Services 
should change the regulations governing Medicare post-payment review to 
reflect the following:
     Review procedures should provide the audited physician the 
right to review the post-payment audit sample with the actual personnel 
responsible for the review.
     HCFA should encourage Medicare carriers to utilize as 
Hearing Officers, licensed physicians of the same specialty and in the 
same geographical area as that of the physician who requests a Fair 
Hearing, and to make known to the requesting physician prior to the 
Fair Hearing the educational and medical credentials of the Hearing 
Officer.
     HCFA should prohibit carriers from seeking recoupments on 
``overpayments'' made more than two years earlier except in cases of 
fraud.
    4. HCFA should establish a single Medicare liaison office in each 
region for medical societies and consumer organizations to work with in 
order to facilitate communication within the existing Medicare regions.
    5. State medical societies and Medicare Carrier Advisory Committees 
(CACs) should be invited to place items on the agendas for CAC 
meetings--sufficiently in advance of the CAC meeting--to allow for 
sufficient discussion and resolution of valid physician problems with 
their Medicare carrier's application of medical review criteria and 
related issues.
    6. Carriers should provide a 60-day public comment period for all 
proposed policy changes. (The comment period provided by carriers is 
now limited to 45 days.) Once the comment period is over, the carrier 
should be required to state, in writing, its reasons for accepting or 
rejecting the comments made in making the final policy. The written 
rationale should be shared with the CAC and be made publicly available 
via the internet.
    7. Once a policy is made final, the carrier should release it to 
the medical community before it takes effect and conduct educational 
forums, when necessary, to ensure proper implementation of the new 
policy. Adequate notice (a minimum of 90 days) also should be given 
before the policy is effective.
    8. If local medical review policies (LMRPs) continue to be 
proposed, they should be required to go through Carrier Advisory 
Committees to allow for proper input of practicing physicians.
    9. HCFA should create a mechanism to coordinate information sharing 
between the regional Medicare Carrier Advisory Committees. All CAC 
meeting agendas and minutes should be posted to a single HCFA-
maintained website within five business days of the publication of the 
written materials. This website should also give CAC members in 
different regions the ability to query each other about carrier 
policies.
    10. The Health Care Financing Administration (HCFA) must ensure 
that its carriers are held accountable to established Medicare criteria 
and standards, especially in the areas of claims processing and 
customer satisfaction, after carrier responsibilities for claims 
processing and payment safeguards (program integrity) are split under 
the Medicare Integrity Program (MIP).
    11. HCFA should increase surveillance and monitoring of the 
performance of carriers to assure their accountability to questions and 
concerns raised by patients and physicians about coverage and other 
issues.
    12. HCFA should enforce its power to penalize carriers for failing 
to meet established criteria and standards
    13. HCFA should solicit local physician input on the adequacy of 
carrier performance--for both claims processing and program integrity.
    14. Physicians should be allowed to request and receive an 
administrative law hearing to challenge carrier performance of 
administrative and other policy requirements if earlier resolution 
attempts cannot solve the problem.
    15. Carriers should use color-coded communications. (e.g. red 
envelop for extremely urgent requests that require a response).
    16. Carrier staff must be better trained; HCFA should consider 
mandating that claims processors be required to be certified and pass a 
course in applying HCFA payment rules.
    ACP--ASIM will be seeking an opportunity to discuss our proposals 
for administratrative relief with Secretary Thompson, and once 
confirmed, a new HCFA administrator. We are encouraged that Secretary 
Thompson has expressed agreement on the need for HCFA to reduce 
unnecessary red tape.
Conclusion
    ACP--ASIM is pleased that the subcommittee is addressing the 
serious problems that the Medicare regulatory burden poses for 
physicians and others attempting to care for patients. We strongly urge 
the Subcommittee to report MERFA to the full Ways and Means Committee 
for action. We also urge the Subcommittee to exercise oversight over 
HCFA to assure that necessary administrative changes are also made.

                                


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

    The American Occupational Therapy Association (AOTA) represents 
nearly 50,000 occupational therapists, occupational therapy assistants, 
and students of occupational therapy to promote the interests of the 
profession and patients. AOTA submits this statement for the record of 
the hearing on March 15, 2001 on Medicare reform and ways to bring 
regulatory relief to beneficiaries and providers and restructuring the 
Health Care Financing Administration (HCFA) in the context of efforts 
to improve the Medicare program.
    AOTA focuses these comments on the issue of the inconsistency of 
local medical review policies (LMRPs) and the processes by which they 
are developed and interpreted by fiscal intermediaries and carriers 
across the nation. AOTA has experienced considerable difficulties with 
the variability of these local policies, in the context of Medicare 
being a national program with national standards and goals. We urge the 
Committee to consider these concerns and as part of the effort to 
modernize the Medicare program and improve the efficiency of HCFA and 
its contractors. We believe this issue has significant impact on both 
providers and, more importantly, beneficiaries who are unsure of 
coverage from one area to the next and therefore suffer unequal 
treatment.

COVERAGE OF OCCUPATIONAL THERAPY IN LAW AND REGULATIONS
    Occupational therapy is covered under Medicare Part A and under 
Medicare Part B as an outpatient service. Under both Part A and Part B, 
occupational therapy is provided based on coverage criteria which allow 
for the provision of therapy which is ``medically prescribed treatment 
concerned with improving or restoring functions which have been 
impaired by illness or injury or, where function has been permanently 
lost or reduced by illness or injury, to improve the individual's 
ability to perform those tasks required for independent functioning.'' 
(Carriers Manual, Sec 2217, Intermediary Manual (Sec. 3101.9). Further, 
occupational therapy is considered reasonable and necessary only where 
an expectation exists that the therapy will result in a significant 
practical improvement in the individual's level of functioning within a 
reasonable period of time. Where an individual's improvement potential 
is insignificant in relation to the extent and duration of occupational 
therapy services required to achieve improvement, such services would 
not be considered reasonable and necessary and would thus be excluded 
from coverage by Sec. 1862(a)(1) of the Social Security Act.

LOCAL AUTHORITY, LIMITED HCFA OVERSIGHT
    While this coverage criteria is established by HCFA, the fiscal 
intermediaries and carriers have authority from HCFA to develop more 
explicit local medical review policies (LMRPs). Many attribute this 
approach to a view that there are regional differences in medical care 
that should not be overruled by national coverage policy.
    HCFA is also supposed to review and approve LMRPs for 
appropriateness and adequacy. HCFA has not, in our view, exercised 
sufficient oversight and regulation of the activities of its 
contractors in the medical review area. AOTA believes that, at a 
minimum, the authority and latitude of the fiscal intermediaries or 
other contractors should be supervised and monitored to make these 

LMRPs consistent.
    AOTA understands that the fiscal intermediaries and contractors 
have the authority to develop LMRPs to describe when and under what 
circumstances an item or service(s) will be covered and to clarify or 
provide guidance on national coverage guidelines. Conferring this 
discretion upon contractors does not, we believe, vest them with the 
authority to supplant pertinent statutory provisions, regulations, and 
national coverage policies (which include manual issuances) with 
informal presumptions. Yet HCFA's oversight and willingness to overrule 
or moderate LMRP's is limited. AOTA has had many discussions and 
meetings with HCFA and its contractors over LMRPs to try to assure that 
the process and resulting products adhere to the overarching principles 
laid out in Medicare law for benefits and coverage criteria.
    HCFA's laissez faire attitude has been attributed both to an 
interest in allowing local variation as well as to an historical limit 
on HCFA staffing capacity. However, if HCFA would adopt national 
guidelines, the redundant (and inadequate) work of fiscal 
intermediaries in developing these LMRPs would be eliminated. Cost 
savings in administration should accrue from such streamlining.

RESULTS: INCONSISTENT COVERAGE
    In addition, beneficiaries would be assured that occupational 
therapy is the same service under Medicare in Connecticut as it is in 
Louisiana as it is in California. Today, this is not the case.
    An example that is clear is the coverage of rehabilitation services 
for individuals who have vision impairments. Coverage for these 
services is not allowed under many LMRPs around the country, despite 
the fact that as recently as the Balanced Budget Refinement Act 
Congress has reaffirmed, by extending referral privileges for these 
services to optometrists, that coverage for rehabilitation for 
diagnoses of vision impairment are allowed.
    As an example of a broad set of problems with LMRPs, we offer the 
example of a recently issued LMRP from the Noridian Mutual Insurance 
Company, Fargo, North Dakota. At present AOTA is developing comments on 
a draft policy put forward by Noridian, a Medicare contractor. In 
reviewing the proposed policy, many of the problems that have occurred 
in other policies are evident:
    The LMRP does not use current research and state of the art 
information. Some of the language used in Noridian's OT LMRP is 
confusing or does not reflect current OT practice. This may be due, in 
part, to use of out-of-date sources of information, as listed in the 
document. Using materials that are not state of practice results in 
inappropriate terminology and focus of the LMRP, not reflecting a clear 
picture of contemporary OT practice.
    Furthermore, this proposed LMRP does not even reference Medicare 
manual citations that are correct. Reference to obsolete Medicare 
policies is absurd coming from a Medicare contractor bound to implement 
the program under current guidelines.
    In addition, the Noridian LMRP, like many others is overly 
prescriptive. It uses diagnosis codes that do not appropriately 
recognize the difference between the underlying condition (e.g., 
stroke) and the therapy treatment diagnosis (e.g., limitations in self-
care and toileting skills), it leaves out coverage for certain 
diagnoses (e.g., Alzheimer's disease and dementia) for which Medicare 
coverage of occupational therapy is allowed, and generally presents a 
narrow area of interpretation of individual condition for the 
practitioner, be it a physician prescribing treatment or a therapist 
providing treatment.

NATIONAL LEADERSHIP NEEDED
    The problems presented by Noridian's policy are not isolated. AOTA 
has seen many cases in which the LMRPs contain significant and 
unsupported deviations from the national medical review guidelines 
contained in the Medicare Intermediary Manual. AOTA has worked to 
correct many policies' inappropriate and arbitrary restrictions on 
access to therapy and other services but this should be corrected with 
a national approach for fairness and consistency. AOTA recognizes the 
importance of defining scope of benefits and appropriate 
interpretations of Medicare allowances of coverage, but this patchwork 
system wastes time and money and does not serve a national program. We 
believe the LMRP's should be replaced with a broad and open public 
process to establish more detailed national coverage criteria.
    HCFA should be required to set a national standard to assure 
beneficiaries consistent coverage wherever they live or receive 
services. A national standard would assist occupational therapists to 
furnish skilled occupational therapy services based on an evaluation of 
individual need and rehabilitation potential within the reasonable and 
necessary guidance of the Social Security Act.
    Such national coverage criteria would assure Medicare beneficiaries 
equal access to services across the nation. National coverage criteria 
would replace the process now in which contractors ``adopt'' other 
contractors policies, even if those policies conflict with overall 
Medicare requirements. Thus, an erroneous and improper ``national'' 
policy can become established merely by the spread of LMRPs from one 
contractor to another, by entities that are not publicly accountable, 
with limited public review and without sufficient intervention or 
oversight by HCFA. While the Medicare Intermediary Manual does provide 
LMRP development guidelines, AOTA's experience is that these are not 
always followed. Relief is limited.
    Furthermore, while AOTA may be able to intervene in some of these, 
many beneficiaries and beneficiary advocates find the existence of 
multiple LMRPs and standards hinder appropriate access to services.
    Even if a national policy is not developed, HCFA could oversee and 
regulate the activities of its contractors in the medical review area 
far more than is currently the practice. For instance, HCFA should 
narrow the fiscal intermediaries' latitude to develop broad, wide-
ranging LMRPs without oversight by HCFA. This is rarely done at 
present.
    Indeed, HCFA has contracted under its program integrity efforts for 
a contractor to review local medical review policies to determine 
variations. This is being done as part of HCFA's efforts to investigate 
coverage limitations that could be developed to substitute for the 
annual cap placed on outpatient rehabilitation by the Balanced Budget 
Act. AOTA supports efforts of any kind to make these policies 
consistent and appropriate.

APPEALS
    Furthermore, HCFA has just issued the following which further 
constrains provider and beneficiary rights to consistent policy:
    HCFA Pub. 60AB, Trans. No. AB-01-44, March 15, 2001-- Binding 
Effect of LMRP's
(Intermediaries/Carriers),
CHANGE REQUEST 1540
SUBJECT: Binding Contractor Hearing Officers to Local and Regional 
        Medical Review Policies (L/RMRP)
    This Program Memorandum (PM) serves to bind contractor hearing 
officers (HOs) to contractor--issued L/RMRP). This PM is being issued 
to expedite distribution of the instructions and will be incorporated 
permanently through revisions to the Medicare Carrier Manual (MCM), the 
Medicare Intermediary Manual (MIM) and the Medicare Program Integrity 
Manual (PIM).
    HOs must comply with L/RMRP. (See Chapter 1 of PIM, 2.3.2.3 for 
procedures for developing and adopting L/RMRPs.) Binding an HO to L/
RMRP means that the HO must apply pertinent L/RMRP to the facts of a 
given claim and that the HO may not disregard or override an applicable 
L/RMRP. This PM affects MCM 12016 and MIM 3794.4. Authority for this PM 
is found at 42CFR 405.836, the regulation delineating the authority of 
HOs.
    The effective date for this PM is March 15, 2001.
    The implementation date for this PM is March 15, 2001.
    These instructions should be implemented within your current 
operating budget.
    This PM may be discarded after December 31, 2002.
    If you have any questions, contact Rosalind Little at (410) 786-
6972, e-mail [email protected] or Steve Miller at (410) 786-6656, e-mail 
[email protected].
    This policy is in effect a ``gag rule'' on hearing officers. It 
further harms both beneficiaries and providers by preventing a full 
examination of the facts with regard to coverage denials. This 
memorandum creates unreasonable and unfair practices restricting the 
purview of an administrative hearing officer. This is demonstrable 
administrative overreaching, especially when this procedural restraint 
serves to further compound the problems in the LMRPs content as 
discussed earlier.

MAKE MEDICARE A NATIONALLY CONSISTENT PROGRAM
    In legislation introduced in the 106th Congress, (now) Chairman 
Bill Thomas, with (now) Subcommittee Chairwoman Nancy Johnson among 
others, sought to assure that coverage policy determinations were made 
more consistent, equitable and efficient. We believe the goals of H.R. 
2356 of 1999 remain important and ought to be considered by the 
Subcommittee on Health and the Ways and Means Committee as part of 
efforts to reform Medicare.
    Beneficiaries and providers deserve consistency in the benefits and 
providers deserve fair guidance in all areas of the country. The 
reasonableness and necessity of services should be largely determined 
by national coverage criteria and should not vary significantly from 
one region to another. We have also found that many LMRPs, especially 
in the amount, frequency and duration parameters, are so prescriptive 
as to impinge upon the ability of professionals to provide care that 
addresses the medical condition, functional level and rehabilitation 
possibilities of individual beneficiaries.
    We thank the Subcommittee for the opportunity to express our 
concerns and look forward to aiding efforts to correct these problems 
and improve the effectiveness of the Medicare program.

                                


    Statement of American Physical Therapy Association, Alexandria, 
                                Virginia

    Madam Chairwoman and members of the Subcommittee, the American 
Physical Therapy Association (APTA) is pleased to provide written 
comment for your consideration regarding the important task of 
reforming the Medicare program. APTA sincerely appreciates your efforts 
this Congress to explore this issue in greater detail and hold 
necessary hearings to ensure all views are heard on the matter.
    Tommy Thompson, the newly appointed Secretary of Health and Human 
Services, summarized the feelings of the physical therapy community in 
a speech given to the American Association of Health Plans on February 
26, 2001. The former governor of Wisconsin stated, ``Patients and 
providers alike are fed up with excessive and complex paperwork. Rules 
are constantly changing. Complexity is overloading the system, 
criminalizing honest mistakes and driving doctors, nurses and other 
health care professionals out of the program.''
    There are a number of regulations that are unnecessary and take 
away vital time and resources from patient care. These regulations 
impact physical therapists working in a variety of settings, which 
include: hospitals, skilled nursing, facilities, home health agencies, 
comprehensive outpatient rehabilitation facilities, rehabilitation 
agencies, and physical therapy private practice offices. If necessary 
deregulation can take place, physical therapists will be able to 
provide care to Medicare patients in these settings in a more timely 
manner, which will speed recovery.
    The following are problematic regulations and policies under the 
Medicare program that impact physical therapy. APTA has notified HCFA 
that these regulations and policies need to be eliminated, revised, or 
clarified. In most cases, we are still awaiting action.

                     Certification/Recertification

    Section 1861 (p) of the Social Security Act requires that 
outpatient physical therapy, occupational therapy, or speech-language 
pathology services be furnished only to an individual who is under the 
care of a physician. According to Medicare regulations, for outpatient 
physical therapy services furnished in rehabilitation agencies, 
physical therapist private practice offices, outpatient hospital 
departments, and skilled nursing facilities (Part B), there must be 
evidence in the patient's clinical record that he or she has been seen 
by the physician every 30 days. In addition, the clinical record must 
show that the physician reviewed the plan of care and recertified the 
need for that care every 30 days. For home health agencies and 
comprehensive outpatient rehabilitation facilities, the physician is 
required to review the plan of care and recertify the need for care 
every 62 days.
    The need for a physician visit every 30 days is problematic. In 
many instances, it takes a week or two before the patient goes to 
receive his or her outpatient physical therapy treatment. After 
receiving two weeks of treatment, the 30 days expires, and the patient 
then needs to see the physician again in order to continue treatment. 
Returning to the physician's office in this time frame is an 
inconvenience to the patient and the physician. It is particularly 
problematic in rural areas, where the patient may have to travel a long 
distance to get to a physician's office.

                Physician signature on plan of treatment

    Medicare requires that the physician recertify the need for therapy 
services every 30 days. Because this policy is not written clearly in 
HCFA's manuals, there is considerable confusion with respect to when 
the 30-day time frame begins and at what point the physician signature 
has to be on the plan of care. It is not clear whether the 30-day time 
frame begins after the physical therapist conducts an evaluation, after 
the initial physician visit, or when the physical therapy treatment 
actually begins. It is also not clear whether the physician signature 
has to be on the plan of treatment before therapy begins, before the 
claim is submitted to Medicare, or shortly after therapy begins.
    APTA has tried unsuccessfully to obtain clarification from HCFA on 
these issues. Because there has been no clarification, carriers and 
fiscal intermediaries throughout the country are interpreting this 
provision differently. APTA's recommends that the 30-day time frame 
begin when the therapist sees the patient, and that the physician 
signature be on the plan before the claim is submitted to Medicare. 
Because it can often be difficult to obtain physician signatures, 
requiring the signature before treatment begins would result in delays 
in needed patient care.
   Home Health Agency Prospective Payment System and Medicare Part B
    On October 1, 2000, HCFA implemented the Medicare home health 
agency (HHA) prospective payment system (PPS). The HHA PPS includes a 
consolidated billing requirement, which mandates that home health 
agencies must bill and receive payment for all home health services, 
including physical therapy services, during a 60-day episode of care. 
Once the patient is discharged from the home health plan of care and is 
no longer eligible for the home health benefit, an outpatient 
rehabilitation provider may treat and bill for the services under 
Medicare Part B.
    Since the inception of the HHA PPS, physical therapists have had 
numerous problems receiving payment under Medicare Part B for services 
provided to patients recently discharged from a home health plan of 
care. This is due to the fact that HCFA is unable to track patient 
discharges until final payment claims have been submitted by the HHA. 
As a result, the carriers and intermediaries are rejecting Part B 
claims because the computer edits flag the file as being open under the 
Part A HHA PPS.
    At a meeting with APTA, HCFA staff indicated that there is no 
immediate solution to this problem. Therefore, APTA respectfully 
requests that the home health consolidated billing provision be 
suspended until this computer problem can be corrected. It is unfair to 
penalize providers because HCFA does not have the adequate resources to 
operationally implement the consolidated billing policy.
``In Room'' Supervision Requirement of Physical Therapist Assistants in 

              Physical Therapist Private Practice Offices

    HCFA's final rule, published in the November 2, 1998 Federal 
Register, HCFA required that a licensed physical therapist in private 
practice (PTPP) must personally supervise the physical therapist 
assistants and physical therapy aides. HCFA defines personal 
supervision to mean the physical therapist must be in the room during 
the performance of the service. Prior to that date, the standard for 
supervision was ``direct supervision.'' In our view, the ``in the 
room'' supervision requirement is too strict and unnecessary. PTAs are 
state regulated practitioners, who can safely and effectively furnish 
therapy services under a less stringent supervision standard. The 
personal supervision requirement imposes a level of supervision higher 
than that required for PTAs furnishing services in other Medicare 
settings.
    APTA has provided written opposition to the ``in-the-room'' 
requirement in its comments on the Medicare physician fee schedule for 
the last 2 years, and in numerous other correspondences. APTA has also 
had several meetings with HCFA on this issue. Most recently, HCFA 
stated in the final physician fee schedule rule that they are carefully 
examining the issue. We are still awaiting action.

                    Correct Coding Initiative Edits

    On January 1, 1996, the Health Care Financing Administration (HCFA) 
implemented a national Medicare policy involving more than 80,000 
coding edits that restricted certain coding combinations. AdminaStar 
Federal developed these code edits under a contract with HCFA. These 
code pair edits are combinations of two CPT codes that cannot be billed 
together because either the code pair represents services that are 
considered mutually exclusive or one code in the pair is considered a 
component of a more comprehensive procedure code. The CCI edits are 
applied to services furnished in physical therapist private practice 
offices and in outpatient hospitals.
    APTA recognizes the need for HCFA to create edits in their systems 
to detect inappropriate billing. However, HCFA has created a number of 
edits that do not make clinical sense, and therefore are inappropriate. 
APTA has requested that HCFA delete the problematic code pair edits, 
but is still awaiting such deletion.
         Clarification of Use and Documentation of Timed Codes
    In March of 2000, HCFA issued program memorandum AB-00-14, 
``Questions and Answers Regarding the Prospective Payment System (PPS) 
for Outpatient Rehabilitation Services and Physical Medicine Current 
Procedural Terminology (CPT) Coding Guidance.'' This program memorandum 
answers questions related to Medicare outpatient therapy policies and 
provides guidance regarding coding therapy services. Because most 
physical medicine and rehabilitation codes are 15 minute timed codes, 
the memorandum defines how to bill for a 15 minute unit and how to 
determine what services count as time. Specifically, in AB-00-14, HCFA 
states that when billing units of therapy, one unit is equal to or 
greater than 8 minutes but less than 23 minutes of care. Two units are 
equal to or greater than 3 minutes but less than 38 minutes, and so on. 
Providers are instructed not to bill for anything less than 8 minutes 
of care. HCFA also states ``pre-and post--delivery services are not to 
be counted in determining the treatment service time.
    The language regarding counting minutes of therapy has caused 
considerable confusion. APTA, along with other rehabilitation 
organizations, met with HCFA in June 2000, to discuss the policy and 
clarify any confusion associated with it. At that meeting, HCFA agreed 
to develop a question and answer program memorandum that would further 
clarify how to determine what time counts as a 15-minute unit and how 
to bill for units of service. In this program memorandum, HCFA would 
respond to questions developed by the organizations. The questions were 
submitted to HCFA on July 21, 2000, and APTA is still waiting for HCFA 
to issue this program memorandum.

                              Stark II law

    HCFA published an interim final rule (66 Fed. Reg. 856) on January 
4, 2001, which incorporates into regulations the provisions in 
paragraphs (a), (b), and (h) of section 1877 of the Social Security 
Act. This law, referred to as the ``Stark II'' law, prohibits 
physicians from referring Medicare and Medicaid patients for designated 
health services'' to health care entities in which they have a 
financial relationship, unless an exception applies. According to the 
law, physical therapy is a ``designated health service.''
    APTA was pleased to see that HCFA published a final rule and 
supports the intent of the Stark II regulations. Physical therapists 
and patients needing physical therapy services are adversely impacted 
by physicians that obtain financial gain by referring patients to their 
own clinic for physical therapy services.
    Although we are pleased to see that these issues are being 
addressed in HCFA's regulations, we are seriously concerned that some 
of the provisions in the interim final rule weaken the Stark II law and 
open the door for physician abuses in the provision of physical therapy 
services.

   HIPAA: Final Rule on Privacy of Individually Identifiable Health 
                              Information

    The Department of Health and Human Services released the long 
awaited final privacy regulations on December 20. The Final rule 
implements the privacy provisions of the Health Insurance Portability 
and Accountability Act (HIPAA) and sets forth complex limitations on 
the use of individually identifiable health information by most health 
care providers (including physical therapists), health plans, and 
clearinghouses.
    While APTA supports the protection of individually identifiable 
health information, the regulation that was issued is extremely 
cumbersome for our membership. For example, providers have to ensure 
the compliance of their business associates and have a new duty to 
mitigate known privacy violations by third party contractors. Many of 
our members are small business providers and the cost for implementing 
the requirements of the privacy regulations will be too onerous.

              Reimbursement for Physical Therapy Students


    There is considerable confusion regarding HCFA's policy on 
supervision and reimbursement for therapy student services under 
Medicare in the outpatient therapy setting. The American Physical 
Therapy Association (APTA), American Speech Language Hearing 
Association (ASHA), and American Occupational Therapy Association 
(AOTA) met with HCFA to discuss this problem in March 2001. After this 
meeting, HCFA began working on a program memorandum regarding 
reimbursement of services for students under Medicare Part B. The 
therapy associations are still awaiting issuance of this program 
memorandum. We are hoping that the issuance can be expedited. It is our 
hope that HCFA's policies will ensure that students can continue to 
obtain the clinical training they need to better serve Medicare 
beneficiaries in the future.

                           Provider Education

    Many physical therapists have difficulty finding the ``right'' 
answer to questions regarding Medicare requirements. Carriers and 
intermediaries often give incorrect information to providers. There 
appears to be a lack of communication of information between HCFA 
national and the carriers and fiscal intermediaries.
    In addition to receiving incorrect information from carriers and 
fiscal intermediaries, providers find that carriers and fiscal 
intermediaries are interpreting HCFA regulations and policies 
differently throughout the country. As a result, providers in different 
regions are subject to different standards for Medicare coverage and 
reimbursement. There is a need for uniformity. Physical therapists are 
trying to provide good patient care while complying with Medicare 
regulations, but because of the confusing and conflicting information 
they are provided, this has become more difficult.
    There is a need for HCFA national to provide clear, concise 
guidance on its Medicare policies to its fiscal intermediaries and 
carriers, to national associations, and to providers. This guidance 
would ensure providers receive accurate and timely information to 
assist them in complying with Medicare requirements.
    HCFA recently contracted with DynCorp to examine inconsistencies 
throughout the country with respect to Medicare coverage and 
reimbursement of occupational therapy, physical therapy, and speech-
language pathology services. It is our hope that DynCorp and HCFA can 
remedy this problem through their work on this project.

                    Alternative Payment Methodology
 
   The Balanced Budget Act of 1997 mandated an alternative payment 
policy be implemented for outpatient therapy services. Originally, a 
$1500 limit was placed on outpatient therapy services until an 
alternative payment policy was developed and implemented. This 
arbitrary limitation on services proved to have an adverse impact on 
patients, and in 1999, Congress placed a 2-year moratorium on the 
$1,500 limit. HCFA is still required to develop the alternative payment 
policy for outpatient therapy services and report to Congress on an 
alternative by January 1, 2001.
    Due to a provision in the BBA of 1997, beginning January 1, 1999 
all outpatient therapy providers, are reimbursed according to the 
physician fee schedule instead of a cost-based system. Therefore, APTA 
does not believe its necessary to develop an alternative payment 
methodology because the needed savings are achieved under the physician 
fee schedule.

                      Practice Expense Methodology

    In determining payment under the physician fee schedule, there are 
three relative values: 1) relative value (RVU) for clinical work, 2) 
RVU for practice expense, and 3) RVU for malpractice expense. In 
January 1999, the practice expense RVU was revised to be resource based 
rather than charge based. In the November 1998 Medicare Fee Schedule 
rule, HCFA discussed its methodology for developing these resource 
based practice expenses. We believe that the methodology used to 
determine the physical therapy practice expenses is flawed.
    APTA believes that the administrative payroll, office, and other 
practice expenses per hour used by HCFA in computing the practice 
expense component of RBRVS under the Medicare Physician Fee Schedule is 
not sufficient to reflect expenses of physical therapists in private 
practice. APTA urges HCFA to adopt data from a survey conducted by the 
APTA during 2000. In the alternative, APTA believes that the ``all 
physician'' category more accurately reflects practice expense costs 
for physical therapists in private practice.

                       Medical Review and Audits

    There are many problems with the current medical review and audit 
process. In many instances, the auditors do not understand the 
regulations that apply to physical therapy providers, and thus 
inappropriately seek overpayments. In addition, providers find that 
they are not given a reason for the overpayment determination, and 
carriers and intermediaries are unwilling to answer provider questions 
about the overpayment determination. Therefore, providers are forced to 
devote considerable time and resources to defend themselves.
    In a number of cases, carriers and fiscal intermediaries seek 
overpayments based on a ``technicality''. For example, the physical 
therapy service was provided, was medically necessary, there is 
documentation in the file to support the medical necessity of the 
service provided, and a physician signed the order for services. 
Despite proof of medical necessity in the clinical record, the auditor 
still seeks the overpayment because the physician did not date the 
order. Thus, the provider is required to pay the money back to the 
Medicare program, because of this missing information.
    APTA recommends that HCFA educate its auditors about its policies 
and regulations pertaining to physical therapy services, and ensure 
that providers are given sufficient rationale for the overpayment 
determinations.

                                Appeals

    Approximately, 85% of the appeals that come before the 
Administrative Law Judges are overturned. When Medicare determines that 
there is an overpayment, the provider often must pay the overpayment 
before the appeal is heard. Many physical therapy providers who have 
received overpayment determinations are small business owners. To 
require the return of the overpayment when the provider believes the 
determination was made in error is extremely costly and a violation of 
due process. Therefore, APTA recommends that HCFA prohibit recovery of 
alleged overpayments until appeals have been exhausted.
    Additionally, APTA believes that HCFA should permit physical 
therapists to appeal an alleged overpayment without waiving their 
administrative appeal rights. In many instances, a therapist will 
receive a consent letter informing them of an overpayment 
determination. The letter provides three choices: pay back the money 
and forego any appeal rights; provide additional documentation and 
forego any appeal rights; or appeal the overpayment determination but 
subject the company to a full blown investigation. APTA believes that 
these choices are unfair and deny providers due process.

                               Conclusion

    We appreciate your serious consideration of APTA's concerns and 
recommendations. We recognize that HCFA has numerous regulations that 
need to be implemented as a result of the Balanced Budget Act of 1997, 
the Balanced Budget Refinement Act (BBRA), and BIPA. Because of the 
major impact of these regulations on the provision of critical 
rehabilitation services to Medicare beneficiaries, it is our hope that 
HCFA addresses these issues expeditiously.
    We frequently hear from physical therapists that they can no longer 
provide services to Medicare patients because of the onerous 
regulations and unfair review processes. The purpose of the Medicare 
program is to provide access to quality health care services for senior 
citizens. Unfortunately, due to the number and complexity of Medicare 
regulations, beneficiaries may have difficult getting access to the 
rehabilitation services that they need.
    The APTA looks forward to working with you and the rest of the 
Committee members to address these concerns on behalf of the physical 
therapy community and the patients they serve. For more information, 
please contact Patrick Cooney at (703) 769-0020. Thank you for your 
consideration of these comments.
    APTA represents more than 68,000 physical therapists, physical 
therapist assistants, and students of physical therapy. The goal of 
APTA is to foster physical therapy practice, education, and research.

                                


                                    Mayo Foundation
                                       Washington, DC 20036
                                                     March 23, 2001
Representative Nancy L. Johnson
Chair, Subcommittee on Health
House Committee on Ways and Means
1136 Longworth House Office Building
Washington, DC 20515-6349

    Dear Representative Johnson:
    On behalf of Mayo Foundation, I would like to submit this 
information for the record of the Health Subcommittee hearing of March 
15, 2001: ``Medicare Reform: Bringing Regulatory Relief to 
Beneficiaries and Providers.''
    At the hearing, Representatives Stark and Kleczka raised questions 
relating to the number of pages of Medicare rules and regulations. The 
source of the numbers referenced in the testimony of several witnesses 
is an estimate made by Mayo in 1998. The original breakdown of the 
numbers of pages of regulations and supporting documents, as estimated 
by Mayo, is attached for the record. This estimate was made in 1998, so 
it does not include most of the thousands of pages of rules 
implementing the Balanced Budget Act of 1997. Nor does the total 
include any number for some of the listed categories for which we were 
unable to make estimates. We therefore believe this estimate 
significantly underestimates the real number.
    Questions were raised at the hearing concerning the accuracy of the 
Mayo numbers, and it was stated that HCFA estimated a much smaller 
number of pages-- in the range of 35,000. We stand by the accuracy of 
our estimate, noting as we have in the past that we are including all 
Medicare rules, manuals, and other guidance documents that are 
necessary for providers to deal with the Medicare program. We have 
circulated our list publicly, and in fact it was included in a 
publication of the House Budget Committee in May 2000 (``Budget 
Committee Task Force on Health: Medicare's Regulatory Burden on 
Providers'', Hearing Press Kit, May 18, 2000).
    We also believe that there is no point in engaging in an argument 
with HCFA or anyone else over the definitions of ``rules'' or the exact 
number of pages of such. The important points we intended to raise with 
this count are:
    (1) There is a major regulatory overload in Medicare.
    (2) The rules are spread out over numerous sources, making it even 
more difficult to know all the rules that may apply.
    (3) Many carrier and intermediary rules vary among the different 
areas of the country.
    Rather than debating the numbers, we believe it is time to move 
forward to finding solutions to these problems. For that reason, we 
salute your efforts in holding the hearing: ``Medicare Reform: Bringing 
Regulatory Relief to Beneficiaries and Providers.'' We are ready to 
assist you and the Health Subcommittee in any way to improve the 
Medicare program for beneficiaries and providers alike.
            Sincerely,
                                             Bruce M. Kelly
                                   Director of Government Relations

              Medicare Regulations and Supporting Documents

Medicare Laws and Related Laws (SSA and 350 Amendments).......       706
Fraud and Abuse Regulation....................................    14,500
BBA of 1997 (statute only)....................................       800
Medicare Regulations (42 CFR).................................     3,574
21 HCFA Manuals...............................................    10,500
HCFA Federal Registers........................................    30,000
    ('94-'98)
    ('87-'93).................................................     2,000
    ('82-'86).................................................     2,000
Carrier Part B Manuals........................................       500
Correct Coding Manual.........................................       340
Carrier Newsletters...........................................     4,320
Intermediary Communicators....................................     2,880
Intermediary Medicare Bulletins...............................     2,250
Medicare Administrative Bulletins.............................     5,000
BCA Administrative Bulletins..................................     2,500
HCFA Intermediary Letters
HCFA Carrier Letters
HCFA Intermediary/Carrier Letters
DMERC Manuals.................................................       418
HCFA Rulings
PRRB Decisions................................................    24,000
HCFA Administrator Decisions..................................     2,000
Court Decisions...............................................     1,000
HCFA Correspondence
Carrier Correspondence
OIG Federal Registers ('94-'98)...............................     1,000
OIG Workplan and Compliance Program Guidance..................       170
RHC Billing Carrier Instruction manual........................       300
HCFA Advisory Opinions
    TOTAL.....................................................   110,758
                    --------------------------------------------------------------
                    ____________________________________________________

                              Non-HCFA HHS

ICD9-Code Book................................................     1,680
AHA Coding Clinics for ICD....................................     1,920
CPT Coding Book...............................................       588
DRG Guidebook.................................................       558
CPT Assistant.................................................       480
State Department of Health Interpretive Guidelines............        30
GAO Reports on Medicare.......................................     2,000
UB92..........................................................       600
HCPCS.........................................................       276
CLIA
JCAHO
    TOTAL.....................................................     8,132
                    --------------------------------------------------------------
                    ____________________________________________________

                        Other Government Agencies

Laws, Regulations, Manuals, State Registers, Enrollment 
    Agreements
CHAMPUS.......................................................     7,500
VA
Medicaid......................................................     6,000
FDA
PHS
    TOTAL.....................................................    13,500
                    --------------------------------------------------------------
                    ____________________________________________________

    GRAND TOTAL...............................................   132,390

                                


  Statement of National Association of Chain Drug Stores, Alexandria, 
                                Virginia

    Madam Chairman and Members of the Subcommittee. The National 
Association of Chain Drug Stores (NACDS) appreciates the opportunity to 
submit a statement for the record regarding reform of the Health Care 
Financing Administration (HCFA), and the agency's major programs, 
policies, and operations.
    We hope that this review will result in a more streamlined 
administration of the Medicare, Medicaid and S-CHIP programs, and 
improve the quality of health care delivered to these programs' 
beneficiaries, eliminate the onerous bureaucracy at the agency, and 
modernize HCFA's infrastructure. We support your goals, and pledge to 
work with you to see that the agency begins the process of being more 
responsive to the needs of beneficiaries and providers.
    NACDS represents about 170 chain pharmacy companies that operate 
about 33,000 retail pharmacies all across the United States. Chain 
pharmacy is the single largest segment of pharmacy practice. We filled 
about 60 percent of the 3.1 billion prescriptions provided across the 
nation last year. Chain community pharmacy has extensive interaction 
with programs that are administered by HCFA, and is significantly 
affected by the agency's policies and procedures. Thus, we have a 
vested interest in the outcome of any major HCFA review and 
restructuring. Here's how community retail pharmacy participates in 
these programs.

           Medicaid: Community retail pharmacies provide 
        prescription services to millions of Medicaid recipients each 
        year. In fact about 15 percent of all retail pharmacy 
        prescriptions are paid for by Medicaid. Even though many 
        specific Medicaid policies are controlled by states, HCFA has 
        an important role in setting and enforcing broad policies and 
        procedures through Federal law, regulation, and the state plan 
        amendment (SPA) process. For example, HCFA sets maximum 
        Medicaid reimbursement rates for generic drugs through their 
        Federal Upper Limit (FUL) program, which can have a significant 
        impact on the utilization of lower-cost generic drugs 
        throughout the entire market. All providers, including 
        pharmacies, are significantly affected by state-based waivers 
        approved by HCFA, including those that expand health care 
        services to low-income populations that are not traditionally 
        Medicaid recipients. We will elaborate more on this and other 
        Medicaid program issues later in this statement.
           Medicare: While Medicare does not yet have a 
        prescription drug benefit, many community pharmacies already 
        serve as suppliers of Medicare-covered items. For example, 
        pharmacies provide select prescription drugs, such as 
        immunosuppressive and oral cancer drugs; provide durable 
        medical equipment, such as canes, walkers, crutches and ostomy 
        supplies; and provide important diabetic care items, such as 
        test strips and glucose meters. Upon enactment of a 
        prescription drug benefit for seniors, HCFA may have some role 
        in the administration of the benefit. Policies and procedures 
        adopted by HCFA in this regard will have a substantial impact 
        on chain community pharmacy.
           State-Based Children Health Insurance Program: 
        Community pharmacies also provide prescription drugs to parents 
        and children enrolled in state S-CHIP programs.

    We appreciate the responsiveness of many HCFA staff to our ongoing 
questions and concerns regarding the operations of these programs. 
However, we wanted to offer our perspectives on how we believe the 
agency can improve the administration of certain programs under its 
jurisdiction to make them more valuable for patients, reduce costs for 
the system, and facilitate participation of pharmacy providers.
Medicaid Prescription Copays
    Some states impose prescription copays as a way of reducing their 
Medicaid prescription drug expenditures. While these copays only range 
from 50 cents to $3 per prescription (and some eligible groups are 
exempted from paying these copays), they can create burdens on Medicaid 
recipients with limited means, especially those taking multiple 
prescriptions. Sometimes, the recipient cannot afford the copay, but 
the pharmacist is obligated under law to provide the prescription 
anyway. In some states, however, recipients are being actively told to 
just say that they cannot afford the copay, and that the pharmacist 
will still have to provide the prescription. HCFA has restricted 
states' ability to compensate pharmacies for these uncollected copays.
    This is unfair to pharmacies, and essentially represents a 
reimbursement reduction, since the state is not allowed by HCFA to 
compensate the pharmacist for the value of the uncollected copays. In 
addition, these unpaid copays represent unfunded mandates on 
pharmacies, and a reduction in reimbursement to provide the 
prescription. In some states, these uncollected copays could cost the 
average pharmacy thousands of dollars each year.
    These copay losses are obviously higher for pharmacies in areas 
that serve a significant number of Medicaid recipients. We believe that 
the Medicaid program should compensate pharmacies for the value of 
these lost copays.
Medicaid Federal Upper Limits (FULs) for Generic Pharmaceuticals
    Community retail pharmacy was significantly frustrated with HCFA 
this past year as the agency attempted to develop a credible, reliable, 
valid Federal Upper Limit (FUL) list for generic drugs. This list 
represents the maximum amount of Federal matching funds that states 
will receive for a marketbasket of generic drugs that meet certain 
Federal criteria.
    Not all generics have an FUL, but the accuracy and integrity of 
this list is important because almost all private third party 
prescription payors use this list to set their maximum reimbursement 
amounts for generics. Moreover, more than half the states use these 
Federal FULs to set their own ``maximum allowable costs'' for generic 
drugs in their own Medicaid programs. Thus, the impact of the list 
extends well beyond Medicaid. If the list is not accurate, and does not 
reflect current market realities, it will discourage utilization of 
lower-cost generics in favor or higher-priced brand name drugs.
    HCFA is supposed to publish an updated and current FUL list every 
six months. However, the first major substantial overhaul to the list 
in almost two years was published by the agency in April 2000. The two-
year lag between updates was a serious problem. That is because there 
were substantial price increases on many generic drugs during this 
time, which were not reflected on the outdated FUL list, and 
significant changes in the number of manufacturers in the generic 
marketplace.
    Unfortunately, the April list contained hundreds of inaccuracies, 
and several more iterations were needed over a period of eight months 
before the agency published a final list in December that appears to be 
reasonably accurate. Many of the FULs on the original April list were 
determined with the prices of products that had been discontinued for 
many years.
    We believe that many of these problems could have been avoided had 
the agency been more diligent in collecting the appropriate data and 
assessing the realities of the generic drug marketplace.
    Nevertheless, we believe that the agency did work in good faith 
with Medicaid directors, pharmacy providers, and other affected 
parties, in identifying and correcting errors with the list. We 
appreciate that the agency delayed implementation of the list until 
such a time that most of the problems were corrected.
    Assuring the accuracy of this list is critical. In addition to 
providing the pricing ``reference source'' that HCFA used to set the 
FUL, we believe that HCFA should also be required to release the 
corresponding National Drug Code (NDC) numbers used to establish the 
FUL. In our opinion, this is the only way that the accuracy and the 
integrity of the list can be validated. Without this information, there 
is absolutely no way for providers to know if HCFA is using reliable, 
valid information to set its FULs.

Medicaid State Plan Amendment Approvals

    The federal government gives billions of dollars to state Medicaid 
programs, and federal law requires HCFA to review state Medicaid plans 
to ensure that state Medicaid programs are spending that money in 
accordance with federal law. Unfortunately, HCFA has repeatedly refused 
to conduct thorough reviews of amendments to state Medicaid plans to 
make sure that they comply with federal law.
    HCFA simply accepts assurances from a state Medicaid agency without 
investigating whether those assurances are accurate. The result is that 
HCFA approves clearly illegal state plan amendments. For example, last 
year a federal court ruled a HCFA-approved state plan amendment 
discriminating against chain pharmacies to be in violation of the US 
Constitution, federal statutes, and HCFA's own regulations.
    Moreover, Federal law requires Medicaid payment rates to be 
consistent with efficiency, economy, and quality of care. States cannot 
arbitrarily reduce Medicaid pharmacy reimbursement to balance their 
Medicaid prescription drug budgets. States have to comply with several 
Federal standards when setting Medicaid pharmacy reimbursement. For 
example, Federal Medicaid law establishes standards for payment rates 
to providers in state Medicaid programs. See 42 U.S.C. 
Sec. 1396a(a)(30)(A).
    Payments have to be ``consistent with efficiency, economy, and 
quality of care . . . and sufficient to enlist enough providers so that 
care and services are available under the plan at least to the extent 
that . . . they are available to the general public . . .''. In 
addition, a 1994 memo from HCFA to state Medicaid directors requiring 
states to justify whether payment rates to pharmacies are 
``reasonable'' and in compliance with Federal law, said:

        States wishing to modify their EAC (Estimated Acquisition Cost) 
        levels may, among other methods of verification, audit an 
        appropriate number of pharmacies to determine current 
        acquisition costs before making modifications to the EAC 
        levels. . . . we still expect that States will continue their 
        present activities to establish a reasonable dispensing fee 
        level and will document them in their State Plan. Such 
        activities could include: (1) audits and surveys of operational 
        costs; (2) compilation of data regarding professional salaries 
        and fees; and (3) analysis of compiled data regarding pharmacy 
        overhead costs, profits, etc. . . . The methods or standards 
        they utilize to establish such fees are at the discretion of 
        the individual State but should be documented in support of the 
        State plan.

    Yet, we have seen case after case where HCFA simply approves 
pharmacy payment reductions proposed by the states for budgetary 
reasons, or the agency fails to adequately assess the evidence 
presented by the state to justify the reimbursement change. Many of the 
studies that are submitted to HCFA are deeply flawed, yet the agency 
relies on these studies to approve state plan amendment changes.
    Adding insult to injury is the fact that these pharmacy 
reimbursement reductions do little to control escalating Medicaid 
prescription drug program expenditures. Expenditures for prescription 
drugs in the U.S. Medicaid program increased from $8 billion to about 
$13.5 billion, or about 69 percent in the last five years (1993-1998). 
Reasons include:

           More Prescription Use per Medicaid Recipient: The 
        number of prescriptions used by each Medicaid recipient 
        increased by 23 percent from 1993 through 1998.
           Medicaid Recipients Using Higher-Priced Prescription 
        Drugs: The average Medicaid prescription price increased 70 
        percent between 1993 and 1998. However, of this amount, there 
        was an 85 percent increase in the pharmacist's cost of 
        purchasing the drug from the manufacturer. In real dollar 
        terms, the amount that the state pays the pharmacist to 
        dispense the prescription increased by only 0.6 percent--which 
        did not even keep pace with the rate of inflation, which was 
        about 13 percent.

    None of these factors can be addressed by reducing pharmacy 
reimbursement. Yet, HCFA continues to approve these SPAs, knowing full 
well that experience has shown that pharmacy reimbursement reductions 
have negligible impact on reducing Medicaid prescription drug spending. 
The process by which HCFA assess and approves SPAs must change.
Inappropriate Use of Medicaid as Leverage for Pharmacy Price Controls
    We are also seriously concerned that states are using pharmacy's 
Medicaid participation as leverage to extend retail prescription 
pricing discounts to populations that are not Medicaid eligible. For 
example, some states, such as California, have added a new material 
requirement to a pharmacy's participation in the state's Medicaid 
program. That is, pharmacies are required to charge all Medicare 
beneficiaries no more than the Medicaid prescription rate, regardless 
of the beneficiary's income, if they want to participate in Medicaid.
    We understand the states' interest in reducing the cost of 
prescription drugs to seniors. However, we strongly object to arbitrary 
controls on our prices, especially since these programs do nothing to 
reduce our cost of buying the drug, which is the overwhelming major 
cost factor in any prescription. Thus, pharmacies must absorb the 
entire cost of this discount.
    Furthermore, NACDS opposes state efforts to tie participation in 
these price control discount programs to the Medicaid program. No 
pharmacy that agreed to participate in the Medicaid program did so with 
the expectation that it would be required to offer a discounted retail 
price to populations that were not originally covered by Medicaid.
    We also question whether a pharmacy's willingness to provide 
discounts to senior citizens is germane to its overall fitness to 
participate in the state's Medicaid program. NACDS recognizes that 
states have an interest to ensure pharmacy providers are legitimate 
businesses, are unlikely to engage in fraud, and employ pharmacists and 
other personnel who are qualified to safely dispense medications and 
counsel Medicaid recipients. However, requiring pharmacies to provide 
prescription drugs at discounts to senior citizens, which may 
jeopardize their long-term viability, does not seem to be reasonable 
criteria for participation in state Medicaid programs.
    HCFA apparently is unaware that states are tying pharmacy 
participation in Medicaid to participation in non-Medicaid programs. We 
find it difficult to believe that HCFA is not aware of how states are 
using the Medicaid program in ways that are unconventional or 
inappropriate. We believe that the agency should unequivocally tell 
states that participation in the Medicaid program should not be used as 
leverage to force pharmacies to participate in programs that do not 
serve Medicaid populations. If states want to increase access to 
prescription drugs for seniors, they should establish meaningful 
prescription drug coverage programs, not retail pharmacy price 
controls.

Medicaid Prescription Drug Waiver Programs
    We are concerned about certain Federal Medicaid waivers that have 
been approved that extend Medicaid prescription pricing--including drug 
manufacturers' rebates--to certain low-income populations. Once again, 
we understand the states' interest in providing reduced priced 
prescription drugs to low income seniors. We continue to support 
prescription drug coverage programs as the best method to achieve this 
goal.
    However, these programs simply require the pharmacy to discount the 
retail prescription price by the cumulative Medicaid manufacturer 
rebate amount and the Medicaid pharmacy reimbursement discount amount. 
Pharmacies are then compensated for the retail price reduction amount 
equal to the manufacturers' rebate by the state, who collects these 
rebates from the manufacturers.
    We do not believe that pharmacies should be required to participate 
in these programs as a condition of Medicaid participation. We are also 
concerned about requiring pharmacies to pass along the additional 
manufacturers' discount at the retail pharmacy counter, without some 
assurance from the state that they will be able to collect all the 
rebates from the manufacturer, and provide them to the pharmacies in a 
timely and consistent manner to compensate for this price reduction.

Medicare Diabetes Education and Training Program
    The 1997 Balanced Budget Act (BBA) created a new diabetes education 
and training benefit for ambulatory Medicare beneficiaries. The intent 
of the new benefit was to allow ambulatory Medicare beneficiaries with 
adult-onset (Type II) diabetes to receive important education and 
training from health professionals, on such aspects as diet, exercise, 
glucose monitoring and drug therapy--to help them better manage their 
condition.
    These preventive health care services have been proven to improve 
quality of life and reduce health care costs. Many community pharmacies 
provide diabetes self-management benefits. These pharmacy-based 
programs work. NACDS members provided HCFA extensive evidence during 
the regulation's comment period with significant evidence of patient 
satisfaction with these programs. Private payors are increasingly 
recognizing pharmacy's role in diabetes management programs, and 
studies have demonstrated the value of these programs.
    The BBA allowed pharmacy providers to participate as providers in 
this program by virtue of the fact that pharmacies already provide 
diabetic supplies and products to Medicare beneficiaries. 
Unfortunately, the final rule that HCFA promulgated in December 2000--
over three years after the enactment of BBA--did not recognize the 
value of pharmacy-based diabetes self-management services. The rule 
established restrictive, onerous, and unnecessary standards for 
provider participation. The result is that community pharmacies will 
most likely be unable to provide diabetes self-management benefits to 
Medicare beneficiaries. The many senior citizens with diabetes who 
could have been helped by visiting their conveniently-located community 
pharmacy will now have to find an outpatient hospital or a clinic that 
can comply with the HCFA regulations.
    Many community pharmacies that currently do not provide such 
benefits viewed the BBA reforms as an opportunity to expand the 
services they provide may not initiate diabetes self-management 
programs. There is no logical reason why the most accessible health 
care professionals--pharmacists--and the provider from which diabetics 
purchase most of their supplies should be logistically excluded from 
participating in this program. It is a disservice to Medicare 
beneficiaries and community pharmacies.

Medicare Supplier Issues
    Community pharmacies are suppliers of Medicare Part B covered 
durable medical equipment (DME) and select prescription drugs. NACDS 
members' frustration with HCFA's inability to administer these benefits 
knows no bounds. The Agency has been unwilling to adopt computerized 
on-line systems that almost every other health care payor has used for 
years.
    These on-line claims adjudication systems save health care payors 
money by assuring eligibility and coverage; preventing fraud, abuse, 
and over-utilization; and improving customer service by allowing the 
pharmacy to more efficiently process their claims. Yet HCFA refuses to 
even consider the value of an on-line claims adjudication system.
    HCFA currently contracts with four durable medical equipment 
regional carriers (DMERCs) to process Medicare Part B claims. The 
customer service that the DMERCs provide leaves much to be desired. 
``Provider relations'' staff members are often difficult to reach, may 
not return phone calls, and deliver inconsistent directions to 
community pharmacies. Moreover, the DMERCs do not communicate changes 
to the program in a prompt and effective manner.
    The recent requirement that Medicare Part B suppliers accept 
assignment for all covered prescription drugs is a case in point. The 
requirement went into effect on February 1, 2001. Yet, the DMERCs did 
not directly communicate this change to our members. In fact, when 
several chain pharmacies called DMERC staff after February 1, many did 
not know of this change in policy. In addition, because Medicare does 
not operate an ``on line'' claims system, it is impossible for the 
pharmacy provider to know if the beneficiary has reached their $100 
annual Part B deductible, or the ``Medicare allowable'' amount for a 
particular product being provided. It is extremely difficult for 
pharmacies to comply with changes in Medicare policy when DMERC staff 
are so poorly informed, and when the technology is such that simple, 
basic information cannot be provided to pharmacies to help them better 
serve Medicare beneficiaries.
    If the DMERCs operated in the private marketplace, these failures 
would not be tolerated. HCFA would have replaced the insurance 
companies that perform the DMERC function years ago. Yet, despite the 
concerns NACDS and other provider groups have expressed to HCFA, the 
problems with the DMERCs persist. HCFA needs to be reformed to be more 
responsive to provider-related concerns.

Conclusion
    NACDS supports Congressional action to evaluate HCFA policies and 
programs, and how the agency's administration of these programs impacts 
beneficiary access to quality health care and the ability of providers 
to effectively and efficiently participate in the programs.
    HCFA often times appears to make decisions contrary to its own 
rules and regulations. Moreover, it often fails to understand, or 
simply ignores, the impact of its decisions on the health care 
marketplace. Or, more critically, it just doesn't understand the 
marketplace. We recognize that HCFA may be overworked and understaffed. 
Congress and the Administration will have to decide how best to 
structure the agency for the 21st century, and the role that HCFA might 
have in administering any new prescription drug benefit for seniors. We 
look forward to working with you in addressing these issues in this 
Congress to make HCFA more responsive to the patients and providers 
that it serves. Thank you.

                                
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