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




                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                           SEPTEMBER 25, 2001


                           Serial No. 107-45


         Printed for the use of the Committee on Ways and Means

76-025                      WASHINGTON : 2001

For Sale by the Superintendent of Documents, U.S. Government Printing Office
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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
RON LEWIS, Kentucky
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel


                         Subcommittee on Health

                NANCY L. JOHNSON, Connecticut, Chairman

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

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

Advisories announcing the hearing................................     2


Centers for Medicare & Medicaid Services, Hon. Thomas Scully, 
  Administrator..................................................     9
U.S. General Accounting Office, Leslie G. Aronovitz, Director, 
  Health Care-Program Administration and Integrity Issues........    39


American College of Physicians-American Society of Internal 
  Medicine, William J. Hall, M.D.................................    47
National Association for Home Care, Connecticut Association for 
  Home Care, and VNA of Central Connecticut, Inc., Susan Wilson..    53


                       SUBMISSIONS FOR THE RECORD

Advanced Medical Technology Association, statement...............    66
Alliance to Improve Medicare, statement and attachment...........    67
American Academy of Physician Assistants, Alexandria, VA, 
  statement......................................................    76
American Clinical Laboratory Association, statement..............    78
American Medical Association, Chicago, IL, statement and 
  attachment.....................................................    82
American Osteopathic Association, Chicago, IL, statement.........    87
Association for Ambulatory Behavioral Healthcare, Alexandria, VA, 
  Patricia L. Scheifler, statement...............................    90
Blue Cross and Blue Shield Association, statement................    94
Medicare Administration Committee, Silver Spring, MD, statement..    99
Power Mobility Coalition, statement..............................   101



                      TUESDAY, SEPTEMBER 25, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:08 a.m., in 
room 1100 Longworth House Office Building, Hon. Nancy L. 
Johnson (Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearing 



                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
September 4, 2001
No. HL-10

                Johnson Announces Hearing on H.R. 2768,

               the ``Medicare Regulatory and Contracting

                          Reform Act of 2001''

    Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on H.R. 2768, the bipartisan 
``Medicare Regulatory and Contracting Reform Act of 2001.'' The hearing 
will take place on Tuesday, September 11, 2001, in the main Committee 
hearing room, 1100 Longworth House Office Building, beginning at 2:00 
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include the Honorable Tom Scully, Administrator of the 
Centers for Medicare and Medicaid Services (CMS), independent program 
experts, and representatives of provider groups. However, any 
individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    On August 2, 2001, Chairman Nancy Johnson and Ranking Member Pete 
Stark (D-CA), joined by every member of the Subcommittee on Health, 
introduced H.R. 2768, the ``Medicare Regulatory and Contracting Reform 
Act of 2001,'' the first major bipartisan Medicare legislation 
developed in the Committee on Ways and Means in the 107th Congress. 
This package would extend important regulatory relief to our nation's 
health care providers and modernize Medicare's contracting processes, 
while protecting the program and taxpayers from potential fraud and 
    H.R. 2768 is intended to create a more collaborative relationship 
between the CMS and the providers who serve Medicare beneficiaries. The 
legislation was developed through months of bipartisan consultation 
with health care providers and with the officials at the U.S. 
Department of Health and Human Services responsible for protecting the 
financial integrity of the Medicare program. The bill includes 
provisions related to the issuance of regulations and compliance with 
changed policies, contracting reform, provider education and technical 
assistance, a small provider technical assistance demonstration 
program, the appeals system, recovery of overpayments and prepayment 
review, a beneficiary assistance demonstration, and evaluation and 
management guidelines.
    In announcing the hearing, Chairman Johnson stated, ``Health care 
providers have been overwhelmed by paperwork requirements that have 
nothing to do with taking care of patients. Good, responsible 
professionals are frustrated by a system that seemingly emphasizes 
policing providers rather than helping them comply with Medicare's 
rules and regulations. Our bill is designed to change all of that. We 
want health care providers to spend their time with patients, rather 
than paperwork, and we want to make Medicare simpler. Program integrity 
must be protected--and so must provider time.''


    The hearing will give the Administration and other witnesses an 
opportunity to comment on H.R. 2768. We will hear from independent 
program experts as well as health care providers who would be directly 
impacted by the bill's reforms.


    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, Tuesday, 
September 25, 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.


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submitted for printing. Statements and exhibits or supplementary 
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    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 
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noted above.

                * * * NOTICE--HEARING RESCHEDULED * * *



                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
September 17, 2001
No. HL-10-Revised

                  Hearing Rescheduled for Subcommittee

                 Hearing on H.R. 2768, ``the ``Medicare

                 Regulatory and Contracting Reform Act

                 of 2001'' Tuesday, September 25, 2001

    Congresswoman Nancy L. Johnson, Chairman of the Subcommittee on 
Health of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on H.R. 2768, the ``Medicare Regulatory and 
Contracting Reform Act of 2001,'' previously scheduled for Tuesday, 
September 11, 2001, will now be held on Tuesday, September 25, 2001, at 
10:00 a.m., in the main Committee hearing room, 1100 Longworth House 
Office Building.


    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, Tuesday, 
October 9, 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.
    All other details for the hearing remain the same. (See 
Subcommittee press release No. HL-10, dated September 4, 2001.)


    Chairman Johnson. The hearing will come to order.
    The Democratic Caucus is not quite over, and they will be 
along shortly, so I will start with my opening statement and 
provide Pete a chance when he arrives.
    Before we start, it is important to acknowledge that 
today's hearing on regulatory relief was supposed to have taken 
place 2 weeks ago today. As we all know, on that day, our 
country suffered an extraordinary tragedy, disrupting not only 
the business of governing, but so much more importantly, the 
lives of so many Americans--those tragically killed by 
terrorists, their bereft families and friends, and all 
    While we continue to grieve and prepare to respond to the 
evils of terrorism, it is a sign of the strength of this great 
Nation that we can also move forward with the work of 
governing. I want to thank our witnesses for coming back today 
to give us the benefit of their expertise.
    Over the past several months, members of this Subcommittee 
have been working together closely to better understand the 
challenges facing providers who serve Medicare beneficiaries, 
and on March 15, we held a hearing on the need to extend relief 
from burdensome regulations to Medicare providers.
    At that hearing, we heard from doctors and hospitals, from 
home health agencies and nursing homes. Although examples 
differed, the basic message from each group was the same--
providers are overwhelmed with paperwork. Instead of caring for 
patients, health care providers are spending too much time 
filling out forms.
    These are good people; yet they are inundated with 
paperwork, second-guessing, and heavy-handed oversight. If we 
do not act, we risk losing the providers we need to ensure that 
seniors have access to high-quality care.
    Indeed, the U.S. General Accounting Office (GAO) study 
documents the loud cries for help that we have been hearing. 
Medicare is now such a complicated program that endless 
directives and long explanations and articles are necessary to 
explain facet after facet. Not only does the GAO report 
document the volume of paper doctors and hospitals must digest 
monthly, but the complexities are so great that even the 
government cannot give clear answers.
    In GAO's sample, only 15 percent of the answers to 
physicians' questions were complete and accurate--15 percent. 
Thirty-two percent were entirely incorrect. Having chaired the 
Subcommittee that led the reform of the Internal Revenue 
Service (IRS), I can tell you this is an absolutely shocking, 
abominable, and unacceptable record of performance, although 
just as the IRS problems did, it has its fundamental base in 
the complexity of the law we passed and the rapidity with which 
we have imposed changes on the system.
    Nonetheless we must do better than providing only 15 
percent accurate answers to physician questions.
    So the challenge is great to those of us in the Congress, 
to Administrator Scully, and to Secretary Thompson. We have, 
however, as you well know, been working hard. Pete and I wrote 
the Secretary, making a number of suggestions regarding 
regulatory improvements the Department could make using 
existing administrative authority, and many of those changes 
they have made.
    At the same time, we began developing a legislative package 
which is the underlying substance of this hearing, and we will 
have a chance to examine its provisions this morning and look 
forward to your comments on how it can be altered or improved 
to be made stronger or to serve better.
    In addition, the Secretary has given the tools to manage 
the Medicare Program operations more efficiently. For the first 
time, the Centers for Medicare & Medicaid Services (CMS) will 
be able to competitively contract with the best entities 
available to process claims, make payments, and answer 
questions. The Secretary will be free to promote quality 
through incentives for Medicare administrative contractors to 
provide outstanding services to seniors and health care 
    It is a pleasure to welcome Tom Scully here, the 
Administrator of CMS. Mr. Scully will set forth the 
administration's view on H.R. 2768 and talk to us about the 
Department's current efforts to extend regulatory relief to 
    This is Mr. Scully's first appearance before the 
Subcommittee in his capacity as administrator, and Tom, we 
welcome you and look forward to working with you in the months 
ahead. Mr. Stark.
    [The opening statement of Chairman Johnson follows:]
  Opening Statement of the Hon. Nancy L. Johnson, a Representative in 
 Congress from the State of Connecticut, and Chairman, Subcommittee on 
    Before we start today, it seems important to me to acknowledge that 
today's hearing on regulatory relief actually was supposed to have 
taken place two weeks ago today. As we all know, history intervened, in 
the form of unspeakable tragedy, disrupting not only our hearing but, 
so much more importantly, the lives of so many American heroes. While 
we continue to mourn, and to grieve, and to respond to the evils of 
terrorism, it is a sign of the strength of this great nation of ours 
that we can also move forward with the business of governing. I want to 
thank our witnesses for coming back today to give us the benefit of 
their expertise.
    Over the past several months, members of this Subcommittee have 
been working together closely to better understand the challenges 
facing providers who serve Medicare beneficiaries. On March 15, we held 
a hearing on the need to extend relief from burdensome regulations to 
Medicare's providers.
    At that hearing, we heard from doctors and hospitals, from home 
health agencies and nursing homes. Although examples differed, the 
basic message from each group was the same. Providers are overwhelmed. 
Instead of caring for patients, health care providers are spending too 
much time filling out forms. These are good people. And yet they are 
inundated by paperwork, second-guessing, and heavy handed oversight. If 
we do not act, we risk losing the providers we need to ensure that 
seniors have access to high quality care.
    After that hearing, we got to work. In May, Pete Stark and I wrote 
Secretary Thompson making a number of suggestions regarding regulatory 
improvements the Department could make using existing administrative 
authority. Many of those changes have already been accepted.
    At the same time, we began developing a legislative package to 
address problems that could not be corrected administratively. We 
examined the proposals set forth by Representatives Toomey and Berkley 
in their bill, H.R. 868. They make important suggestions--many of which 
we adopted. But we also were sensitive to objections raised by the 
Office of Inspector General to provisions in H.R. 868 that put program 
integrity at risk. We tried to assemble a bill that extends relief to 
providers but protects taxpayers from waste, fraud, and abuse.
    On August 2, Pete Stark and I introduced our bill, the Medicare 
Regulatory and Contracting Reform Act of 2001. I am extremely pleased 
that every member of the Health Subcommittee has joined us in 
cosponsoring H.R. 2768, along with many of our colleagues from the full 
    The basic goal of H.R. 2768 is to create a more collaborative, less 
confrontational relationship between providers and the Centers for 
Medicare and Medicaid Services. Our bill will diminish the paperwork 
load required to meet complex and technical regulatory requirements and 
immediately free up for patient care time that providers now spend 
completing and filing federal forms. H.R. 2768 streamlines the 
regulatory process, enhances education and technical assistance for 
doctors and other health care providers, and protects the rights of 
providers in the audit and recovery process to ensure that the 
repayment process is fair and open.
    In addition, the Secretary is given the tools to manage Medicare 
program operations efficiently. For the first time, the Centers for 
Medicare and Medicaid Services will be able to competitively contract 
with the best entities available to process claims, make payments and 
answer questions. The Secretary will be free to promote quality through 
incentives for the Medicare Administrative Contractors to provide 
outstanding service to seniors and health care providers. Contractor 
reform initiatives will eliminate artificial distinctions between 
Medicare's Part A and Part B with regard to contracting practices.
    Since introducing H.R. 2768, we have received useful input and 
technical suggestions from a range of interested groups, and we will be 
carefully evaluating those suggestions to see what good ideas we can 
incorporate into our bill as we move to markup. In particular, I 
continue to be interested in finding ways to allow providers to 
challenge audit findings and the validity of probe samples before they 
have to formally pursue an appeal.
    Today, we will hear from Tom Scully, Administrator of CMS. Mr. 
Scully will set forth the Administration's views on H.R. 2768 and talk 
to us about the Department's efforts to extend regulatory relief to 
providers. This will be Mr. Scully's first appearance before our 
subcommittee in his capacity as Administrator. Tom, we look forward to 
working with you at CMS.
    On our second panel, providers will comment on the bill, and we 
will hear from the General Accounting Office about its recent work on 
physician documentation requirements. Again, I thank you all for being 
here today.


    Mr. Stark. Madam Chairman, thank you for calling the 
hearing today on H.R. 2768, the Medicare Regulatory and 
Contracting Reform Act of 2001 (MRCRA).
    As I know you have said, this legislation shows that when 
we do work together, we can accomplish some legislation. There 
are, of course, other areas on which we disagree--Medicare 
reform, payment to Health Maintenance Organizations, the Bush 
discount card program, known as the ``rocket ranger 
prescription card''--but when there is some agreement, we can 
improve Medicare for beneficiaries, taxpayers, and providers.
    As I understand it, this bill was written to address two 
problems in Medicare--first, to improve outreach and assistance 
to beneficiaries and to respond to certain other concerns 
raised by physicians and other providers; second, some long 
overdue contracting reforms that should improve beneficiary and 
provider services and permit the consolidation of Medicare 
claims processing.
    I emphasize that because our legislation does not 
compromise the government's ability to protect taxpayer dollars 
from being inappropriately spent. Let me say that I am 
concerned about several issues, however, raised by the Office 
of Inspector General (OIG) concerning our bill, and I hope we 
can resolve those before we proceed.
    I do not think that CMS needs additional legislative 
authority to improve its education and information for 
providers. Instead, I think the agency needs additional 
administrative resources. The GAO will testify today on serious 
contractor oversight problems. These management problems need 
to be addressed regardless of whether we enact this legislation 
or provide additional resources.
    While this legislation would reform Medicare administrative 
contracting, permitting Part A and Part B contractors to be 
combined, I want to emphasize that we in no way would agree 
that this would imply any support for combining the Part A and 
Part B trust funds or any other efforts to combine Medicare 
Part A and Part B. And I am sure this side of the aisle 
strongly opposes such consolidation.
    To improve services to Medicare beneficiaries, we have 
proposed that Medicare staff be stationed in Social Security 
field offices.
    The demonstration program will allow us to examine the 
value of placing Medicare staff in all of those field offices, 
and I hope it can be expanded; I hope it will work and can be 
made permanent. Thank you.
    [The opening statement of Mr. Stark follows:]
 Opening Statement of the Hon. Fortney Pete Stark, a Representative in 
                 Congress from the State of California
    Madam Chairman, thank you for calling the hearing today on the 
Medicare Regulatory and Contracting Reform Act of 2001 (H.R. 2768). I 
look forward to hearing what the witnesses have to tell us about our 
bill and ways to improve it.
    Madam Chairman, as you know, you and I and other Members of the 
Subcommittee introduced this bill to address two problems in Medicare. 
First, the bill takes important steps to improve outreach and 
assistance to beneficiaries and providers, and to respond to certain 
other legitimate concerns raised by physicians and other providers. And 
second, it includes long overdue contracting reforms that will improve 
beneficiary and provider services and permit the consolidation of 
Medicare claims processing.
    Importantly, our legislation does not compromise the government's 
ability to protect taxpayer dollars from being inappropriately spent 
under Medicare. On this point, however, let me say that I am concerned 
about several issues raised by the Office of Inspector General 
concerning our bill, and I hope we can resolve those issues before we 
    Madam Chairman, we need to improve the education and information 
processes for providers. It is hard for even the most seasoned Medicare 
analyst to keep track of all the payment and policy changes that have 
occurred in Medicare in the last few years. We need to do a much better 
job of educating and assisting physicians and other providers about 
these changes.
    But, Madam Chairman, CMS does not need additional legislative 
authority to improve its education and information for providers. 
Instead, CMS needs additional administrative resources. Two years ago, 
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, ``Crisis Facing HCFA & 
Millions of Americans.'' The crisis they spoke about was the lack of 
resources to administer Medicare. Their letter is even more relevant 
today. As its administrative workload has increased, CMS (formerly, 
HCFA) resources have not kept pace. The changes that we propose in our 
legislation are important, but by themselves, they are not sufficient. 
We simply must get more resources into Medicare administration.
    Madam Chairman, important reforms of the Medicare appeals processes 
were included in legislation enacted last year. However, our bill 
includes additional improvements that are needed. Our bill would 
provide an expedited review process similar to the one now used for 
Provider Reimbursement Review Board (PRRB) decisions to permit 
providers to seek judicial review when a review panel does not have 
legal authority to make a decision. Our bill would also transfer 
administrative law judges (ALJs) from the Social Security 
Administration to the Department of Health and Human Services in order 
to improve their expertise on Medicare issues. However, lengthy delays 
in appeals will not be curtailed unless additional resources are 
provided to hire more ALJs.
    Madam Chairman, Medicare contracting processes have become outdated 
in the face of all of the changes that have occurred in Medicare and in 
information technology. Every President since President Carter has 
proposed reforms to the administrative contracting provisions in 
Medicare, yet they have never been enacted. I hope we succeed this 
    Our bill reforms the Medicare contracting processes by 
consolidating the contracting functions for Part A and Part B of 
Medicare, permitting the Secretary to contract with separate Medicare 
Administrative Contractors to perform discrete functions, making use of 
the Federal Acquisition Rules (FAR) in Medicare contracting, 
eliminating the requirements for cost contracting, and expanding the 
kinds of entities eligible for contracting. Our bill would permit 
consolidation of claims processing with fewer contractors, and it would 
permit separate contracting along functional lines--for beneficiary 
services, provider services, and claims processing.
    But let me be clear, my support for combining the administrative 
contracting functions of Part A and Part B in no way implies my support 
for combining the Part A and Part B trust funds, or other efforts to 
combine the Part A and Part B. In fact, I strongly oppose such a 
    Last, Madam Chairman, to improve services to Medicare 
beneficiaries, we have proposed that Medicare staff be stationed in 
Social Security field offices to help answer questions and provide 
assistance for Medicare beneficiaries. There are 1291 SSA field offices 
around the world, and I would like to see Medicare staff in most, if 
not all, of them. I am pleased that the legislation we are introducing 
today authorizes a demonstration program to examine the value of 
placing Medicare staff in SSA field offices, and I hope it will be 
expanded and made permanent if it is found to aid beneficiaries.


    Chairman Johnson. Thank you, Mr. Stark. Mr. Scully.


    Mr. Scully. Thank you, Madam Chairman and Mr. Stark.
    Thank you for having me here today. First, going back to 
the subject of New York, since I have the opportunity, I would 
like to thank all the health care providers in New York City, 
especially Lower Manhattan. In the last couple of weeks, I 
think a lot of people were unaware of the fact that in the 
disabled community, people did not get home health services; 
there were a lot of problems in Lower Manhattan beyond the 
obvious ones from the World Trade Centers. I think the 
providers there did a tremendous job of making sure that 
seniors who did not have home health below 14th Street, 
disabled folks who did not have their home health aides, and a 
lot of other people got wonderful services. I think the 
hospitals did a great job, and in particular the Visiting Nurse 
Association of New York City. So I just want to publicly thank 
them for doing a terrific job.
    Thank you for inviting me here today. I have just one other 
issue before I jump into regulatory streamlining, which I want 
to flag for the Committee, because I am going to start putting 
it at the front of all my speeches for the next year and all my 
Committee appearances, and that is the Health Insurance 
Portability and Accountability Act 1996 (HIPAA).
    In my first 3 months on the job, I probably was not focused 
as much on HIPAA as I should have been; in the last couple of 
weeks, I have become totally aware that as of next October, we 
have to have a standard billing and coding system nationwide 
between all private and public insurers. And I have not seen a 
lot of evidence that Congress is interested in changing the 
law, so I have the responsibility to get it done by next 
    The agency needs to step up to the plate; we need to focus 
on it a lot more. We are creating a HIPAA Task Force in CMS. 
And we are determined that absent other legislative guidance, 
we will do our best to have the entire insurer and provider 
world ready for HIPAA next fall. So I just wanted to flag that 
as an issue of increased importance and increased focus for the 
    That said, let me turn to MRCRA. I want to thank you, Mrs. 
Johnson and Mr. Stark, for introducing this legislation. I 
would also like to thank your staff, who spent an awful lot of 
time working with us to make sure it was drafted effectively 
and worked out well. In particular, Jennifer Baxendell, Cybele 
Bjorklund and Deb Williams spent a lot of time on this and I 
think produced a terrific work product. And as Mr. Stark said, 
when we work on these things in a bipartisan way, we frequently 
get good results, and I think that generally this is a very, 
very good bill. We have a couple of minor concerns that I will 
express later, but they are very minor.
    Clearly we have to balance at CMS the impact of Medicare's 
laws and regulations on physicians and other providers with the 
accountability that we have for $240 billion in Medicare 
payments. In many areas, we can be a lot less intrusive to 
providers, a lot more responsive to beneficiaries, and in many 
cases, we can make these changes administratively. I will go 
through some of those that we have tried to do.
    However, there are a lot of important areas where we cannot 
change things without your help. The Medicare contracting 
system, which I think is antiquated and has been screaming for 
reform for the last 20 years, is one, and we are very 
appreciative of your efforts in this bill to fix it.
    We have to fundamentally change our relationship with 
Medicare's fee-for-service contractors. When I got in the first 
Bush administration 12 years ago, we had around 90 contractors, 
and everybody wanted to get those reformed and get them down to 
10. We have made some progress, but 12 years later, coming back 
in, we still have 51. It is a unwieldy process. The reins 
between the agency and its contractors who are running the 
program are not exactly tight, and I think a major goal this 
year of both the Secretary and myself is to reform the 
contractor system.
    So far this year, actually, we have been very pleased, 
working with the Committee and with the Blue Cross plans, who 
tend to be our predominant contractors, that we have actually 
worked out a lot of the issues that we had with the existing 51 
contractors, and I think most of them are actually very 
supportive of your reforms and the reforms that you have in 
this bill, as are we.
    In June, the President forwarded his proposal to Congress. 
The goal in that CMS reform proposal was to provide CMS with 
the flexibility to work with its contractors more effectively, 
to promote greater competition among contractors, to give us 
greater flexibility to negotiate contracts, with appropriate 
incentives to reward our contractors. And basically, when you 
look at your bill, I think it meets virtually all of those 
goals and is soundly based on the bill we sent up, with some 
significant improvements.
    What have we done in addition to your bill to try to make 
our relationships with contractors and carriers and providers 
and beneficiaries better?
    The first thing we did to improve agency responsiveness 
outside legislation with internal CMS efforts is that I created 
eight open door policy groups, two of which I chair--long-term 
care and nursing homes, and rural health. There are also policy 
groups for physicians, hospitals, health plans, nurses and 
allied health professionals, home health and hospice, and End-
Stage Renal Disease and dialysis centers.
    These groups basically meet with all the outside interested 
groups once a month in person and once a month through a 
nationwide conference call to find out what the problems are 
around the country with beneficiary groups and providers and 
try to do the best we can to work them out.
    For example, in the nursing home group, which I chair 
because I have a particular interest in fixing some of our 
problems in long-term care, we have the for-profit and non-
profit nursing homes. It is co-chaired with me by the executive 
director of the National Governors' Association; the Service 
Employees International Union is involved--there are many 
parties who do not always agree on things, but I think we have 
found that there are a lot of common, nuts-and-bolts, day-to-
day problems in the program, and that if we focus on them, we 
can fix them, and we are determined to do that.
    The goal of these groups is not to overhaul Medicare. The 
goal is to find a way to make our program work better on a day-
to-day basis and to solve the day-to-day operational problems 
that we have.
    On beneficiary education efforts and outreach, as you know, 
we are launching a $30 million advertising campaign this fall. 
We are significantly increasing the 1-800-MEDICARE number 
budget, and it will operate 24 hours a day, 7 days a week, with 
a great deal of local information. The ad campaign has been 
delayed a little bit, obviously, by the disaster last week, but 
I think you will see it up and running in mid-October.
    Establishing key contacts for the States--this is more 
relevant to Medicaid than Medicare--but we have appointed one 
person in the Baltimore office and one person in each region to 
be responsible to the Governors, so when the States and 
Governors have problems with Medicaid, we have folks with 
direct responsibility in the States who are responsible to me 
and the Medicaid operation to make sure the Governors and the 
States get quick turnaround and quicker response in the 
Medicaid program.
    The Secretary has also formed a new regulatory reform group 
to identify regulations that prevent hospitals and providers 
and physicians from serving Medicare beneficiaries in the most 
effective possible way. To support this group, I have started 
to go around and do public listening sessions around the 
country. Yesterday I was in Kentucky; I have already gone to 
Chicago with Mr. Crane--I hope that was a good trip--and also 
to Montana and Arkansas, and we are determined to go around the 
country and meet with more of the providers and beneficiary 
groups and really try to drive the agency, both in Washington 
and Baltimore and also in the regional offices, to be much more 
    In addition to these efforts, we are taking concrete steps 
to streamline Medicare's regulatory process. We have developed 
a quarterly compendium of all changes in Medicare that we will 
send out to all physicians and providers. As of January 1, we 
will have a listing of each quarter; before the quarter begins, 
we will put out a listing of all regulations. And our goal, at 
least for now, working with the Federal Register--we are trying 
to get them to agree to let us publish all our regs 1 day a 
month, so every reg coming out of CMS would come out and be in 
a compendium at the beginning of the quarter--if it is not on 
there, it will not come out--and then, once a month, you will 
see all the regs coming out of the agency on 1 day. The goal 
here is to try to make the process more predictable and 
manageable for the providers who perceive our regulatory 
process to be kind of random. We are trying to fix that as best 
we can.
    We have a significantly enhanced effort on both physician 
and provider education and also on beneficiary education.
    So in summary, in addition to your bill, we are doing the 
best we can internally to try to educate providers and 
beneficiaries and be more responsive all across the program.
    If I could just for a second raise a couple of very minor 
concerns that we have with the bill that we would like to work 
with you on in the next couple of weeks, one is that there is a 
provision in the bill--and there are really only two things 
that I have any concerns about--there is a provision in the 
bill that says that after CMS promulgates a new policy, there 
can be no enforcement for 30 days. While I understand that from 
the providers' point of view, from our point of view, we are 
concerned that if we have no enforcement for 30 days, most 
providers are wonderful, honorable people, but if we cannot 
have any enforcement for 30 days, it is an invitation for 
people to take advantage of the program from a billing 
perspective for the first 30 days after a new policy is issued.
    Second, from the point of view of the Blue Cross plans, 
which we have spent a lot of time working on this bill with, 
current liability for the Medicare carriers and Fiscal 
Intermediaries (FI), the standard is gross negligence, and the 
bill changes that to negligence, which is a much lower standard 
and would subject them to much greater liability.
    At least in the 11th Circuit, in fact, right now, they have 
found that there is no liability for carriers for Medicare 
problems. So I think gross negligence is an appropriate 
standard--as I said, in the 11th Circuit, there is no 
liability--but lowering that to negligence would open the door 
to a lot more legal issues for carriers. We are trying to draw 
in new carriers and better carriers and FIs, and I think it 
would present a significant problem for us if you actually 
raised the level of liability for the carriers. So we would 
like to work with you on that as well.
    In summary, Madam Chairman, we think the bill is excellent; 
we are very supportive of it. We would like to work with you, 
and we are very, very grateful that, on a bipartisan basis, the 
Subcommittee has moved forward on this bill.
    Thank you for having me.
    [The prepared statement of Mr. Scully follows:]
    Statement of the Hon. Thomas Scully, Administrator, Centers for 
                      Medicare & Medicaid Services
    Chairman Johnson, Representative Stark, distinguished Subcommittee 
members, thank you for inviting me to discuss our efforts to streamline 
the Medicare program. Many physicians, health plans, providers, and 
Members of Congress, have raised concerns about Medicare, particularly 
Medicare's regulatory and paperwork burden and the cost of doing 
business with the Medicare program. We appreciate these concerns, and 
are making every effort to identify and address areas where 
improvements can be made. Physicians and other health care providers 
play a critical role in ensuring that Medicare beneficiaries receive 
quality health care. We know that in order to ensure beneficiaries 
continue to receive the highest quality care, we must streamline 
Medicare's requirements, bring openness and responsiveness into the 
regulatory process, and make certain that regulatory and paperwork 
changes are sensible and predictable. In addition, we must reform the 
way we contract with the private entities that process and pay Medicare 
    We also know how important these issues are to this Subcommittee. 
We have worked with you for months now to make Medicare a more ``user-
friendly'' program. I especially want to commend you, Chairman Johnson 
and Representative Stark, as well as the other members of Subcommittee, 
for your leadership and dedication to improving the Medicare program. 
Your demonstrated commitment to the best interests of our nation's 
seniors and disabled is laudable, and I applaud the bipartisan manner 
in which you have approached modernizing Medicare's management. In 
particular, I appreciate your introduction of the bipartisan Medicare 
Regulatory and Contracting Reform Act of 2001 (H.R. 2768), which is 
intended to streamline the Medicare program. This Subcommittee has 
clearly dedicated a great deal of thought and energy toward these 
issues, and this bill represents a good first step toward improving 
Medicare and reforming the way Medicare contracts with entities to 
process and pay claims. I look forward to continuing to work with you 
to achieve this critical goal. As we discuss legislative efforts to 
improve Medicare, I also appreciate the chance to discuss the 
aggressive administrative actions that we have already begun taking to 
improve the program. As we work to reduce Medicare's regulatory and 
paperwork burden and further improve our provider education efforts, we 
look forward to our continued partnership with Congress and the 
physician and provider community.


    This year, Medicare will pay approximately $240 billion for the 
health care of nearly 40 million beneficiaries, involving nearly one 
billion Medicare claims from more than one million physicians, 
hospitals, and other health care providers. CMS strives to ensure that 
Medicare pays only for the services allowed by law, while making it as 
easy as possible for qualified health care providers to treat Medicare 
beneficiaries. We have to carefully balance the impact of Medicare's 
laws and regulations on physicians and other providers with our 
accountability for billions of dollars of Medicare payments.
    Medicare's requirements, as outlined in the law, generate many of 
the concerns that our constituents bring to your attention and to mine. 
Of course, there is a genuine need for clear rules in a program this 
large and complex. But rules should exist to help, not hinder, our 
efforts to assist seniors and the disabled, help control costs, and 
ensure quality, while remaining consistent with our obligation and 
commitment to prevent fraud and error. When regulations, mandates, and 
paperwork unnecessarily hinder the services providers are trying to 
give, those rules should be changed. And so I am working with the 
Secretary to reform the way Medicare works, making it simpler and 
easier for everyone involved. We are listening closely to Americans' 
concerns and learning how we can do a better job of meeting patients' 
and providers' needs to serve beneficiaries in the best way we can. In 
many areas, we can be less intrusive to the providers who participate 
in Medicare and more responsive to the beneficiaries who depend on 
Medicare. Many of these changes can be achieved administratively; 
however, there are other important areas, such as reforming Medicare's 
contracting system, where we need your help.


    I am pleased that the Medicare Regulatory and Contracting Reform 
Act of 2001 includes provisions to improve Medicare's outdated 
contracting requirements, which make it more difficult for providers 
and beneficiaries to work effectively with the Medicare program. In 
order to continue to manage the Medicare program efficiently and 
effectively and to fully implement our business strategy, we must 
fundamentally change our relationship with the Medicare fee-for-service 
contractors. I firmly believe that the Medicare fee-for-service 
contracting work should be awarded competitively to the best-qualified 
entities, using performance-based service contracts that include 
appropriate payment methodologies. This is something that current law 
does not allow.
    I believe these contracts should result in contractors receiving 
returns that reflect their relative performance. We must be able to 
maximize economies of scale and improve the level of service to our 
beneficiaries and providers. We are working cooperatively with our 
existing contractors to get to this goal, but these changes still 
require legislative action. I know you recognize this, too, and I want 
to work with this Committee and the contractors, including the Blue 
Cross plans, who have been very responsive to our requests for reform, 
to reach a consensus for a better contracting system.
    In June, we forwarded our contracting reform proposal to Congress. 
Through these legislative changes, CMS hopes to accomplish the 

         Provide flexibility to CMS and its contractors to work 
        together more effectively and better adapt to changes in the 
        Medicare Program.
         Promote competition for contractors, leading to more 
        efficiency and greater accountability.
         Establish better coordination and communication 
        between CMS, contractors, and providers.
         Provide CMS flexibility to negotiate contracts with 
        incentives that reward Medicare contractors that perform well.

    These changes will enhance the Agency's ability to more effectively 
manage claims processing for the Medicare program in the future, and 
ensure that the future changes to the Medicare program's operating 
structure are free from unnecessary constraints. The Medicare 
Regulatory and Contracting Reform Act of 2001 is designed to accomplish 
these same goals.
    We are continuing to proceed with the implementation of our long-
range business strategy under our current authority. To capture the 
benefits of integrated data processing, we have begun to consolidate 
our claims processing workload among our existing contractors, and are 
moving to consolidate and standardize contractor claims systems. Our 
goal is to have one system for intermediary claims, one for carrier 
claims, and one for durable medical equipment claims. And we will 
continue to establish more direct control of our data centers, which 
should reduce costs and improve efficiency. This consolidation will 
allow us to make changes efficiently and consistently, and help 
streamline our information technology infrastructure. As we implement 
this long-range plan, I look forward to continuing to work with you to 
achieve this important legislative goal.


    The other major elements of the Medicare Regulatory and Contracting 
Reform Act of 2001, is to provide regulatory reforms to the Medicare 
program while ensuring accurate and timely payments to providers and 
preserving our ability to collect overpayments and pursue fraud. I also 
share this goal of regulatory reform, and I believe changes in how we 
time the development and publication of regulations can best be 
addressed through administrative flexibility. As I mentioned, we 
already are taking aggressive steps to improve CMS's responsiveness. In 
June, Secretary Thompson announced that, as a first step in reforming 
the Medicare program, we were changing the Agency's name to the Centers 
for Medicare & Medicaid Services. The name-change is only the beginning 
of our broader effort to raise the service level of the Medicare 
program and bring a culture of responsiveness to the Agency. These are 
not hollow words: creating a ``culture of responsiveness'' means 
ensuring high-quality medical care for beneficiaries, improving 
communication with providers, beneficiaries and Congress, and 
redoubling our education efforts. To promote improved responsiveness, 
the Agency is:

         Creating Open Door Policy Forums to interact directly 
        with beneficiary groups, plans, physicians, providers, and 
        suppliers, to strengthen communication and information sharing 
        between stakeholders and the Agency. I recently designated 
        senior CMS staff members as the principal points-of-contact for 
        eight ``Open Door Policy Forums,'' including physicians, 
        hospitals, rural health, nursing homes, health plans, nurses 
        and allied health care professionals, home health and hospice, 
        and ESRD and dialysis centers. These open forums will 
        facilitate information sharing and enhance communication 
        between the Agency and its partners and beneficiaries. I chair 
        two of these forums, nursing home and rural health, and they 
        will focus on fixing obvious problems.
         Enhancing Outreach and Education to beneficiaries, 
        providers, plans, and practitioners, by building on the current 
        educational system with a renewed spirit of openness, mutual 
        information sharing, and partnership. We will start by 
        educating seniors through a $30 million advertising campaign 
        this fall to engage seniors in the program, combined with a 
        massive enhancement of the 1-800-MEDICARE number. The toll-free 
        lines will be expanded to 24 hours a day, seven days a week and 
        the information available by phone will be enhanced, so that 
        beneficiaries can obtain specific information about the health 
        plan choices and costs. The Agency also is developing and 
        improving training for physicians and providers on new program 
        requirements and payment system changes, increasing the number 
        of satellite broadcasts available to health care industry 
        groups, and making greater use of web-based information and 
        learning systems across the country.
         Establishing Key Contacts for the States at the 
        regional and central office level. Paralleling the senior staff 
        contacts for industry and beneficiary groups, these staff 
        members are assigned to work directly with the Governors and 
        top State officials to help eliminate Agency obstacles in 
        obtaining answers, feedback, and guidance. Each State now has 
        one Medicaid staff member assigned to their region, and another 
        in Baltimore, both of whom are accountable for each State's 
        specific issues.
         Responding More Rapidly and Appropriately to Congress 
        and External Partners by promptly responding to their 
        inquiries. We are developing an intra-Agency correspondence 
        routing system, and timeliness standards, to respond more 
        efficiently and promptly to congressional inquiries. We also 
        are also exploring ways to make data, information, and trend 
        analyses more readily available to our partners and the public 
        in a timely manner. In addition, CMS will make explicit, and 
        widely publicize, the requirements for obtaining data and 
        analyses from us, including protecting the confidentiality of 
        the data.


    A culture of responsiveness alone will not alleviate the regulatory 
and related paperwork burdens that for too long have been associated 
with the Medicare program. Thus, the Secretary has formed a new 
regulatory reform group to identify regulations that prevent hospitals, 
physicians, and other health care providers from serving Medicare 
beneficiaries in the most effective way possible. This group will 
determine what rules need to be better explained, what rules need to be 
streamlined, and what rules need to be dropped altogether, without 
increasing costs or compromising quality. To support this group, we 
have developed a program, focusing on listening and learning, to get us 
on the right track. This methodical, sector-by-sector approach will 
enable us to administer our health care programs as effectively and 
efficiently as possible.
    Under the first aspect of the plan, CMS will conduct public 
listening sessions across the country. We want to hear directly from 
physicians and health care providers away from Washington, DC, and away 
from Baltimore--out in the areas where real people live and work under 
the rules we produce and with people who do not have easy access to 
policymakers to voice their legitimate concerns. Most of you in 
Congress have these kinds of regular listening sessions with your 
constituents. We want to hear from local seniors, large and small 
providers, State workers, and the people who deal with Medicare and 
Medicaid in the real world. We want to get their input so we can run 
these programs in ways that make sense for real Americans in everyday 
life. We hear from some of these people now, but we want to get input 
from many, many more.
    The second aspect of the plan, as I have already discussed, is to 
meet in open forums with the various health-sector representatives and 
beneficiary groups here in Washington. These forums provide us with an 
opportunity to hear ideas about how we can improve our interactions 
with physicians and providers and reduce regulatory complexity and 
burden. Regular input from providers can help to improve our oversight 
and management of Medicare, so that health care professionals can spend 
more time delivering the care for which they were trained, and so that 
beneficiaries can spend more time with their doctors and other 
    Like the physicians, providers, and beneficiaries who live and work 
with Medicare every day, CMS staff have worked with managing the system 
for years, and they too have suggestions about how Medicare can operate 
more simply and effectively. So, the third aspect of our plan is to 
form a group of in-house experts from the wide array of Medicare's 
program areas. I have asked a full-time practicing emergency room 
physician to chair this group and challenge our in-house experts to 
suggest meaningful changes. We will ask them to think innovatively 
about new ways of doing business, reducing administrative burdens, and 
simplifying our rules and regulations, without increasing costs or 
compromising quality. The complexity of the program even makes it 
difficult for those of us who administer it to keep up. It is difficult 
to educate beneficiaries, providers, and our business partners when 
there is so much complex information to explain. This group of in-house 
experts will look to develop ways that we can reduce burden, eliminate 
complexity, and make Medicare more ``user-friendly'' for everyone.
    This will in no way diminish our interest in fighting waste, fraud, 
and error in the Medicare program. The vast majority of physicians and 
other health care providers are honest and want only to be fairly 
reimbursed for the quality care they provide. But for the small 
percentage of those who take advantage of the system, we will continue 
our aggressive efforts to protect the funds that taxpayers have 
entrusted to our use. It is important that the provisions of this 
legislation remain consistent with our efforts against fraud, waste, 
and abuse.
    These outreach efforts will allow us to hear from all types of 
people who deal with our programs. We are going to listen and we are 
going to learn. But we also are going to take action. I am committed to 
making common-sense changes and ensuring that the regulations governing 
our program not only make sense, but also are plain and understandable. 
This will go a long ways in alleviating providers' fears and reducing 
the amount of paperwork that, in the past, has all too often been an 
unnecessary burden on providers.
    In addition to these efforts, we are taking concrete steps to 
streamline Medicare's regulatory processes. We have developed a 
quarterly compendium of all changes to Medicare that affect physicians, 
and other providers, to make it easier for them to understand and 
comply with Medicare regulations and instructions. The compendium will 
be a useful document for predicting changes to Medicare's instructions 
to physicians and providers, and will contain a list of all regulations 
we expect to publish in the coming quarter, as well as the actual 
publication dates and page references to all regulations published in 
the previous quarter. By publishing changes in the compendium, 
physicians and other providers will no longer be forced to sift through 
pages and pages of the Federal Register--or pay someone to do it for 
them--for proposed rules, regulations, and other changes that may 
affect them. There will be more notice and predictability. The 
compendium will generally include all program memoranda, manual 
changes, and any other instructions that could affect providers in any 
way. Additionally, we are moving towards the publication of all our 
regulations once a month, barring statutory deadlines. This monthly 
publication, along with the quarterly compendium, will provide 
predictability and ensure that physicians and other providers are fully 
aware of Medicare's changes so they have time to react before new 
requirements are placed on them.
    We also are looking into developing a system of electronic 
rulemaking to make the rulemaking process more efficient and to reduce 
the flow of paper between providers and CMS. Today, in an effort to 
make updated regulations more readily accessible, we routinely post 
them on our website, www.cms.gov.
    These postings coincide with the display of these documents in the 
Federal Register and have been well received by providers and other 
interested parties. Over the next six months, we will further explore 
the use of emerging technologies and the electronic exchange of 
information, such as posting proposed rules and taking comments on-
line. We will work closely with beneficiaries, physicians, providers, 
and plans, as well as with Congress and other parts of the executive 
branch, to better understand their needs as we move towards an 
electronic rulemaking environment.


    As part of our efforts to reinvigorate the Agency and bring a new 
sense of responsiveness to CMS, we are enhancing our provider education 
activities and improving our contractors' communications with 
physicians and providers. The Medicare program primarily relies on 
private sector contractors, who process and pay Medicare claims, to 
educate physicians and providers and to communicate policy changes and 
other helpful information to them. We have taken a number of steps to 
ensure the educational information our contractors share with 
physicians and providers is consistent, unambiguous, timely, and 
    We recognize that the decentralized nature of our educational 
efforts has, in the past, led to inconsistency in the contractors' 
communications with physicians and providers, and we have recently 
taken a number of steps to improve the process. We have centralized our 
educational efforts in our Division of Provider Education and Training, 
whose primary purpose is to educate and train the contractors and the 
provider community regarding Medicare policies. We also are providing 
contractors with in-person instruction and a standardized training 
manual for them to use in educating physicians and other providers. 
These programs help ensure consistency so that our contractors speak 
with one voice on national issues. For example, in coordination with 
the Blue Cross/Blue Shield Association, we developed train-the-trainer 
sessions for implementing both the Hospital Outpatient and Home Health 
Prospective Payment System regulations, which included a satellite 
broadcast that was rebroadcast several times prior to the effective 
date of the regulation. Following these sessions, we held weekly 
conference calls with regional offices and fiscal intermediaries to 
enable us to monitor progress in implementing these changes. We are 
continuing to refine our training on an on-going basis by monitoring 
the training sessions conducted by our contractors, and we will 
continue to work collaboratively to find new ways of communicating with 
and getting feedback from physicians and providers.
    We also are working to improve the quality of our contractors' 
customer service to physicians and providers. Last year, our Medicare 
contractors received 24 million telephone calls from physicians and 
providers, and it is imperative that the contractors provide correct 
and consistent answers. Now that we have toll-free answer-centers at 
all Medicare contractors, the need is even more pressing. We have 
performance standards, quality call monitoring procedures, and 
contractor guidelines in place to ensure that contractors know what is 
expected and so that we can be satisfied that the contractors are 
reaching our expectations. This year, for the first time, Medicare 
contractors' physician and provider telephone customer service 
operations are being reviewed against these standards and procedures 
separately from our review of their beneficiary customer service. 
During these weeklong contractor performance evaluation reviews, we 
identify areas that need improvement and best practices that can be 
shared among our other Medicare physician and provider call centers. As 
a result of the reviews, performance improvement plans will be 
instituted when needed, and CMS staff in our Regional Offices will 
continue to monitor the specific contractor throughout the year.
    We also want to know about the issues and misunderstandings that 
most affect provider satisfaction with our call centers so that we can 
provide our customer service representatives with the information and 
guidance to make a difference. To improve our responsiveness to the 
millions of phone calls our call centers handle each year, we are 
collecting detailed information on call center operations, including 
frequently asked provider questions, the call centers' use of 
technology, and the centers' training needs. We will analyze this 
information so we can make improvements to the call centers and share 
best practices among all our contractors. We also developed a new 
Customer Service Training Plan to bring uniformity to contractor 
training and improve the accuracy and consistency of the information 
that contractor service representatives deliver over the phone. In 
addition, we are holding regular meetings and monthly conference calls 
with contractor call center managers to ensure Medicare's customer 
service practices are uniform in their look, feel, and quality.
    Just as we are working with our contractors to improve their 
provider education efforts, we also are working directly with 
physicians and other health care providers to improve our own 
communications and ensure that CMS is responsive to their needs. We are 
providing free information, educational courses, and other services, 
through a variety of advanced technologies. We are:

         Expanding our Medicare provider education website, 
        www.hcfa.gov/medlearn. The Medicare Learning Network homepage, 
        medlearn, provides timely, accurate, and relevant information 
        about Medicare coverage and payment policies, and serves as an 
        efficient, convenient provider education tool. The MedLearn 
        website averages over 100,000 hits per month, with the 
        Reference Guides, Frequently Asked Questions and Computer-Based 
        Training pages having the greatest activity. I encourage you to 
        take a look at the website and share this resource with your 
        physician and provider constituents. We want to hear feedback 
        from you and from your constituents on its usefulness so we can 
        strengthen its value. In fact, physicians and providers can 
        email their feedback directly to the medlearn mailbox on the 
         Providing free computer and web-based training courses 
        to doctors, providers, practice staff, and other interested 
        individuals can access a growing number of web-based training 
        courses designed to improve their understanding of Medicare. 
        Some courses focus on important administrative and coding 
        issues, such as how to check-in new Medicare patients or 
        correctly complete Medicare claims forms, while others explain 
        Medicare's coverage for home health care, women's health 
        services, and other benefits.
         Creating a more useful Agency website through a new 
        website architecture and tailoring it to be intuitive and 
        useful to the physician user. We want the information to be 
        helpful to physicians and their office and billing needs. The 
        same design is being used in creating a manual of ``Medicare 
        Basics'' for physicians. We just completed field-testing the 
        first mock-ups for the project at the recent American Medical 
        Association House of Delegates meeting. Once this new website 
        is successfully implemented, we will move to organize similar 
        web navigation tools for other Medicare providers.


    As Medicare requirements frustrate plans, physicians, and 
providers, beneficiaries also have difficulty understanding the 
program's benefits and options. We know, from our research and focus 
groups, that far too many Medicare beneficiaries have a limited 
understanding of the Medicare program in general, as well as their 
Medigap, Medicare Select, and Medicare+Choice options. We firmly 
believe that we must improve and enhance existing outreach and 
education efforts so beneficiaries understand their health care 
options. In addition, we will tailor our educational information so 
that it more accurately reflects the health care delivery systems and 
choices available in beneficiaries' local areas. We know that educating 
beneficiaries and providing them more information is vital to improving 
health care and patient outcomes.
    With that goal in mind and in an effort to ensure that Medicare 
beneficiaries are active and informed participants in their health care 
decisions, we will expand and improve the existing Medicare & You 
educational efforts with a new advertising campaign. We will launch a 
multimedia campaign using television, print, and other media, to reach 
out and share information and educational resources to all Americans 
who rely on Medicare, their families, and their caregivers. We are 

         Increasing the Capacity of Medicare's Toll-Free Lines 
        so that the new wave of callers to 1-800-MEDICARE generated by 
        the advertising campaign receives comprehensive information 
        about the health plan options that are available in their 
        specific area. By October 1, 2001, the operating hours of the 
        toll-free lines will be expanded and made available to callers 
        24 hours a day, seven days a week. The information available by 
        phone also will be significantly enhanced, so specific 
        information about the health plan choices available to 
        beneficiaries in their state, county, city, or town, can be 
        obtained and questions about specific options, as well as costs 
        associated with those options, can be answered. Call center 
        representatives will be able to help callers walk through their 
        health plan choices step-by-step and obtain immediate 
        information about the choices that best meet the beneficiary's 
        needs. For example, a caller from New Britain, Connecticut 
        could call 1-800-MEDICARE and discuss specific Medigap options 
        in Connecticut. Likewise, a caller from Fremont, California, 
        could call and get options and costs for Medigap or 
        Medicare+Choice alternatives in their areas. If requested, the 
        call centers will follow up by mailing a copy of the 
        information discussed after the call.
         Improving Internet Access to Comparative Information 
        and providing a new decision making tool on the Agency's award 
        winning website, www.medicare.gov. These enhanced electronic 
        learning tools will allow visitors, including seniors, family 
        members, and caregivers, to compare benefits, costs, options, 
        and provider quality information. This expanded information is 
        similar to comparative information already available, such as 
        Nursing Home Compare and ESRD Compare websites. With these new 
        tools, beneficiaries will be able to narrow down by zip code 
        the Medicare+Choice plan options that are available in their 
        area based on characteristics that are most important to them, 
        such as out-of-pocket costs, whether beneficiaries can go out 
        of network, and extra benefits. They also will be able to 
        compare the direct out-of-pocket costs between all their health 
        insurance options and get more detailed information on the 
        plans that most appropriately fit their needs. In addition, the 
        Agency will provide similar State-based comparative information 
        on Medigap options and costs.


    Physicians and other providers play a crucial role in caring for 
Medicare beneficiaries, and their concerns regarding the program's 
regulatory and paperwork burden must be addressed. We share these 
concerns. We have already taken some critical first steps to address 
these concerns and bring openness and responsiveness into the process. 
We also must make certain that regulatory changes and requirements are 
sensible and predictable. I want to commend the efforts of this 
Subcommittee in developing the Medicare Regulatory and Contracting 
Reform Act of 2001. This legislation represents a good first step in 
improving Medicare and reforming Medicare's contracting system. We look 
forward to continuing to work with Congress and we will continue to 
seek input from the health care community, our beneficiaries, and 
partners in reaching our goals. I appreciate the opportunity to discuss 
these issues with you today, and I am happy to answer your questions.


    Chairman Johnson. Thank you very much, Tom.
    I appreciate your concern about the 30-day no-enforcement 
policy. Unfortunately, we are the prisoner of our own past, and 
the past has seen extraordinarily complex regulatory provisions 
coming down very, very frequently, with very unclear 
    I was very interested in the GAO's testimony that looked at 
how much paper flowed into various practices, and only 12 
percent of the paper is from Medicare, but it is so unclear 
that the providers have to rely on others to interpret it.
    So while one could say that they could ignore 88 percent of 
the paper, they cannot, because the directives coming down are 
so unclear. So I am very pleased that you are moving ahead on 
some of the things you talked about at the very beginning, 
putting regulations out at a set time, and the task forces. 
Through those means, I think we can improve the clarity of the 
directives to the point where there will not have to be so many 
industries that spend their time clarifying and interpreting 
the directives.
    But the 30-day delay in enforcement is specifically related 
to the lack of clarity in the directives and the massive 
numbers that are coming down and the situation of particularly 
small providers in trying to integrate that material.
    So I would be happy to talk about this with you and your 
staff further, but there is a very significant problem that is 
going to be pretty clearly documented in the GAO testimony that 
we are trying to respond to.
    Mr. Scully. Well, I would hope that maybe we can come up 
with some slightly higher standard for the first 30 days, but 
my concern is that obviously, if everybody in the provider 
world knows--and as I have said repeatedly, I think 98 percent 
of providers are trying to be good partners to the program, but 
if the 2 percent who may not be are aware that for the first 30 
days after a program change, there is not going to be any 
enforcement, it is a problem.
    Chairman Johnson. I do appreciate that. Unfortunately, I 
think we have been legislating to the small number who are bad 
actors, and that, in my estimation in the long term, will have 
the effect of killing off the small providers. So we will talk 
about that further.
    I just want to ask you one more question and then I will 
move on to the rest of the panel, because I am very pleased 
that we have almost the full Subcommittee here.
    We have really struggled with the issue of trying to help 
physicians deal with the normal audit process. Extrapolation 
has been an issue, and there are many other aspects to the 
issue. But one way in which our bill does not go far enough, in 
my estimation, in reflecting upon this since we have written 
it, I just want to mention to you. That is, it requires that 
your auditor explain to the physician his evaluation of the 
    Not so long ago, I and Jim McDermott and some of the staff 
had a conversation with some of your staff, and we were talking 
about the difference between a Level 5 office visit and a Level 
3 office visit. The Level 5 office visit requires documentation 
of a comprehensive physical. The Level 3 office visit requires 
documentation of a detailed physical. No one can clearly tell 
you the difference between those physicals.
    So this is an underlying problem, and it is the kind of 
problem that requires more than that the auditor just explain 
to the physician why he thinks their coding was off, or the 
mistake was there, or whatever the problem is. It really 
requires that the physician have some level of right of appeal 
at that point, because if the sample is wrong, the 
extrapolation is going to be very wrong, and ordinary practices 
simply cannot tolerate the alternative of a full review of 
everything. It closes down their office for a week, and so on. 
It is very, very difficult to bear.
    So particularly small practices in rural areas simply do 
not have that choice. So I am looking at strengthening that 
provision in the bill, and I have not talked with Pete about 
this yet, either, so I am putting this before the whole 
Committee at the same time. But our goal in requiring the 
auditor to explain his interpretation of the chart to the 
physician was to allow the physician to then bring information. 
But the physician has to have the right to say before some 
neutral body, ``This is a Level 5. This is not a Level 3.'' And 
this issue of down-coding has been just as bad on both sides of 
the issue--both the administrative people coming in and looking 
at things with hindsight, and physicians coding inaccurately.
    So I do want to strengthen that point because it is such an 
important point and has so many ramifications through the rest 
of the system that I think physicians deserve more than simply 
an explanation of why they are wrong. They are sitting there 
saying, ``Yes, but you are wrong.'' So that sometimes, there is 
going to need to be a right of appeal of that sample so the 
sample is agreed to at some level.
    That is just something that I am thinking about and wanted 
to lay out to you, because I think this business of moving 
ahead without a good base of information is one reason why 
providers are getting terribly discouraged with the Medicare 
    Mr. Scully. I agree with you. It is a tough balance to 
find, and we are certainly happy to sit down and try to fine-
tune that provision. We have already spent a lot of time 
talking to your staff about it.
    Chairman Johnson. Yes. Pete, would you like to proceed?
    Mr. Stark. I have just a couple of issues. The OIG is 
concerned about giving up the right to conduct random 
prepayment reviews. Do you share their concern?
    Mr. Scully. I think that is tied closely to what Chairman 
Johnson is talking about. We agree that we need to have 
prepayment reviews. I think the issue is really under what 
circumstances, and what are the provider rights. But I think 
that giving up prepayment reviews altogether would be a 
mistake, yes.
    Mr. Stark. OK. We have talked about major problems with the 
information and assistance provided by the contractors, and I 
think we will hear testimony about these monthly bulletins 
which are close to undecipherable or hard to understand.
    Do we have any reason to believe that the contractors are 
providing any more clear information to the beneficiaries? And 
as we are looking at the information that is given to providers 
by these contractors, would it be in order for you to review 
the information given to beneficiaries, which might be equally 
complex and bureaucratic in its nature?
    Mr. Scully. It is complex, and our stated goal is to get 
down to 20 to 22 good, solid contractors in 4 or 5 years that 
are reliable and that are more predictable and are giving more 
common information out. One of the goals there is to make sure 
    Mr. Stark. What I am talking about is that in the bulletins 
that we are talking about, the providers are given so much 
information about rule changes all the time, and the GAO is 
going to suggest that all of this information is sent out in 
complex language, poorly written. But we would anticipate that 
most providers can read without moving their lips and get to 20 
with their shoes and socks on.
    I think our experience has been that when you get to be my 
age, you have to simplify the language some and spell it out in 
one-syllable or two-syllable words. So I guess my question is 
should we not be looking at the clarity of information we are 
giving to our beneficiaries that is provided by these 
intermediaries at the same time that we are looking at the 
information given to the providers?
    Mr. Scully. Yes, absolutely. I hope we are.
    Mr. Stark. I hope so, too, and as I said, I hope that that 
does not get lost in the process.
    On 1-800-MEDICARE, you said that you want to enhance that. 
We have 27 pages of phone numbers; is there any reason why we 
cannot just use one phone number over the country and, worst 
case scenario, have people type in their own phone number to 
get the local one so they do not have to look through a 
bulletin to find the right phone number?
    Mr. Scully. Well, one of the goals of this whole fall 
campaign, which has been delayed a couple of weeks, is to do 
exactly that--to have a 1-800-MEDICARE number where all seniors 
could call that number. We have almost tripled the number of 
operators we have; as I said, it is 24 hours a day, 7 days a 
week. The goal basically is that, whether you are in Oakland or 
in Connecticut or wherever, you can call to get detailed 
information about your area that you cannot get now on picking 
a nursing home, a dialysis center, Medigap versus 
Medicare+Choice versus fee-for-service--much more credible 
localized information--and also, you can be referred to the 
contractor. The 27 pages of phone numbers are generally the 
carriers and the FI numbers, and if you want to be referred to 
one of those, you can certainly be transferred through that 
line. But the goal is--I think we get something like 35 million 
calls a year, so I am not sure that it is going to replace the 
carrier and FI phone systems, but the idea is to give one 
standardized access point for seniors.
    Mr. Stark. Do you have the money for that?
    Mr. Scully. Yes, thank goodness. The appropriators were 
very nice and gave us the money for that.
    Mr. Stark. The National Association for Home Care is going 
to talk to us later about the 15-percent reduction in home 
health payments now in the law. As I recall, we anticipated 
when we went to the Prospective Payment System (PPS) that the 
level of services would drop by at least 15 percent. And we are 
now hearing that indeed that has happened, that they have 
reduced services under the PPS perhaps even more than 15 
    So I guess my question is can we assume that the quality of 
care has not been reduced and that indeed that 15-percent 
reduction in services has occurred? Are you aware of that, or 
is that something that you do not have information on?
    Mr. Scully. I am sorry. I am a little under the weather. 
Did you say home health, with PPS?
    Mr. Stark. This is under home health care. We anticipated 
when the PPS payment system was put into effect that their 
level of services would drop by about 15 percent. We are 
informed that that has happened. GAO has suggested that it has 
dropped by at least 15 percent and perhaps by even more.
    My question is does that comport with your information, and 
as far as you know, has the quality been maintained at the same 
time this level of services has been reduced?
    Mr. Scully. Yes, I think it has. In 1992, home health 
spending was $3 billion; as you know, by 1997, it went up to 
$18 billion. Now I think it is back at around $12 billion. We 
probably could have done without that spike.
    I think the home health PPS system has worked reasonably 
well. There were obviously some significant bumps in the road. 
I think the OASIS data we collect--while some people do not 
like all the data that we require--is a very good quality 
measurement, and we are hoping to use it to more effectively 
put together quality measurements on home health and have it do 
an even better job.
    But I think the evidence that we have seen so far is that 
home health quality has actually been pretty stable.
    Mr. Stark. Insofar as you know, has the evidence supported 
what GAO is telling us, that is, that the level of services or 
the number of services has been reduced by about 15 percent?
    Mr. Scully. I am not sure, but I am sure that is probably 
about right.
    Mr. Stark. Somebody is going to whisper in your ear.
    Mr. Scully. We have not heard that number.
    Mr. Stark. You have not?
    Mr. Scully. Only from GAO.
    Mr. Stark. OK. Well, I hope you look at it, because this is 
going to be an issue in the sense that, arguably, if it has 
been reduced, we can continue with present law, which calls for 
the 15-percent reduction in the payments.
    Mr. Scully. I think the 15-percent reduction in the 
payments, if I remember correctly, is because of the way the 
baseline works. The actual reduction in payments is 15 percent, 
but the actual spending would still, even if you did that, go 
up. That is not to say we should not get rid of the 15 percent, 
or implement or not implement the 15-percent reduction, but I 
believe the 15 percent reduction, even if you did it, you would 
still have a 2 or 3 percent increase in home health spending. 
It is a reduction in the rates, but spending would still go up.
    Mr. Stark. But it would still be interesting to know if the 
amount of services went down or up, because under PPS, that 
would of course be important to whether the amount we were 
paying was correct.
    Mr. Scully. Yes.
    Mr. Stark. Thank you.
    Chairman Johnson. Mr. Camp.
    Mr. Camp. Thank you, Madam Chair.
    Chairman Johnson. Excuse me. Before you start, if some of 
you would like to go vote, and we will rotate, so we do not 
have to have a break, that would be useful.
    I will recognize Mr. Camp and then Ms. Thurman, and back to 
this side, hopefully before the last of us go vote. Mr. Camp.
    Mr. Camp. Thank you.
    Mr. Scully, when this legislation was introduced, the 
President said that it reflected important elements of his 
framework for Medicare legislation, which included simplifying 
Medicare's regulations and administrative procedures and 
updating and streamlining them, and also trying to reduce the 
instances of fraud and abuse.
    My question is this. Obviously, we take the protection of 
the Medicare program very seriously in this Committee. I think 
it is one of the most important responsibilities you have as 
well. But as it relates to the provider payment audit process, 
wouldn't it be possible to protect program spending while at 
the same time creating a more collaborative audit process, 
giving a greater opportunity for providers to discuss findings 
and provide additional information where conclusions are 
    Mr. Scully. I think we are trying to find that balance 
where we aggressively make sure that program payments are 
appropriate but that we work more closely with providers so 
that they are not--I think there has been a perception in the 
last couple of years that they are all scared to death of the 
Medicare program--we need to find that balance, and we are 
certainly trying to do that.
    Mr. Camp. I know that some of our witnesses that will come 
later will discuss some issues, and the Chairman in her opening 
remarks mentioned that GAO has found that of 60 phone calls 
recently made to call centers to test the accuracy of responses 
to frequently asked provider questions, 85 percent of the GAO 
responses were incomplete or inaccurate.
    Obviously, you believe that this is unacceptable as well, 
and I wonder how we can correct this.
    Mr. Scully. Well, hopefully, one of the ways that we will 
correct it is through contract reform. We have 51 contractors, 
fiscal intermediaries and carriers, and some are better than 
others. Right now, we do not have the ability to narrow those 
down. We would like to be able to identify the best, probably 
around 18 to 22 contractors, and work with them to have much 
better services.
    I was in Kentucky yesterday, and I heard a lot of 
complaining about their fiscal intermediary and carrier. I was 
in Arkansas 2 weeks ago, and they were relatively happy. So I 
can tell you that the service with the contractors varies 
significantly by State and by region, and we have very little 
ability to really fix that until we have contract reform.
    If we can find the ability to have contractors compete 
again every 4 to 5 years, which is what we are talking about in 
the bill, and have the ability to incentivize contractors 
appropriately with financial incentives--right now, they are 
cost-based contracts--there are a lot of carriers and FIs that 
are slowly getting out of the program anyway. We would like to 
speed that up and narrow it down to 20 to 22 contractors, and 
right now, we have very little ability to make sure that the 
guys who are screwing up 85 percent of the phone calls are no 
longer in the program.
    Mr. Camp. I appreciate your efforts here, because 
obviously, there have been problems with what was the Health 
Care Financing Administration (HCFA) and is now CMS for many 
years, and I know that you are trying to step in and make some 
needed reforms and changes there, and I look forward to working 
with you as we go through that process and appreciate the 
effort that you are already putting forward on this. Thank you.
    Mr. Scully. Thanks. Hopefully, I will come back without the 
flu someday to testify and have better answers for you.
    Mr. Camp. Thank you. You are doing fine.
    Chairman Johnson. Congresswoman Thurman.
    Mrs. Thurman. Mr. Scully, still on the same idea with 
Congressman Camp--because as you can imagine, we are hearing 
from our districts about this very issue as far as the 
contracting part of it--and particularly what I am hearing from 
my physicians is that this is probably costing them 20 to 25 
percent more in their offices to keep up with all this stuff, 
which is obviously going to have a direct impact on increases 
in health care costs.
    Maybe you can clarify this or somebody can tell me why, but 
the physicians have actually told me that they will have their 
staff call their provider or contractor and say, ``I do not 
know, because of all the changes, and what you told me today is 
different than what you tell me tomorrow on codings'' or 
whatever. And they are saying, ``So I will ask them, well, if 
it is 26(a), 26(b), whatever those numbers are, in fact, they 
will say, `Well, we cannot tell you that.' ''
    And then they will say, ``Well, could you tell me if it 
is--'' and they will say, ``Well, if you mention it, maybe we 
could tell you.''
    Why would that be?
    Mr. Scully. I am sorry--if you mention it, then what?
    Mrs. Thurman. That if you mention the number or the coding, 
``maybe we could tell you,'' but if you do not mention it, they 
just do not give you any information.
    Is there a reason for that?
    Mr. Scully. I am not sure what the--I think your question 
is if you call a provider--most providers are worried that if 
they give the carrier detailed information, they will be 
flagged for additional audits--is that what you are saying--so 
they cannot give them too much information?
    Mrs. Thurman. They will not give them the information to 
help them work through this. And as we know, over the last 
couple of years, we have continued to change this whole system 
over and over and over again, so what was today might not be 
tomorrow, so they are getting frustrated because when they call 
these folks, they are not willing to really help them through 
the system; they are more like, ``Well, it is not that, and it 
is not this,'' but they will not really say, ``Based on the 
information that you are giving me, this possibly will be what 
the model should be'' or whatever.
    Mr. Scully. Well, that is something we clearly need to fix, 
because there is no question that physicians--I spent 3 hours 
with a physicians group in Louisville yesterday, and they were 
not real happy with this process. So we need to find a way to 
get them clear, straight answers. They might not always like 
the answers. Generally, people do not like the answers unless 
you are allowing them to bill more than they want. But I do 
think that providers are entitled to clear, straight answers, 
and we need to keep pushing the contracts so they do that.
    Mrs. Thurman. The other thing that the contractors actually 
mentioned to me was that over the last couple of years, because 
of the changes, we have also had to reduce the amount of 
education that has been done, both through bulletins--they used 
to do it once a month; now they are doing it quarterly. They 
used to bring together providers and their office staffs, bring 
them in, walk through the system, what the new issues are, what 
the changes have been, and that they have been dramatically cut 
in those areas because of some of the things that we have done.
    Can you respond to that at all?
    Mr. Scully. I do not think they have been--I am not sure of 
the numbers--the carriers actually asked us for $47 million 
last year, and I think we gave them $42 million. Could they 
have used more for beneficiary education? Sure. I think that 
overall, when you are looking at a $240 billion program--and I 
think our administrative budget is about $2.3 billion, and the 
contractor budget is about $1.5 billion--it is run on a pretty 
thin budget, so it is understandable sometimes, with the volume 
of claims we have, that not everybody is happy with the 
    But on the provider education side--and I will have to 
check--but I think the amount of money they asked for last year 
was relatively close to what they got.
    Mrs. Thurman. The other issue on competitive bidding--and I 
know that GAO and others have talked about that as being 
something that we needed to do--but on the other side of that, 
is there a way to develop a system where we can review and look 
at what the provider or a contractor is doing versus just 
upsetting the whole system, based on the amount of claims that 
they have?
    My guess is that their infrastructure, what they put in 
place to help, has got to be an enormous cost, and if we start 
switching around just because, or we go through the bidding 
process--is there another way that you might suggest that we 
could do that?
    And then I have just one other question that I need an 
answer to, because I am going to be doing some town hall 
meetings on Friday on the TriCare for Life issue with our 
veterans. They have been raising the question to me--and I do 
not know if you will have the opportunity to do this or not--
for many people who particularly have gone through the 
Veteran's Administration (VA) system, they have never signed up 
for Medicare, there is a penalty for them not being in 
Medicare. I was told that there potentially was a waiver, and 
are we looking at this, and are we potentially looking at 
giving these folks who would have been in VA did not take 
Medicare, a waiver of the penalty that they would have been 
given if they were to go into the Medicare Program now?
    Mr. Scully. I was not aware of that. I have talked a lot 
with the American Legion lately about VA subvention, which is 
obviously billing the Medicare program for services in VA 
hospitals. But I have not heard anything about the waiver, to 
be honest with you. I would be happy to look into it before 
Friday and call your staff with an answer.
    Mrs. Thurman. I would appreciate it, because this is 
becoming a big issue for those veterans who just never signed 
up for Medicare because they were always in the VA system; and 
of course, with the VA system, part of it was to bring closer 
to their homes. So they are very concerned about this.
    Mr. Scully. I will get you an answer today.
    Chairman Johnson. If the gentlelady will yield, Ben Cardin 
has a bill to this effect. We have just had it analyzed by the 
Congressional Budget Office (CBO), and we will try to make sure 
that option is available to our veterans.
    Mrs. Thurman. I would appreciate it. Thank you.
    Chairman Johnson. I am going to turn the chair over now to 
Mr. McCrery, but let me just make one comment in response to 
the dialog that has gone on with the two preceding questioners.
    One of the recommendations in the Medicare Education and 
Regulatory Fairness Act driven by providers was that they 
wanted a written response to questions. This does reflect not 
only their frustration and anger, but liability exposure to the 
fact that if they follow directions that they are given, and 
they are not in writing, and later, the government comes in and 
says, ``Oh, no, those were not the right answers, so you are 
liable, and you have penalties.'' We did not put the written 
response requirement in our proposal, but you should know that 
it is hanging out there very hard, and if we do not do a lot to 
improve our ability to offer concrete, specific, and true 
answers, we will sometime have to get to that.
    I appreciate the load that it would place on the 
contractors, and therefore we backed off from it. I think the 
simplification task forces that you have got going--and I 
really commend you in your testimony for all the things that 
you are doing to drive the system toward a new opportunity to 
serve in a more collaborative way with the providers--are all 
important. But that demand for a written response came from a 
very, very broad body of experience and is a very intense 
desire. So it is not in this bill, but we should never forget 
that it is hanging out there.
    I am going to turn the gavel over to Mr. McCrery and go 
vote. Thank you.
    Mr. McCrery. [Presiding.] Well, Mr. Scully, I understand 
that you are under the weather, and you have my sympathies, so 
I will try to be easy on you. You also have my sympathies for 
being in the position that you are in--although, having said 
that, I am very pleased that someone of your character and 
capability and experience has agreed to take on this job. It is 
a job that nobody should have, in my opinion--which leads me to 
my first question.
    While I am cosponsoring this legislation, and I am all for 
regulatory reform, couldn't we negate the need for this if we 
went to a premium support system for Medicare that was proposed 
by the Medicare Commission, voted a majority vote by the 
Medicare Commission, and is embodied in legislation in the 
Senate in the form of Breaux-Frist? Couldn't we avoid a lot of 
this rancor about who pays what, when, where, and all that?
    Mr. Scully. Yes, I think you probably could. As you know, 
philosophically, not just me, but I think the administration's 
general view is that Medicare is a wonderful program, and 
seniors love it, but having the government fix prices for $240 
billion in payments a year and having us do it the way we do it 
is probably not as efficient as having us buy insurance and 
operate more like the Federal Employees Health Benefits Plan. 
Philosophically, some day, we would like to be there, but as it 
is now, I just try to be the best price-fixer I can.
    Mr. McCrery. And I appreciate that. We are not there, and 
it does not appear that we are going to get there very soon, so 
in the meantime, we have to concern ourselves with these kinds 
of questions that we are dealing with in the hearing today--and 
for that, you do have my sympathy, but I do appreciate your 
willingness to take this on.
    There has been a lot of discussion about the audit process. 
I do think it is a necessary evil. Our providers, particularly 
physicians, do not like it. They do not think it is fair. They 
have to hire extra people to staff their offices to try to deal 
with these things. And frankly, a lot of them yearn for a day 
when they do not have to practice, and they do not have to put 
up with all that, because of HCFA or CMS and these kinds of 
    I know that you, like this Committee, are very concerned 
about the financial integrity of Medicare, and I think most 
physicians are concerned about the financial integrity of 
Medicare. However, there has got to be a better way than this 
combative process that we engage in.
    Have you looked at and would you provide us information on 
any changes to that process that you think could make life 
better for the providers in the system, some kind of 
collaborative process that would involve them more at the 
initial stages so they do not have to go to the hearing level 
and all that?
    Mr. Scully. I think one thing that would help--and it is in 
your bill, and it was in our proposal--is to have a Medicare 
ombudsman. One of the frustrations that people have is that 
they are calling, trying to find out what coding problems they 
have, what legal problems they have, and what compliance 
problems they have, and usually, they have to hire some lawyer 
like me and pay him ``x'' dollars an hour to give them legal 
advice. I think that is frustrating.
    So I think that one thing we could do is create a Medicare 
ombudsman as a provision of this bill to do that so that 
providers who have problems can call and get an answer from 
somebody who is working closely with the Department but is not 
employed by the Department and have kind of a third party 
information system on legal and compliance issues. I think one 
of the great frustrations that physician practice groups have 
is the expense for small practice groups of having compliance 
programs. I actually think that most physicians are 
relatively--I will not say happy--but the Resource Based 
Relative Value Scale (RBRVS) system works significantly better, 
I think, than a lot of the other reimbursement systems in 
Medicare. I think the hassle factor is what drives physicians 
crazy, and I think that getting straighter, quicker, better 
answers that they can rely on, because they are usually not big 
practices that have significant ability to pay legal fees, 
would be a good step forward.
    Mr. McCrery. I appreciate the concept of the ombudsman, and 
I hope that they get better answers than they do from calling 
the contractors. The GAO is going to testify in a few minutes 
that they made 60 phone calls to contractor call centers, and 
85 percent of the responses that GAO received were either 
incomplete or inaccurate. So I hope we can find a system that 
is a little better at providing accurate information.
    Mr. Scully. That is a stunning number, and we can certainly 
improve and have to improve on that.
    Mr. McCrery. Yes.
    I have just one more question, and then I know Mr. 
McDermott wants to inquire. In the bill that is before the 
Committee, we require CMS to competitively bid for contractors 
and intermediaries at least every 4 years; whereas in Secretary 
Thompson's draft reform proposal, he would have allowed renewal 
of contracts of those entities which met or exceeded certain 
performance requirements.
    Both of those provisions go to the same goal of improved 
service for the customers. Have you thought about which way is 
better? Do you have some thoughts on that you can share with 
    Mr. Scully. The Federal Acquisition Regulation for other 
Federal contracting I think has competitive bidding every 5 
years. I think 4 or 5 years, either one--we are somewhat 
flexible on that. I think the real issue is that we would like 
to have the flexibility that we can identify good contractors 
that we do not want to rebid. There are some carriers, some 
FIs, that have a long, good track record; they have a great 
track record. In some rural States, for example, there are some 
carriers who probably are not going to change. For instance, 
Blue Cross of Montana is probably going to be the carrier in 
Montana most likely. There may not be too many others there. 
Rather than have us, staff-wise, spend an enormous amount of 
time rebidding contracts and going through the process, which 
is a long, lengthy process, I think we would like to have the 
flexibility or the presumption that we have to rebid every 4 or 
5 years, but have the flexibility with some high standard of 
service to not have to rebid certain contracts, because it is 
time-consuming. We are hoping to get it down, but if you start 
with 51 or even 30, rebidding one-quarter of those every year 
is obviously more than cumbersome for the staff. So I think 
that some people intuitively probably do not need to be 
    Mr. McCrery. So you would recommend that we change the 
legislation to give CMS the flexibility to renew contracts if 
the intermediary or contractor has reached a high level of 
performance standards or----
    Mr. Scully. Yes--they show sustained excellent performance, 
and there is no--under some circumstances, we may not want to 
recontract every time.
    Mr. McCrery. Thank you. I hope you get well soon.
    Mr. Scully. Thanks.
    Mr. McCrery. Mr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman. When you start your 
renal task force, give me a call.
    Mr. Scully. Which one?
    Mr. McDermott. The renal task force to talk about renal 
    Mr. Scully. I think actually, it has already started; but 
we would be happy to get you involved.
    Mr. McDermott. I would like to know about it.
    Mr. Scully. I think the first meeting was about 2 weeks 
    Mr. McDermott. Listening to Mr. McCrery made me think--I 
think it was Yogi Berra who was sent in to replace somebody who 
had made a bunch of fielding errors, and he immediately made 
another error and when asked about it, said, ``Well, the last 
guy in here messed this position up so bad there is no way you 
can play it right.'' I suspect that may be the position that 
you are in.
    But I find myself--and others may have already asked this 
question; one problem with getting it broken up this way is 
that you do not know what was asked before--I find it very hard 
to find the equity. And I think we always struggle for equity. 
I do not usually push the American Medical Association's side 
of anything, but the equity issue around extracting a payment 
after you have had the contractor review and having extended 
periods--I think with the Administrative Law Judge (ALJ), more 
than a year is the average time it takes; and then, more than 2 
more years on the Departmental reviews--to make somebody pay up 
front when more than 60 percent are rejected in the end means 
that they have had their money out there for 3 years, and then 
they get it back.
    The weight is all on the physician, and I am not sure that 
is fair. I think it ought to be the other way, and I would like 
to hear you talk about the equity of the provider.
    Mr. Scully. I generally agree with you. I hope we can fix 
that in the bill. I have had a lot of discussions with staff, 
and I think there are some changes in the bill on that.
    My view is that it should be more like the IRS, that is, if 
you lose, you pay interest. But there is no reason for us to 
have money up front and then people have to wait for 3 years. I 
think there is some version of that in the bill----
    Mr. McDermott. Is that in this particular----
    Mr. Scully. Yes, I think it is--yes, for the first level of 
appeal, anyway. I would be happy to talk to you about it more, 
but to the first level of appeal, you do not have to put the 
money up in the bill. That is one of the changes in the bill. 
So at least for your first level of appeal, you have the 
ability not to pay, and if you lose, you pay with interest, 
which is more like the IRS provision for taxes.
    Mr. McDermott. Why don't you wait until the end of the 
appeals process and make it appeals plus interest--well, your 
penalty plus interest at the end?
    Mr. Scully. If you do not prevail, yes.
    Mr. McDermott. All the way to the end, not--when do you 
have to pay them?
    Mr. Scully. At the end of the first appeal, if you lose, 
you have to pay with interest--the first-level appeal.
    Mr. McDermott. That is inside the company that just put you 
on notice in their audit anyway; right?
    Mr. Scully. That is right. I am sorry. I was going to read 
all of this last night, but I was not feeling up to it.
    Mr. McDermott. OK, I will give you some slack.
    Mr. Scully. The concern was--and to be honest with you, I 
kind of agree with you; I think this is significantly better 
than current law--the concern was the incentives for people--
this is more, I think, from the IG and the Justice Department 
and our own lawyers--that people would have an incentive to 
string out the appeals and wait and wait and wait and appeal 
and appeal and appeal, as opposed to getting a decision at the 
first level. But I agree with you--I think this is the first 
step. As it is right now, you pay up front, and you do not get 
the money back until you win the appeal. So I think this is 
half-a-fix, from your point of view.
    Mr. McDermott. So you are not against fixing it more by 
pushing it one more level?
    Mr. Scully. Well, as you know, I do not get to set all the 
administration's policies. We have discussed this, and this is 
what we came up with in the administration. There is a lot of 
concern about creating extra incentives for extended appeals, 
and I share your view that in certain cases, it is not 
appropriate for us to have the provider pay, and then we keep 
their money while they appeal.
    Mr. McDermott. I do not have any problem going after 
corrupt physicians. That is not the problem. The problem is 
that when we throw this net, it is clear that we catch far more 
fish than really--there is a lot of ``by-catch'' as we say in 
the Northwest--it is not the ones you really want. And those 
people get hurt badly by having to come up with a cash amount. 
They have got to go out and borrow it in most cases and then 
continue fighting the appeal.
    So it seems to me that we should move it back further, and 
I hope we can have an amendment to that point.
    Mr. Scully. I think the bulk of those appeals, just looking 
at the numbers--5.7 million claims out of 6.7 million claims at 
that first level. I am not saying it is a perfect fix, but the 
bulk of the appeals, or a significant number of the appeals are 
resolved at the first level, and unlike today, they would not 
have put the money up front. So I think it will be of 
significant help.
    Mr. McDermott. But not as much as we----
    Mr. Scully. Not as much as your idea.
    Mr. McDermott. OK. The other thing is the whole business of 
extrapolation. Explain to me why you think extrapolation is a 
good way to go.
    Mr. Scully. When I was on the provider side until 4 months 
ago, I thought extrapolation was terrible. Then I came to the 
agency and talked to the people on the program integrity side 
about why they do it, and now I think there are two sides to 
    I think providers are angry that they get extrapolation and 
then get action taken based on that. Our program integrity 
folks' attitude is that we only check 1.5 percent of all 
claims, and then we have no idea what is going on for the other 
98.5 percent of claims, and that the only way to really 
identify trends is extrapolation, and that since we check so 
few claims, you do not have any choice but to use 
extrapolations. I think there are arguments on both sides. Now 
that I have been inside the agency, I understand why they do 
it; I also understand why it drives providers crazy.
    Mr. McCrery. Mr. Crane.
    Mr. Crane. Thank you, Mr. Chairman.
    First of all, Mr. Scully, I want to congratulate you for 
your participation in our health care conference at 
Northwestern Medical School; I had nothing but compliments 
about your presentation. We were grateful that you were able to 
be there with us.
    Back when this bill was introduced in early August, the 
President issued a statement saying that the legislation was an 
important step toward strengthening Medicare for seniors and 
for future retirees and that it reflects important elements of 
his framework of Medicare legislation.
    I would like to ask you specifically--President Bush's 
principles for Medicare reform state that Medicare regulations 
and administrative procedures should be updated and 
streamlined, while the instances of fraud and abuse should be 
    How would you intend to try to implement the principles of 
President Bush's proposal?
    Mr. Scully. I think we have done a lot already. I was in 
the hospital business until 4 months ago, and I was one of the 
angry providers, or represented angry providers, and I think we 
have tried in the agencies as much as we can--I think I told 
you this before, that when Secretary Thompson came to 
Washington, he was one of the great HCFA-haters of all time; as 
Governor of Wisconsin, he had had a lot of frustrating 
experience with Medicaid waivers, so he was not a big fan of 
the agency. Once he spent a week in Baltimore learning more 
about the agency, he realized as I have that there are a lot of 
very smart, hardworking people up there. But for the most part, 
largely because they get pounded by providers, Congress, and 
lots of other people, they were pretty defensive and pretty 
    So I have really tried to get people at the agency to go 
out and talk to the industries that they regulate and that they 
pay and try to understand them better. These eight working 
groups are a piece of that effort to try to get people to deal 
with home health agencies and talk more with the home health 
agencies; to get the people who regulate hospitals to actually 
spend some time in hospitals, because it is easy to get stuck 
in Baltimore and not do that. As much as I possibly can, I have 
been driving people to the agency to understand the parts of 
the health care system they regulate better, and so far, they 
have been pretty responsive. I do not think that will fix all 
the problems, but I think better communication will solve about 
90 percent of the problem.
    I had a great relationship when I was in the hospital field 
with the HCFA hospital staff because I went up there a couple 
times a week and got to know them all, and I kind of broke the 
code. The average Chicago hospital administrator has a tougher 
time doing that. So I am trying to get the regional offices, 
the Baltimore people and the Washington people to make a bigger 
effort to go out and understand the people they regulate, and 
so far, we have not fixed everything yet, but I hope the people 
in the provider community feel like we have made a big effort 
to turn that relationship around.
    Mr. Crane. Thank you, and we look forward to working with 
    Mr. McCrery. Mr. Kleczka.
    Mr. Kleczka. Thank you, Mr. Chairman.
    Mr. Scully, I have a couple of quick questions. I believe 
that in answer to Mr. McCrery, you indicated your support for 
the provider ombudsman contained in the bill.
    Mr. Scully. Yes, sir.
    Mr. Kleczka. And briefly, restate for me what you believe 
the functions of this person will be within the agency.
    Mr. Scully. I think the basic idea is that they be kind of 
a quasi member of the agency. There are a number of ways that 
you could do it. I think the most likely way is for the agency 
to contract out with someone in the National Association of 
Health Lawyers or some party that would be closely connected 
with the agency and would have a lot of information about the 
agency's regulations and compliance efforts, but independent.
    Mr. Kleczka. So you do not view this person as an employee 
of CMA?
    Mr. Scully. It could be an employee, it could be a 
contractor. My personal preference would be to hire somebody 
like the National Health Lawyers Association on contract, 
because what you do not want people to do is call from 
Wisconsin, ask opinions, and feel bound by--it could be an 
employee of the agency as long as it is clear to the person 
calling and asking for the guidance that no one is going to 
launch an enforcement action based on that phone call.
    Mr. Kleczka. I would think they would have to be an 
employee of the agency if they are going to have access to 
certain information that would respond directly to an inquiry 
from, say, a hospital or a doctor's office.
    Along that same vein, what is your position on providing 
for a patient's ombudsman or ombudsperson?
    Mr. Scully. I would be all for it. I do not think it is in 
this bill----
    Mr. Kleczka. No.
    Mr. Scully. But I think that better communication with 
beneficiaries and providers is important. I am not sure--I 
cannot say that for the administration.
    Mr. Kleczka. Perhaps between now and markup, Madam Chair, 
we could possibly explore that. It was in legislation last 
year, I think, the drug legislation, and if we are going to 
provide sort of a quarterback, someone to run interference for 
providers, with 30 million-plus beneficiaries, maybe a person 
helping them a little bit might be in order.
    Thank you very much, Mr. Scully.
    Chairman Johnson. [Presiding.] Mr. Ramstad.
    Mr. Ramstad. Thank you, Madam Chair, and thank you for your 
    Mr. Scully, I join my colleagues in expressing our 
gratitude that a person of your caliber is in this important 
position and appreciate working with you.
    Let me just say that in my meetings with health care 
providers back home in Minnesota, every time I meet with them, 
I hear about the crushing paperwork burden they face. It was 
certainly brought home to me very vividly recently when I went 
to a skilled nursing facility, and they told me they had just 
hired two registered nurses to do nothing but paperwork.
    Obviously, we cannot afford to divert those kinds of 
resources from care for the sick, so we need these reforms, and 
I appreciate my colleagues on both sides of the aisle working 
in a bipartisan way to craft this legislation.
    One glaring concern that I have concerns local coverage 
flexibility, something that we have discussed before. According 
to a recent study with which I am sure you are familiar--and 
virtually every health care provider and Medicare beneficiary I 
speak with--the local coverage process is absolutely vital to 
Medicare's continued quality improvement because the local 
process is the way that patients can best gain access to the 
many innovative technologies that otherwise would encounter 
incredible coverage delays at the national or CMS level. We 
have all seen too many examples of those unconscionable delays 
in the past.
    One example cited in this recent study, ``Breakthrough 
Technology in Women's Health,'' which is used to diagnose 
osteoporosis--it took Medicare over 7 years--this is obviously 
before you came aboard--but it took Medicare over 7 years to 
cover this technology at the national level. But because many 
local Medicare contractors approved local coverage during that 
time, most women were able to gain access to the technology who 
otherwise would not have been able to receive it.
    These unconscionable delays cannot stand. My question is 
this, Mr. Scully. If contractors are regionalized and 
consolidated, how can you assure us that you will maintain the 
necessary flexibility at the local level to allow new 
procedures and new technologies to be available as they are 
currently in selected localities? I am really concerned about 
this if we nationalize it.
    Mr. Scully. Hopefully, it will be better. If you took the 
51 contracts that we have now in Part A and Part B and 
consolidated them into a combined A and B contract, you would 
have about 30. And we are talking about going from 30 to 
probably 20 or 22, somewhere in that range.
    So our goal is to find the best contractors and the best 
partners who are going to provide the best services and make 
good, sound, rational, well-thought-out local coverage 
decisions, among many other things.
    So I would guess that the localized trends and coverage 
decisions would not change that much. You would have 20 
contractors, roughly, instead of 30 making those decisions. And 
I think that probably 75 percent of coverage decisions are made 
locally, and about 25 percent are made nationally, and I think 
that kind of flexibility is a good idea and is likely to 
    Mr. Ramstad. It is very reassuring that you plan to 
preserve the local coverage decision process. From what I 
understand from talking to people in your office, it is about 
75 percent----
    Mr. Scully. I hope the national coverage process is getting 
faster and better as well.
    Mr. Ramstad. Well, certainly, Minnesotans appreciate the 
ability to work with the local medical community, so this local 
flexibility, I am glad to hear will continue, because if 
contractors are regionalized and consolidated, the fear is that 
it will become more nationalized, with less emphasis on local 
coverage decisions, which is absolutely imperative to get these 
breakthrough technologies especially to Medicare beneficiaries.
    I am sure you share the judgment that Medicare 
beneficiaries should have the same access to medical 
technology, life-saving, life-enhancing medical technology, 
that every other health care consumer has. Do you share that 
    Mr. Scully. Sure, absolutely. I think that in some cases, 
we are faster than private insurers, and in some cases, we are 
slower; but absolutely.
    Mr. Ramstad. Thank you again, Mr. Scully. I appreciate 
working with you and look forward to continuing that working 
relationship, and I yield back.
    Chairman Johnson. Mr. English.
    Mr. English. Thank you, Madam Chair.
    Mr. Scully, since you have landed in the administration, 
you have been a breath of fresh air at gale force, and we 
appreciate it.
    As someone who used to be an internal auditor myself, I was 
wondering if you could don your green eyeshade for a moment and 
talk about some of the mechanics. Implicit in some of the 
things you have said about awarding contracts more based on 
performance is a very strong system of performance measurement. 
Also critical in addressing waste, fraud and abuse is a strong 
system of auditing.
    I wonder if you could comment on what improvements you 
anticipate in the audit process and specifically, do you 
anticipate that audits could become more collaborative working 
with Medicare contractors. Specifically, do you think it is 
possible in audits to create more opportunities for discussion, 
for exploration of findings, and allowing providers to provide 
more information?
    None of these ideas is new. They are embedded in generally 
accepted auditing standards. But too often in the past in your 
agency, I do not get the sense that these kinds of approaches 
were tried.
    Would you care to comment?
    Mr. Scully. I certainly think we have to improve the 
interaction between the providers and the auditors, and I think 
we can certainly work on doing that.
    Getting back to your core question, though, about cost-
based contractors, I think the fundamental change that you are 
going to see in the program is that cost-based payment for 
anything, in my opinion, does not work. It did not work for 
inpatient hospital payments in the early eighties, and we 
switched to Diagnosis Related Groups. The 51 contractors that 
we have now are paid on cost. If they cannot make a margin, 
they have no incentive to perform better, they are reimbursed 
for their costs, and I have never seen a cost-based system that 
provides the right incentives.
    So what we would like to do, basically, is give--
theoretically, if you are a Blue Cross plan, Blue Cross of 
Pennsylvania, right now, you do not make any margin on your 
Medicare contracts. Now, the reality is that people like it 
because they can shift the costs of some of their systems and 
other things on the private side over, and they are kind of a 
good building base for the rest of your insurance business. But 
you are theoretically not allowed to have any margin.
    We believe pretty firmly that if we actually find 20 to 22 
good contractors and incentivize them appropriately and give 
them the right incentives, and also give the providers the 
ability to rate them, which we have talked about doing, give 
the hospitals and the physicians the ability to come and give 
us feedback on who we compete the contracts with, that we will 
have good contractors who are sensitive to the needs of the 
providers and who are obviously sensitive to the fraud and 
abuse issues, but also provide more aggressive and better 
services for us, because right now, their incentives are 
    Mr. English. Do you anticipate any changes--going back to 
the other part of my question--do you anticipate any changes to 
make the audit process more collaborative, more interactive, 
giving the service providers an opportunity to respond to 
findings before they are made public, and provide additional 
information to put the audit findings into context?
    Mr. Scully. I hope we are doing that more recently, and I 
spent some time talking with our program integrity people about 
that, and I believe the carriers and the FIs are doing that, 
and it sounds from the tone of your question like we need to 
make a better effort. But I thought we were heading in that 
direction and trying to make it a more cooperative and not 
quite as adversarial a process.
    Mr. English. Very good. As my final line of inquiry, with 
your emphasis on performance evaluation, how do you develop the 
performance standards that you use for that? You referenced the 
standards in your testimony. What kind of process do you have, 
and if it is more appropriate, I would welcome you providing a 
written answer to the last part of that question rather than 
tie us up here this morning.
    Mr. Scully. I would be happy to provide you with a written 
answer, but I think there are some guidelines in the bill we 
set up and our proposal for how we do evaluations, and a lot of 
it is through feedback from the providers and ratings from the 
providers. That is certainly something that providers want.
    Mr. English. Very good. Thank you. Thank you, Madam Chair.
    [The following was subsequently received:]

                           Centers for Medicare & Medicaid Services
                                               Washington, DC 20201

    Contractors currently are evaluated through a Contractor 
Performance Evaluation (CPE) process, which evaluates their performance 
of specific responsibilities defined in the Medicare contract, law, 
regulations, and general instructions. The CPE process is structured 
into five broad criteria: claims processing, customer service, payment 
safeguards, fiscal responsibility, and administrative activities. Each 
of these criteria contains business functions that may be reviewed, 
such as medical review, beneficiary and provider customer service, 
benefit integrity, and provider enrollment.
    The law requires that we formulate criteria and standards to 
determine whether contracts with fiscal intermediaries and carriers 
should be entered into, renewed, or terminated. Additionally, the law 
requires us to publish the CPE criteria and standards in the Federal 
Register. On September 7, 1994, in the Federal Register we specified 
all standards that are mandated by law or court decision and have 
provided examples of others. Some mandated standards include paying 95 
percent of clean electronic claims within 14 to 30 days and 95 percent 
of clean paper claims must be paid within 27 to 30 days; as well as 
writing review determinations at an appropriate reading level.
    In addition to the mandated standards, CMS expects contractors to 
meet performance requirements issued to them in program instructions or 
in connection with their annual budgets. Examples of these are 
requirements to:

         respond to telephone inquiries within specified 
         conduct audits or specified percentages of cost 
        reports from specified types of providers;
         conduct quality monitoring of the telephone service 
        provided by customer service representatives;
         increase over the prior year the amount of automated 
        medical review conducted; and
         issue bulletins/newsletters with program and billing 
        information to providers each quarter.

    Medicare contractors perform a wide range of activities as part of 
each business function, and CMS evaluates contractor performance on an 
annual basis. Additionally, other types of reviews are performed at 
contractors outside of CPE, including reviews of contractors' internal 
controls as required by the Federal Managers Financial Integrity Act, 
and reviews of financial operations in connection with the annual Chief 
Financial Officer audit of CMS.


    Chairman Johnson. Mr. Johnson.
    Mr. Johnson of Texas. Thank you, ma'am.
    I would not call it a ``gale force''; that is what he 
called it. I have not seen that coming out of your agency. All 
I have seen is a name change, which I cannot remember to save 
my soul, so if I call you ``HCFA,'' please do not worry about 
    What I would like to know is what are you doing to help the 
people out there, because all I see is in Dallas, Texas, two of 
our providers have stopped or say they are going to stop 
providing Medicare+Choice.
    So could you tell me what you are doing to stop that?
    Mr. Scully. Well, I think I was about as aggressive as I 
could be in stopping Medicare+Choice--too aggressive for some, 
since I----
    Mr. Johnson of Texas. We do not want you to stop it. We 
want you to----
    Mr. Scully. No, no--to stop the people dropping out.
    Mr. Johnson of Texas. OK.
    Mr. Scully. I have been a pretty strong advocate of 
Medicare+Choice for a variety of reasons, including the fact 
that demographics show that lower-income people like 
Medicare+Choice because they have lower premiums and more drug 
coverage. So we certainly want to keep as many people in as we 
possibly can. We had about 5.6 million people in last year, and 
it will probably be down to a little under 5.1 million for next 
    We moved the adjusted community rate filing date back, 
which is the date for the plans for file, from July 1 to 
September 17, which I was sued for, and we worked with the Gray 
Panthers and the other plaintiffs and the court, and I think we 
have worked that out. We are sending out additional mailings 
next month to educate seniors. But we tried to give the plans 
more time to decide what their finances were for last year. We 
tried to give them a better opportunity to make the financial 
decision whether they are going to stay in or not; and to be 
honest with you, that led to the ad campaign and understanding 
that we are going to have to start educating seniors later, 
because of the later filing date. We thought we had better bend 
over backward to give them a lot of information, and that is 
largely where the idea for the ad campaign came from, that if 
we were going to start September 17 instead of July 1 to 
educate seniors, we had better give them a lot more information 
about their program.
    I think most of the health plans--I regret that there was 
one that pulled out of Dallas--but I think I spoke with almost 
every chief executive officer of a major plan in the country, 
and I personally pleaded with a bunch of them to stay in the 
hope that Congress would fix the program this year. I 
personally think and the administration feels that the 
Medicare+Choice funding formula is broken and is not working 
and that it is pure economics as to why people are dropping 
out, and that if we do not fix it, a lot more people will drop 
out before next year. At many, many, many plans that I talked 
to, the chief executive officers asked, ``Do you think Congress 
is going to fix this, because I may stay in for one more 
year,'' and in many cases, I pleaded with them to stay in----
    Mr. Johnson of Texas. If we could do one thing to fix that, 
what you think that should be?
    Mr. Scully. I think that with the best intentions in 1997, 
the urban and suburban areas were doing very well in 
Medicare+Choice, and there was an effort to push money into the 
rural areas, and largely what has happened is that you have had 
3 years in a row of 2 percent--the payments in the Medicare+ 
Choice program have capped at 2 percent the last 3 years in a 
row, and cost growth has been 10, 12 percent. So when you look 
at it, it is pure economics--the plans have gotten squeezed 
out. They have had to cut their drug benefits, raise their 
premiums, and the numbers just do not work.
    So I think we could revisit the formula. Some would argue 
you should put more money back into the program. I think you 
could put some money back into the program and revisit the 
formula, and I can tell you the administration thinks that is a 
very top priority for this year, because we are down to a 
little over 13 percent of people in the Medicare+Choice 
    I cannot imagine that I could have been any more aggressive 
than I was in trying to keep people in, so I regret that you 
lost some providers in Texas, but I talked to a lot of 
providers, including a couple of Mrs. Johnson's in Connecticut 
who dropped out as well despite my effort, and I think we did 
everything we could to send the signal to people that we were 
trying to make the program flexible. We are very big fans of 
the program and would like to get as many people back in as we 
    I think the people who are in for 2002 are probably in for 
2002. I think the most appropriate thing to do would probably 
be to put some financing in and fix the formula for 2003.
    Mr. Johnson of Texas. Thank you. I think part of the 
problem also is the paperwork issue that was brought up here 
previously. I just do not know how you can stop that.
    Mr. Scully. In fairness, we made a number of changes that 
the health plans complained about to reduce their paperwork 
burden. I hope that if you ask them----
    Mr. Johnson of Texas. What are you doing for the individual 
doc? You were in the hospitals; you know what a problem they 
have with paperwork.
    Mr. Scully. Yes. Well, one thing we did--and again, it was 
not universally popular--we had a major risk adjustment 
collection mechanism--physicians do not always love managed 
care, but the one thing they like about it is they generally do 
not have to provide a lot of very detailed billing information.
    Mr. Johnson of Texas. Have you stopped changing the Codes 
every month?
    Mr. Scully. Yes. We suspended the physician requirement for 
risk adjustment for one year; if we do not find a better one, 
we are going to reinstate it next year. A lot of the things 
that the managed care plans and the physicians in managed care 
plans asked for, we did, to try to make their lives simpler 
this fall. I cannot think of too many stones I left unturned 
that I could do without getting sued, and I did get sued, 
although we worked that out in a reasonable way. But I think we 
are pretty aggressive in trying to keep people in the plans.
    Mr. Johnson of Texas. Thank you, sir.
    Chairman Johnson. I would rather not let your statement 
about 203 lie, because many of the plans are telling us that 
they will stay in for next year if, before December 31, it is 
clear to them what the terms will be, and if there are more 
realistic levels of reimbursement and some greater regulatory 
    The whole goal of changing the date--and this Committee is 
eventually going to have to deal with this--you cannot make 
people make business decisions when they have no idea what they 
are going to be paid for their product. And the whole system of 
the plans saying whether they are going to be in or out and at 
what price has to be better aligned with our appropriations 
    So one of the ways we got into this trouble was that they 
decided to stay in, thinking that we were going to help them at 
a higher level than 2 percent--even last year, this Committee 
recommended 4 percent, and in the end, it was pulled down to 3 
percent, and so on and so forth. So you cannot have people 
trying to make economic decisions about products in the market 
when they do not know what they are going to get paid. We need 
to realign that whole system of provider bidding and consumer 
education so seniors can have a good chance to know what their 
choices are, but we maximize the continuity and stability of 
the program by putting the choices out there once people know 
what the Congress and the administration have done to address 
their problems.
    In closing off, let me say thank you very much for being 
here, Tom. I know you do not feel very well today, and I 
appreciate your staying true to your commitment under really 
adverse circumstances to be with us.
    I want to conclude by reading a small passage from the 
testimony by the American College of Physicians and the 
American College of Internal Medicine, because I want your 
staff to look at this before we get through this process, 
because I know Jim McDermott raised some issues here, and we 
just have to take more seriously the crisis that we are 
creating in physician offices.
    This testimony says: ``In internist carefully reviewed the 
1997 guidelines and calculated the number of decisions that a 
physician must make before selecting a level of Evaluation and 
Management Services (EM) in billing Medicare. It includes 11 
decision points and categories to consider before selecting the 
EM code. Each decision point requires several choices. There 
are 42 choices a decision must consider before selecting the 
proper EM service. There are 6,144 possible combinations 
representing the number of ways an office visit for a new 
patient can evolve and be classified.''
    It has gotten to be extraordinarily ludicrous, and we have 
to do something about how physicians bill and what code they 
select. If we do not do that, in the end, we will erode the 
quality of medical care in America because we will erode the 
quality of care that physicians are able to offer and the kind 
of people who go into medicine.
    So this is a big issue. In this testimony, two or three 
important points are brought up that we had not really 
considered, and we need to talk about, and Pete and I need to 
talk about and the members of the Committee need to look at 
what more along that line we can do even in this bill.
    Thank you very much for being here, Tom. We look forward to 
working with you. You have been very willing to work with us on 
a lot of complicated issues, and I thank you.
    I also thank you for starting out your testimony by talking 
about HIPAA. We too are being deluged with HIPAA concerns, and 
we need to come to some conclusion about how best to handle 
    Thank you very much.
    Mr. Scully. Thanks.
    Chairman Johnson. I would now like to welcome the next and 
final panel. We will hear from all the experts and then open 
the floor for questions.
    Leslie Aronovitz is from the Health Care Program Integrity 
division of the GAO. She will testify on behalf of two 
different people, so she will be allowed to go a little longer 
than the 5 minutes and make a 10-minute presentation.
    Bill Hall is president of the American College of 
Physicians and the American Society of Internal Medicine; and 
Susan Wilson is vice president, Clinical Operations, and chief 
operating officer of the VNA of Central Connecticut and is 
speaking here on behalf of the National Association of Home 
    Thank you all for being with us, and Ms. Aronovitz, if you 
could start.


    Ms. Aronovitz. Madam Chairman and members of the 
Subcommittee, I am pleased to be here today as you discuss 
modifications to the Medicare Program as set out in the 
proposed MRCRA.
    This Act addresses two key problems that we have recently 
studied. First, physicians have expressed growing concern that 
Medicare is creating a blizzard of complicated, unclear, and 
inconsistent information about program requirements, and 
because the rules change frequently, they cannot stay current.
    Second, observers of Medicare operations have for a long 
time questioned whether Medicare could be run more effectively 
if its claims administration contractors were selected through 
full and open competition and paid based on their performance.
    With regard to the first problem, Medicare's communications 
with providers, our findings, as you noted, were quite 
disturbing. For example, carriers issue bulletins to physicians 
as a primary source of information about Medicare rules. For 
the 10 carriers we looked at, some bulletins were more than 80 
pages long, with over 50 pages being the norm. They often 
contained long articles, written in dense language and printed 
in small type. Some of these had no table of contents while 
others did not identify topics by specialty.
    We also found a number of instances in which the 
announcement of program changes came out after the changes had 
taken effect. Among carriers with multi-State bulletins, some 
developed separate State inserts; but others required that the 
physician read the entire article to determine if the change 
was apropos in his or her State.
    In addition to periodic bulletins, carriers rely on their 
websites to provide another avenue of communication, but these 
also have many shortcomings. In our review of 10 carrier 
websites, we found that most lacked basic organization and 
navigation tools, like site maps and search functions that 
increase a site's user-friendliness. Further, five of the eight 
sites that had a required schedule of upcoming workshops or 
seminars were out-of-date. Although one site contained a 
potentially useful ``What's New?'' page, the page contained a 
single document of regulations that went into effect in October 
2000, 8 months prior to the date of our website review.
    A third communication vehicle for physicians billing 
Medicare is the carrier call center. I want to clarify 
something that we have talked about in our testimony. Call 
centers answer two general types of questions. One type is on 
the status of a specific claim. The other is questions that 
pertain to coding and billing the program in specific 
    We did not test the adequacy of the call centers in 
responding to the status of specific reimbursement questions. 
But we did perform a limited test of approximately 60 calls to 
provider inquiry lines of five carrier call centers on coding 
and billing issues. The three test questions, all selected from 
the ``Frequently Asked Questions'' on carriers' websites, 
concerned the appropriate way to bill Medicare under different 
    The results of our tests, which were verified by a CMS 
coding expert, showed that only 15 percent of the answers were 
complete and accurate; 53 percent were incomplete, and 32 
percent were entirely incorrect.
    We found that CMS has established few standards to guide 
these three types of activities. While CMS requires contractors 
to issue bulletins at least quarterly, it requires little else 
in terms of content or readability.
    Requirements for web-based communication generally focus on 
legal issues that do nothing to enhance providers' 
understanding of Medicare policy.
    In regard to telecommunications, contractor call centers 
are instructed to monitor up to 10 calls per quarter for each 
customer service rep--but CMS' definition of what constitutes 
accuracy and completeness in call center responses is neither 
clear nor specific. Moreover, the assessment of accuracy and 
completeness counts for only about 25 percent of the total 
assessment score, with process issues like phone etiquette 
accounting for the rest.
    CMS conducts much of its oversight of contractor 
communications through contractor performance evaluations--we 
call them CPEs. While these reviews have not focused on the 
quality or usefulness of contractor bulletins or websites, CMS 
has begun to focus on call center service to providers.
    But again, the CPE reviews focus mainly on process rather 
than on the more difficult issues involving an assessment of 
response accuracy.
    CMS officials noted a lack of resources for monitoring 
carrier activity in this area--and this is not just Mr. Scully, 
but everyone that we have talked to at the high levels in CMS. 
Their own data show that there are fewer than 26 full-time-
equivalent staff assigned to oversee all carrier-provider 
relations efforts nationwide, and these people are typically 
stationed at the regional offices which provide the contractor 
    We have noted in the past that under its tight 
administrative budget, CMS runs the Medicare program on a 
shoestring. Provider relations activities currently have to 
compete with most other contractor functions in the allocation 
of these scarce administrative dollars.
    We started this study under the premise that physicians 
were being inundated with paper from their carriers, CMS, and 
U.S. Department of Health and Human Services agencies. 
Actually, we found that only a small percentage, about 10 
percent, of the mail the seven physician practices that 
participated in our study sent us were from those sources. 
However, given the poor performance of CMS in its 
communications activities, we could understand why physicians 
seek materials from other sources, which were primarily their 
medical and specialty societies and other private 
    Despite the scarcity of resources, we did find some bright 
spots, and I think Mr. Scully enumerated many of them. CMS is 
working to expand and consolidate training for the customer 
service reps. Its MedLearn website offers computer-based 
training, manuals, and reference materials. CMS is developing 
satellite broadcasts to hospitals and educational institutes. 
And we also applaud CMS' efforts to establish the Physicians' 
Regulatory Issues Team, the PRIT, which works with the 
physician community to address its most pressing Medicare-
related problems.
    But I would like to emphasize that no matter how impressive 
these individual initiatives are, they cannot replace the need 
for consistently reliable and timely information provided to 
physicians on a regular basis.
    We believe that the provisions in section 5 of H.R. 2768, 
the MRCRA--which I am going to use as shorthand for your bill--
square place responsibility on CMS to upgrade its provider 
communication activities.
    For example, it calls on CMS to centrally coordinate the 
educational activities provided through Medicare contractors 
and to offer technical assistance to small providers through a 
demonstration program.
    The bill would also channel additional financial resources 
to Medicare provider communications activities.
    Although we have not determined the specific amount of 
additional funding needed for these purposes, we believe that 
the current level of funding is insufficient to effectively 
inform providers about Medicare rules and payment changes.
    I would now like to take a minute and turn to our findings 
related to Medicare's contracting for administrative services. 
Several key provisions of your bill address elements of 
Medicare contracting that have limited CMS' options for 
selecting claims administration contractors and that frustrate 
efforts to manage Medicare effectively.
    First, MRCRA would establish a full and open procurement 
process that would provide CMS with express authority to 
contract with any qualified entity for claims administration, 
including entities that are not health insurers.
    Second, the bill would provide for CMS to use incentive 
payments. For example, a cost-plus incentive contract adjusts 
the level of payment based on performance.
    Finally, MRCRA would modify longstanding practice to 
specifically allow for contracts limited to one component of 
claims administration process, such as processing and paying 
claims or providing provider education and technical assistance 
    To summarize, the scope and complexity of the Medicare 
Program makes complete, accurate, and timely information of 
program information vital to providers who need to be kept up-
to-date on Medicare's rules. While CMS acknowledges that 
improvements are needed, we believe it needs to do so through 
establishing a more skilled, standardized and centralized 
approach. It is also clear that more resources need to be 
devoted to these activities. The backers of this bill clearly 
recognize this need, and we believe that the funding provisions 
will go a long way toward ensuring that more attention is paid 
to provider relations activities.
    The bill also contains provisions that would provide a 
statutory framework for Medicare contracting reform. We believe 
that CMS can benefit from this increased flexibility and that 
many of the reform provisions will assist the agency in 
providing for more effective program management.
    Madam Chairman, this concludes my prepared statement. I 
will be happy to answer any questions that you or the other 
Subcommittee members have.
    [The prepared statement of Ms. Aronovitz follows:]
    Statement of Leslie G. Aronovitz, Director, Health Care Program 
  Administration and Integrity Issues, U.S. General Accounting Office
    Madam Chairman and Members of the Subcommittee:
    I am pleased to be here today as you discuss modifications to the 
Medicare program proposed in the Medicare Regulatory and Contracting 
Reform Act (MRCRA) of 2001.1 Providers have raised concerns 
that while the Medicare program has become increasingly complex, the 
education and outreach services needed to comply with Medicare coverage 
and billing policies are inadequate. Others have raised questions about 
whether the program could benefit from changes to the way Medicare's 
claims processing contractors are selected and paid for the functions 
they perform.2 To address some of these issues, Members of 
this Subcommittee and others in the Congress have introduced 
legislation, and the Administration has proposed several new 
    \1\ H.R. 2768, sponsored by Reps. Nancy Johnson, Pete Stark, and 
others, was introduced on August 2, 2001.
    \2\ Medicare claims are processed by private organizations that 
contract to serve as the fiscal agent between providers and the federal 
    We are currently conducting, or have recently completed, work on 
several operational and structural elements of the Medicare program 
that frustrate providers and hamper effective management. Specifically, 
we are reviewing how the Centers for Medicare and Medicaid Services 
(CMS) works with its contractors to facilitate communications with 
Medicare providers.3 We have also evaluated ways in which 
CMS contracting for claims payment and provider and beneficiary service 
activities could be modified to promote better performance. 
Accordingly, you asked us to focus our remarks today on our findings 
related to (1) Medicare provider education and communications, and (2) 
Medicare contracting for claims administration services. Several of the 
reforms outlined in the MRCRA proposal address aspects of both issues.
    \3\ In June of this year, the Secretary of Health and Human 
Services (HHS) announced that the agency's name would be changed from 
the Health Care Financing Administration (HCFA) to CMS. Our statement 
will continue to refer to HCFA where our findings apply to the 
organizational structure and operations associated with that name.
    In summary, our ongoing work for the Subcommittee shows that 
physicians often do not receive complete, accurate, clear, and timely 
guidance on Medicare billing and payment policies. We found 
shortcomings in print, electronic, and telephone communications that 
Medicare contractors use to provide information to physicians and 
respond to their questions. To substantially improve Medicare 
contractors' provider communications, we believe that CMS needs to 
develop a more centralized and coordinated approach. This is consistent 
with several provisions in MRCRA, which require CMS to centrally 
coordinate contractors' provider education activities, establish 
communications performance standards, appoint a Medicare Provider 
Ombudsman, and create a demonstration program to offer technical 
assistance to small providers. MRCRA would also require contractors to 
monitor the accuracy, consistency, and timeliness of the information 
they provide.
    Further, our analysis of Medicare contracting reform issues has 
found that the rules governing CMS contracts with its claims processors 
lack incentives for efficient operations. Medicare contractors are 
chosen without full and open competition from among health insurance 
companies, rather than from a broad universe of potentially qualified 
entities. In addition, CMS almost always uses cost-only contracts, 
which pay contractors for costs incurred but generally do not offer any 
type of performance incentives. MRCRA would broaden CMS authority so 
that entities of various types would be able to compete for claims 
administration contracts and their payment would reflect the quality of 
the services they provide.
    The operation of the Medicare program is extremely complex and 
requires close coordination between CMS and its contractors. CMS is an 
agency within HHS but has responsibilities for expenditures that are 
larger than those of most other federal departments.4 Under 
Medicare's fee-for-service system--which accounts for over 80 percent 
of program beneficiaries--physicians, hospitals, and other providers 
submit claims to receive reimbursement for services they provide to 
Medicare beneficiaries. In fiscal year 2000, fee-for-service Medicare 
made payments of $176 billion to hundreds of thousands of providers who 
delivered services to over 32 million beneficiaries.
    \4\ Medicare ranks second only to Social Security in federal 
expenditures for a single program.
    About 50 Medicare claims administration contractors carry out the 
day-to-day operations of the program and are responsible not only for 
paying claims but also for providing information and education to 
providers and beneficiaries that participate in Medicare. Contractors 
that process and pay part A claims (i.e., for inpatient hospital, 
skilled nursing facility, hospice care, and certain home health 
services) are known as fiscal intermediaries and those that administer 
part B claims (i.e., for physician, outpatient hospital services, 
laboratory, and other services) are known as carriers.
    Contractors periodically issue bulletins that outline changes in 
national and local Medicare policy, inform providers of billing system 
changes, and address frequently asked questions. To enhance 
communications with providers, the agency recently required contractors 
to maintain toll-free telephone lines to respond to provider inquiries. 
It also directed them to develop Internet sites to provide another 
reference source. While providers look to CMS' contractors for help in 
interpreting Medicare rules, they remain responsible for properly 
billing the program.
    In congressional hearings held earlier this year, representatives 
of physician groups testified that they felt overwhelmed by the volume 
of instructional materials sent to them by CMS and its contractors. 
Following up on these remarks, we contacted 7 group practices served by 
3 carriers in different parts of the country to determine the volume of 
Medicare-related documents they receive from the CMS central office, 
carriers, other HHS agencies, and private organizations. Together, 
these physician practices reported that, during a 3-month period, they 
received about 950 documents concerned with health care regulations and 
billing procedures. However, a relatively small amount--about 10 
percent--was sent by CMS or its contractors. The majority of the mail 
reportedly received by these physician practices was obtained from 
sources such as consulting firms and medical specialty or professional 
    Congress has also held hearings on management challenges facing the 
Medicare program. We recently testified that HHS contracts for claims 
administration services in ways that differ from procedures for most 
federal contracts.5 Specifically:
    \5\ Medicare Contracting Reform: Opportunities and Challenges in 
Contracting for Claims Administration Services, (June 28, 2001, GAO-01-

     there is no full and open competition for these contracts,
     contracts generally must cover the full range of claims 
processing and related activities,
     contracts are generally limited to reimbursement of costs 
without consideration of performance, and
     CMS has limited ability to terminate these contracts.

    Since 1993, HCFA has repeatedly proposed legislation that would 
increase competition for these contracts and provide more flexibility 
in how they are structured. In June 2001, the Secretary of HHS again 
submitted a legislative proposal that would modify Medicare's claims 
administration contracting authority.
Substantial Improvement Needed in Medicare Provider Communications
    CMS relies on its 20 carriers to convey accurate and timely 
information about Medicare rules and program changes to providers who 
bill the program. However, our ongoing review of the quality of CMS' 
communications with physicians participating in the Medicare program 
shows that the information given to providers is often incomplete, 
confusing, out of date, or even incorrect.6 MRCRA provisions 
establish new requirements and funding for CMS and its contractors that 
could enhance the quality of provider communication.
    \6\ In our study, we reviewed selected contractors' bulletins and 
Web sites and evaluated them for consistency, timeliness, clarity, and 
completeness. In addition, we visited three contractors to observe 
their call center operations and examined their approaches to 
monitoring the performance of customer service representatives. To test 
the quality of contractors' responses to physicians' phone inquiries, 
we posed ``frequently asked questions'' that appeared on contractor Web 
sites to customer service representatives and assessed the accuracy and 
completeness of the responses.
CMS Information Was Confusing and Often Inaccurate
    We found that carriers' bulletins and Web sites did not contain 
clear or timely enough information to solely rely on those sources. 
Further, the responses to phone inquiries by carrier customer service 
representatives were often inaccurate, inconsistent with other 
information they received, or not sufficiently instructive to properly 
bill the program.
    Our review of the quarterly bulletins recently issued by 10 
carriers found that they were often unclear and difficult to use. 
Bulletins over 50 pages in length were the norm, and some were 80 or 
more pages long. They often contained long articles, written in dense 
language and printed in small type. Many of the bulletins were also 
poorly organized, making it difficult for a physician to identify 
relevant or new information. For example, they did not always present 
information delineated by specialty or clearly identify the states 
where the policies applied. Moreover, information in these bulletins 
about program changes was not always communicated in a timely fashion, 
so that physicians sometimes had little or no advance notice prior to a 
program change taking effect. In a few instances, notice of the program 
change had not yet appeared in the carriers' bulletin by its effective 
    To provide another avenue for communication, carriers are required 
to develop Internet Web sites. However, our review of 10 carrier Web 
sites found that only 2 complied with all 11 content requirements that 
CMS has established. Also, most did not contain features that would 
allow physicians and others to readily obtain the information they 
need. For example, we found that the carrier Web sites often lacked 
logical organization, navigation tools (such as search functions), and 
timely information--all of which increase a site's usability and value. 
Five of the nine sites that had the required schedule of upcoming 
workshops or seminars were out of date.
    Call centers supplement the information provided by bulletins and 
Web sites by responding to the specific questions posed by individual 
physicians. To assess the accuracy of information provided, we placed 
approximately 60 calls to the provider inquiry lines of 5 carriers' 
call centers. The three test questions, all selected from the 
``frequently asked questions'' on the carriers' Web sites, concerned 
the appropriate way to bill Medicare under different circumstances. The 
results of our test, which were verified by a CMS coding expert, showed 
that only 15 percent of the answers were complete and accurate, while 
53 percent were incomplete and 32 percent were entirely incorrect.
    We found that CMS has established few standards to guide the 
contractors' communication activities. While CMS requires contractors 
to issue bulletins at least quarterly, they require little else in 
terms of content or readability. Similarly, CMS requirements for web-
based communication do little to promote the clarity or timeliness of 
information. Instead, they generally focus on legal issues--such as 
measures to protect copyrighted material--that do nothing to enhance 
providers' understanding of, or ability to correctly implement, 
Medicare policy. In regard to telecommunications, contractor call 
centers are instructed to monitor up to 10 calls per quarter for each 
of their customer service representatives, but CMS' definition of what 
constitutes accuracy and completeness in call center responses is 
neither clear nor specific. Moreover, the assessment of accuracy and 
completeness counts for only 35 percent of the total assessment score, 
with the representative's attitude and helpfulness accounting for the 
    CMS conducts much of its oversight of contractor performance 
through Contractor Performance Evaluations (CPEs). These reviews focus 
on contractors that have been determined to be ``at risk'' in certain 
program areas. To date, CMS has not conducted CPE reviews focusing on 
the quality or usefulness of contractors' bulletins or Web sites, but 
has begun to focus on call center service to providers. Again, the CPE 
reviews of call centers focus mainly on process--such as phone 
etiquette--rather than on an assessment of response accuracy.
CMS is Making Efforts to Improve Provider Communications
    CMS officials, in acknowledging that provider communications have 
received less support and oversight than other contractor operations, 
noted the lack of resources for monitoring carrier activity in this 
area and providing them with technical assistance. Under its tight 
administrative budget, the agency spends less than 2 percent of 
Medicare benefit payments for administrative expenses. Provider 
communication and education activities currently have to compete with 
most other contractor functions in the allocation of these scarce 
Medicare administrative dollars. CMS data show that there are less than 
26 full-time equivalent CMS staff assigned to oversee all carrier 
provider relations efforts nationwide, representing a just over 1 full-
time equivalent staff for each Medicare carrier. This low level of 
support for provider communications leads to poorly informed providers 
who are therefore less likely to correctly bill the Medicare program 
for the services they provide.
    Despite the scarcity of resources, CMS has begun work to expand and 
consolidate some provider education efforts, develop venues to obtain 
provider feedback, and improve the way some information is delivered. 
These initiatives--many in the early stages of planning or 
implementation--are largely national in scope, and are not 
strategically integrated with similar activities by contractors. 
Nevertheless, we believe that these outreach and education activities 
will enhance some physicians' ability to obtain timely and important 
information, and improve their relationships with CMS.
    For example, CMS is working to expand and consolidate training for 
providers and contractor customer service representatives. Its Medlearn 
Web site offers providers computer-based training, manual, and 
reference materials, and a schedule of upcoming CMS meetings and 
training opportunities. CMS has produced curriculum packets and 
conducted in-person instruction to the contractor provider education 
staff to ensure contractors present more consistent training to 
providers. CMS has also arranged several satellite broadcasts on 
Medicare topics every year to hospitals and educational institutions. 
In addition, CMS established the Physicians' Regulatory Issues Team to 
work with the physician community to address its most pressing problems 
with Medicare. Contractors are also required to form Provider Education 
and Training Advisory groups to obtain feedback on their education and 
communication activities.
MRCRA Provides Needed Statutory and Financial Support
    We believe that the provisions in Section 5 of MRCRA can help 
develop a system of information dissemination and technical assistance. 
MRCRA's emphasis on contractor performance measures and the 
identification of best practices squarely places responsibility on CMS 
to upgrade its provider communications activities. For example, it 
calls on CMS to centrally coordinate the educational activities 
provided through Medicare contractors, to appoint a Medicare Provider 
Ombudsman, and to offer technical assistance to small providers through 
a demonstration program. We believe it would be prudent for CMS to 
implement these and related MRCRA provisions by assigning 
responsibility for them to a single entity within the agency dedicated 
to issues of provider communication.
    Further, MRCRA would channel additional financial resources to 
Medicare provider communications activities. It authorizes additional 
expenditures for provider education and training by Medicare 
contractors ($20 million over fiscal years 2003 and 2004), the small 
provider technical assistance demonstration program ($7 million over 
fiscal years 2003 and 2004), and the Medicare Provider Ombudsman ($25 
million over fiscal years 2003 and 2004). This would expand specific 
functions within CMS' central office, which would help to address the 
lack of administrative infrastructure and resources targeted to 
provider communications at the national level. Although we have not 
determined the specific amount of additional funding needed for these 
purposes, our work has shown that the current level of funding is 
insufficient to effectively inform providers about Medicare payment 
rules and program changes.
    MRCRA also establishes contractor responsibility criteria to 
enhance the quality of their responses to provider inquiries. 
Specifically, contractors must maintain a toll-free telephone number 
and put a system in place to identify who on their staff provides the 
information. They must also monitor the accuracy, consistency, and 
timeliness of the information provided.
Contracting Reform Could Improve Program Management
    Current law and long-standing practice in Medicare contracting 
limit CMS' options for selecting claims administration contractors and 
frustrate efforts to manage Medicare more effectively. We have 
previously identified several approaches to contracting reform that 
would give the program additional flexibility necessary to promote 
better performance and accountability among claims administration 
Current Contracting Law and Practice Limit CMS' Management Options
    CMS faces multiple constraints in its options for selecting claims 
administration contractors. Under these constraints, the agency may not 
be able to select the best performers to carry out Medicare's claims 
administration and customer service functions. Because the Medicare 
statute exempts CMS from competitive contracting requirements, the 
agency does not use full and open competition for awarding fiscal 
intermediary and carrier contracts. Rather, participation has been 
limited to entities with experience processing these types of claims, 
which have generally been health insurance companies. Provider 
associations, such as the American Hospital Association, select fiscal 
intermediaries in a process called ``nomination'' and the Secretary of 
HHS chooses carriers from a pool of qualified health insurers.
    CMS program management options are also limited by the agency's 
reliance on cost-based reimbursement contracts.7 This type 
of contract reimburses contractors for necessary and proper costs of 
carrying out Medicare activities, but does not specifically provide for 
contractor profit or other incentives. As a result, CMS generally has 
not offered contractors the fee incentives for performance that are 
used in other federal contract arrangements.
    \7\ According to CMS, requirements of the Social Security Act that 
call for the use of cost-based reimbursement contracts preclude the 
program from offering financial incentives to contractors for high-
quality performance.
Medicare Could Benefit From Open Competition and Increased Flexibility
    Medicare could benefit from various contracting reforms. Perhaps 
most importantly, directing the program to select contractors on a 
competitive basis from a broader array of entities would allow Medicare 
to benefit from efficiency and performance improvements related to 
competition. A full and open contracting process will hopefully result 
in the selection of stronger contractors at better value. Broadening 
the pool of entities allowed to hold Medicare contracts beyond health 
insurance companies will give CMS more contracting options. Also, 
authorizing Medicare to pay contractors based on how well they perform 
rather than simply reimbursing them for their costs could result in 
better contractor performance.
    We also believe that the program could benefit from efficiencies by 
having contractors perform specific functions, called functional 
contracting. The traditional practice of expecting a single Medicare 
contractor in each region to perform all claims administration 
functions has effectively ruled out the establishment of specialized 
contracts with multiple entities that have substantial expertise in 
certain areas.8 Moving to specialized contracts for the 
different elements of claims administration processing would allow the 
agency to more efficiently use its limited resources by taking 
advantage of the economies of scale that are inherent in some tasks. An 
additional benefit of centralizing carrier functioning in each area is 
the opportunity for CMS to more effectively oversee carrier operations. 
Functional contracting would also result in more consistency for 
Medicare-participating providers.
    \8\ This has recently started to change in response to new 
contracting authorities granted by the Health Insurance Portability and 
Accountability Act of 1996, which resulted in the selection of 12 
Program Safeguard Contractors that perform specific payment safeguard 
    Several key provisions of MRCRA would address these elements of 
contracting reform. MRCRA would establish a full and open procurement 
process that would provide CMS with express authority to contract with 
any qualified entity for claims administration, including entities that 
are not health insurers. MRCRA would also encourage CMS to use 
incentive payments to encourage quality service and efficiency. For 
example, a cost-plus-incentive-fee contract adjusts the level of 
payment based on the contractor's performance. Finally, MRCRA would 
modify long-standing practice by specifically allowing for contracts 
limited to one component of the claims administration process, such as 
processing and paying claims, or conducting provider education and 
technical assistance activities.
Concluding Observations
    The scope and complexity of the Medicare program make complete, 
accurate, and timely communication of program information necessary to 
help providers comply with Medicare requirements and appropriately bill 
for their services. The backers of MRCRA recognize the need for more 
resources devoted to provider communications and outreach activities, 
and we believe the funding provisions in the bill will help assure that 
more attention is paid to these areas. MRCRA also contains provisions 
that would provide a statutory framework for Medicare contracting 
reform. We believe that CMS can benefit from this increased 
flexibility, and that many of these reform provisions will assist the 
agency in providing for more effective program management.
    Madam Chairman, this concludes my prepared statement. I would be 
happy to answer any questions that you or other Subcommittee Members 
may have.
GAO Contact and Staff Acknowledgments
    For further information regarding this testimony, please contact me 
at (312) 220-7767. Jenny Grover, Rosamond Katz, and Eric Peterson also 
made key contributions to this statement.
Related GAO Products

    Medicare Management: CMS Faces Challenges in Safeguarding Payments 
While Addressing Provider Needs (GAO-01-1014T, July 26, 2001).

    Medicare: Successful Reform Requires Meeting Key Management 
Challenges (GAO-01-1006T, July 25, 2001).

    Medicare Contracting Reform: Opportunities and Challenges in 
Contracting for Claims Administration Services (GAO-01-918T, June 28, 

    Medicare Management: Current and Future Challenges (GAO-01-878T, 
June 19, 2001).

    Medicare: Opportunities and Challenges in Contracting for Program 
Safeguards (GAO-01-616, May 18, 2001).

    Major Management Challenges and Program Risks: Department of Health 
and Human Services (GAO-01-247, Jan. 2001).

    High Risk: An Update (GAO-01-263, Jan. 2001).

    Medicare: 21st Century Challenges Prompt Fresh Thinking About 
Program's Administrative Structure (GAO/T-HEHS-00-108, May 4, 2000).

    Medicare Contractors: Further Improvement Needed in Headquarters 
and Regional Office Oversight (GAO/HEHS-00-46, Mar. 23, 2000).


    Chairman Johnson. Thank you very much for your testimony 
and for the work that GAO has done on this issue. Dr. Hall.


    Dr. Hall. Thank you very much, Chairwoman Johnson, and 
other members of the Subcommittee for holding this important 
hearing to discuss MRCRA.
    My name is William Hall. I am a practicing internist and 
geriatrician in Rochester, New York, and currently, I serve as 
president of the American College of Physicians--American 
Society of Internal Medicine (ACP-ASIM), representing 115,000 
physicians, the largest medical specialty society and the 
second-largest medical organization in the country, and also a 
group of members who supply a major proportion of all EM to 
Medicare recipients throughout the country.
    In the course of my travels this year, the most frequent 
complaint by far that I hear from my colleagues is that 
internists are subject to excessive paperwork and as a result 
do not have enough time to devote to patients.
    In our work, time is by far the most valuable resource in 
diagnosing and caring for older adults, but it is also in the 
shortest supply, largely due to a growth of unnecessary 
paperwork. Fortunately, this bipartisan legislation has been 
introduced to address paperwork hassles.
    ACP-ASIM appreciates the opportunity to comment on H.R. 
2768. This is a very good start, but more needs to be done. I 
would like to briefly touch on a few specific points in the 
bill, actually, all of which have been mentioned in prior 
testimony, but I would invite the Subcommittee to review our 
written testimony which contains more detailed comments, such 
as you already mentioned, Congresswoman.
    First, the issue of extrapolation. As you know, auditors 
use extrapolation to look at a very small sample of Medicare 
claims and apply the results to a broader universe of claims 
that the auditors did not review. This process is simply 
unfair. Congress would certainly not allow the Internal Revenue 
Service to extrapolate a calculation error in a taxpayer's tax 
return from 1 year to other years without actually reviewing 
the returns in those years. And Congress should not allow the 
broad use of extrapolation either.
    In order to strengthen H.R. 2768, we strongly encourage the 
Subcommittee to develop report language to define a ``high 
level of payment error'' to justify extrapolation. Without such 
a definition, problems with extrapolation could potentially 
    We also recommend that carriers conduct a documented 
educational effort before a provider receives an overpayment 
demand letter.
    Now a word about appeals. ACP-ASIM is pleased that H.R. 
2768 precludes carriers from requiring physicians and other 
health care providers to repay an alleged overpayment until 
after the first level of appeal. However, ACP-ASIM believes 
that repayment should not occur until the administrative 
appeals have been exhausted. It simply is unfair that Medicare 
providers are compelled to repay money to Medicare contractors 
when the dispute has not even been settled. We would quickly 
add, however, that any appropriate interest and penalties 
should accrue if the provider is unsuccessful in his or her 
    Next, on evaluation and management documentation 
guidelines, ACP-ASIM strongly supports H.R. 2768's provision 
that requires the Department of Health and Human Services to 
initiate three or four pilot projects to test EM documentation 
guidelines. We are particularly interested in the peer review 
pilot method. Another pilot that ACP-ASIM believes should be 
explored is documentation of encounter time with patients and a 
simpler, one-page document as an alternative to more lengthy 
documentation requirements such as the 1997 guidelines. These 
are more than 40 pages long and lead to, as you already 
mentioned, thousands of individual decision points.
    ACP-ASIM strongly agrees that pilot project participants 
should not be targeted for post-payment audits or overpayment 
demands. This stipulation should actually enhance the viability 
of these pilot tests.
    It is our understanding that the Department of Health and 
Human Services Office of the Inspector General in the previous 
administration had some concerns regarding recommendations to 
improve the Medicare audit and appeal process. Essentially, the 
OIG was concerned that changes in the audit process could 
unintentionally allow unscrupulous health care providers to 
submit false claims to Medicare. The suggestions that we have 
outlined were developed in consideration of this concern.
    ACP-ASIM believes that it is time for Congress to introduce 
more due process rights and fairness into the Medicare claims 
payment review system. The overwhelming majority of physicians 
and other health care providers are honest and law-abiding and 
should no longer have to suffer from onerous and unfair 
Medicare rules.
    In conclusion, ACP-ASIM is pleased that the Subcommittee is 
addressing the serious problems that the Medicare regulatory 
burden poses for physicians. We strongly urge the Subcommittee 
to report H.R. 2768 to the full House Ways and Means Committee 
with some of the enhancements that we have presented. We would 
also ask the Subcommittee to consider provisions from other 
pending regulatory relief legislation such as H.R. 868, MERFA, 
which we have endorsed.
    I thank you very much, and I would be happy to answer any 
questions that you might have.
    [The prepared statement of Dr. Hall follows:]
  Statement of William J. Hall, M.D., President, American College of 
           Physicians--American Society of Internal Medicine
    I am Dr. William J. Hall, president of the American College of 
Physicians--American Society of Internal Medicine (ACP-ASIM). ACP-ASIM, 
representing 115,000 physicians and medical students, 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 ACP-
ASIM is that internists are subject to excessive paperwork and, as a 
result, do not have enough time to devote to patients. ACP-ASIM thanks 
Congresswoman Nancy L. Johnson (R-CT), Chair of the Subcommittee on 
Health of the Committee on Ways and Means, for holding this important 
hearing to discuss H.R. 2768, the ``Medicare Regulatory and Contracting 
Reform Act of 2001.''

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 
    Visits from Medicare patients typically begin 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, as well as authorizations for necessary equipment 
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 delay payment 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 more importantly 
staff and physician time to present the case.
    Medicare can also 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 the 
physicians' practices up for days--essentially shutting down patient 
care activities. One physician tells of spending over $50,000 
challenging an audit and in the final determination owing the 
government a mere $400.
    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 to assess 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.

H.R. 2768--A Good Start, but More Should Be Done

    Fortunately, bipartisan legislation, H.R. 2768, the ``Medicare 
Regulatory and Contracting Reform Act of 2001 has been introduced into 
the House of Representatives and we are waiting for a similar measure 
in the Senate. ACP-ASIM appreciates the opportunity to comment on this 
    Although ACP-ASIM requests the elimination of extrapolation of 
alleged overpayment amounts to other non-audited claims the first time 
a physician or other health care provider is assessed an alleged 
overpayment, unless fraud is suspected, the H.R. 2768 provision on 
extrapolation is a step in the right direction. H.R. 2768 indicates 
that in either consent settlements or larger audits, carriers cannot 
recoup or offset payments based on extrapolation unless it is sustained 
by a high level of payment error, as defined by the Secretary of Health 
and Human Services, or documented educational intervention has failed 
to correct the payment error (as determined by the Secretary). ACP-ASIM 
strongly encourages the Subcommittee to develop report language to 
define a high level of payment error. Without such a definition, 
problems with extrapolation could potentially continue. ACP-ASIM also 
recommends that carriers should conduct a documented education effort 
before a provider receives an overpayment demand letter.
    Physicians have always been concerned about the extrapolation 
process because it is a mechanism that auditors use to look at a small 
sample of Medicare claims and apply those results to a broader universe 
of claims that the auditors did not review. Under the extrapolation 
process, auditors have the ability to take a small sample of 15 claims, 
determine that the Medicare contractor made an overpayment of several 
dollars per claim, then extrapolate that finding to hundreds of claims 
per year over several years and demand repayment of tens of thousands 
of dollars without following the due diligence of looking at those 
other claims. This process is simply unfair. Congress wouldn't allow 
the Internal Revenue Service to extrapolate a calculation error in a 
taxpayer's tax return from one year to other years without actually 
reviewing the returns from those years. Congress shouldn't allow the 
broad use of extrapolation either.
    ACP-ASIM is pleased that H. R. 2768 precludes carriers from 
requiring physicians and other health care providers to repay an 
``alleged'' overpayment until after the first level of appeal. However, 
ACP-ASIM believes that repayment should not occur until the 
administrative appeals have been exhausted. It simply is unfair that 
Medicare providers are compelled to repay money to Medicare contractors 
when the dispute has not been settled. We agree that interest should 
accrue if the provider is unsuccessful in appealing.
Repayment plan
    ACP-ASIM suggests that Medicare carriers and fiscal intermediaries 
give physicians who have received overpayments the option of either a 
three year repayment plan or offsetting overpayment recoupments against 
a percentage of the physicians' future Medicare claims reimbursements. 
ACP-ASIM is pleased that H.R. 2768 stipulates that the Secretary of 
Health and Human Services must promulgate regulations that would allow 
physicians and other health care providers to enter into a repayment 
plan of no more than 3 years, however we are concerned that as written 
this provision gives the Secretary the latitude to keep the 30-60 day 
repayment process intact without making any change to the program at 
all. ACP-ASIM urges the Subcommittee to change this provision to a 
period of not less than 3 years if the aggregate amount of overpayments 
exceeds 10 percent of Medicare revenues for the previous calendar year.
    The current repayment process is particularly onerous to physicians 
and other health care providers with small practices. A large repayment 
requirement over a short period of time could potentially bankrupt a 
physician practice and force it to close. This in turn would deny 
Medicare beneficiaries access to medical care from that practice. For 
practices in rural and underserved areas where patients have little or 
no choice of provider, such a repayment request could literally 
devastate access to health care in a community.
    ACP-ASIM agrees with the provision that would prohibit repayment 
plans in cases where the Secretary suspects that the provider would 
file for bankruptcy to avoid repayment, cease to do business, or has 
committed fraud. ACP-ASIM also agrees that if a provider fails to make 
a payment installment, there should be an acceleration in the repayment 
plan or immediate offsets.
Consent Settlement Process
    ACP-ASIM believes that H.R. 2768 should afford physicians the 
ability to appeal a probe sample of claims without having to undergo a 
``statistically valid random sample'' (SVRS). A probe sample is a 
sample of a small number of claims. H.R. 2768 indicates that when a 
provider appeals this probe, they must agree to a larger, time 
consuming, onerous audit (the SVRS). This process encourages physicians 
to settle, even when they believe the probe sample findings are 
inaccurate, because in many cases the hassle involved with complying 
with the SVRS audits are more costly to the physicians practice than 
the cost of settling with a probe sample. The current consent 
settlement process is ironic in that there is no true incentive for the 
auditors conducting the probe sample to perform the audit accurately 
because the penalty of appealing in many cases is more than the penalty 
of settling.
Limit on Random Prepayment Audits
    ACP-ASIM believes H.R. 2768 would be improved if the bill were 
changed to state that Medicare carriers could not demand additional 
records or documentation prior to paying a claim absent cause except 
when developing contractor-wide or program-wide claims payment error 
rates. Random prepayment audits are troublesome to health care 
providers because they can disrupt cash flow in the practice and hinder 
the delivery of medical services to patients if the practice does not 
have the cash on hand to order supplies and equipment or pay its staff. 
Random prepayment audits are particularly irksome to physician 
practices because it has long been recognized that the overwhelming 
majority of Medicare providers are honest and therefore these audits 
will randomly delay payment for legitimate services provided to 
Medicare beneficiaries.
    In addition, prepayment review should no longer potentially occur 
indefinitely after physicians and providers have submitted properly 
coded claims. ACP-ASIM agrees with the H.R. 2768 provision that limits 
contractors to using random prepayment audits for developing 
contractor-wide or program-wide claims payment error rates.
Evaluation and Management (E/M) Documentation Guidelines
    ACP-ASIM strongly supports the H.R. 2768 provision that requires 
the Department of Health and Human Services initiate three or four 
pilot projects to test 
E/M documentation guidelines. ACP-ASIM is particularly interested in 
the peer-review pilot method. Another pilot that ACP-ASIM believes 
should be explored is documenting encounter time with the patient and 
the ``CPT basics/General Principles of Medical Record Documentation'' 
(a one page document) as an alternative to other onerous documentation 
requirements (such as the 1997 guidelines which are more than 40 pages 
long). ACP-ASIM is encouraged by the stipulation that pilot 
participants cannot be targeted for post-payment audits or overpayment 
demands. This stipulation should enhance the viability of the pilot 
    Although ACP-ASIM is encouraged that the Centers for Medicare and 
Medicaid Services (CMS) is attempting to work with medical societies to 
improve the documentation guidelines for evaluation and management (E/
M) services, the guidelines that were released in 1997 and currently in 
place dramatically increase the administrative burden for physicians. 
The guidelines require physicians to spend a significant amount of time 
selecting which code to bill and documenting extensively to satisfy the 
comprehensive guidelines. An internist who carefully reviewed the 1997 
guidelines calculated the number of decisions that a physician must 
make before selecting a level of E/M service and billing Medicare 
include 11 decision points in categories to consider before selecting 
an E/M code. Each decision point requires several choices. There are 42 
choices a physician must consider before selecting the proper level of 
E/M service. There are 6,144 possible combinations representing the 
number of ways an office visit for a new patient can evolve and be 
classified. A physician must spend time documenting in the patient's 
record in addition to spending time deciding what is the appropriate 
level of service to bill. The guidelines put an undue excessive 
documentation burden on physicians for the sole purpose of billing, not 
for quality medical care. The guidelines force physicians to spend less 
time with their patients and more time with the patients' charts.
Carrier Responsiveness
    ACP-ASIM is pleased that H.R. 2768 requires Medicare contractors 
to: (1) respond in a clear concise and accurate manner to specific 
billing and coding and cost report questions; (2) maintain a toll-free 
telephone number which provides information regarding billing, coding 
and other appropriate information; (3) maintain a system for 
identifying who provides referred information; and (4) monitor 
accuracy, consistency and timeliness of the information provided. ACP-
ASIM suggests that these provisions be further strengthened by 
requiring a written response within 30 days from the contractor to 
physicians and other providers who submit billing, documentation, 
coding and cost reporting questions to carriers or fiscal 
intermediaries. Additionally, these written responses from the carrier 
must be adhered to during provider audits; health care providers should 
be held harmless from having claims denied by carriers in subsequent 
audits when the provider is simply following the original advice of the 
Medicare carrier. It is unfair and unreasonable for physicians and 
other health care providers to be held accountable for mistakes made by 
Medicare contractors.
Ombudsmen Program
    ACP-ASIM understands that the H.R. 2768 ombudsman program is 
designed to ``provide assistance on a confidential basis to physicians 
(and others) about complaints, grievances, and requests for information 
about Medicare, resolve unclear or conflicting guidance given by the 
Secretary and Medicare contractors to physicians.'' The program would 
also recommend to the Secretary how to respond to ``recurring patterns 
of confusion including suspending sanctions in these areas, and would 
recommend how to provide appropriate and consistent responses including 
not providing for audits where the self identified overpayment is 
returned.'' This provision will be helpful in resolving conflicting 
statements and may be an outlet for confidential complaints about 

Effective Balance Between Appropriate Claims Payment and Burdensome 

    It is our understanding that the Department of Health and Human 
Services Office of Inspector General (OIG) in the previous 
administration had some concerns regarding recommendations to improve 
the Medicare audit and appeal process. Essentially, the OIG was 
concerned that changes in the audit process could unintentionally allow 
unscrupulous health care providers to submit false claims to Medicare. 
The suggestions above were developed in consideration of this concern. 
ACP-ASIM believes that it is time for Congress to introduce more due 
process rights and fairness into the Medicare claims payment review 
system so that the overwhelming majority of physicians and other health 
care providers, who are honest and law abiding, no longer have to 
suffer from onerous and unfair Medicare rules.


    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 Medicare beneficiaries. We strongly urge 
the Subcommittee to report H.R. 2768 to the full Ways and Means 
Committee with the enhancements we have presented. We also ask the 
Subcommittee to consider provisions from other pending regulatory 
relief legislation, such as H.R. 868, the Medicare Education and 
Regulatory Fairness Act (MERFA), which ACP-ASIM has enthusiastically 


    Chairman Johnson. Thank you very much, Dr. Hall.
    Ms. Wilson, it is a special pleasure to welcome you here to 
this hearing. I have worked with Ms. Wilson extensively in my 
hometown of New Britain, and her leadership at the State level 
as well as the national level in solving some of the difficult 
problems we have been facing in the home care reimbursement 
area have really been appreciated. Welcome.


    Ms. Wilson. Thank you, Madam Chairman and members of the 
Subcommittee, for allowing me to testify regarding MRCRA.
    I am Susan Wilson, vice president and chief operating 
officer of VNA of Central Connecticut, president of the board 
of directors of the Connecticut Association for Home Care, and 
a member of the National Association for Home Care.
    In March of this year, I had the honor of addressing this 
panel regarding regulations and policies that impact a 
provider's ability to deliver efficient, high-quality care. I 
am pleased to be here today to personally extend my deepest 
appreciation for the many efforts by you, your staff, and many 
others to ease these burdens. You are to be commended in 
particular for the development of H.R. 2768 which, if enacted, 
will ease the impact of some of the most troublesome policies.
    It has been proposed that any final regulation that is not 
a logical outgrowth of proposed regulation cannot take effect 
until there has been an opportunity for public comment. Your 
bill generally prohibits retroactive application and extends 
protection against compliance actions for 30 days. Home care 
has suffered greatly by the retroactive impact of issued 
policies, and this provision should help to prevent a 
recurrence of this.
    Your bill also protects providers against sanctions when 
they have followed the guidance of a Medicare contractor. 
Further clarification is needed, however, regarding what 
constitutes a sanction. Does it relate to possible fines, or 
does it extend to other obligations that may result from the 
faulty guidance of the contractor?
    Home health agencies have reported that despite adherence 
to written guidance from intermediaries specifically regarding 
cost reports, the intermediary has later rejected its own 
approval, which has led to unfounded allegations of 
overpayment. We hope that these circumstances are included in 
the provision.
    Also, your proposal provides for education through 
technical assistance and program information, and certainly 
this will help to create a better understanding of the Medicare 
    A similar provision applicable to Medicare's contractors 
for survey and certification would further secure this intent.
    Providers are delighted, Madam Chairman, that your bill 
prohibits recoupment of a perceived overpayment until after a 
decision has been made on an appeal that is under 
reconsideration. Denied claims are frequently reversed on 
appeal, and nearly all denials taken to the ALJ are overturned. 
Please consider taking this provision one step further so that 
providers are protected until their appeals are exhausted.
    It appears to limit, however, the postponement of 
overpayment recovery to circumstances in which the provider has 
initiated the appeal. I might say that the provider frequently 
does not have the right of direct appeal and must act on the 
beneficiary's behalf. Language of this provision must be 
modified to provide pre-recovery protection in all instances.
    Also, a majority of denied home health and hospice claims 
are rejected because they do not meet one or more technical 
requirements. The agency's only recourse is to undergo a costly 
appeal, and this delays final payment and unnecessarily burdens 
providers and intermediaries. Your legislation provides an 
opportunity to correct any errors or omissions in a most 
efficient manner.
    I would be remiss in my testimony if I did not touch upon 
the 15 percent cut scheduled for October of 2002. The CBO 
estimated that an additional 15 percent cut would be needed to 
meet the targeted $16 billion savings from home health care. It 
has become increasingly clear that these calculations are 
dangerously inaccurate.
    According to the latest figures, the 5-year total in 
reductions will exceed $70 billion. Home care providers have 
met the challenge of Interim Payment Services and PPS; however, 
we continue to struggle under the financial burden of other 
related issues. The proposed technical panel regarding the 
mandated Outcomes Assessment Information System (OASIS) 
assessment has not yet been convened, so I would like to take 
this opportunity to state that this process alone, the OASIS 
assessment, has cost my agency well over $100,000. Only a 
minuscule percentage of that will ever be compensated.
    A letter recently written by a home care nurse in 
Connecticut stated: ``I am disheartened by the paperwork burden 
which is stealing time away from needed patient care.'' She 
goes on to say: ``My supervisor is also diverted from helping 
me with patient care by the third-party liability paperwork, 
copying, and the review of records going back 3 years.''
    Several States, Connecticut in particular, are struggling 
to maintain viability under the burden of the Third Party 
Liability initiative. Records are requested for retrospective 
review for payment of duly eligible clients, and current 
interpretations are applied to past care. My agency soon must 
begin the duplication of over 15,000 pages of records which 
must be sent to the FI, and this only accounts for a very small 
portion of the review year. One large Connecticut agency 
reported that their costs will exceed $1 million just for the 
review process.
    H.R. 2768 addresses the burden of the escalating request 
for documentation. It is my hope that the provision will limit 
their request to what is necessary rather than reaffirm their 
current practices.
    While Home Care is well aware of the Nation's dwindling 
surplus, in light of the savings to date, the additional 
financial burdens home care faces, as well as a growing 
staffing shortage, we urge you to eliminate the 15 percent cut.
    Madam Chairman, the issues addressed by H.R. 2768 may seem 
quite technical in nature, but they will make a tremendous 
difference in the day-to-day operations. We in home health and 
hospice will work diligently to work with you for their 
    I thank you for your longstanding efforts on behalf of the 
Nation's home health providers and the patients and families 
they serve. On behalf of the National and Connecticut 
Associations of Home Care, I thank you and the members of this 
Committee for the bipartisan action that you have taken.
    Thank you.
    [The prepared statement of Ms. Wilson follows:]
  Statement of Susan Wilson, Vice President, Clinical Operations, and 
Chief Operating Officer, VNA of Central Connecticut, Inc., New Britain, 
Connecticut; President, Board of Directors, Connecticut Association for 
 Home Care, Wallingford, Connecticut; and Member, National Association 
                             for Home Care
    Thank you, Madame Chairman, Representative Stark, and Subcommittee 
members, for inviting me to present testimony on ways to bring 
regulatory relief to beneficiaries and providers, and specifically to 
discuss the many benefits that would result from enactment of HR 2768, 
the ``Medicare Regulatory and Contracting Reform Act of 2001.'' 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 home care in 
Connecticut, and a member of the National Association for Home Care 
    NAHC is the largest national organization representing home health 
care providers, hospices, and home care aide organizations. Among the 
nearly 6,000 organizations NAHC represents are 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 that collectively deliver more than 75 percent 
of all home health and hospice services provided in the state.
    In March I had the honor of being called before this panel to 
provide testimony on a number of the regulations and policies that 
impact a provider's ability to deliver high-quality patient care in an 
efficient manner. I am pleased to be back here today to personally 
extend my most sincere thanks for the many efforts that you, members of 
this Subcommittee, your staff, and others have made to ease burdens on 
home care and other providers.
    Madame Chairman, you and all of the members of the Subcommittee, 
particularly, are to be commended for developing HR 2768, the 
``Medicare Regulatory and Contracting Reform Act of 2001.'' This 
legislation will go a long way toward easing the impact of some of the 
most troublesome policies of the Medicare program. You have included a 
number of provisions that address specific problems that hospices and 
home health agencies have struggled with in recent years, including:
New Requirements for Regulatory and Policy Issuances
    Among the changes that would be enacted as part of HR 2768, you 
have included several provisions related to regulatory or policy 
issuances that will be of tremendous help to providers. First, the 
legislation prohibits any provision published in a final regulation 
that is not a logical outgrowth of the proposed regulation from taking 
effect until after appropriate opportunity for public comment. 
Additionally, your bill generally prohibits retroactive application of 
substantive changes in regulations or other policies, and extends 
protection against compliance actions relative to the change until 30 
days after issuance of the change. Home care has faced great 
difficulties in the past with policy issued with retroactive impact, 
such as the revision in standards for allowable branch offices. The 
bill should prevent this in the future.
    The bill also protects providers against sanction in cases where 
they have followed written guidance from one of Medicare's contractors. 
NAHC believes that it would be helpful if, with respect to this 
particular provision, the Subcommittee could provide clarification 
regarding what would constitute a ``sanction''--does this mean that a 
provider would not be subject to fines for wrongdoing, or would the 
protections extend to other obligations that resulted from the faulty 
guidance of the contractor? Home health agencies have followed written 
guidance from intermediaries on cost reporting only to find the 
intermediary later rejecting its own approval. This led to unfounded 
allegations of overpayments. We hope that these circumstances are 
included under this provision.
Contractor Accountability
    NAHC applauds your efforts as part of HR 2768 to improve Medicare 
contractor compliance and accountability through development of 
specific performance measures. We also believe that the emphasis you 
have placed on provider education is a sound foundation for improved 
provider relations with the contractors and greater understanding of 
the Medicare program. Of particular note is the bill's establishment of 
provision of technical assistance and program information to providers 
as one of the contractors' key functions. The availability of program 
information is so vital to the ability of providers to operate in 
compliance with the program that NAHC recommends inclusion of a similar 
provision applicable to Medicare's contractors for survey and 
certification, the state survey offices. An educational role for state 
survey offices is a key way to secure quality of care for patients.
    Section 6 of HR 2768 establishes a Small Provider Technical 
Assistance Demonstration Program. We believe that this is an excellent 
approach for evaluating billing and other practices of small providers 
to ensure compliance with Medicare law. As you know, Madame Chairman 
and members of the Subcommittee, the vast majority of home health 
agencies and hospices are small businesses that could greatly benefit 
from participation in such a demonstration. We support this effort 
wholeheartedly. We also would ask that the definition of ``small 
providers of services or suppliers'' be clarified to be certain that it 
would include providers of care such as hospices and home health 
agencies as it currently references ``institutional'' providers.
Medicare Provider Ombudsman
    Your establishment, under Section 7, of a Medicare Provider 
Ombudsman is a concept that NAHC has long advocated, and is very much 
in keeping with the spirit of your efforts and those of others who are 
working to ease regulatory burdens.
Recovery of Overpayments and Prepayment Review; Enrollment of Providers
    We have several comments and questions regarding the provisions in 
HR 2768 that relate to overpayments. As you are well aware, Madame 
Chairman, the Balanced Budget Act of 1997 (BBA) imposed deep and swift 
cuts on Medicare home health providers. Many providers operated for as 
much as one full year without knowing what the limits on their payments 
would be. As a result, a great number of agencies throughout the 
country found themselves in situations where they owed such significant 
amounts of money to the Medicare program that even a 36-month payment 
plan was too short a time. In such cases it was not unusual for the 
provider, contractor, and Medicare to establish a 60-month repayment 
schedule. We would urge that your legislation create sufficient 
flexibility so that repayment schedules of more than 36 months might be 
allowed under such special circumstances.
    Similarly, your establishment of a ``bright-line'' test for 
``hardship'' for overpayment obligations at 10 percent of the 
provider's Medicare income is understandable. However, and particularly 
in the case of home health agencies and hospices that are not heavily 
capitalized, ``hardship'' may occur with overpayment obligations at 
less than 10 percent. We would, once again, urge that some 
discretionary authority be extended so that special circumstances are 
considered for exceptions to the rule.
    We are delighted, Madame Chairman, that your bill would prohibit 
any recoupment of an overpayment until after a decision on a 
reconsideration has been rendered. Under the home health and hospice 
programs, significant numbers of denied claims are reversed on appeal, 
and nearly all denials taken to the administrative law judge level are 
overturned. We would encourage you to consider taking this particular 
provision one step further so that providers would be protected from 
overpayment recoupment until after their appeals are exhausted.
    The bill also appears to limit the postponement of the overpayment 
recovery to circumstances where the provider has initiated the appeal. 
In many of the appeals, the provider does not have a direct appeal 
right and must proceed as the beneficiary's representative in order to 
have the dispute reviewed. For example, a claim denial based on an 
alleged failure to submit a document can only be appealed by the 
beneficiary even though the provider suffers the financial 
consequences. We would suggest that the language of this provision be 
modified to provide the pre-recovery protection in all instances where 
the issue in dispute is under appeal.
    Under the Subcommittee's bill, Medicare contractors would be 
permitted to request the periodic production of records or supporting 
documentation for a limited sample of submitted claims to ensure that 
the previous practice is not continuing. As I have discussed with you 
and your staff, Madame Chairman, the duplication of records can be 
costly and time consuming. It is my hope that this particular provision 
was designed to encourage contractors to limit their requests to what 
is absolutely necessary, rather than to affirm some of the contractors' 
current practices.
    Use of statistical sampling by Medicare's contractors has been a 
significant problem for home health agencies at times, and we applaud 
your efforts to limit its use only to cases in which there is a 
sustained or high level of payment error or where documented 
educational interventions have failed to correct the payment error. 
This should ensure that sampling is used only in appropriate 
Ability to Correct Minor Errors and Omissions on Claims
    The vast majority of home health and hospice claims that are denied 
are rejected because they do not meet one or more of the technical 
requirements set out by the Medicare program. Under current practice, 
if an agency fails to meet a technical requirement in developing and 
filing claims--examples of which are failure to record the verbal order 
date on the plan of care, secure physicians' signatures on all verbal 
orders prior to billing (including minor treatment changes), or date 
the receipt of signed orders if the physician has not dated his or her 
signature--the claim is denied and the agency's only recourse is to 
undergo a costly and lengthy appeals process. This can delay payment to 
the agency for up to a year and a half, and unnecessarily burden 
providers and intermediaries. Your legislation would address this long-
standing problem by establishing a process under which health care 
providers would be given an opportunity to correct these minor errors 
or omissions without having to initiate an appeal. We consider this 
change in the law as a significant advance for providers, patients, and 
the Medicare program that will achieve great savings while providing 
Medicare payment for necessary care.
Additional Action to Shore Up the Home Health Program
    Madame Chairman and members of the Subcommittee, the issues 
addressed by your legislation may seem quite technical in nature, but 
they will make a tremendous difference in day-to-day operations of all 
types of providers. We in the home health and hospice world have sought 
a number of these solutions for many years and will work diligently for 
their enactment.
    I would be remiss in my testimony if I did not at least touch upon 
one additional issue that weighs heavily on home health providers 
nationwide---that of the 15 percent cut currently scheduled for October 
2002. As you will recall, the Congress included the additional 15 
percent cut in home health payments as part of a series of cuts under 
the Balanced Budget Amendment at the recommendation of the 
Congressional Budget Office (CBO). At the time, CBO estimated that the 
additional 15 percent cut would be needed in order to meet the targeted 
$16 billion in savings from home health for fiscal years 1998 through 
2002. With each passing year since BBA's enactment, it has become 
increasingly clear that those calculations were dangerously off the 
mark. According to the latest numbers from CBO, the five-year total in 
reductions for home health will exceed $70 billion--a far cry from the 
$16 billion goal.
    We in home care are painfully aware of the state of the nation's 
dwindling surplus. However, we respectfully urge that you take steps 
this year to eliminate the 15 percent ``Sword of Damocles'' that has 
hung over our heads these past few years.
    In closing, I cannot thank you enough, Madame Chairman, for your 
long-standing efforts on behalf of our nation's home health providers 
and the patients and families they serve. On a more personal note, it 
is a source of great pride for me to be able to call you ``my 
Representative'' in the Congress. Many thanks, again, for your 
exemplary advocacy.
    This concludes my formal remarks but I would be happy to answer any 
questions that any members of the panel might have.


    Chairman Johnson. I thank the panel for their extensive 
testimony and for your detailed suggestions. We will review all 
of them carefully.
    Let me just say for the education of my colleagues on the 
Subcommittee that this third party liability problem that we 
have in Connecticut and in a few other States is going to 
spread like a disease. It is a way that States can maximize 
Medicare reimbursement, move people from Medicaid onto 
Medicare, reduce the States' costs and increase our costs. What 
it results in is the State or some contracted agency requiring 
review of documentation on every, single patient.
    We had one agency in Connecticut, just a very small agency, 
who wrote that it was going to cost them $37,000 just to xerox 
the first round of requests. That is unconscionable, and any 
government that allows that kind of squandering of national 
resources is irresponsible and derelict in their duty.
    So we have made a lot of progress in negotiating an 
agreement on this, but we may need to include some language in 
this bill or another to ratify the resolution of that problem 
before it truly destroys particularly the small providers.
    But the provider that Ms. Wilson referred to that says it 
is going to cost them $1 million, it is $1 million for that one 
agency, just this first set of reviews, and it is big because 
they are the last agency that now serves inner-city folks 
needing home care. So it would be catastrophic if we wiped them 
out through utterly irrational regulatory requirements.
    Mr. Crane, would you like to question the panel?
    Mr. Crane. Thank you, Madam Chairman.
    Ms. Wilson, in your testimony, you urge us to amend H.R. 
2768 to postpone recovery of alleged overpayments until all 
provider appeals are exhausted. As you know, the OIG strongly 
opposes that proposal, arguing that the likelihood of 
successful recovery diminishes dramatically the longer the 
process is drawn out.
    H.R. 2768 tries to find a compromise by permitting recovery 
only after the first level of appeal is exhausted, which would 
filter out the majority of denials that will be overturned on 
    I understand that you would like us to go further. How can 
we do so and still be sensitive to the real concerns outlined 
by the Inspector General?
    Ms. Wilson. I believe that what needs to be done is to take 
a look at what has happened historically. The recoupment does 
take place after the first round of appeals; however, the 
continued look at the particular issue by going through 
additional appeals is lengthy, extremely costly, and I believe 
the history has been that a great many of those have been 
overturned in the long run.
    Essentially what has happened is that the agency has been 
paid a certain amount of money for service. It may be recouped 
at a certain time. However, the appeal process needs to 
continue. We are talking about many agencies, whether not-for-
profit or for-profit, that at this point are working under very 
tight constraints regarding costs. So that essentially, we are 
removing moneys from the agency necessary in order for them to 
continue the care that they are providing. Agencies are 
extremely hard-pressed to be able to do that.
    Mr. Crane. Thank you.
    Ms. Aronovitz, I would like to ask you to expand on some 
very important statements that you made in your testimony. 
Don't you think that competition will improve the operations of 
the Medicare contractors, and specifically, will it improve 
services for seniors and for health care providers?
    Ms. Aronovitz. Absolutely. The Federal Acquisition 
Regulation, which requires full and open competition, we think 
is essential; it is a real foundation to the way that most 
government entities contract for most goods and services. We 
think this is a very important principle even with claims 
administration contractors. I know there is some discussion of 
developing a system where CMS could be excused from ever 
conducting full and open competition where a contractor is 
performing very, very well.
    I personally have a lot of skepticism about that, because 
we have found that CMS has a lot of work to do before they 
develop the kind of performance system for claims 
administration contractors that could justify that kind of 
    Clearly, this is an extraordinarily large endeavor, and we 
do not expect that CMS would be able to do this in record time. 
It takes time to develop statements of work and to develop this 
type of contracting. But we think that CMS should develop these 
contracts, and there should be some time definite where all 
these contracts would be competed.
    Mr. Crane. Thank you. Thank you, Madam Chairman.
    Chairman Johnson. Mr. McDermott.
    Mr. McDermott. Thank you, Madam Chair.
    Dr. Hall, since you are the designated hitter for the 
medical profession, I want to ask you a couple of questions. I 
was just thinking about the fact that this country is going 
through an awful experience, and it is my view that there will 
be a national epidemic of post-traumatic stress disorder in 
this country. So I was just thinking, well, now, all those 
doctors are out there, and they are going to have to document 
this, and they have to find sleep disturbance, and they have to 
find irritability, and they have to find that it has lasted for 
more than 90 days. All of those are parts of the diagnostic 
criteria for making that diagnosis.
    And I was having some trouble remembering exactly what the 
diagnostic indicators were, so I was thinking to myself, what 
is it about this scheme that is out there of coding and 
documentation that, if you could change a couple more things in 
this bill to make it work better, what would you do--because I 
think physicians are overwhelmed with a lot of stuff coming at 
them, and I do not start with the premise that they are doing 
it on purpose, but on the other hand, we do need some 
    So if you were looking at this, what else would you change?
    Dr. Hall. Thank you, Congressman McDermott.
    If I were czar of the universe--and I certainly recognize 
that I am not--I guess there are a couple of things I would 
    As internists and particularly with evaluation and 
management services, which are the bulk of our business, 
particularly where older adults covered by Medicare are 
concerned, often our ability to tell you what you do not have 
is more important than our ability to tell you what you do 
have. I have very few patients, if I spent adequate time after 
a work-up sitting with them and saying, ``I have to tell you 
that we did not find that you have life-threatening cancer,'' 
very few of them say, ``Aw, shucks, I am not going to pay your 
bill because you did not make that diagnosis.''
    On the other hand, that is what I deal with constantly when 
I deal with CMS. If I go through the same, identical, 
exhaustive work-up, but it turns out that I have not diagnosed 
a more classic disease, I am very likely to have my payment 
rejected or at least down-coded. This is one of the problems 
that we face in a very complex system which, I agree with you, 
is going to get increasingly complex as the population ages, 
bringing with it a baby boomer level of demand, intellectual 
inquiry and access to the Internet.
    Internists are more and more going to be providing services 
to say to patients, ``I understand where you are coming from. 
This is not what you have. Here is how we can get your life 
back into a certain amount of order,'' which is really what the 
post-traumatic stress syndrome is. Add to that the fear of bio-
terrorism, and we are facing an amazing and I think formidable 
challenge in the next couple of years in our own country.
    So, what would I change? Well, I think the things that I 
hear the most include, first of all, the appeals process. This 
is felt to be inherently quite unfair to internists. More 
importantly, it has some very serious practical implications.
    We know that after the first appeal, very, very few of 
these claims turn out to be anything, as has already been 
mentioned, individual fraud is extremely rare, but some 
overpayment is unfortunately going to occur, just like 
underpayment. Then, let us get it right the first time. Let us 
put our resources at CMS into first of all being much more open 
and forthright in telling physicians and their staffs what they 
have to do right. Let us not have a situation where, if we call 
for advice, the person giving us the advice refuses to give us 
his or her name. Let us not have a process where, if we send 
our staff to various intermediary or regional carrier 
orientation sessions and they ask the wrong question, they are 
going to be targeted for review. This is not a healthy 
    I graduated from medical school the same year that Medicare 
was enacted, and I have never known anything else throughout my 
30-plus-year career. I happen to like it. I think it is a good 
system. But I think we have now reached the point where we are 
discouraging physicians.
    So what happens with this appeal process? Physicians toward 
the latter half of their careers are the people who are 
dropping out. They just do not want to have to deal with this 
problem and be considered guilty until proven innocent. If we 
then look at rural communities and what is happening in terms 
of physicians moving out, I am very much panicked about how we 
are going to take care of this bulge in the demographics 
without getting on top of it.
    Do it right. Set up a system that creates much more of a 
partnership between CMS and physicians, and let us not have 
physicians have to settle claims that they know are absolutely 
wrong just in order to stay in business, which is what is 
happening in a lot of places.
    Second, I guess I would take a very careful look, as you 
already have and as other people have testified to, at the 
whole extrapolation process. This just does not make any sense. 
It is all re-work. Let us do it right the first time. Let us 
get the educational guidelines set up.
    I file one income tax return a year--in fact, I file it for 
two of us, because my wife and I file together. I understand 
the need for some kind of random audit there, because I only do 
it once a year. But if I take care of 2,000 frail elderly 
people, I am submitting 6,000 claims a year. Wouldn't it be 
better to look at the claims that are being submitted already 
and say, ``Dr. Hall, compared to your peers in the community, 
your billing practices are not very right, and we think that we 
had better take a look at that.'' Why would we just pick a 
random audit sample out of those 6,000? It just does not make 
sense in terms of getting at the real problems. Thank you.
    Mr. McDermott. Would you let me have a little extension on 
that, Madam Chair?
    Chairman Johnson. Is that all right with you, Mr. Johnson?
    Mr. Johnson of Texas. Yes.
    Chairman Johnson. Yes, that would be fine, Jim.
    Mr. McDermott. We use the term in our bill ``a high level 
of payment error.'' I would like to know how you would define 
that. That triggers a bunch of bad things for a doc. So how 
would you define ``a high level of payment error'' for HCFA, or 
whatever that agency is called now?
    Dr. Hall. CMS. Well, I would be the wrong person to ask 
that, because whatever I said could be subject to some bias. 
But if someone were to ask my opinion on how it should be set 
up, I would say that within every region, there are standard, 
acceptable practices and there are frequencies of coding that 
are very much keyed to the specific population that is being 
taken care of.
    If I am practicing in Sun City, Arizona, my distribution of 
billing codes and my levels of care are going to be very 
different than if I am practicing in some other area where 
there is not such a high concentration of retirees.
    I think that the definition should be based on some kind of 
statistical cut point that says you should be within 95 percent 
of the spread of diagnostic codes and of billing codes, or 
whatever is the right number, but let us decide on that number 
that makes some sort of sense in the context of practice--and I 
agree there has to be some kind of accountability here. The 
last thing we are asking for is decreased accountability.
    Mr. McDermott. Thank you.
    Chairman Johnson. Thank you.
    I would note that Gail Wilensky testified to this point at 
our very first hearing, that the whole system needs to move to 
that kind of oversight so you can identify patterns early and 
can use that pattern process to get at providers who are either 
making errors or exploiting the system. I do not know that we 
can move that into this specific bill, but we are going to have 
to get into that much more deeply.
    I just want to clarify something before I go to Mr. 
Johnson. Did you say that if you do not diagnose a serious 
illness, the visit is then down-coded? We have heard this many 
    Dr. Hall. The likelihood is that with an EM service, if we 
do not have a piece of paper that has a lab test attached to it 
that says a certain disease was diagnosed, that claim has a 
much higher probability of being down-coded.
    Chairman Johnson. Are your people having trouble with Level 
5, which says ``comprehensive physical,'' versus Level 3, which 
says ``detailed physical''?
    Dr. Hall. There are problems there, but I think it runs 
through the entire spectrum of the coding levels.
    Chairman Johnson. Thank you.
    Mr. Johnson.
    Mr. Johnson of Texas. Thank you.
    Ms. Aronovitz, would you talk to me about how you have 
said, I believe, that there is a lack of accuracy in the 
information that Medicare contractors make available? Are the 
pressures of the system forcing that on them, or were your 
questions trick questions?
    Ms. Aronovitz. They were clearly not trick questions, and 
we were very disturbed by our findings. We did not expect to 
have such a high error rate.
    Our questions were actually taken from contractors' 
websites under their ``Frequently Asked Questions'' section, so 
these are questions that should have been answered correctly.
    We think that there is a lot of pressure for customer 
service representatives to answer questions quickly and well, 
and there is no excuse for having such a high error rate. We 
think that the training and the oversight that is given to 
customer service representatives and other activities that are 
conducted at the contractor level need to be more standardized, 
and they need to be increased.
    Mr. Johnson of Texas. Is it the fault of the system that 
makes the paperwork level almost extreme? Most of the doctors, 
I think, have to hire one or two people just to keep track of 
what is going on. Is that part of the problem?
    Ms. Aronovitz. Well, there is some concern that the program 
is so complicated that customer service representatives have 
trouble figuring out the correct answers. But in this case, 
these three questions were ones that had been asked so many 
times that the answers were very straightforward and very clear 
and had been discussed with customer service representatives 
several times.
    So we do not think that our questions in any way indicate 
the kind of complexity where the expectation is that they 
should not have been able to answer correctly. They clearly 
should have been able to answer these questions.
    Mr. Johnson of Texas. Do you think that they are answering 
truthfully in their own minds and just did not get the question 
right, or what?
    Ms. Aronovitz. Yes, I really do. I think maybe it could 
have something to do with training or oversight or monitoring 
or feedback. There are lots of things they have to worry 
about--not just answering the question correctly, but there are 
a lot of process questions. They need to make sure that they 
ask a follow-up. There is a lot of phone etiquette that they 
also have to engage in. And to their credit, they also answer a 
lot of questions that pertain to reimbursements on specific 
claims. We have not tested those, but we do not hear complaints 
from physicians when they call up about those kinds of things.
    So we think they need a lot more training, and they need to 
have more feedback in terms of how their performance is 
    Mr. Johnson of Texas. Did I just hear you say that 
physicians are not griping about their reimbursements?
    Ms. Aronovitz. No, no, no. I did not say they are not 
griping about their reimbursement at all. What I said was that 
we have not heard the same level of concern when a physician 
calls one of these call centers and asks, ``What is the status 
of my reimbursement?'' In other words, when is it coming? They 
seem to be satisfied that they get an answer; whether they are 
happy with that----
    Mr. Johnson of Texas. OK. Did you pursue HCFA at all as to 
why they do not trust the providers and the docs when they are 
giving them information? That has been my experience in dealing 
with them. Did you pursue that at all?
    Ms. Aronovitz. Why the physicians do not trust the answers?
    Mr. Johnson of Texas. Why HCFA will not take information 
from the hospitals, docs, and associations as real; they have 
to go out and do their own studies, which are always about 10 
years late. Did you pursue that at all?
    Ms. Aronovitz. We did not really pursue that, but it is an 
interesting point. I think that CMS is starting to reach out 
more, and we are very encouraged by their interactions with 
physicians, trying to get feedback on their concerns. But you 
are right, they do a lot of their independent studies, and they 
feel they really need to to get the kind of evidence they need 
to make program changes.
    Mr. Johnson of Texas. Well, I think it is a waste of time 
and money on their part, frankly. Thank you, Madam Chairman.
    Chairman Johnson. I just want to pursue one brief question 
with Dr. Hall and one with Ms. Aronovitz.
    Dr. Hall, it was very helpful to hear you follow up on Dr. 
McDermott's questions, but in your testimony, you said 
something about instead of all this documentation, a one-pager. 
Have you thought through what that one-pager would be, or would 
you be interested in having your people begin thinking through 
what is--because this is something that actually I have 
proposed and we have in our bill, sort of a demonstration 
possibility for people outside the government, without any 
background or without any attachment to the bureaucracy and the 
IG, to come up with what they think in the real world is 
sensible documentation, and then we can go through the process 
of rectifying it.
    But right now, we are trying to rectify a process that is 
extraordinarily detailed and intrusive with a generalized 
payment system and with an IG who has the right to require 
things that even the IRS does not have the right to require.
    So there are other steps beyond this bill, but I wonder if 
you would be interested in sort of giving body to that comment 
that you made in the course of your testimony.
    Dr. Hall. Congresswoman Johnson, I thought you would never 
ask. I think there is a start. Within the Current Procedural 
Terminology documentation, there is such a document that is 
much more contracted than what we have had before. One of the 
proposals for a pilot study would be to combine that with the 
element of time, the actual commodity that we are really 
talking about in an office setting. We could supply some of 
that information to the Subcommittee. We would be able to get 
that to you right away, right from our own Washington office.
    Chairman Johnson. We would appreciate your getting that to 
us right way, and then we can flesh out that particular pilot 
idea, because in the long run, I personally believe that we 
will not be able to continue to attract the quality of mind or 
heart to medicine if we do not do something about the fact that 
they are paid on the basis of an RBRVS formula which is so 
extraordinarily complex, and nobody understands it, not even 
the people who implement it, a coding system that now is almost 
unworkable, and a practice expense formula that is also 
controversial, complex, and in my estimation, unworkable.
    So when you look at the three systems supporting physician 
reimbursement, frankly, it is not the future, and we have to 
find radical ways to break through and find another basis on 
which to restore an honest and responsive relationship to a 
medical community that has to increasingly deal with complex 
illnesses, complex methods of diagnosis and treatment. This is 
also true in the home health area and in many other areas, but 
if you will get that to us, we will work on that.
    Dr. Hall. We will do that. Could I just make one comment in 
relationship to that?
    Chairman Johnson. Yes.
    Dr. Hall. The medical chart for most physicians is more 
than a legal document. It is really the record of the clinical 
transaction that goes on behind closed doors with the patient. 
It often contains, if it is a proper chart, information that 
maybe some people would not even share with their spouses. It 
is very, very important to the continuity of care.
    What we have now done is taken that record and used it as 
the sole basis for determining the quality and quantity of the 
interaction that occurred behind those closed doors. It was 
never meant for that, so what we are finding is that I 
personally and all the people we work with spend an inordinate 
amount of time recording what is quite frankly nonsense--it has 
nothing to do with what is important for that patient--in order 
to justify and provide the documentation that is necessary.
    To be sure, there has to be some metric for that 
documentation that is understandable and allowable, but I think 
the bureaucracy has just gotten away from us. We need to 
reestablish this dialog between the medical profession and CMS 
and just come up with a better way.
    Chairman Johnson. Thank you. We invite your participation 
in that dialog, and we hope to push that dialog ahead very 
aggressively from this Subcommittee.
    Ms. Aronovitz, I was surprised at your response to Mr. 
Johnson's comment--or another of my colleagues; I am not quite 
sure--about giving CMS the flexibility to renew contracts 
without a bid process. This business of setting standards is 
not rocket science. Just because the government has not 
bothered to do it does not mean it is not quite regularly done 
throughout the private sector and is not a process that we know 
a lot about.
    I would like to preserve that right, because the bidding 
process is very expensive, and it is going to take a while to 
get this first round, and I think there needs to be some 
flexibility to recognize high performance. So one possibility 
might be to require a report to the Committee on the standards 
once they have been set so we can have a dialog about that; we 
could even have hearings on it if we think the standards are 
too low or not well enough developed, and then a report when 
the decision is made by the government not to go to bid, so 
that we can follow this.
    But I think that at the time we are giving flexibility, we 
need to give broad flexibility, because we are going to make 
really radical changes in the system. Do you have any comment 
on that?
    Ms. Aronovitz. Sure, I do. First of all, I totally agree 
with you. We believe that performance standards is one of the 
most important principles in any type of contract. Setting up 
expectations and then providing oversight and monitoring and 
feedback is essential to understanding whether you are getting 
your money's worth for any goods or services you would have.
    So we definitely believe that that is critical. It is just 
that CMS does not have really strong performance measures. I 
think they are getting there, and in their program safeguard 
contractor efforts, it is coming along.
    In terms of the expense involved in doing full and open 
competition, we agree that this could be very expensive, but we 
think the expense really comes in the first round. CMS really 
does not have experience on claims administration contracts, in 
writing statements of work, in developing this process. We 
believe, though, that once it does that for several 
contractors, it could use the same approach or the same 
statement of work for competing in future years or even 
competing with other contractors or doing one big competition.
    So we think that the expense that they are going to incur 
up front is going to be a fixed cost that could apply across 
the board. We do not think there would be that much saved in 
exempting one contractor down the road from having full and 
open competition, and there are some real benefits to it down 
the road. That is, no matter how well you are performing, it 
forces you to look around and make sure that you are improving 
because you know you do have competition.
    The last thing I want to say is that we agree that we would 
not want to push CMS into doing this in a time frame that would 
be unreasonable. I think that if all competition would have to 
be completed by 2006 or 2007 or 2008, or whatever amount of 
time would be reasonable to give CMS a chance to do this well 
and to do it in a phased approach, we are not in any way 
opposed to that. It is just that ultimately, these contracts 
should be completed because there are a lot of benefits that 
could be derived.
    Chairman Johnson. Thank you very much. Mr. McDermott.
    Mr. McDermott. Madam Chair, I wonder if it would be 
possible--I keep thinking about the IRS, and they do not make 
you pay in advance; what they do is they charge interest when 
you finally settle up--I wonder if we could not consider an 
amendment to move it up a layer in the appeals process before 
people have to pay, knowing that they would have to pay 
interest. Is there some compromise that we could work out in 
there to make it a little less onerous to hit somebody right up 
front and make them pay for what then takes sometimes as much 
as 3 years to pay--and you may not in fact wind up paying at 
the end of the 3 years. That seems unfair to me.
    Chairman Johnson. I certainly would be happy to look at it 
with you. First of all, I take the interests of the 
Subcommittee members very seriously, and in addition, there are 
some data that say that particularly for physicians on that 
second level of review, 60 percent--on the first level of 
review, 40 percent have changed, and on the second level of 
review, the remaining 60 percent are reviewed.
    We have found that there is some disagreement about those 
figures and whether they really hold up, but I think we would 
be happy to look at it with you and see if we can--I know that 
for all of you, that second level of review is important.
    Mr. McDermott. When do you anticipate having a markup?
    Chairman Johnson. We anticipate resolving these kinds of 
issues this week, so we will be talking about this directly 
this week, and hopefully will be able to have a Subcommittee 
markup in 2 weeks.
    Mr. McDermott. Two weeks?
    Chairman Johnson. Yes.
    Mr. McDermott. OK.
    Chairman Johnson. Unless there are other time frames that 
are beyond our control that require us to move it up more 
    Mr. McDermott. Thank you.
    Chairman Johnson. Thank you.
    Thank you very much, members of the panel. I so appreciate 
your joining us and giving such serious consideration to the 
proposal that we put out a month and a half ago.
    Thank you very much.
    [Whereupon, at 12:22 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]
        Statement of the Advanced Medical Technology Association
    AdvaMed is pleased to provide this testimony on behalf of our 
member companies and the patients and health care systems we serve 
around the world. AdvaMed is the largest medical technology trade 
association in the world, representing more than 1100 medical device, 
diagnostic products, and health information systems manufacturers of 
all sizes. AdvaMed member firms provide nearly 90 percent of the $68 
billion of health care technology products purchased annually in the 
U.S. and nearly 50 percent of the $159 billion purchased annually 
around the world.
    AdvaMed would like to thank Chairwoman Johnson, Ranking Member 
Stark, and the members of the Subcommittee for their bipartisan effort 
to make the Medicare program more efficient and effective for providers 
and Medicare beneficiaries. Medicare is a critical program for some 40 
million Americans, and we greatly appreciate the way that the Committee 
has reached out to the health care community to develop legislation to 
make the program easier to understand, comply with, and participate in.
Contracting Reform
    While some reforms to the contracting process are warranted, 
AdvaMed strongly believes that any reforms that would result in changes 
in local carriers or consolidated areas for carriers should maintain a 
process for making coverage decisions locally, and for securing input 
from the local medical community.
    AdvaMed strongly supports Medicare's local coverage process as a 
vital route for timely patient access to the vast majority of 
innovative medical technologies. The local coverage process offers an 
important alternative to national coverage decision-making by the 
Centers for Medicare and Medicaid Services (CMS), which runs Medicare 
and oversees local contractors. Currently, Medicare patients face 
delays of 15 months to five years or more in gaining access to 
technologies at the national level.
    Consolidation of the number of local Medicare contractors that make 
coverage decisions would severely constrict or eliminate the local 
coverage route and create significant new delays in patient access to 
important new medical technologies and services. AdvaMed appreciates 
the work of Congress and CMS to examine Medicare contractor operations 
in areas such as accountability and performance incentives. However, as 
Congress addresses this issue, we urge it to avoid steps that would 
undermine the local coverage process as a route to early patient access 
to new medical technologies.
    The local coverage process provides the flexibility and timeliness 
needed to keep pace with rapid advances in medical technology. Current 
flexibility at the local level very efficiently incorporates the 
majority of new procedures and technologies into the existing Medicare 
payment systems. This flexibility includes:

         timely access to local contractor decision-makers
         an active relationship with the local medical 
        community and understanding of local medical practice, and
         the ability to make case-by-case determinations.

    Local decision-making authority provides Medicare beneficiaries 
access to new procedures and technologies without having to wait until 
these innovations have been disseminated nationally.
    A recent report by the Lewin Group, a prominent health care policy 
research firm, also highlighted the value of the current local Medicare 
coverage process. According to the Lewin Group, ``the local coverage 
process remains a critical avenue for obtaining coverage'' for the vast 
majority (90%) of new technologies and services.
    Preservation of the local coverage process is particularly 
important, the Lewin Group found, because it offers a way for patients 
to gain access to many innovative technologies that otherwise would 
encounter significant coverage delays at the national (CMS) level. 
Lewin cites the example of a breakthrough technology in women's health, 
dual x-ray absiorptiometry, which is used to diagnose osteoporosis. It 
took Medicare more than seven years to cover this technology at the 
national level. However, coverage decisions by local Medicare 
contractors during that time enabled many women to gain access to this 
technology who otherwise would not have been able to receive it.
    AdvaMed strongly believes that, despite any contracting reforms, a 
process for making coverage decisions locally, and for securing input 
from the local medical community (through the local coverage advisory 
committee) should be maintained.

         Local authority to make decisions. One approach to 
        maintaining local decision-making is to require contractors to 
        grant local physicians (such as state medical directors) direct 
        authority to make coverage decisions, in consultation with 
        their peers in the local medical community. This includes the 
        authority to make claims-level case-by-case decisions in a 
        timely manner.
         Local carrier advisory committees (CACs). Local CACs 
        should be continued in each state to assure that local medical 
        review policy reflects the consensus of the local physician 
        community. Changes in local coverage decisions should be 
        subjected to the normal review and comment process with the 
        local CAC.
         Local codes. Occasionally, to implement a local 
        decision, it may be necessary to issue a new temporary local 
        code, and so we recommend that contractors continue to have the 
        authority to issue and recognize local codes.
         Accessibility and Responsiveness. Contractors should 
        require their medical directors to be readily accessible and 
        responsive to local physicians, providers, beneficiaries, and 
        manufacturers, and to continue to respond and render decisions 
        in a timely manner.
         Open Participation in Decision-making. Last November, 
        CMS issued a program memo instructing contractors to post their 
        draft coverage decisions on their websites for comment. We 
        suggest extending this to include additional information 
        earlier in the process, similar to the national level, where 
        the local medical director would post to the website the intent 
        to make a coverage decision, what information will be reviewed, 
        the names of the members of the coverage advisory committees 
        who will be reviewing the information, and acceptance of input 
        from interested parties during the various stages of this 
        process. This would apply to any changes in local coverage 
        policy, including those that may result from a change or 
        consolidation of contractors.
    AdvaMed thanks the Subcommittee members again for their 
collaborative efforts to improve and strengthen the Medicare program. 
We look forward to working with this Committee, the Congress and the 
Administration on this important legislation, as well as additional 
ways to improve the quality of care available to seniors through 
Medicare and foster the delivery of innovative therapies for patients.


             Statement of the Alliance to Improve Medicare
    The Alliance to Improve Medicare (AIM) is the only organization 
focused solely on fundamental, non-partisan modernization of the 
Medicare program to ensure more health care coverage choices, better 
benefits (including prescription drug benefits), and access to the 
latest in innovative medical practices, treatments and technologies 
through the Medicare system. AIM coalition members include 
organizations representing seniors, hospitals, small and large 
employers, insurance plans and providers, doctors, medical researchers 
and innovators, and others.
    AIM recently released the attached report outlining regulatory 
burdens on both Medicare beneficiaries and providers and recommending 
administrative remedies. The report, ``Improving Medicare Management 
for Everyone'', identified areas of complexity for both senior citizens 
and providers including health plans, hospitals, and medical technology 
innovators. AIM identified beneficiary concerns including the lack of 
clear information on benefits and eligibility, access to prescription 
drug benefits, and difficulties understanding Medicare paperwork. The 
report also outlined provider regulatory burdens including inconsistent 
Medicare program policies, slow responses to provider concerns and 
inquiries, and an inflexible Medicare bureaucracy.
    Complexity in Medicare's rules governing beneficiary and provider 
participation has resulted in increasingly bipartisan support to 
improve the fairness of the system for all participants. AIM applauds 
Subcommittee Chairwoman Nancy Johnson and ranking member Pete Stark for 
their bipartisan efforts in the discussion of necessary regulatory 
reforms to the Medicare program. We hope the Subcommittee will consider 
the recommendations in the attached report as they continue their 
discussions on this issue.

               Improving Medicare Management for Everyone

 Improving Medicare Management Through Reducing Regulatory Burdens on 
                    Both Providers and Beneficiaries

              A Report by the Alliance to Improve Medicare

                               June 2001

    The Alliance to Improve Medicare (AIM) is a coalition of 
organizations representing seniors, doctors, hospitals, patients, 
medical researchers and innovators, insurance plans and providers, 
small and large businesses and others who believe that Americans need 
and deserve a better Medicare program. AIM is the only organization 
focused solely on fundamental, non-partisan reform of the Medicare 
program to ensure more coverage choices, better benefits (including 
prescription drug benefits), and access to the latest in innovative 
medical practices and treatments though the Medicare system.
    The structure of the traditional Medicare program has changed 
little in more than three decades, and, consequently, has not kept pace 
with many of the dramatic improvements in the delivery of health care. 
AIM is dedicated to comprehensive modernization of the traditional 
Medicare program. By focusing on benefits and services rather than 
excessive government regulation, and injecting competition and choice 
into the program, AIM believes we can have a better Medicare program 
and one that will be financially healthy well into the 21st century.
    AIM is working to achieve Medicare modernization through policy 
research and educational programs for Members of Congress and staff, 
the media, and the American public.
Key AIM Principles

         Improve coverage through better coordination of care 
        and health promotion and disease prevention efforts.
         Improve coverage choices by providing Medicare 
        beneficiaries with the power to choose from a range of coverage 
        options similar to those available to Member of Congress, 
        federal employees and million of working Americans under age 65 
        who are covered by private plans.
         Improve coverage through increasing market competition 
        and availability of basic, affordable coverage to Medicare 
         Provide access to prescription drug coverage as part 
        of comprehensive, market-based modernization and improvement.
         Improve traditional Medicare's basic benefit package 
        and provide the flexibility to make new health care innovations 
        more accessible.
         Reduce Medicare's excessive complexity and rigid 
         Establish a solid foundation upon which to improve 
        Medicare by ensuring appropriate and timely payments to health 
        plans and providers.

                      ALLIANCE TO IMPROVE MEDICARE



                     Improving Medicare Management

   Through Reducing Regulatory Burdens on Providers and Beneficiaries

    Medicare, the world's largest health insurance program, serves 
approximately 40 million beneficiaries today and is projected to serve 
nearly double that number when the baby boom generation fully enters 
the program. Increasing dissatisfaction, however, from both 
beneficiaries and providers has forced policy makers to consider 
whether Medicare can survive for these future beneficiaries. AIM 
members applaud the Administration and Congress for their work to 
strengthen and improve the Medicare program for today's beneficiaries 
and for future generations but urge a continued focus on a solid 
administrative infrastructure geared toward beneficiary interests.
    Most important is the vision that Medicare was created to serve 
senior citizens and disabled individuals, to ensure that these 
individuals are provided with quality, appropriate health benefits. 
Since the program's creation, however, Medicare benefits have not kept 
pace with private health coverage. In addition, both Medicare 
beneficiaries and providers have been subjected to more and greater 
regulatory and administrative requirements for participation. These 
requirements have harmed providers and caused some health plans to 
leave the program entirely while others have been forced to reduce 
benefits in order to maintain financial solvency. Beneficiaries have 
also suffered through a scarcity of information and confusing coverage 
    Complexity in Medicare's rules governing beneficiary and provider 
participation has resulted in increasingly bipartisan support to 
improve the fairness of the system for all participants. AIM applauds 
the bipartisan efforts of House Ways & Means Committee members to 
develop and recommend changes to the current program. Like the 
recommendations contained in the May 14, 2001 letter from House Ways & 
Means Health Subcommittee Chairman Nancy Johnson (R-CT) and Ranking 
Minority Member Pete Stark (D-CA) to U.S. Department of Health and 
Human Services (HHS) Secretary Tommy Thompson, many of the 
recommendations contained in this report can be achieved through 
administrative actions.
    AIM urges Congress and the Administration to work together to 
achieve these regulatory reform goals this year and to strengthen and 
improve the Medicare program for both beneficiaries and providers.
    This report identifies primary beneficiary concerns as well as some 
of the major administrative problems and regulatory burdens facing 
health care plans and providers in the Medicare program. Further, the 
report makes recommendations to improve Medicare coverage through 
reduction of regulatory burdens on both beneficiaries and plans and 
    The beneficiary recommendations are based on surveys of Medicare 
caseworkers in Congressional District offices conducted in May 2001. 
The surveys, sent to field offices of all Member of the U.S. House of 
Representatives and U.S. Senate, requested input on the most common 
concerns raised by beneficiaries in their attempts to understand and 
comply with Medicare paperwork. AIM received completed surveys from 
over 100 Congressional district offices in 40 states.
    The health plan and provider regulatory burden relief 
recommendations are based upon responses from a variety of AIM member 
organizations representing a range of industries.

Medicare Modernization: Beneficiary Regulatory Concerns
    AIM surveyed Medicare caseworkers in Congressional district offices 
to compile the recommendations included in this section. Generally, the 
caseworkers reported that constituents' Medicare concerns rank second 
or third in sheer volume of inquiries to their offices. Caseworkers 
overwhelmingly reported that the biggest concern raised by constituents 
is obtaining information about Medicare eligibility and benefits and 
understanding that information. Caseworkers specifically cited 
difficulty obtaining basic information on Medicare eligibility and 
understanding enrollment opportunities. Further, beneficiaries appear 
to have great difficulties understanding Medicare claims and appeals 
procedures. Ranking second among beneficiaries, according to 
caseworkers, is obtaining coverage for prescription drugs and 
assistance in paying for prescription drugs. Understanding and 
responding to Medicare paperwork, particularly for beneficiaries with 
supplemental coverage, ranked third among beneficiary inquiries to 
Congressional offices.
Beneficiary Benefit and Compliance Concerns

    Recommendation: Provide Better Information on Beneficiary 
Eligibility and Covered Services including Claims and Appeals 
Procedures (Administrative)

    Medicare beneficiaries are often confused about basic eligibility 
and benefits requirements despite efforts by the Centers for Medicare 
and Medicaid Services (CMS--formerly known as the Health Care Financing 
Administration) to improve and expand communications. Many Medicare 
beneficiaries continue to have trouble obtaining clear explanations of 
their benefits. Beneficiaries appear to lack clearly identified 
customer service representatives who can provide assistance by 
explaining coverage and benefit information and options.
    Beneficiaries also appear to need additional assistance 
understanding Medicare claims and appeals procedures. Beneficiaries 
contacting Congressional offices frequently raise concerns about denial 
of payment for services previously covered. For example, coverage for 
ambulance services and chiropractic care were specifically cited on 
nearly 10% of all responses. Beneficiaries are confused about what is 
covered and report to Congressional caseworkers they have been told by 
their physician that a service is covered but they are later informed 
that Medicare has denied coverage for that particular service. 
(Medicare makes coverage determinations only after services are 
    Caseworkers responded that many beneficiaries are unaware of 
existing opportunities for assistance from such organizations as State 
Health Insurance Assistance Programs and other medical hotlines or 
simply lack access to opportunities such as the Internet and the 
www.Medicare.gov web site. Beneficiaries clearly need such information 
to be more easily accessible.
    AIM applauds the Medicare Patrol Project grants recently announced 
by HHS Secretary Thompson. The grants will fund programs to train 
senior volunteers help other seniors learn to read Medicare notices and 
how to obtain answers about billing and claims questions. HCFA should 
expand such efforts to provide better and more easily accessible 
information to beneficiaries and their family members to outline basic 
eligibility and benefits. Separately, more detailed information to 
clearly explain claims and appeals procedures should be provided to 
beneficiaries and providers. HCFA should also consider greatly 
expanding Medicare customer service operations through additional 
hotlines and marketing efforts.

    Recommendation: Provide Prescription Drug Coverage (Statutory)

    Beneficiaries contacting Medicare caseworkers report the lack of 
prescription drug coverage to be a significant concern.
    AIM members believe all Medicare beneficiaries should have basic 
prescription drug coverage and encourages Congress and the 
Administration to work toward a bipartisan solution. AIM supports 
efforts to strengthen and improve the existing Medicare benefit package 
through inclusion of prescription drug benefits.
    AIM believes an integrated benefit is necessary to ensure the long-
term viability of the Medicare program. Congress should not simply 
layer a new, stand-alone drug program onto the traditional Medicare 
program without addressing the program's outdated and inadequate 
financial and structural systems.

    Recommendation: Reduce Paperwork Burden on Beneficiaries 

    Beneficiaries report enormous difficulties understanding Medicare 
and its paperwork. Further, beneficiaries with supplemental coverage 
receive, and must respond to, paperwork and information from multiple 
coverage sources. Specifically, beneficiaries contacting Congressional 
caseworkers cite the monthly Medicare Summary Notice as a source of 
great confusion.

Improving Medicare Management: Provider Regulatory and Compliance 
    This section illustrates outdated or burdensome regulatory business 
practices which the Center for Medicare and Medicaid Services (CMS--
formerly known as the Health Care Financing Administration) should 
eliminate or streamline to improve the delivery of health care through 
the Medicare program. All of the recommendations could be achieved 
through administrative action.
    This report shows that CMS does not currently operate as a good 
business partner with private sector providers. AIM members believe 
that CMS must refocus its goals to emphasize cooperative relationships 
with providers including health plans, hospitals, doctors, technology 
innovators and other private sector partners. AIM believes CMS must 
replace the current rigid and outdated bureaucracy with the flexibility 
to make new health care innovations more accessible and to reduce 
excessive complexity of federal rules, regulations, and guidelines.
    Further, CMS should seek health plan and provider input prior to 
making or changing policies, and should establish a process for the 
responsible department within CMS to certify to the Administrator its 
readiness before changing over to a new system or policy. Because plans 
and providers are on the front line of health care, they are best 
positioned to gauge the administrative burden of proposed policy 
changes, as well as the likely impact on patient care. In addition, 
plans and providers often can propose potentially less burdensome and 
more effective alternatives. Thus, by consulting health plans and 
providers before changing policies, CMS can increase efficiency, limit 
or reduce regulatory burdens, and potentially improve health care 
quality and patient outcomes. Similarly, requiring CMS to certify its 
readiness to implement a change before doing so potentially saves the 
enormous time, effort and expense that result when plans and providers 
are required to follow a new policy before CMS, itself, is prepared for 
the policy.
    Additionally, advanced medical technology is playing an 
increasingly important role in the delivery of quality health care. 
However, Medicare has not kept pace with advances in medicine. In fact, 
many of the policies and procedures CMS uses to incorporate new 
technologies into Medicare reflect the science and health care system 
of 1965, when the program was created.
    Today, advances in areas such as DNA-based testing, 
microelectronics, tissue engineering and molecular imaging are 
transforming health care--and patients' lives. Frequently, cutting-edge 
medical technologies are supplanted by new breakthroughs in two years 
or less, yet Medicare can take 15 months to five years or more to make 
these advances available to seniors and people with disabilities. The 
recommendations below will help make timely patient access to 21st 
century medical technology a part of CMS's new mission.
    AIM supports CMS Administrator Thomas Scully's recently stated 
goals to improve the Medicare+Choice (M+C) program by improving and 
increasing information about M+C options to eligible beneficiaries and 
by examining administrative simplification of the program. Mr. Scully 
stated his goal to increase the enrollment of beneficiaries in 
Medicare+Choice plans and we look forward to working with his agency to 
achieve this goal.
    AIM also looks forward to working with HHS Assistant Secretary for 
Planning and Evaluation Bobby Jindal and the Task Force on Regulatory 
Reform to review these and other recommendations for relief.
Provider Regulatory Relief Recommendations

    Recommendation: Publish Guidelines for Beneficiary Materials 

    CMS should halt efforts to standardize written materials for 
Medicare beneficiaries. The current requirement for CMS approval of all 
documents and CMS's long term objective for standardizing many more 
communications is problematic. Health plans need to tailor their 
communications to their own programs. CMS's current review of 
communications creates constant revisions and delays for plans and 
there is inconsistency among reviewers. Even implementation of the 
standardization of the document called the ``Summary of Benefits'' has 
resulted in approvals of inaccurate documents, as the ``standard'' may 
not allow for specific plan benefit designs.
    CMS should provide a checklist for plans of the information 
required to send to beneficiaries. CMS should also develop marketing 
and communications guidelines and require compliance with such 
guidelines on the contents of beneficiary communications. Violations 
could then be determined from on-site reviews similar to state market 
conduct audits when a plan is reviewed for compliance with state 

    Recommendation: Improve and Consolidate CMS Oversight of M+C 
Program (Administrative)

    CMS's fragmented approach to policy making has been a major barrier 
to success of the M+C program. Authority for the M+C program is 
currently divided among three CMS Centers: the Center for Health Plans 
and Providers; the Center for Beneficiary Services; and the Office of 
Clinical Standards and Quality. The result is a complex and inefficient 
policy making process.
    For example, issuance of the Quality Improvement System for Managed 
Care (QISMC), developed by the Office of Clinical Standards and 
Quality, created further confusion about CMS's standards, because it 
overlapped with and differed from regulatory requirements developed by 
the Center for Health Plans and Providers and the Center for 
Beneficiary Services.
    AIM members are pleased that CMS Administrator Scully has announced 
the creation of the new Center for Beneficiary Choices to focus on 
Medicare beneficiaries in private plans. We urge CMS to designate an 
official who reports to the CMS Administrator and has responsibility 
for overall program oversight. This will allow for greater efficiencies 
and streamline requirements that now may be developed within different 

    Recommendation: Coordinate Release of Federal Regulations 

    The duties of the Office of Information and Regulatory Management 
(OIRA) at the Office of Management and Budget should be enhanced to 
allow for the orderly release of regulations from federal agencies. 
Such coordination should recognize the tremendous burden placed on 
providers who must simultaneously implement multiple, complex 
regulations from agencies like CMS, HHS, OSHA and EPA. For example, in 
the last two years, even though CMS delayed implementation of some 
statutory provisions to address potential Y2K system problems, 
hospitals have still had to make significant changes to their patient 
data collection, coding and billing systems to implement prospective 
payment systems for Medicare skilled nursing care, home health care, 
outpatient care, and transfers of inpatients. This is in addition to 
other regulations hospitals are currently in the midst of implementing, 
such as uniform electronic transactions standards, privacy standards, 
ergonomics standards, and prospective payment for rehabilitation 
services. The implementation of regulations should be better 
coordinated so that providers' administrative and information systems 
are not overwhelmed.

    Recommendation: Create a Medicare Office of Technology and 
Innovation to Improve CMS Accountability, Openness and Coordination in 
Making Timely Decisions (Administrative)

    Many important new medical technologies and services must go 
through three sequential stages of Medicare decision-making--the 
initial coverage decision, assignment of a procedure code, and 
determination of a payment amount--before they are widely available to 
patients. This process has suffered from a lack of coordination and 
long delays in patient access to new treatment options.
    Congress should create a new Office of Technology and Innovation at 
CMS to improve coordination among the agency's offices involved in this 
process and facilitate a shift in CMS's culture to one that supports 
the development and dissemination of beneficial new technologies.

    Recommendation: Develop Consistent Policies Throughout the Program 

         M+C organizations across the country frequently 
        receive different instructions and policy interpretations from 
        the 10 CMS Regional Offices and the CMS Central Office. 
        Regional Office Administrators and CMS Center Directors report 
        directly to the CMS Administrator. Regional offices and centers 
        are not required to maintain program-wide consistency for 
        instructions or policies.
          For example, the CMS Central Office has issued model language 
        for beneficiary communications and stated that use of the 
        language by plans is discretionary: if a plan chooses to use 
        the language as issued, it will not be subject to change by the 
        Regional Offices and will receive expedited review. Contrary to 
        Central Office instructions, however, some Regional Offices 
        have required rather than permitted use of the model language 
        and required plans to make changes in the Central Office model 
        language in order to obtain Regional Office approval.
         CMS should adopt consistent policies for Part A and 
        Part B. Examples of inconsistency include: advanced beneficiary 
        notices (ABNs) and medical necessity determinations for Part A 
        and Part B; Medicare secondary coverage determinations for Part 
        A and Part B, including reference labs, etc.
          Requiring consistency in administration of Part A and Part B 
        will simplify and streamline compliance both for providers of 
        Part A services and providers of Part B services (and 
        especially for providers of both types of services), as well as 
        promoting fairness by leveling the health care playing field.

    Recommendation: Reduce CMS Decision Making Delays (Administrative)

    CMS's decision making process typically involves many different 
parties at varying levels of seniority and in different Centers. 
Despite creation of cross-Center task forces, the complexity of this 
process and the lack of clear decision making authority below the level 
of the Administrator's office results in delays that are frequently 
costly to plans and disadvantageous to beneficiaries.
    For example, the Medicare+Choice payment rates for 2001 were issued 
as required on March 1, 2000. However, the instructions for filing 2001 
plan rate and benefit proposals were issued in early June only a short 
time before the July 1 submission deadline. Plans were required to 
submit by July 15, 2000 proposed Summaries of Benefits using previously 
issued mandated CMS language in order to assure timely approval. 
However, in some cases the mandated language did not accurately 
describe plan benefits. To address these and other problems, changes in 
the mandated language began shortly after the July deadline and were 
still being made in early September.

    Recommendation: Establish Decision Deadlines to Improve CMS 
Accountability (Administrative)

    CMS took steps to improve the timeliness and openness of its 
national coverage process in April 1999. However, for technologies 
subject to national coverage decisions, the agency has no deadlines for 
total ``time to patient access''--the amount of time the agency takes 
to set coverage, coding and payment policy on a new technology and make 
it available to beneficiaries.
    To ensure timely patient access, CMS should take action on a 
timeline similar to those in place for FDA review decisions. Patients 
should not have to wait more than six months for CMS to make coverage 
decisions, assign codes and implement reimbursement for technologies 
that do not have to be referred to outside experts. In cases where CMS 
must seek advice from external advisory bodies, patients should wait no 
more than 12 months.

    Recommendation: Stop Extensive Data Collection Efforts 

         CMS issues requirements that fail to take into 
        consideration the practical steps necessary for implementation 
        of regulations, rather than working with health plans to 
        determine the most efficient way to achieve the desired result.
          For example, implementation of CMS's risk adjustment approach 
        is making excessive demands on health plan resources that are 
        not necessary to achieve the initiative's purpose. The approach 
        is based on collection of 100% encounter data from inpatient 
        and outpatient settings and requires plans to develop all of 
        the systems and staffing necessary to process claims in the 
        same way as the fee-for-service Medicare program. An 
        alternative approach that meets the goals of risk adjustment by 
        building on the existing data systems capabilities of plans can 
        achieve the same results.
          Plans currently must submit claims and data encounter reports 
        for hospital, physician and outpatient medical services for 
        Medicare+Choice beneficiaries even if the services are not 
        covered under Medicare. Extensive data collection is burdensome 
        and costly and greatly impacts on plan administrative costs as 
        well as plan relationships with providers. HHS Secretary 
        Thompson recently suspended through July 2001 the burdensome 
        collection of outpatient physician and hospital data. AIM 
        members urge Secretary Thompson to permanently end this 
        burdensome data requirement.
         With fewer and fewer hospital services being 
        reimbursed on the basis of costs, the Medicare program should 
        adopt a simplified cost-reporting program to reflect the 
        reduced importance of these reports. The cost-reporting system 
        was designed and developed during an era of cost-based 
        reimbursement. Medicare should adopt a single, streamlined cost 
        reporting system based upon generally accepted accounting 
        principles, and eliminate the voluminous regulations dealing 
        with cost-based reporting, such as related party transactions, 
        depreciation expense, interest expense, interest income 
        offsets, change of cost finding, etc., where Medicare payment 
        is no longer based upon costs.
          The complex and burdensome hospital cost-reporting process 
        developed over decades, at a time when Medicare payments were, 
        to a significant degree, based on their costs. Now that 
        Medicare has largely eliminated cost-based payments for 
        hospital services, the primary purpose of hospital cost 
        reporting has disappeared, and thus the process should be 
        correspondingly reduced and simplified. By comparison, the cost 
        reporting process for skilled nursing facilities was recently 
        substantially simplified in the wake of their conversion from 
        cost-based reimbursement to prospective payments. Hospitals are 
        entitled to similar regulatory relief.
         CMS should ease the paperwork burden placed on 
        beneficiaries and providers by revising the Medicare Secondary 
        Payor (MSP) Provisions. The MSP form is intended to identify 
        other insurance coverage a beneficiary might have. Currently, 
        hospitals must fill out an MSP form every time a patient comes 
        to the hospital for a procedure. Beneficiaries are annoyed at 
        being asked the same questions each time they return for 
        services. For example, a patient taking the anti-coagulant drug 
        Coumadin (warfarin) may require weekly or daily monitoring due 
        to internal bleeding risks. The hospital must fill out the form 
        each and every time. In addition, hospitals that act as 
        reference laboratories (to which doctors' offices forward 
        specimens for analysis) are being told to track down a 
        beneficiary whose specimen might have been sent in, and collect 
        information about possible other insurance coverage. 
        Independent labs are not subject to these requirements. 
        Hospitals should not have to collect MSP information more than 
        once per month for patients that require recurring services, 
        and should not be responsible for MSP information for non-
         Since June 1998, CMS has required skilled nursing 
        facilities (SNFs) to collect and submit patient assessment data 
        in a standard format known as the Minimum Data Set (MDS). The 
        assessment instrument that serves as the basis for collecting 
        MDS data was originally developed as a comprehensive care 
        planning tool, but the information it generates is now also 
        used to classify patients into SNF payment categories, and to 
        measure the quality of long-term nursing home care. Providers 
        are required to collect the data elements as many as five 
        separate times during a patient's Medicare-covered stay. The 
        current version of the MDS includes some 300 elements, but only 
        108 of them are needed by CMS to pay providers. These 
        requirements are overly burdensome for providers. The MDS 
        should be scaled back to require only data that can be 
        justified on the basis of payment and quality.

    Recommendation: Select a Sound Methodology for Risk Adjustment 

    CMS implemented on a limited basis in January 2000 a risk adjusted 
payment methodology for Medicare+Choice plans containing practical and 
methodological problems resulting in payments that are neither 
equitable nor valid. Further, the risk adjustment payment methodology 
substantially reduces aggregate payments to plans while adding 
additional administrative requirements and expense.
    In order to improve efficiencies in payment, CMS needs to select a 
methodology for risk adjustment with a public comment period of no less 
than 18 months prior to implementation. The methodology must be 
financially sound and provide for an efficient system for data 
collection. Risk adjustment, in turn, needs to be phased in over a 10-
year period, beginning in 2004, in order to stabilize payments to 
plans. Current law calls for risk adjustment to have an 8-year phase-
in, with 100% of payments risk adjusted in 2007. This schedule is not 
adequate to preserve stability in plan payments.
    The Principal In-Patient Diagnostic Cost Group (PIP-DCG) risk 
adjuster should remain at this year's level of 10% until a more 
appropriate and less burdensome methodology is agreed upon.

    Recommendation: Compare Diagnosis Codes to Verify PIP-DCG Risk 
Adjuster Assignment (Administrative)

    Medical record review is one Medicare+Choice encounter data 
validation activity used to validate the accuracy of the encounter data 
submitted by plans to CMS. Encounter data can more easily be validated 
by merely comparing the diagnosis code submitted by the hospital to the 
plan with the diagnosis code submitted by the plan to CMS. Medical 
record review requiring retrieval of inpatient medical records is 
costly and of questionable value. Further, there are no standards for 
inpatient medical record review in the Medicare fee-for-service 
    In the Medicare fee-for-service environment, hospital medical 
record review is the responsibility of the CMS contractors and the Peer 
Review Organizations (PROs). The costs of medical record review are 
covered in the contract that CMS has with the PRO.

    Recommendation: Simplify Accreditation Procedures (Administrative)

    CMS should revise its rules to accept a plan's accreditation by a 
nationally recognized accreditation organization as meeting quality 
assurance and quality requirements in Medicare+Choice. This would allow 
for ``deeming'' of a Medicare+Choice organization in accord with 
Congressional intent. CMS's requirements for deeming status should 
match and not exceed accreditation standards.

    Recommendation: Allow Plans to Select Quality Improvement Projects 
and Rewards Plans for Quality Improvements (Administrative)

    CMS should permit plans to select and implement their own quality 
improvement projects. Plans may already have existing quality 
improvement activities designed to best serve their specific 
populations and meet requirements for accreditation.
    Further, CMS should reward plans that demonstrate continual quality 
improvement and report higher than average performance, when compared 
with fee-for-service performance, in their HEDIS reports. CMS should 
reward plans with additional compensation to encourage maintenance of 
high levels of performance.
    Plans that also wish to participate in quality improvement 
activities generated by the Professional Review Organizations (PROs) in 
their area should be compensated on an individual plan basis for any 
work that enhances the objectives of a PRO-initiated quality 
improvement project. Implementation of this recommendation would allow 
plans to recover expenditures for their efforts and strengthen 
cooperation between plans and the PROs in achieving national quality 
improvement objectives.

    Recommendation: Formalize the CMS Advisory Opinion Process 

    CMS should offer a more formal process for providers to obtain 
answers to Medicare questions. Typically, providers are unable to 
obtain timely, clear and final answers to their questions, in part 
because answers require certain level of authority and may cut across 
departments within CMS, or draw interest from OIG and DOJ, FDA or other 
    It is often impossible to obtain clear, timely and final answers 
from CMS on complex billing issues. Thus, providers must take a best 
guess at the answer, which leaves them vulnerable to second-guessing 
and charges of incorrect billing. Creating a formal process for 
obtaining answers to these types of questions would provide greater 
certainty and consistency, and reduce billing and payment errors. 
Receiving a written advisory opinion would also permit the provider to 
rely on the advice received. Many other Federal agencies have similar 
programs (e.g., the SEC, the IRS, the DHHS OIG) and they are enormously 

    Recommendation: Incorporate Regulatory Cost Estimate into the 
Medicare Update (Administrative)

    The cost of caring for patients continues to increase as a result 
of complex regulations such as the Health Insurance Portability and 
Accountability Act (HIPAA) and greater technological advances in such 
areas as pharmaceuticals and blood products. MedPAC should be required 
to aggregate, on an annual basis, the estimated impact of a regulation 
on the provider community's payments and costs. MedPAC should 
incorporate this aggregated impact into the Medicare inflationary 
market basket update.

    Recommendation: Treat All DRG Corrections Equally (Administrative)

    There should be equal treatment for correcting DRGs, whether the 
correction results in higher or lower reimbursement. Appropriate 
adjustments to DRGs should be allowed in all cases. This is a matter of 
simple fairness. CMS's goal should be to pay providers, correctly and 
accurately, the amount they have earned for the services that they have 
provided to beneficiaries. CMS should not seek to pay less than what is 
due by setting a shorter timeframe for correcting underpayments than 
for correcting overpayments.

    Recommendation: Fix the PRRB Process and Denial of Cost Report 
Reopenings (Administrative)

    There are significant problems with the Provider Reimbursement 
Review Board (PRRB) process that need to be addressed, including 
inordinate delays caused by an enormous backlog of cases. The Supreme 
Court issued a ruling in Your Home Visiting Nurse Services, Inc. v. 
Shalala, which involved interpreting statutory and regulatory 
provisions regarding PRRB review of a fiscal intermediary's decision to 
deny reopening of a cost report at the request of the provider. In the 
decision, the Court held that the statutory and regulatory provisions 
do not require the intermediary's decision to be subject to review, 
even if clearly erroneous. The PRRB should have full authority to 
review intermediary decisions to deny reopening of cost reports.
    The process must be streamlined and accelerated. Alternative 
resolution methods should be considered. This is a matter of simple 
fairness. Erroneous intermediary decisions should be subject to review 
and correction.

    Recommendation: Interpret and Enforce EMTALA According to 
Legislative Intent (Administrative)

    The current interpretation and enforcement of the Emergency Medical 
Treatment and Labor Act (EMTALA) far exceed legislative intent. This 
has had two significant adverse results: (1) it is seriously disrupting 
the provision of good care in hospitals; and (2) it is making the 
burden of uncompensated emergency care unsustainable. Note: There are a 
number of changes with regard to EMTALA that could be done 
    The law should be interpreted and enforced in accordance with its 
legislative intent to prevent the current disruptions and financial 
burdens arising from the regulatory and administrative expansion of 


Statement of the American Academy of Physician Assistants, Alexandria, 
    On behalf of the more than 41,000 clinically practicing physician 
assistants (PAs) in the United States, the American Academy of 
Physician Assistants (AAPA) is pleased to submit comments on H.R. 2768, 
the Medicare Regulatory and Contracting Reform Act of 2001. The AAPA 
commends Chairman Nancy Johnson, Ranking Member Pete Stark, and the 
entire Subcommittee for their efforts to create a more collaborative 
relationship between the Centers for Medicare and Medicaid Services 
(CMS) and the health care professionals who provide services to 
Medicare beneficiaries. We are particularly appreciative of the 
Subcommittee's interest in reducing Medicare's regulatory and paperwork 
    The operation of the Medicare program is extremely complex, and 
H.R. 2768 goes a long way to assist health care professionals in 
complying with Medicare's rules and regulations. Although not addressed 
through H.R. 2768, the AAPA regards Medicare coverage policy, 
particularly as it relates to medical services provided by PAs, as 
unnecessarily complex and ultimately limiting to Medicare 
beneficiaries' access to care. We ask that the Subcommittee also 
consider this issue in the context of H.R. 2768.
    The AAPA is the only national organization representing PAs in all 
medical specialties. The Academy educates the general public about the 
PA profession, assures competency of PAs through active involvement in 
the development of educational curricula and accreditation of PA 
programs, provides continuing education, and conducts PA-related 
research. PAs conduct an estimated 150 million patient visits per year; 
many of these encounters are with Medicare beneficiaries.
    The AAPA believes that H.R. 2768 provides a unique opportunity to 
improve the Medicare program and substantially benefit beneficiaries 
and the health care professionals who serve them. Problems in the 
administration of Medicare that lead to overly burdensome requirements 
for participating health professionals, as well as overly restrictive 
coverage policy, affect access to care for all Medicare beneficiaries; 
however, they disproportionately affect access to care in medically 
underserved communities because there are fewer health care resources. 
Unless these problems are addressed, they may create even greater 
access to care challenges in the coming months as rural and other 
medically underserved communities lose PAs and other health care 
professionals who are called to serve in the National Guard and 
Medicare's Regulatory and Paperwork Burden

    PAs, like other health care professionals who provide covered 
services to Medicare beneficiaries, would prefer to spend their time 
delivering medical care, not mired in paperwork that is often confusing 
and viewed as unnecessary. The paperwork requirements' impact on 
clinical practice is even more keenly felt in medically underserved 
communities where staffing resources are scarce. Similarly, other 
problematic administrative requirements disproportionately affect the 
ability of practitioners in underserved communities, including PAs, to 
provide care to Medicare beneficiaries. Some of these problems include 
excessive costs incurred by practices for random prepayment audits, 
onerous documentation requirements for Evaluation and Management, and 
required repayment of purported overpayments before the appeals process 
is complete.
    The AAPA is very pleased that the H.R. 2768 attempts to address the 
impact of Medicare regulations and paperwork requirements on the 
delivery of care to Medicare beneficiaries. We are particularly 
concerned with the increased impact of burdensome requirements on the 
delivery of care in medically underserved communities.
Full Coverage of Medicare Services Provided by Physician Assistants

    As Members of the Subcommittee are aware, Medicare coverage was 
originally extended to physician assistants (PAs) through the 1977 
Rural Health Clinic Services Act. Congress acknowledged the educational 
preparation of PAs to provide a wide range of primary care services to 
Medicare beneficiaries living in areas experiencing a shortage of 
physicians. Congress' aim was to extend medical services to Medicare 
beneficiaries, and subsequent Congresses steadily expanded Medicare 
coverage for services provided by PAs. In 1997, the 105th 
Congress passed the Balanced Budget Act (BBA). The BBA expanded the 
ability of PAs to provide medical and surgical services that would 
otherwise be provided by physicians, if allowed by applicable state 
    Unfortunately, the former Health Care Financing Administration 
determined that the BBA's Medicare provisions regarding coverage of 
services provided by PAs did not apply to ordering home health care, 
hospice care, or skilled nursing facility care following 
hospitalization. Other medically necessary services that the Medicare 
program arbitrarily prohibits PAs from performing are screening 
colonoscopies and supervising diagnostic testing. PAs are not optimally 
utilized by the program. The restrictions on PAs' ability to order care 
limit beneficiaries' access to care, particularly in medically 
underserved communities where a PA may be the only on site provider.
    The American Academy of Physician Assistants recommends that 
Congress direct the Centers for Medicare and Medicaid Services to 
revise national Medicare coverage policy to fully recognize the ability 
of PAs to provide medical care in accordance with state law. The CMS' 
role in administering the Medicare program is most certainly a sizeable 
one. However, the AAPA does not believe that CMS' administrative 
responsibilities legitimately extend to determining physician 
assistants' scope of practice. That responsibility rests with the 
states, and the Medicare statute wisely defers to state law in 
determining which physician medical services may be provided by PAs. We 
ask that Congress address this problem H.R. 2768.
    The AAPA is very appreciative of the Subcommittee's efforts to 
relieve Medicare's regulatory and paperwork burdens for the physician-
PA team and other health care professionals who provide services to 
Medicare beneficiaries. We look forward to an improved Medicare 
program, which is more responsive to the beneficiaries and the health 
professionals who serve them.
    Thank you for the opportunity to present the AAPA's views.


       Statement of the American Clinical Laboratory Association
    The American Clinical Laboratory Association (``ACLA'') is pleased 
to have this opportunity to present its views to the Subcommittee on 
Health of the House Ways and Means Committee in connection with the 
Subcommittee's hearings on H.R. 2768, the Medicare Regulatory and 
Contracting Reform Act of 2001.
    ACLA is an association of federally regulated, independent clinical 
laboratories and represents national, regional, and local laboratories 
throughout the United States. All ACLA members furnish services 
reimbursed by the Medicare program and interact regularly with CMS and 
its Medicare contractors. As a result, ACLA has had the opportunity to 
observe CMS's performance and that of its carriers.
    ACLA is pleased that in recent years, in particular, the industry's 
relationship with CMS has improved significantly. The agency has 
developed greater expertise in laboratory issues and has attempted to 
respond to issues that the industry has raised. Nonetheless, like all 
health care providers, laboratories face a complex web of confusing--
and often inconsistent--rules and regulations, many of which result 
from the way the laboratory payment system is currently structured.
    In our testimony, ACLA would like to focus particularly on ways 
that the administration of the Medicare Program could be improved, 
through greater uniformity and simplification. Laboratories face 
payment and coverage policies that differ from carrier to carrier. As a 
result, ACLA believes that it is imperative to develop more uniform 
policies that apply consistently, regardless of carrier jurisdiction. 
Congress began that task in the Balanced Budget Act of 1997 (``BBA 
'97''), when, as discussed below, it required CMS to reduce the number 
of carriers processing lab claims to no more than five and to convene a 
negotiated rulemaking to develop uniform national policies. That work 
is still uncompleted. A recent study by the Institute of Medicine 
(``IOM''), which was mandated by Congress, also recommended greater 
uniformity in payment for laboratory services. ACLA believes that the 
implementation of the IOM study and the completion of the BBA '97 
mandates should be a top priority for CMS and Congress.
    In our statement today, ACLA would like to present an overview of 
the testing process. We would then like to review particular areas 
where the lack of uniformity and increasing complexity create payment 
and coverage issues for laboratory services. Finally, we discuss some 
specific ways that the system could be improved. In addition, we are 
attaching a summary of legislative issues affecting laboratories that 
we hope this Congress will address.
I. Overview of Reference Laboratory Testing

    Clinical laboratory testing is an important, cost-effective and 
life saving health care tool, which provides physicians objective 
information about a patient's medical condition. It permits the early 
detection, treatment and monitoring of a variety of diseases and 
conditions. Appropriate testing ultimately enhances health, saves lives 
and reduces health care costs. Independent clinical laboratories are an 
important participant in that process.
    For independent laboratories, the testing process usually begins in 
the physician's office or at a hospital, when a physician examines a 
patient and determines what laboratory testing is necessary. The 
specimens for this testing may be obtained by the physician or by a 
nurse in the physician's office, or the patient may sometimes take the 
test requisition to a ``Patient Service Center'' operated by the 
laboratory, where a laboratory employee obtains the specimen. In the 
vast majority of cases, however, the blood for testing is drawn in the 
physician's office. Thus, laboratory testing is unique among medical 
procedures, in that the entity furnishing the service often does not 
see, or have any direct contact with, the actual patient.
    Most clinical laboratories have extensive courier networks that are 
designed to quickly and efficiently transport the specimen from the 
physician's office to the laboratory. The laboratory courier will 
usually go the physician's office in the late afternoon or early 
evening to pick up the specimens that the physician has left for 
testing. The courier may take the specimens directly back to the 
laboratory, or he may transport them to a central processing facility, 
where they are packaged for further shipment, by air or ground, to the 
laboratory. The laboratory may be hundreds or thousands of miles away 
from the physician and the patient, and often is located in a different 
    Test specimens usually arrive at the laboratory late at night or 
early in the morning, at which time they are entered into the 
laboratory's computer system and the testing begins. It is not unusual 
for an independent laboratory to receive 10,000 specimens a night, on 
which 30,000 to 40,000 tests may be run during the night and early 
evening. For most routine specimens, the laboratory completes the 
testing overnight and reports the results back to the physician by the 
next morning. Often, some tests are performed at the facility that 
initially received the specimens, but then the specimen is sent to 
another facility for additional testing. Thus, laboratory testing takes 
place in a national marketplace, but the payment and coverage system is 
still linked to the specific location where the testing occurs. As a 
result, differences in payment and coverage decisions arise, a 
situation that creates inefficiencies, duplication, and increased 
II. Issues Arising Under the Clinical Lab Fee Schedule

    Laboratory services are reimbursed based on the lesser of the 
laboratory's actual charge, the fee schedule amount applicable to the 
location of the testing laboratory, or the national limitation amount 
(``NLA''). CMS has established fee schedules on a carrier by carrier 
basis; therefore, in most instances, each state has its own fee 
schedule for clinical laboratory testing. Some states have more than 
one carrier and in those areas there may also be more than one fee 
schedule for the state. The NLA, which is set at 74% of the fee 
schedule medians for each test, acts as a ceiling on reimbursement and 
limits the amount that each carrier can pay under its fee schedule.
    Thus, there are actually 56 different laboratory fee schedules--one 
for each carrier jurisdiction. However, because of consistent 
reductions in the NLA, today it is the NLA, rather than the carrier fee 
schedule, that usually governs payment. This has created a de facto 
national fee schedule, although there continue to be some outliers in 
particular jurisdictions, where the test is paid at slightly less than 
the NLA amount. However, in those cases, the difference is usually very 
small, and is often no more than a few cents. Thus, although we almost 
have a national fee schedule, Medicare continues to operate as if it 
has 56 different fee schedules, a circumstance that creates unnecessary 
complexity and leads to operational difficulties.
    For example, laboratories routinely refer testing from one 
laboratory to another, usually because the initial laboratory does not 
perform a particular test. Under the Medicare statute, the referring 
laboratory is permitted to bill its carrier for all of the testing 
furnished, even what it referred to another laboratory for analysis; 
however, the carrier processing the claim is to pay for the testing 
based on the fee schedule applicable to the testing laboratory. This 
means that for claims involving lab-to-lab referrals, two different fee 
schedules may apply to different tests on the same claim. Because the 
carrier processing the claim may not maintain the other carrier's 
information in its computer files, the laboratory may actually be 
required to resubmit the claim to the second carrier, the one with 
jurisdiction over the laboratory that performed the referred tests.
    This solution requires laboratories to ``split'' their claims and 
to bill tests that were all part of the same patient encounter to 
multiple carriers. This is confusing to the laboratories and to 
carriers because the same laboratory may be required to enroll with 
several different carriers, a situation that the carriers themselves 
often object to because it creates additional paperwork for them. Even 
if the laboratory is able to enroll with, and forward claims to, the 
different carriers, the Program incurs the cost of processing multiple 
claims, and the beneficiary may receive Explanation of Medicare Benefit 
(``EOMB'') forms from multiple carriers for the same specimen, which 
can be very confusing. The wastefulness of this process is especially 
apparent because under current payment rules, there may be little or no 
difference between the actual amounts paid by each carrier.
    The recently completed study of the laboratory industry by the 
Institute of Medicine (``IOM''), Medicare Laboratory Payment Policy: 
Now and in the Future--a study mandated by Congress in BBA '97--
concluded that the Medicare laboratory payment system, incorporating 56 
different fee schedules, is unnecessarily complex and inefficient. The 
IOM found that for a sample of 20 high-volume Medicare services, 
payment was set at the NLA in at least 80% of carriers; for three other 
services, all payments were at the NLA.
    As a result, the IOM urged Congress to adopt a single, national, 
rational fee schedule for clinical laboratory services based, at least 
initially, on the NLAs. H.R. 1798, the ``Medicare Patient Access to 
Prevention and Diagnostic Tests Act,'' includes a provision 
implementing the IOM recommendation. ACLA supports this proposal and 
believes that the development of a single national fee schedule for 
laboratory services should be a top priority that will greatly 
streamline the payment of laboratory claims.
III. Issues Related to Medical Documentation Rules

    In 1994, many carriers began to implement new medical necessity 
requirements applicable to clinical laboratory testing. These 
requirements took the form of Local Medical Review Policies (``LMRP''), 
which often specified particular ICD-9 diagnosis codes that the carrier 
believed would demonstrate the medical necessity of a particular test. 
If the laboratory did not submit a diagnosis code that the carrier 
deemed acceptable, then the laboratory would not be paid for the 
testing. In some instances, the policy would also limit how frequently 
the carrier would pay for the testing for an individual beneficiary.
    The growth in these carrier policies for laboratory testing had a 
direct impact on the cost of laboratory testing. Because the ICD-9 code 
had to be supplied by the physician--it is a violation of fraud and 
abuse laws for the laboratory to supply the code itself--laboratories 
had to put more resources into educating physicians about the need to 
supply diagnosis coding information and into obtaining the information 
from physicians when they failed to supply it. As a result, 
laboratories were forced to invest large amounts in billing system 
refinements and added personnel, just so they could bill and be paid 
for the testing that they performed. However, in many instances, 
laboratories still do not obtain the necessary information from the 
physicians ordering the tests, and thus are forced to write off the 
costs of testing that they have performed.
    The growth of these policies also led to confusion concerning 
payment policies. Each carrier developed its own LMRPs for the 
laboratories within its jurisdiction. However, carriers did not usually 
agree on the particular tests that were subject to LMRPs. Thus, the 
list of tests for which a laboratory had to submit diagnosis codes 
would differ depending on where the laboratory was located. In 
instances where two carriers had LMRPs for the same test, they often 
did not agree on the particular diagnosis codes that they found 
acceptable as demonstrating the medical necessity of the testing. This 
led to confusion, because physicians could not easily determine which 
tests required diagnosis coding information or which diagnosis codes 
were considered acceptable.
    These differences in policy also led to differences in coverage. 
For example, if a physician used a laboratory in one state, he might 
know that the laboratory's carrier had certain LMRPs, which required 
him to submit ICD-9 codes for specified tests. If he complied with 
those requirements, and sent in acceptable diagnosis codes, the 
patient's testing would usually be paid for. If the patient went to a 
physician across the hall, who used a laboratory in another state, the 
physician could order the same tests and submit all the same 
information to the laboratory. However, the patient could find that the 
testing was not paid for, because the carrier with jurisdiction over 
the second laboratory did not accept the same diagnosis codes as the 
other carrier. These differences have real implications for patients 
because, if it is clear that the testing is going to be denied as not 
medically necessary, the patient might be asked to sign an Advance 
Beneficiary Notice, which permits the laboratory to bill the patient 
for denied testing. Thus, Medicare might pay for one patient's testing, 
while the other patient would have to pay for it himself. The result is 
that Medicare beneficiaries inadvertently have different coverage for 
laboratory testing services.
    As a result of concerns about these issues, Congress directed CMS, 
in BBA '97, to convene a negotiated rulemaking committee whose purpose 
was to develop uniform payment policies for clinical laboratory 
testing. The negotiated rulemaking, in which ACLA participated, began 
meeting in July 1998 and completed its deliberations in August 1999. 
The Committee developed over 23 uniform documentation policies and 
recommended additional payment policies. A proposed rule was issued in 
March 2000, 65 Fed. Reg. 13082 (Mar. 10, 2000); however, a final rule 
is not expected to be issued until the fall of this year, at the 
    To further reduce differences among carriers, as part of BBA '97, 
Congress also directed CMS to designate a maximum of five regional 
carriers that would be responsible for paying for clinical laboratory 
testing. In its recent study, the IOM also concluded that regional 
carriers should be established to process clinical laboratory claims in 
order to reduce inefficiency and waste. However, up to now, CMS has 
taken no action to implement the regional carrier system, which was to 
be in place by July 1, 1999.
    ACLA strongly urges the adoption and implementation of the 
negotiated rulemaking policies, which were mandated by BBA '97, and 
which, by statute, were to be in place by January 1, 1999. In addition, 
we urge the implementation of the regional carrier requirements that 
were also mandated by BBA '97. Both the regional carrier and negotiated 
rulemaking provisions of the BBA were designed to achieve greater 
uniformity in the process of clinical laboratory testing--a goal that 
would ultimately be to the benefit of laboratories, physicians and most 
of all, beneficiaries. Such a result would reduce the costs of claims 
processing, increase predictability concerning what tests would be paid 
for, and eliminate unnecessary regulatory burdens.\1\
    \1\ ACLA also believes a single, separate carrier for laboratory 
services furnished to End Stage Renal Disease (``ESRD'') beneficiaries 
would introduce additional cost savings for the Medicare program and 
support overall claims processing simplification. Because ESRD testing 
is usually a small part of each carrier's claims, carriers do not 
usually develop the expertise necessary to apply the very complex set 
of rules that pertain to ESRD testing. As a result, laboratories 
performing this testing often encounter great difficulty with claims 
processing issues. Therefore, we also believe it is reasonable to 
ensure that a single carrier handles all the claims processing for 
laboratory services dedicated to performing ESRD testing.
IV. Issues Created by New Laboratory Testing

    Because the laboratory fee schedule was originally developed almost 
20 years ago, based on 1983 pricing data, it does not address the 
tremendous technological advances that have taken place since that 
time. The law establishing the payment methodology did not specify a 
process for dealing with new technologies so CMS has had to create one.
    For new tests that are not already covered by the fee schedule, CMS 
uses two different methodologies to arrive at a price. For some tests, 
CMS directs carriers to develop their own prices, based on ``gap 
filling.'' Presumably, carriers are to determine the price that is 
applicable in their individual area, but CMS has provided little 
guidance to carriers concerning what information they are to review to 
develop the new gap-filled prices. As a result, ``gap filling'' often 
results in widely divergent pricing levels for the same test.
    In other instances, CMS ``cross-walks'' a new CPT code to an 
existing code, and prices the new code at the same level as the old 
code. However, there may be little relationship between the test 
represented by the new CPT code and the test represented by the old 
one; therefore the decision to price them at the same level may result 
in a payment level that is inappropriate.
    Further, when CMS issues a proposal concerning how it will pay for 
other types of services, the agency usually issues a notice in the 
Federal Register for comment, and subsequently responds to these 
comments when issuing a final rule. Thus, interested parties have an 
opportunity to present their views on how particular services will be 
paid for. For the laboratory fee schedule, this process is not 
followed. CMS makes a unilateral determination concerning how new 
technologies will be handled; whether they will be gap filled or cross-
walked; and what fee will be set--without any opportunity for public 
comment. CMS's determinations are not known until the agency issues a 
Program Memorandum late in the year, which specifies how the new codes 
will be treated.
    Again, the IOM recognized the difficulty in obtaining coverage for 
new tests and technology. ACLA agrees with the IOM's conclusion that 
new tests and technologies must be incorporated into the fee schedules 
in an open, timely and accessible manner that is subject to challenge. 
The current coverage process, according to the IOM, is lengthy, costly 
and not open to meaningful challenge.
    ACLA believes that it is vital to address the problem of payment 
for new technologies. CMS needs to develop a process, in consultation 
with the industry, that sets reimbursement levels for new technologies 
that reflect their fair market value. CMS should develop clearer 
standards concerning how carriers develop payment levels in their 
jurisdictions, so that carriers have direction in how to set these 
prices. Congress solved one, albeit small, part of this problem last 
year in the Benefits Improvement and Protection Act (``BIPA'') by 
ensuring that the NLA, for new tests that were gap filled, would be set 
at 100% of the median price, rather than at 74% as is done for other 
services. However, the other problems discussed above, related to 
disparity in pricing, and the lack of input into the process, remain. 
The aforementioned H.R. 1798, the ``Medicare Patient Access to 
Prevention and Diagnostic Tests Act,'' addresses this concern by 
establishing specific procedures for determining payment amounts for 
new clinical laboratory tests.
    ACLA is pleased to have the opportunity to testify on these 
matters. We believe greater uniformity and simplicity in lab payment 
policies will lead to greater benefits for labs, Medicare and patients. 
We look forward to working with the Committee in its deliberations.


    Statement of the American Medical Association, Chicago, Illinois
    The American Medical Association (AMA) would like to thank the Ways 
and Means Health Subcommittee, Chairwoman Johnson, and Ranking Member 
Stark for holding this hearing on H.R. 2768, the ``Medicare Regulatory 
and Contracting Reform Act of 2001.''
    We also appreciate Chairwoman Johnson and Ranking Member Stark's 
substantial efforts to work with the Centers for Medicare and Medicaid 
Services (CMS) in its efforts to accomplish additional reforms on an 
administrative level.
    The AMA believes that H.R. 2768 is a solid, first step in 
addressing many of physicians' concerns regarding CMS contractors' 
activities for the following reasons:
    We laud the legislation's commitment to and funding of education 
programs for physicians, providers of services, and suppliers. Although 
we have some technical suggestions in these sections, we believe that 
the education provisions in the bill would vastly improve the resources 
available to physicians, providers of services, and suppliers. In 
particular, the section requiring contractors to work with 
organizations representing physicians, providers of services, and 
suppliers when a widespread billing problem exists would be extremely 
helpful in ensuring that the problem is explained to the larger 
community sooner rather than later. This broad dissemination of 
information would lead to a quicker and better resolution of the issues 
    The AMA is generally pleased with H.R. 2768's provisions related to 
repayment plans. This provision, if clarified to ensure that repayment 
plans would be for a minimum of three years, would permit physicians, 
providers of services, and suppliers to enter into reasonable repayment 
plans with their CMS contractors if the alleged overpayments exceed a 
certain proportion of their Medicare revenues. Currently, CMS 
contractors require repayment of alleged overpayments within 30-60 
days. When alleged overpayments represent a high proportion of practice 
revenues, this requirement can present a major economic hardship to the 
practice. Carrier overpayment demands for almost immediate repayment 
can also restrict the financial ability of physicians to provide an 
adequate level of service to their patients and can make physicians 
less eager to care for Medicare patients in the future.
    The AMA greatly appreciates that the legislation would establish 
pilot projects to test the viability of proposed evaluation and 
management documentation guidelines. Although CMS has recently 
withdrawn proposed documentation requirements, as this process 
progresses, it is clear that any new proposed guidelines must be tested 
to ensure their accuracy prior to national implementation. H.R. 2768 
would also ensure that a sufficient number of physicians participate in 
the pilot projects by prohibiting audits for documentation that 
occurred as part of the pilot project.
    The legislation's proposed standardization of random prepayment 
audits is a very positive development that would ensure that the 
Secretary would establish standards for random prepayment audits. 
Contractors would no longer have unlimited discretion as to the 
circumstances that would trigger random prepayment audits. Another 
serious problem with prepayment audits is that they often have no 
defined endpoints. This places an enormous strain on practices' cash 
flow as claims are held up for payment while audit continue. H.R. 2768 
would ensure that procedures are put in place to remove physicians from 
prepayment review once their billing practices are sufficiently 
compliant with Medicare policies.
    The AMA also appreciates the additional resources that this bill 
would direct towards administrative law judges. This funding would 
increase the number of administrative law judges and improve education 
and training opportunities for the judges and their staffs.
    The AMA is also gratified that the Committee has recognized that 
contractors' use of ``extrapolation'' is a serious problem, and that it 
has acknowledged the inequity of demanding that overpayments be repaid 
before appeals are heard. These and several other provisions of the 
bill must be strengthened, however, if they are to remedy the problems 
they are intended to address. In particular:
    Contractors use ``extrapolation'' to magnify the alleged 
overpayments found in a very small probe sample of claims to all of 
these type of claims submitted by a physician or provider of services 
over a one-to-two year period. This technique lacks any semblance of 
statistical validity, but it can lead to overpayment demands in the 
hundreds of thousands of dollars. Even more egregious, the letter 
demanding repayment of these huge sums is often the first indication a 
physician has that there is a problem with his/her billing practices. 
For this reason, the provision of H.R. 2768 that would allow CMS 
contractors to use extrapolation to project an overpayment in instances 
where there is a high error rate OR where documented education efforts 
have failed should be strengthened. For example, this extrapolation 
provision would have a very limited impact on physician practices such 
as the critical care practice that testified before the House Budget 
Committee. This particular practice had a high error rate, but there 
was no documented educational effort. Thus, the provisions in H.R. 2768 
would still subject this and other physician practices to enormous 
overpayment allegations, even if it were the first time the practice 
had heard that it had a billing problem. The AMA strongly believes that 
contractors should be prohibited from using extrapolation to calculate 
overpayment amounts unless documented educational efforts have been 
employed first and have failed to correct the billing problem.
    Although the education provisions in H.R. 2768 are a vast 
improvement over existing education efforts by CMS contractors, the AMA 
is concerned that the legislation gives contractors discretion as to 
whether they wish to supply physicians, providers of services, and 
suppliers with written advice upon which they could rely. Under H.R. 
2768, the aforementioned groups would not be entitled to any additional 
information or guidance regarding complex and confusing carrier 
policies and regulations to use if they are later audited by their 
    The ability to rely on written guidance is especially important in 
light of the recent report by the General Accounting Office (GAO), 
which found that when GAO called contractors (callers identified 
themselves as calling from the GAO), contractor employees gave 
incorrect answers to questions 85% of the time. GAO further reported 
that these questions had been identified by the contractors as 
``frequently asked questions.'' The carriers will not give physicians 
written answers to their billing and coding questions, and as the GAO 
study shows, answers given via the telephone are often incorrect. 
Physicians should be able to submit their written questions to 
contractors, and in turn, receive correct and consistent written 
responses from contractors upon which they can rely.
    The consent settlement process, as detailed in H.R. 2768, would 
still not permit physicians, providers of services, and suppliers to 
contest the validity of a probe sample without being forced to submit 
to a statistically valid random sample (SVRS) of 200-400 claims, which 
is very disruptive to a physician practice. The AMA believes that a 
physician should not be forced to agree to an SVRS in order to maintain 
his or her appeal rights. Physicians should be permitted a 60-day time 
period to decide whether to appeal the probe sample finding. If the 
physician decides not to appeal the probe sample, then he or she would 
either have to pay the alleged projected overpayment or agree to an 
SVRS. This ability to appeal the probe sample is an essential due 
process right that should be afforded to physicians, providers of 
services, and suppliers--especially in light of the probe sample's use 
in determining projected overpayments.
    H.R. 2768 would permit physicians, providers of services, and 
suppliers to repay an alleged overpayment after the first level of 
internal appeal has occurred. This internal appeal usually occurs 
within 45 days. Under H.R. 2768, repayment would be required at this 
point. Physicians, providers of services, and suppliers who opt for 
further administrative appeals would still be forced to repay alleged 
overpayments while their appeals are pending. In contrast to the 45 
days for internal appeals, administrative law judge (ALJ) decisions 
took an average of 389 days in the first quarter of 2001 and 
departmental appeals board decisions (DAB) took an average of 661 days 
to complete. If the physician, provider of services, or supplier is 
successful at the DAB level, it is likely that three years have elapsed 
since the physician's payment of an alleged overpayment to the CMS 
contractor. This is especially egregious since the most recent figures 
from 2000 show that 60% of contractor decisions were reversed by an 
ALJ. The provisions of H.R. 2768 would not assist physician practices 
such as the West Coast practice that received its overpayment demand 
letter in 1996, paid the alleged overpayment amount six weeks later and 
received a favorable ALJ ruling in 1999. The carrier had held the 
practice's funds (approaching $100,000) for nearly three years.
    While the AMA greatly appreciates H.R. 2768's provision that would 
require contractors to repay the funds held with interest, we agree 
with Administrator Scully that physicians, providers of services, and 
suppliers should have the same rights that taxpayers have when they are 
audited by the IRS; that is, as long as interest accrues, taxpayers do 
not have to repay alleged overpayments while administrative appeals are 
    We strongly urge the Subcommittee to amend the repayment provision 
to mirror the ``Access to Judicial Review--Interest on Amounts in 
Controversy'' provisions in Section 8 of H.R. 2768. This would ensure 
that interest would begin to accrue 60 days after the date of the 
contractor's determination. The overpayment amount plus any interest 
would be payable when all administrative appeals are exhausted. 
(Section 8 states that such amounts become payable when they are 
awarded to the prevailing party).
    The AMA is very concerned about the provisions in H.R. 2768 related 
to a physician, provider of services, or supplier's right to appeal a 
contractor's decision to deny or revoke a Medicare provider number. For 
most health care practitioners, the denial or revocation of a provider 
number is an extremely serious occurrence that prohibits them from 
submitting any claims for reimbursement to the Medicare program. 
Currently, physicians have very limited recourse if their provider 
enrollment application has been denied. They can request that the 
carrier reconsider their application, and then can request a hearing by 
an entity or person appointed by the Secretary of the Department of 
Health and Human Services. The provision in H.R. 2768 would not 
establish any additional rights for physicians, providers of services, 
and suppliers whose applications have been denied. In fact, the 
legislative language appears to codify existing and proposed CMS 
practices. We strongly urge the Subcommittee to consider a denial or 
revocation as an initial determination and accord physicians full 
administrative appeal rights under Section 1869 of the Social Security 
    The provision of H.R. 2768 addressing voluntary repayments also 
should be strengthened. The legislation proposes that an ombudsman 
would make recommendations to the Secretary about how to respond to 
physicians and providers of services who identify overpayments 
themselves that they have mistakenly received and voluntarily repay 
Medicare. We note that CMS has previously issued instructions to its 
contractors on handling these voluntary repayments and that the 
contractors are instructed to investigate and consider auditing those 
who make the repayments. These kinds of policies are more likely to 
intimidate than encourage honest professionals to develop compliance 
plans. H.R. 2768 should offer real protections, not leave the matter 
for the Administration to resolve in the future.
    Finally, the AMA is uncertain as to why H.R. 2768 seeks to limit 
the ability to present additional information during the appeal 
process. We are not aware of any indication that physicians, providers 
of services, and suppliers are inundating the system with new evidence, 
and creating a sizeable backlog. Many physicians may not hire attorneys 
or experts immediately to contest a contractor's audit finding. When 
these attorneys or experts are hired, they may suggest additional 
evidence or information that the physician had not thought to disclose. 
We believe that this section is not needed and urge its deletion.
    In closing, the AMA has also been very interested in the issue of 
contractor reform. A coalition letter signed by the AMA and other 
leading national medical organizations and specialty societies, as well 
as every state medical society, was sent to Chairman Johnson and 
Ranking Member Stark on August 30, 2001, and is attached to this 
statement. On the whole, the reforms to the contractor reform language 
appear to be reasonably geared towards improving the efficiency of the 
program and towards sharpening the responsiveness of contractors to 
beneficiaries and physicians. As an overarching comment, the AMA does 
believe that contractors should be required to maintain local carrier 
advisory committees and local carrier medical directors. In addition, a 
transparent contracting and budgeting process should be set forth in 
the Federal Register for public notice and comment. We also have some 
technical suggestions regarding these sections which we will be happy 
to share with the Subcommittee at the earliest possible date.
    We appreciate the Subcommittee's consideration of the AMA's 
concerns. We value all of the Subcommittee's work on H.R. 2768, and we 
believe that we can work together to ensure that physicians obtain more 
complete due process rights and extremely effective education tools 
that can be relied upon by the physician. We thank you for the time 
that your Subcommittee, and particularly, the Subcommittee staff has 
devoted to this issue, and are pleased that it is a high priority for 
the Subcommittee.
                                                    August 30, 2001

Letter Sent to all members of the House Ways and Means Subcommittee on 

The Honorable Nancy Johnson
Committee on Ways Means
U.S. House of Representatives
1136 Longworth House Office Building
Washington, DC 20515

    Dear Chairwoman Johnson:

    As your Committee continues its work on the ``Medicare Regulatory 
and Contracting Reform Act of 2001,'' H.R. 2768, please know that the 
medical organizations listed below endorse the need for regulatory 
relief in the administration of the Medicare program. For that reason 
we strongly support the provisions of the ``Medicare Education and 
Regulatory Fairness Act of 2001'' (MERFA), H.R. 868. One aspect of that 
relief that is not addressed in MERFA is the need for contractor 
reform. The Medicare program is a continual source of frustration, 
complexity, and paperwork for virtually all physicians treating 
Medicare patients. The contractor community plays a key role in 
administering the program. We believe that Congress should incorporate 
the following principles in any Medicare contractor reform efforts:

         Physicians and other providers must have a single 
        point of contact who will be responsible and accountable for 
        program administration. Even if contractor services are 
        themselves fragmented (e.g., claims processing performed by one 
        contractor, medical review by another contractor, and 
        correspondence/appeals to another), physicians and providers 
        should not have to deal with a whole new contractor bureaucracy 
        where each contractor tries to shift responsibility to others. 
        There should be a single point of contact in each state that 
        can, if necessary, serve as a liaison between physicians/
        providers and the various contractors.
         Local carrier advisory committees (CACs) should be 
        continued in each state to assure that local medical review 
        policy reflects the consensus of the local physician community. 
        All changes in local coverage decisions (whether through a 
        change in contractor or through the consolidation of existing 
        contractors) should be subjected to the normal review and 
        comment process with the local CAC. It would be unacceptable 
        for a new contractor to simply transport a new policy from one 
        geographic region to another without subjecting that policy to 
        CAC review in the new geographic area.
         Given the significant transition problems experienced 
        with establishing regional durable medical equipment carriers, 
        the medical community believes it is imperative that the Center 
        for Medicare and Medicaid Services (CMS) establish contingency 
        plans to assure that there are no delays in claims processing/
        payment capabilities. Such contingencies should include 
        provisions for advanced payments for covered services based on 
        the previous year's submissions.
         CMS should establish and enforce the highest possible 
        standards in determining which organizations are most qualified 
        to serve as contractors in the program. Formal physician/
        provider feedback should be solicited regarding the 
        establishment of performance criteria for contractors and 
        whether the contractors' actions have actually met those 
         Physician/provider outreach, education, and service 
        should be considered a priority for each contractor in the 

    We believe these basic principles should be incorporated into any 
Medicare contractor reform legislation agreed to by the Congress.
                    Alaska State Medical Association
                    Arizona Medical Association
                    Arkansas Medical Society
                    California Medical Association
                    Colorado Medical Society
                    Connecticut State Medical Society
                    Florida Medical Association
                    Hawaii Medical Association
                    Idaho Medical Association
                    Illinois State Medical Society
                    Indiana State Medical Association
                    Iowa Medical Society
                    Kansas Medical Society
                    Kentucky Medical Association
                    Louisiana State Medical Society
                    Maine Medical Association
                    Massachusetts Medical Society
                    MedChi, The Maryland State Medical Society
                    Medical Association of Georgia
                    Medical Association of the State of Alabama
                    Medical Society of Delaware
                    Medical Society of the District of Columbia
                    Medical Society of New Jersey
                    Medical Society of the State of New York
                    Medical Society of Virginia
                    Michigan State Medical Society
                    Minnesota Medical Association
                    Mississippi State Medical Association
                    Missouri State Medical Association
                    Montana Medical Association
                    Nebraska Medical Association
                    Nevada State Medical Association
                    New Hampshire Medical Society
                    New Mexico Medical Society
                    North Carolina Medical Society
                    North Dakota Medical Association
                    Ohio State Medical Association
                    Oklahoma State Medical Association
                    Oregon Medical Association
                    Pennsylvania Medical Society
                    Rhode Island Medical Society
                    South Carolina Medical Association
                    South Dakota State Medical Association
                    State Medical Society of Wisconsin
                    Tennessee Medical Association
                    Texas Medical Association
                    Utah Medical Association
                    Vermont Medical Society
                    Virgin Islands Medical Society
                    Washington State Medical Association
                    West Virginia State Medical Association
                    Wyoming Medical Society
                    American Academy of Allergy, Asthma and Immunology
                    American Academy of Dermatology Association
                    American Academy of Facial Plastic and 
                            Reconstructive Surgery
                    American Academy of Family Physicians
                    American Academy of Neurology
                    American Academy of Ophthalmology
                    American Academy of Otolaryngic Allergy
                    American Academy of Otolaryngology--Head and Neck 
                    American Academy of Physical Medicine and 
                    American Association of Clinical Endocrinologists
                    American Association of Neurological Surgeons
                    American Association of Orthopaedic Surgeons
                    American College of Allergy, Asthma and Immunology
                    American College of Cardiology
                    American College of Chest Physicians
                    American College of Emergency Physicians
                    American College of Obstetricians and Gynecologists
                    American College of Osteopathic Family Physicians
                    American College of Osteopathic Surgeons
                    American College of Physicians--American Society of 
                            Internal Medicine
                    American College of Radiology
                    American College of Surgeons
                    American Gastroenterological Association
                    American Geriatrics Society
                    American Medical Association
                    American Osteopathic Association
                    American Psychiatric Association
                    American Society for Gastrointestinal Endoscopy
                    American Society for Therapeutic Radiology and 
                    American Society of Anesthesiologists
                    American Society of Cataract and Refractive Surgery
                    American Society of Clinical Pathologists
                    American Society of General Surgeons
                    American Society of Hematology
                    American Society of Plastic Surgeons
                    American Thoracic Society
                    American Urological Association
                    Association of American Medical Colleges
                    College of American Pathologists
                    Congress of Neurological Surgeons
                    Joint Council of Allergy, Asthma and Immunology
                    Medical Group Management Association
                    National Medical Association
                    North American Society of Pacing and 
                    Renal Physicians Association
                    Society of Critical Care Medicine


  Statement of the American Osteopathic Association, Chicago, Illinois
    The American Osteopathic Association (AOA) thanks Chairwoman Nancy 
Johnson and Ranking Member Fortney ``Pete'' Stark for introducing the 
``Medicare Regulatory and Contracting Reform Act of 2001'' (H.R. 2768). 
We appreciate your holding this timely hearing.
    Our members increasingly are frustrated with the complexities of 
Medicare policies and regulations. It is well documented that there are 
now over 100,000 pages of Medicare rules, policies and regulations. 
Physicians are forced to spend a growing amount of time completing 
paperwork and meeting administrative requirements set forth by Medicare 
and managed care organizations. Time spent completing these tasks is 
time spent not doing what they were trained to do, providing care to 
    We thank you for making this issue a priority for the Committee and 
for introducing legislation to reform the regulatory and contracting 
process at the Centers for Medicare and Medicaid Services (CMS). Your 
legislation addresses the major concerns that the AOA has raised and 
establishes a system that will focus more on educating and assisting 
physicians and not on punishing them. We especially support provisions 
you included on provider education and technical assistance and the 
inclusion of specific educational programs and technical assistance for 
rural providers. As you know, rural practices often consist of less 
than ten employees and simply do not have the manpower to dedicate an 
individual(s) to Medicare compliance. Your proposal recognizes and 
creates ways to assist these physicians.
    We continue to be concerned about the use of extrapolation in post-
payment audits. It is our desire that the committee carefully evaluate 
the use of this practice. Your legislation addresses this issue, but we 
request that you consider requiring documented educational intervention 
before extrapolation can be used. This supports our desire to move from 
a system that assumes guilt to a system that offers compliance 
    Our priorities for regulatory and contracting reform legislation 
Provider Education and Technical Assistance

    The AOA strongly endorses a ``change in attitude'' at the CMS. The 
AOA does not support fraud or those who defraud the government, but we 
are convinced that an overwhelming majority of the mistakes made are 
inadvertent. It is our opinion that CMS generally operates with an 
assumption of guilt when dealing with providers. This attitude is 
counterproductive and creates an environment of distrust between 
providers and CMS. We believe that CMS should focus more effort on 
educating providers, especially those in rural and frontier areas. One 
of the most important services CMS can provide is timely and accurate 
feedback on how to comply with policies and procedures.
    The AOA believes that CMS and its Medicare contractors should:

         Create a national standard for provider education.
         Establish incentives for contractors who improve their 
        provider education programs.
         Establish education programs exclusively for rural 
         Maintain a 24 hour toll-free phone line staffed by 
        individuals capable of answering questions regarding the 
        Medicare system.
         Maintain a web page dedicated to compliance with 
        Medicare policies and procedures. We recognize that addressing 
        every potential question on the web page is impossible, but 
        material addressing the most frequently asked questions could 
        be maintained.
         Medicare contractors should respond to all requests in 
        writing. This would provide a written record that providers and 
        contractors could rely upon if there is a future audit.
         Create a system that accurately documents each 
        question or inquiry received, who handled the request and the 
        information provided. This will allow CMS and its contractors 
        to create a valid database of frequently asked questions and 
        points of confusions within the program. Additionally, it will 
        provide both the Medicare contractor and the provider with 
        documentation of the inquiry.

Provider Appeals

    The AOA believes that every provider should have an equitable and 
unbiased opportunity to appeal any decision handed down by CMS or a 
Medicare contractor when facing a post-payment audit. Appeals should be 
conducted in a timely manner and governed by legal experts independent 
of both the provider and the Medicare contractor. It must be emphasized 
that the purpose of the audit is to recover alleged overpayment, not to 
proceed against suspected fraudulent behavior, and that physicians and 
providers in these situations should not be ``presumed guilty.'' The 
AOA supports the permanent inclusion of Administrative Law Judges 
(ALJs) in the Department of Health and Human Services (HHS). We believe 
that their existence within HHS will speed up the appeal process and 
create consistency within the appeal process.

Recovery of Overpayments

    Physicians/providers should not be forced to pay contractors for 
alleged overpayments before they have exhausted their administrative 
appeals. The time it takes to complete the appeals and the high 
percentage of reversals of contractors' overpayment allegations 
illustrate the inequity of these repayment demands. If a physician or 
provider chooses to appeal and is unsuccessful in that effort, then the 
provider should pay interest on the amount in question. We strongly 
believe that physicians and providers should have the opportunity to 
exercise their due process rights before assuming financial liability.
    Physicians should be entitled to repayment plans if their 
overpayments exceed a certain threshold that would severely impact the 
financial well-being of their practice. Contractors currently give 
physicians and providers 30 days to repay overpayments in full. We 
understand that there is concern that some providers may file for 
bankruptcy without repaying the overpayment amount. Unless there is 
legitimate concern that this may occur or the provider has demonstrated 
in some manner that he or she is not a reliable source of repayment, 
all providers should be given flexibility in repaying overpayment 
    The AOA is concerned about extrapolation from probe samples. 
Medicare contractors conduct these samples on 15-20 claims over a one 
to two year period and then use the alleged overpayment to extrapolate 
to all claims submitted during that one to two year period.
    Using 15-20 claims in a probe sample over such a long time period 
is not a valid method to determine an alleged overpayment for the rest 
of the claims. Contractor errors regarding payment in the probe sample, 
which are often overturned through administrative appeal, can result in 
enormous extrapolated overpayment allegations. Even more egregious, 
often the first notice that physicians and providers receive regarding 
alleged overpayments is a letter demanding this extrapolated 
overpayment amount. We strongly urge the Committee to ensure that 
extrapolation does not occur unless the contractor has provided prior, 
documented education to the physician or provider. We would even go so 
far as to suggest that extrapolation not be used in first time audits 
against a provider.

Voluntary Repayment 

    Physicians and providers receiving mistaken overpayments should be 
allowed to return the money voluntarily without fear that they will be 
audited by contractors. These repayments, if they occur before they are 
noticed by the contractors, should be encouraged. Physicians and 
providers should not have to fear that they will be audited for acting 
in good faith.

Pre-payment Reviews

    We strongly urge the Committee to direct the Secretary to establish 
uniform standards for random prepayment audits. Currently, contractors 
have complete discretion regarding how to structure and implement 
random audits. We believe that physicians and providers should be 
provided guidelines with the general conditions under which these 
audits may occur.

Issuance of New Regulations

    The AOA supports the concept of establishing stricter and more 
regimented time frames for the release of proposed, interim final and 
final rules. Additionally, we believe failure to meet published 
deadlines should require the Secretary to publish an explanation as to 
why deadlines were not met and establish new deadlines. This will 
prevent the Secretary from issuing continuations for interim final 
rules and thus avoiding a final decision on a proposed rule.

Compliance With Changes in Regulations and Policies

    Providers should be given, at minimum, 30 days to comply with new 
regulations. The 30 days should begin upon receipt of direct 
notification of policy changes from the Medicare contractors, not upon 
finalization of the rule. Additionally, we believe that new policies 
impacting providers should not be applied retroactively, unless it 
benefits the provider or is necessary due to statutory requirements.

Contractor Accountability

    CMS must address carrier fraud. The Office of the Inspector General 
(OIG) released several reports concerning carrier misconduct in 
Illinois, Connecticut, New Mexico, Colorado, Florida, Michigan, 
Pennsylvania, Massachusetts and California. CMS must be just as 
vigilant about preventing fraud and abuse among its contractors as it 
is with its providers.
    The General Accounting Office recently reviewed contractor 
bulletins from 10 carriers. The GAO found that the bulletins contained 
lengthy discussions with overly technical and legalistic language that 
providers may find difficult to understand. The bulletins also omitted 
important information about mandatory billing procedures.
    The GAO found that in 85% of its phone calls, the answers were 
incomplete or inaccurate. In addition, carrier Internet sites rarely 
met all CMS requirements and lacked user-friendly features such as site 
maps and search functions. We frequently hear of such complaints from 
our membership. Our members also find that carriers at times are 
unwilling to put their communications with physician practices in 
writing. This behavior is unacceptable.
    For contractor reform to succeed, physicians and other providers 
must have a single point of contact who will be responsible and 
accountable for program administration. Local carrier advisory 
committees (CACs) should be continued in each state to assure that 
local medical review policy reflects the consensus of the local 
physician community.
    CMS should establish the highest possible standards to determine 
which organizations are most qualified to become new contractors in the 
program. Formal physician/provider feedback should be solicited 
regarding the establishment of performance criteria for contractors and 
whether the contractors' actions have actually met those standards. 
Physician/provider outreach, education, and service should be 
considered a priority for each contractor in the program.
    In addition, CMS regional offices must be well versed in Medicare 
rules and regulations because their errors can have disastrous results. 
A case in point:
    In the mid 1990s, three osteopathic physicians in Oklahoma wanted 
to establish rural health clinics in the towns of Morrison (population 
900), Yale (population 1200), Pawnee (population 2500) and Fairfax 
(population 1800). They contacted HCFA's regional office in Dallas, 
which guided them in establishing the federally designated rural health 
clinics. The regional office approved the clinics. Three years later, 
HCFA headquarters in Baltimore contacted the doctors and told them they 
were over paid. HCFA requested a repayment of $980,000 and in its 
effort to recover the money, all Part A Medicare payments were stopped. 
It was ultimately determined that the regional office provided the 
wrong information. The rural health clinics were forced into 
bankruptcy. One clinic was shut down and the others are open on a part 
time basis--approximately one half to two half days a week.
    The error caused by the Federal government's regional office has 
had devastating effects in these rural low-income towns. Access to 
medical care has been severely limited and the doctors and their 
patients are paying the price.

Limited English Proficiency

    The AOA supports H.R. 969 that would rescind Executive Order 13166 
``Improving Access to Services for Persons with Limited English 
Proficiency.'' The financial implications of compliance with this rule 
potentially could be devastating to providers, especially those in 
rural areas. Fees for a professional interpreter average $40 per hour 
with a two hour minimum. At this rate, providers will be forced to pay 
more for a mandated interpreter than they are reimbursed for the health 
care they provided. Additionally, confusion still exists to whether 
this rule applies to written materials. This rule, and the cost of 
compliance, would have an adverse effect upon access to care.

Evaluation and Management (E&M) Documentation Guidelines

    E&M documentation guidelines have an extremely broad impact on 
physicians as they govern how physicians must document for office 
visits in order to receive Medicare reimbursement. To date, CMS has 
been unable to set forth E&M guidelines that accurately reflect the 
services provided during a physician office visit. HHS Secretary Tommy 
Thompson stopped work on the E&M guidelines in order to address the 
many concerns within the physician community. We support efforts to 
address physicians' concerns about burdens caused by documentation 
requirements. The AOA asks that CMS not be allowed to implement any new 
E&M guidelines prior to the completion of at least four pilot programs, 
one of which should be focused on rural providers. Until documentation 
guidelines are finalized, CMS should suspend all pre- and post-payment 
audits of E&M services, since the agency has not arrived at the 
requirements that ultimately will be used.

Emergency Medical Treatment and Labor Act (EMTALA)

    The extension of EMTALA to cover ambulances, free standing clinics 
and off campus facilities goes beyond the original intent of the law. 
EMTALA requirements strain the ability of the medical profession to 
provide the quality of care that patients deserve. Hospitals and 
physicians face overcrowded emergency departments, a lack of access to 
critical specialty emergency care, and the significant compliance costs 
associated with EMTALA that provide little, if any, added value to 
patient care. EMTALA discourages emergency departments from referring 
non-urgent patients back to their primary care provider. The CMS should 
not penalize or prevent hospitals from referring patients to continuity 
care clinics on the hospital grounds. There are varying interpretations 
of the EMTALA requirements among the regional carriers, making it all 
the more difficult to comply. Regional carriers should have some degree 
of uniformity in the interpretation and enforcement of EMTALA.


    On behalf of the 47,000 osteopathic physicians (D.O.s) in the 
United States, we thank you for the opportunity to submit a statement 
on the important issue of Medicare reform. The AOA stands ready to 
assist you in facilitating the enactment of H.R. 2768.
    The American Osteopathic Association promotes public health, 
encourages scientific research, serves as the certifying body for D.O.s 
and is the accrediting agency for all osteopathic medical schools and 
health care facilities.


    Statement of Patricia L. Scheifler, Association for Ambulatory 
              Behavioral Healthcare, Alexandria, Virginia
    I am Patricia L. Scheifler MSW, PIP, Board Member and Co-Chair of 
the Public Policy Committee of the Association for Ambulatory 
Behavioral Healthcare (AABH), and I am submitting this testimony for 
the hearing record. AABH is a national behavioral healthcare trade and 
professional association active in professional training, advocacy, 
research, publishing, best practice development, and technical 
assistance. Originally established in the early 1960s by clinicians 
involved in the relatively new treatment approach of ``day 
hospitalization,'' the association now embraces the full range of 
behavioral health interventions with a powerful interdisciplinary 
approach to ambulatory care and integrated medical and psychosocial 
methods. We currently represent over 5,000 professionals and more than 
70 systems of care, one of the largest interdisciplinary behavioral 
healthcare associations.
    We strongly commend Congresswoman Nancy L. Johnson (R-CT), Chair of 
the Subcommittee on Health of the Committee on Ways and Means, and the 
other members of the Subcommittee for holding this hearing. The topic 
of this hearing, H.R. 2768, the ``Medicare Regulatory and Contracting 
Reform Act of 2001'' and Medicare regulatory relief and modernization 
are long overdue for action by Congress. Our members provide care for 
some of the most vulnerable Medicare patients and we hear grave 
concerns daily that providers and the patients they serve feel under 
siege by a Medicare administrative operation that is too-often 
unresponsive, insensitive and adversarial.
Overview of Our Medicare Concerns
    To respond to behavioral health providers' very serious problems 
with Medicare, AABH recently testified before MedPAC and presented a 
strong case for fundamental change in Medicare payment policy. Some 
problems in particular AABH would like to draw to the Committee's 
attention in the administration of the current mental health benefit, 
these include:

         Variable Interpretation
          Medicare Reviewers and Hearing Officers have enormous 
        latitude in interpreting and applying Local Medical Review 
        Policies. What they do is highly subjective except in the 
        unusual circumstance of missing documentation. Their 
        determinations are often inconsistent and frequently lack any 
        justification or clarification beyond use of the well-worn 
        phrase ``not medically necessary.''
         Lack of Accountability
          Reviewers and Hearing Officers can make obvious errors in 
        interpretation or erratically apply written rules without any 
        real accountability or possibility of effective redress. Even 
        when denials are overturned on appeal, Reviewers are under no 
        obligation to make future determinations comply with the 
        determination made on appeal. A comment heard from Fiscal 
        Intermediaries is: ``Denials are over turned because the 
        Hearing Officers and Administrative Law Judges don't understand 
        the rules.'' There is no precedent set by overturned denials. 
        The Fiscal Intermediary is under no obligation to alter their 
        review practices.
         Protracted Appeal Process
          It often takes a year or more to complete the appeal process 
        on even a single claim. This is an enormous problem because it 
        restricts providers' cash flow and because the Fiscal 
        Intermediary and Medicare expect providers to learn and change 
        their practices as a result of the review process. Often months 
        after services are delivered and documented, providers discover 
        their Fiscal Intermediary is denying claims based on an 
        idiosyncratic interpretation that challenges the validity of a 
        critical piece of documentation. This is far too late to solve 
        the problem. The Fiscal Intermediary can then (and some do) 
        reopen all paid claims a year or longer retroactively and 
        demand repayment because the provider ``knew or should have 
        known'' that the documentation did not meet requirements. If 
        the provider decides to appeal the denials, they must appeal 
        each claim individually over the course of the next year (or 
        longer). Often providers can't sustain program operation due to 
        restricted cash flow, the enormous investment of time and 
        resources needed to sustain the appeal process and the very 
        real risk that the Fiscal Intermediary will reopen paid claims 
        and render a large payback determination. If they continue to 
        bill Medicare, even when the provider is right and the decision 
        to deny the claims was wrong, it is very costly to dig out of 
        intensive review once it has started.
         Switch to Prior Approval
          Prior approval is the industry standard practice long 
        employed effectively by private insurance and managed care, its 
        adoption by Medicare would greatly simplify the burdens of 
        behavioral health providers. Under this well-established 
        process, a provider knows up front if treatment will be 
        covered, and if not, why not. If key documents are determined 
        to be unacceptable, they can be immediately revised to satisfy 
        requirements and future documentation can be written to comply 
        with the payer's expectations. If a patient does not, in the 
        payer's opinion, require that level of care, alternate 
        treatment arrangements can be made at that time. Even more 
        importantly, if coverage is denied up front, it eliminates a 
        substantial portion the Medicare Program's risk of fraud and 
        abuse. CMS would not be put in the position of paying millions 
        of dollars for non-covered services and then trying to recoup 
        the payments. Providers would not be put in the position of 
        providing treatment in good faith and then being denied payment 
        after the fact, or worse, having paid claims reopened and being 
        told to pay back a million dollars for services that were 

H.R. 2768_A Good Start, but More Should Be Done
    Madame Chairman and members of the Subcommittee, the issues 
addressed by your legislation may seem technical in nature, but they 
will make a substantial difference in the day-to-day operations of all 
types of Medicare providers. Members of our association are gratified 
that the Committee is considering the impact of current regulatory 
procedures and burdens on providers. We particularly appreciate the 
opportunity to comment on this bill and hope that you will act to 
address the concerns we have raised in this testimony so that an even 
better bill will emerge from your deliberations. Following are our 
recommendations on what we view as the key provisions of the bill.

1. No Retroactive Application of Substantive Changes
    AABH supports this provision because it would prohibit the unfair 
practice of publishing changes in rules and regulations and then 
applying those rules/regulations to services that have already been 
rendered and documented.

2. Reliance on Guidance
    This is a very important provision because it would mean that 
providers could rely on written clarification from Carriers and Fiscal 
Intermediaries. This is especially critical when there is a change in 
Carrier or Fiscal Intermediary and this provision should be broadened 
to specifically address Fiscal Intermediary transitions. Medicare 
coverage policy for psychiatric services is complex and ambiguous and 
Fiscal Intermediaries often develop highly unique interpretations of 
payment policies. In a number of instances, our provider members have 
experienced a very high level of erroneous denials when a Fiscal 
Intermediary transition occurs. That is, where one Fiscal Intermediary 
takes over for another and the second holds providers to its standards 
rather than the ones in effect during the tenure of the first. 
Broadening this provision to cover such transitions will help alleviate 
these problems.

3. Methodology to Measure Contractor Error Rates
    AABH finds this a potentially helpful provision. If the intent is 
to correlate good provider education & outreach with low claims denial 
rates, this would be extremely helpful. It would give Carriers and 
Fiscal Intermediaries some incentive to bring denial rates down and to 
ensure that provider education is both available and effective.

4. Response to Inquiries: (1) Contractor Responsibility & (2) 
    These are important provisions that AABH supports. Some Fiscal 
Intermediaries and Carriers are less responsive to provider questions 
than others. These provisions hold the Medicare administrative 
contractor accountable for responding to provider questions. AABH 
recommends one important change: that CMS be required to respond in a 
timely manner to specific billing and cost reporting questions of 
providers of services and suppliers. CMS responses that are not timely 
are of little help to providers.

5. Encouragement of Participation in Education Program
    AABH supports this provision because to benefit from education, 
providers must be shielded from being targeted with review simply 
because of attending or asking questions during an educational program. 
Without this provision, providers are likely to avoid asking specific 
questions out of fear that such questions might reveal problems that 
could put them at risk for review and repayment.

6. Avoidance of Recovery Action for Problems Identified as Corrected
    AABH supports this provision because it is critical if any type of 
technical assistance is going to be offered. Few if any providers would 
open their system to technical assistance if there is a potential for 
recovery action as a result of problems identified during the technical 
assistance process.

7. Financial Participation by Providers
    Since the technical assistance envisioned in this section is 
specifically designed for small providers, it will be important for the 
section to specify that the cost must be stated in advance, in writing, 
and can't be exceeded without the prior written agreement of the 

8. Medicare Provider Ombusdman
    AABH finds this a helpful provision, especially since it includes 
``resolution of unclear or conflicting guidance.''

9. Medicare Administrative Law Judges
    AABH members sometimes wait up to a year to get an ALJ Hearing plus 
a written decision; this provision will be a helpful if it speeds up 
the process.

10. Requiring Full and Early Presentation of Evidence by Providers
    AABH takes strong exception to this provision and urges that it be 
deleted. Under this section, a provider of services or supplier would 
not be permitted to introduce evidence in any appeal that was not 
presented at the first external hearing or appeal at which it could be 
introduced. Although there is an exception for a good cause, this 
provision is extremely problematic.
    Each level of the appeal process allows Reviewers, Hearing 
Officers, and Administrative Law Judges to conduct a ``new and 
independent review'' of the claims. This means that they can (and often 
do) give new reasons for denial at each point in the appeal process. 
Thus, if a provider successfully defends the claim against one reason 
for denial, a new reason for denial is given at the next level of 
appeal. This can be (and typically is) repeated over and over up 
through each level of appeal. Responding to a moving target of changing 
reasons for denial often necessitates submission of new evidence to 
address the new reasons for denial. The clause ``unless there is good 
cause which precluded the introduction of such evidence at a previous 
hearing or appeal'' is extremely inadequate and too subjective to 
protect providers. This whole provision must be stricken in its 
entirety or providers will be tremendously and unfairly disadvantaged 
in defending their claims against ever shifting reasons for denial.

11. Limitation on Recoupment Until Reconsideration Exercised
    AABH recommends a change in this provision for the case of a 
provider of services, physician, practitioner, or supplier that is 
alleged to have received an overpayment under this title and that seeks 
a reconsideration of that determination. As proposed, the provision 
could be interpreted to mean that the provider can be required to pay a 
recoupment after the first level of appeal is completed. Providers 
should not be required to begin repayment until all levels of appeal 
have been exhausted, not just after the first level of appeal. AABH 
urges that providers should not be required to payback alleged 
overpayments until such time as it has been clearly established that an 
overpayment has in fact been made.

12. Limitation on Use of Extrapolation
    AABH members have received intensive claims and audit reviews 
inspired by criticism of Medicare mental health claims from the Office 
of the Inspector General. Therefore, our experience with extrapolation 
is much greater than other provider groups. We recommend that Medicare 
contractors be prohibited from using extrapolation to determine 
overpayment amounts to be recovered by recoupment, offset, or otherwise 
unless there is a sustained and high level of payment error. Since many 
Fiscal Intermediaries have a propensity for high rates of denials, 
simply having a ``high payment error rate'' should not justify 
extrapolation unless it is sustained in spite of documented efforts to 
educate the provider. This section should read ``sustained high level 
of payment error'' not ``sustained or high level of payment error.''
    In addition, the payment error rate should (1) exclude denials that 
are currently under appeal and (2) be adjusted to reflect denied claims 
that have already been overturned on appeal. Unfortunately, Fiscal 
Intermediaries calculate error rates based on initial denials 
regardless of the number of claims (or dollar amount of claims) that 
are being appealed or have already been over turned on appeal. Thus, a 
provider could have 100% of reviewed claims denied during the first 
review, appeal the denials, win all the appeals, and still be accused 
of having a 100% payment error rate! This can and does happen. Error 
rates should be calculated based solely on claims that have been 
denied, which are not pending in appeal and have not been overturned on 
    Furthermore, CMS must be required to show documented evidence that 
educational interventions, over and above the Review process itself, 
have been provided and failed. This will protect providers from 
receiving denials for a short period of time and then having those 
denials used to extrapolate to the universe of claims without any 
attempt to educate the provider. The provider should have a genuine and 
valid opportunity to identify problems and make required changes. Since 
the Review process itself is considered an educational intervention, 
additional educational interventions should be required before 
extrapolation is permitted. This is important because the reasons given 
for denial are often vague (e.g., ``not medically necessary'') and do 
not provide sufficient information to allow the provider to identify 
specific problems and make required changes.

13. Limitations on Non-Random Prepayment Review
    AABH recommends a change so that a Medicare contractor cannot 
initiate non-random prepayment review of a provider or supplier based 
on the initial identification of that provider for improper billing 
practice unless there is both a sustained and high level of payment 
    Lastly, we strongly recommend the legislation include a tight 
timeline for CMS promulgation of regulations that would implement these 
provisions. Many do not appear to be self-implementing and providers 
therefore will not be protected under these reforms until CMS 
promulgates regulations--particularly with respect to appeals.
    AABH is pleased that the Subcommittee is addressing the serious 
problems of the Medicare regulatory burden on behavioral health and 
other providers. We strongly urge the Subcommittee to report H.R. 2768 
to the full Ways and Means Committee with the enhancements we have 
presented. Lastly, on behalf of our members, I cannot thank you enough, 
Madame Chairman, for your long-standing efforts on behalf of consumers 
of behavioral health services, their family members, and the providers 
that serve them. I would be happy to respond to any questions that 
members of the panel may have.


        Statement of the Blue Cross and Blue Shield Association
    The Blue Cross and Blue Shield Association (BCBSA), which 
represents 44 independent, locally operated Blue Cross and Blue Shield 
Plans throughout the nation, is pleased to submit written testimony to 
the subcommittee on H.R. 2678, the Medicare Regulatory and Contracting 
Reform Act of 2001.
    Blue Cross and Blue Shield Plans play a leading role in 
administering the Medicare program. Many Plans contract with the 
federal government to handle much of the day-to-day work of paying 
Medicare claims accurately and in a timely manner. Blue Cross and Blue 
Shield Plans serve as Part A Fiscal Intermediaries (FIs) and/or Part B 
carriers and collectively process most Medicare claims.
    Blue Cross and Blue Shield Medicare contractors are proud of their 
role as Medicare administrators. While workloads have soared, operating 
costs--on a unit cost basis--have declined about two-thirds from 1975 
to 2001. In fact, contractors' administrative costs represent less than 
1 percent of total Medicare benefits. Few government expenditures 
produce the documented, tangible savings of taxpayers' dollars 
generated by Medicare anti-fraud and abuse activities. For every $1 
spent fighting fraud and abuse, Medicare contractors save the 
government $16.
    Blue Cross and Blue Shield Medicare contractors are committed to 
achieving outstanding performance. We support efforts to improve the 
ability of both contractors and the Centers for Medicare and Medicaid 
Services (CMS), formerly known as the Health Care Financing 
Administration, to cost-effectively provide the highest service levels 
to Medicare beneficiaries and providers.
    This testimony focuses on three areas:
    I. Background, including a description of Medicare contractor 
    II. Current challenges facing Medicare contractors; and
    III. BCBSA recommendations for improving contractor operations and 
comments on contractor reform provisions included in H.R. 2678

I. Background
    Medicare contractors have four major areas of responsibility:

    1. Paying Claims: Medicare contractors process all the bills for 
the traditional Medicare fee-for-service program. In FY 2001, it is 
estimated that contractors will process over 900 million claims, more 
than 3.5 million every working day.

    2. Providing Beneficiary and Provider Customer Services: 
Contractors are the main points of routine contact with Medicare for 
both beneficiaries and providers. Contractors educate beneficiaries and 
providers about Medicare and respond to approximately 40 million 
inquiries annually.

    3. Handling Hearings and Appeals: Beneficiaries and providers are 
entitled by law to appeal the initial payment determination made by 
carriers and FIs. These contractors handle over 7.4 million annual 
hearings and appeals.

    4. Special Initiatives to Fight Medicare Fraud, Waste, and Abuse: 
All contractors have separate fraud and abuse departments dedicated to 
assuring that Medicare payments are made properly. According to the 
Department of Health and Human Services (HHS), these activities saved 
the government $9 billion in 1998.

    Medicare contractors operate under detailed instructions from CMS. 
As government contractors, Medicare contractors must comply with 
numerous federal statutes, regulations, and Executive Orders. In 
addition, contractors must follow extensive CMS-issued program 
guidelines and manual instructions. To monitor compliance with these 
guidelines, contractors are visited several times each year by their 
local CMS regional office staff for an assessment of their performance 
against CMS' requirements. These reviews, termed Contractor Performance 
Evaluations, are conducted across all aspects of contractor 
operations--claims processing timeliness and accuracy, customer 
service, fraud and abuse detection efforts--and culminate in a formal 
annual report called the Report of Contractor Performance. Also, CMS 
routinely contracts with private companies to review various critical 
aspects of contractors operations.

II. Challenges Facing Contractors

    There are four key challenges currently facing Medicare 
    1. Inadequate funding levels with rising workloads;
    2. Increased complexity of Medicare rules;
    3. Frequent changes in program direction; and
    4. Legislative mandates not accompanied by additional funding.

    Inadequate funding levels: Of utmost importance to attaining 
outstanding performance is an adequate budget.
    However, Medicare contractors have been severely underfunded since 
the early 1990's and are facing poor prospects of receiving adequate 
funding next year. During the early to mid-1990's, reductions in 
funding concurrent with increases in workload seriously eroded 
contractors' ability to fight fraud and abuse. Between 1989 and 2000, 
the number of Medicare claims climbed almost 70 percent to over 800 
million, while payment review resources grew less than 11 percent. As a 
result, the amount allocated to contractors to review claims shrank 
from 74 cents to 48 cents per claim. Because of the significant cost of 
reviewing claims, this decline in funding resulted in CMS directing 
contractors to reduce the percentage of claims that were scrutinized 
and investigated. Similarly, the percentage of cost reports audited 
declined--between 1991 and 1996, the chances that any institutional 
provider's cost report would be reviewed in detail fell from about 1 in 
6 to about 1 in 13.
    Throughout this period, contractors identified to CMS additional 
anti-fraud efforts they could undertake if awarded additional 
resources. BCBSA and Blue Plans urged both Congress and the 
Administration to allocate significantly more funds for critical anti-
fraud and abuse efforts. Finally, in 1996, Congress created the 
Medicare Integrity Program (MIP) in the Health Insurance Portability 
and Accountability Act (HIPAA). MIP provided a permanent, stable 
funding authority for the portion of the Medicare contractor budget 
that is explicitly designated as fraud and abuse detection activities. 
MIP funding was set at $500 million in 1998 and is authorized to rise 
to $720 million in 2002. After 2002, the permanent authorization is 
capped at $720 million despite continuing projected increases in claims 
    Thanks to this new funding mechanism, Medicare contractors have 
been able to improve their efforts to reduce the amount of fraud, 
waste, and abuse in the Medicare program. Contractors' enhanced anti-
fraud and abuse efforts due to MIP funding contributed to the 
significant decline in improper claims and documentation submission by 
providers. The OIG audit of FY 2000 claims estimated that improper 
Medicare payments had dropped to $11.9 billion, or about 6.8 percent of 
the $173.6 billion in Medicare payments. The improper payment rate 
declined by over 50 percent or $11 billion in five years.
    But, the creation of MIP did not solve the budget problems for the 
remainder of the contractor budget. The largest portion of the 
contractor budget-- program management--is subject to the annual 
appropriations process and continues to face severe funding pressures. 
Program management activities include claims processing, beneficiary 
and provider communications, and hearings and appeals of claims 
initially denied. Under the appropriations process, contractors must 
compete for funding with high priority programs such as the National 
Institutes of Health and education.
    For example, between 1989 and 1998, funding for program management 
activities (adjusted for inflation) declined by 18 percent. During this 
period, the volume of Medicare claims increased by 84 percent; Medicare 
outlays (in real dollars), by 65 percent. Whenever possible, 
contractors responded to reduced funding by achieving significant 
efficiencies in claims processing, lowering program management costs 
per claim by 56 percent in real dollars over this period. But even 
these efficiencies have not been enough to keep pace with rising 
Medicare claims volume and diminishing funding levels. For example, 
this year, contractors have been instructed to cut back on customer 
service plans, responding to inquiries, provider training and other 
provider services in order to live within the 2001 budget. It should be 
noted that Medicare contractors have had to cut back on these important 
provider and beneficiary services in past years as well due to funding 
shortfalls, even though these services were critically important and 
contractors had wanted to enhance these programs.
    Inadequate budgets for program management also impact Medicare's 
fight against fraud and abuse. While many think of program management 
activities as simply paying claims, these activities are Medicare's 
first line of defense against fraud and abuse and are critically linked 
to MIP activities. As an example, many of the front-end computer edits 
(e.g., preventing duplicate payments and detecting suspicious claims) 
are funded through program management. Inadequate funding impacts 
different functions at different times, but always disrupts the 
integration of all the functional components needed to ``get things 
right the first time.'' It thus results in inefficiency and higher 
    We are pleased that Secretary Thompson and many Members of this 
subcommittee have recognized the need for additional administrative 
resources at CMS. We are concerned the Administration's FY 2002 budget 
relies on a proposal for $115 million in new user fees from providers. 
Congress has consistently rejected user fees and BCBSA recommends they 
be rejected again. We also strongly recommend Medicare contractor 
funding be increased to $1.567 billion in FY 2002 to ensure adequate 
resources are available to provide the high quality services 
beneficiaries and providers deserve. If funding for the Departments of 
Labor, Health and Human Services (HHS) and Education are subject to a 
Continuing Resolution (CR) at the start of FY 2002, BCBSA would 
recommend the CR include an increase in appropriations for Medicare 
contractor program management based upon the expected increase in 
claims volume. This will prevent any disruptions in paying claims and 
providing beneficiary and provider services while the final budget is 
being negotiated.

    Increased Coomplexity of Medicare Rules: The Medicare program 
continues to grow more and more complex. It takes a great deal of time 
and resources to educate providers and beneficiaries about new laws and 
rules as well as answer questions and without appropriate time and 
resources, it is difficult for the contractors to do an adequate job. 
Contractors have been challenged over the years with enormous program 
changes such as:

         New payment mechanisms for outpatient departments, 
        home health agencies, and skilled nursing facilities.
         Changes to Medicare coverage rules: Balanced Budget 
        Act (BBA), Balanced Budget Refinement Act (BBRA), and the 
        Beneficiary Improvement and Protection Act (BIPA).
         Implementation of the HIPAA administrative 
        simplification provisions.

    Just as Members of Congress are hearing from providers about the 
program's complexities, so too are contractors who must answer their 
questions and concerns.

    Frequent Changes in Direction: Medicare contractors are challenged 
by the very nature of the business. At last count, Medicare 
contractors, received on average a new instruction from CMS every five 
hours of every day of the year. This constant state of change requires 
contractors to be extremely flexible--both in terms of operations and 
budget. It has not been uncommon in the past for contractors to be 
forced to abandon projects or reallocate staff mid-year in order to 
adapt to CMS' suddenly revised priorities or modified funding levels.
    Medicare contractors operate under cost contracts, and CMS places 
budget caps, or limits, on the unit costs paid to contractors to 
process claims. By law, Medicare contractors are not allowed any 
profit. Under these contracts, Medicare contractors essentially do 
whatever work CMS requests, without ``change orders.'' There is not a 
clear statement of work at the beginning of the year, and contractors 
generally must comply with constant change orders from CMS without 
additional reimbursement. These demands make the Medicare contractor 
business extremely challenging.

    Legislative Mandates Without Funding: Legislative changes to 
Medicare are rarely accompanied by administrative funding or 
appropriate transition time for proper implementation. For example, 
Medicare contractors had to implement the new prospective payment 
systems and the many changes stemming from the BBA, BBRA and BIPA 
without new funding. This is extremely cumbersome for contractors that 
are already strapped for resources.

III. BCBSA Recommendations to Improve Medicare Contractors and Comments 
        on Contractor Reforms included in H.R. 2678
    BCBSA agrees that revisions to the Medicare contractor program 
would strengthen contractors' ability to effectively and efficiently 
handle day-to-day administration of the Medicare program. Blue Cross 
and Blue Shield Medicare contractors are committed to achieving 
outstanding performance levels and providing superior service to 
Medicare beneficiaries and providers. We want to work with this 
subcommittee, the Congress and CMS to attain this objective.
    BCBSA supports many of the reforms proposed in H.R. 2678, including 
contracting with any entity, not just health insurers; modernizing the 
way contractors are paid; adopting a more business-like environment; 
enhancing competition; and restoring critical provider education 
activities. We do, however, have two key concerns. First, while BCBSA 
supports increased competition in the program, requiring CMS to 
competitively bid all contractors every four years would likely be 
extremely problematic for beneficiaries, providers and CMS--as well as 
both potential new and existing contractors. Second, while we applaud 
the committee for mandating enhanced provider education, which has been 
severely cut back in recent years because of funding shortfalls, the 
ability to conduct these activities must depend on the appropriation of 
additional funding. Our specific comments follow.

    Competitive Contracting: BCBSA supports introducing more 
competitive bidding into the program in an orderly manner to minimize 
the risk of disruptions to beneficiaries and providers. To ensure 
stability of the Medicare program, BCBSA recommends that--rather than 
requiring bidding every four years for all contracts--CMS only put to 
competitive bid poor performing contractors and contracts from entities 
voluntarily exiting the program. This would allow the government to 
maintain those contractors that are providing quality services and 
meeting CMS' performance expectations, while encouraging new entities 
to compete for a stable program.
    BCBSA also supports provisions of H.R. 2678 that would enhance 
competition by giving HHS the authority to contract with any entity, 
not just health insurers, that are able to provide the full range of 
Medicare administrative services.
    BCBSA believes the provision in H.R. 2678 to require CMS to 
competitively bid all Medicare contracts every four years would:

    1. Reduce Flexibility for CMS: CMS would have less flexibility in 
managing competitive bids than other government agencies. Other 
agencies generally bid contracts on a five to seven year basis, and are 
able to provide longer terms. It is important to note that there is a 
trend to provide longer-term government contracts because of the cost 
and complexity of frequent competitions.

    2. Divert Already Scarce CMS Resources: Given the consensus that 
CMS is already underfunded, mandated competition every four years would 
divert resources away from other important CMS responsibilities.
    A four-year competitive bid process would place an enormous 
financial burden on CMS and require additional resources, including a 
new cadre of staff to manage what is likely to be a continuous process. 
Procurement for each contract could take up to three years; it can take 
up to a year to prepare the request for proposals, a year to run the 
competition, and another year to resolve any protests regarding the 
award of a contract (which are common in contracts of this size). Staff 
needs would be considerable as CMS would be taking on significant new 
    With respect to bidding, assuring all contractors are qualified and 
have the capacity to perform all assigned functions, assure all bidders 
address all functions with realistic and adequate resources, overseeing 
the competition and protests.
    With respect to the transition, managing change orders, assuring 
implementation matches what was provided in the bid, assuring 
problems--for beneficiaries and providers--are averted, responding to 
and addressing the inevitable problems that will arise.
    In addition, CMS administrative budgets will also have to take into 
account the increased contractor funds necessary to cover the very 
considerable costs of bidding for these contracts.

    3. Likely to Result in Beneficiary and Provider Service 
Disruptions: Providers would be faced with potential upheaval every 
four years. Past experience shows that transitions to new contractors 
are very challenging. They must be carefully managed to prevent service 
problems which has plagued previous transitions: incorrect payments, a 
backlog in claims processing, and lack of responsiveness to beneficiary 
and provider inquiries. Mandating CMS to competitively bid all 
contracts every four years--a massive undertaking--would be extremely 
high risk for providers and beneficiaries.

    4. Deter the Most Qualified Medicare Contractors: Current 
contractors, as well as potential new entities, would face significant 
disincentives to bid, knowing their investment is at risk every four 
years. Both current and new contractors are likely to be concerned 
about the huge business risk of losing the contract after four years 
and the subsequent loss of hundreds and even thousands of local jobs. 
In particular, potential new Medicare contractors must make significant 
investments in buildings, sophisticated computer systems and large 
numbers of trained staff. Many of the best contractors may decide that 
a 4-year contract is too high risk and not bid.

    5. Require an Increase in Overall Medicare Contractor Funds: 
Medicare contractor funds would have to be increased to cover the 
additional costs of competitive bidding. Currently, contractors live 
with CMS-set caps on costs per claim basis. When funding is 
inadequate--because of lower than requested appropriations or increased 
workloads (such as when new Medicare legislation is passed or 
unexpected increase in claims volumes)--contractors must still perform 
their functions, often without corresponding decreases in performance 
    Under a mandated competitive bidding process, there is a 
significant potential for a mismatch between competitive bids and 
available funding. If the competitive bids exceed the total funding 
available, CMS would be required to scale back the proposed scope of 
work and recompete the contracts. This would be extremely time 
consuming and even more costly and could result in an inadequate 
coverage of important functions.
    Unlike most other government contracting, Medicare is an 
entitlement program and the function of paying claims must continue. An 
entire contract just cannot be cancelled or postponed, like most other 
government contracts in the event of funding cutbacks.
    For these reasons, BCBSA believes that competitive contracting 
should be expanded in the Medicare contractor program carefully, with 
considerable planning. In our view, the best way to accomplish this is 
by focusing competitive contracting on poor performers and exiting 

    Additional Funding is Necessary to Restore and Enhance Provider 
Education: Blue Cross and Blue Shield Medicare contractors agree that 
provider education services should be restored and expanded. One of our 
primary messages to appropriators in recent years is that adequate 
funding is critical to support provider and beneficiary services. Since 
paying claims is the program's highest priority, provider and 
beneficiary services often fall victim to insufficient funding levels.
    BCBSA supports the provider education and technical assistance 
provisions included in H.R. 2678; however, implementation of these 
provisions should be dependent upon adequate funding.
    In the past, Medicare contractors provided many more services to 
beneficiaries and providers than are offered today, as budget pressures 
forced CMS to curtail these activities. Blue Cross and Blue Shield 
Medicare contractors are committed to providing the highest level of 
services to beneficiaries and providers. However, the services cannot 
be provided unless adequate funding is available. Therefore, we would 
ask that the provider education and technical assistance provisions be 
made contingent upon funding.

    CMS authority to award other than cost reimbursement contracts: 
BCBSA agrees with the provisions in H.R. 2678 to modernize the current 
cost-based contracting system. Currently, most contractors are paid 
costs up to a cap set by CMS; there is virtually no opportunity for 
profit. We believe CMS should be allowed to use other payment options, 
such as cost plus contracts.

    Funding recommendations: We have two specific recommendations that 
are not included in HR 2678:

         First, we urge Congress and the Administration to 
        assure Medicare administrative funds keep pace with workload 
        increases and new legislative/regulatory requirements.
         Second, we urge the Committee to increase the 
        permanent MIP appropriation, which is currently capped at $720 
        million in 2002 and beyond. If fraud and abuse efforts are to 
        be effective, MIP funding must keep pace with workload 
        increases. Therefore, BCBSA recommends indexing the MIP 
        authorization by the projected increase in workloads and 
        medical inflation.

    BCBSA would like to work with this subcommittee to assure adequate 
funding is available each year for paying claims promptly and providing 
high quality provider and beneficiary services.

    Blue Cross and Blue Shield Medicare contractors are committed to 
achieving outstanding performance. We believe more can and should be 
done to improve Medicare contractor operations. Success in Medicare 
claims administration requires that CMS and the contractors work 
together toward their mutual goal of providing high quality services to 
beneficiaries and providers, including accurate and timely claims 
    BCBSA look forward to working with this subcommittee and CMS to 
make these needed improvements.


  Statement of the Medicare Administration Committee, Silver Spring, 

 CIGNA Health Insurance Corporation. Cooperativa de Seguros de Vida de 
   Puerto Rico Group Health Incorporated. Mutual of Omaha Insurance 
    Company National Heritage Insurance Company. Nationwide Mutual 
  Insurance Company Wisconsin Physicians Service Insurance Corporation

    The member companies of the Medicare Administration Committee are 
substantially involved in the administration of the Medicare program as 
carriers and intermediaries. During Fiscal Year 2001, we processed 256 
million Part B claims and 16 million Part A claims. We appreciate this 
opportunity to comment on the Medicare contracting reform provisions of 
H.R. 2768, the proposed ``Medicare Regulatory and Contracting Reform 
Act of 2001''
    For several years, the Administration has been recommending that 
Congress enact its ``contractor reform'' proposal, which would allow 
the Center for Medicare and Medicaid Services (CMS) to restructure its 
contracting process and drastically reconfigure the administrative 
structure of the Medicare program. The General Accounting Office and 
the Office of Inspector General of the Department of Health and Human 
Services have endorsed the concepts put forth by the Administration.
    H.R. 2768 is aimed in part at modernizing Medicare's contracting 
for the processing and payment of Medicare claims as well as education 
and services provided to providers of care and beneficiaries. Section 4 
of the bill embodies many of the contracting changes being sought by 
the Administration. It would:

         Create a new class of contracting entities, ``Medicare 
        Administrative Contractors'', (MACs) replacing the current 
        Medicare Part A intermediaries and Part B carriers.
         Eliminate the current law requirement for cost-
        reimbursement contracts, allow contracting in any manner 
        allowed by the Federal Acquisition Regulation (FAR), and 
        require that contractors be provided with financial incentives 
        for quality and efficiency.
         Eliminate the current Part A right of hospitals to 
        select their fiscal intermediaries and the Part B requirement 
        that carriers be insurance companies.
         Allow CMS to contract for specified Program Management 
        functions individually or in any combination it wishes with any 
        entity it deems qualified.
         Require competition in the procurement of MAC 
        services, with some exceptions.
         Eliminate current law provisions that protect carriers 
        and intermediaries when their contracts are terminated by 
        either the government or themselves.
         Increase the liabilities that contractors may incur in 
        the performance of their responsibilities.

    CMS believes that revisions in its contracting authority will 
enable it to reduce overall Medicare program management costs through 
price competition and by reducing the number of Medicare fee-for-
service contractors, to achieve further economies of scale. It also 
hopes to achieve greater efficiency through the use of specialized, 
``functional'' contractors. However, the agency has not indicated with 
any degree of specificity how it would employ the broader contracting 
authority it seeks.


    We believe that appropriate changes should be made in the way the 
government contracts for the services provided by carriers and 
intermediaries. For example, our companies would welcome the 
opportunity to earn a reasonable profit as MACs. Nor do we oppose 
competitive contracting--provided the entities involved are clearly 
qualified to perform the complex operations involved in processing 
Medicare fee-for-service claims and related activities. But, we doubt 
that the mandatory 4-year competitive procurement cycle envisioned by 
H.R. 2768 would be the best way to implement competition--given the 
immense scale and complexity of the Medicare program. The cost and 
disruption of conducting four or five major competitive procurements 
each year would be a major expense and disruption for CMS and 
contractors to deal with and would probably not yield the results that 
could be achieved by a more targeted approach.

    Functional Contracting--We are also concerned about the feasibility 
of ``functional contracting.'' Dividing the activities that go into 
processing a single Medicare claim among several specialized 
contractors may have theoretical benefits, but the potential problems 
involved in coordinating all of these functions deserve careful 
analysis. Thorough planning, extensive pilot testing and cautious 
implementation will be needed to make functional contracting effective.

    Funding of Medicare Contractor Operations--During the past decade 
the annual funding of Medicare contractor operations has eroded to the 
point where it is inadequate to meet the demands of an efficiently run, 
high output program. The workload of claims to be processed has 
increased more than 70 percent, while the funding of contractor 
operations has risen less than 15 percent. In addition, Congress has 
enacted literally hundreds of substantive changes in the program 
without providing CMS or Medicare contractors the resources for the 
complex processes involved in implementing them.
    While contracting reform may produce some further economies of 
scale, they may not be sufficient to keep up with the growth in claims 
workload or general inflation in the economy. As the General Accounting 
Office has frequently pointed out, Medicare administrative costs are 
extremely low in comparison to similar government programs or private 
health insurance.
    Further, in reconfiguring contractor operations, CMS will incur 
substantial additional transition costs. Unless the funding of 
contractor operations is increased by 10 percent or more it will be 
impossible to maintain the current levels of quality and efficiency in 
the ongoing processing of 900 million annual Medicare claims while, at 
the same time, implementing contracting reform.

    CMS Capacity to Manage a FAR Contracting Environment--The current 
form of Medicare ``cost-reimbursement'' contracting has been in place 
for over three decades. It is an environment in which contractors are 
assigned tight annual budgets with no discretion to address shifting 
requirements by transferring resources among the various budget 
categories dictated by CMS. There is no detailed statement of work in 
the contracts. Instead, contractors receive hundreds of instructions 
from CMS, many of which are vague and subject to definition or change 
throughout the year. The majority of these instructions require 
operational changes to be carried out ``within existing resources.'' 
Under the current ``cost-reimbursement'' business environment, all 
contractors have experienced situations in which CMS orders additional 
work to be done and then fails to make funds available to pay for it. 
Contractors also are frustrated by performance evaluations that judge 
their work on a fiscal year basis yet fail to take into account the 
fact that funding for new or revised work was not provided until 
several months after the year had begun, if it was provided at all.
    Contracting in accordance with the FAR is a sound concept. However, 
its implementation will probably require more change by CMS itself than 
by its contractors. In the FAR contracting environment, CMS will be 
required to negotiate a highly detailed and specific statement of work 
with each contractor. Any new work or significant changes in the 
ongoing work to be performed will have to be negotiated with each 
contractor and price adjustments agreed upon. Further, CMS will have to 
develop precise, objective measurements of contractors performance. The 
GAO has commented that CMS already has experience with FAR contracting 
under the MIP program. But that experience may not prove particularly 
useful in dealing with the high-output and immense scale of ongoing 
carrier and intermediary operations.
    The immense workload imposed by hundreds of legislative changes, 
coupled with appropriations that have been inadequate for the work 
required of the agency, have greatly hampered CMS in the performance of 
its mission. Under contracting reform, CMS will need to be funded, 
staffed and reorganized to deal with the transition to a very different 
contracting environment. It will need to improve its planning, funding 
and policy implementation processes as they affect Medicare 
administrative contractors. The FAR contracting process will not 
accommodate constantly shifting agency strategies and goals, or 
imprecise, untimely definitions of the work that contractors are to 

    Contractor Liability--The financial risk of being a Medicare 
contractor is a factor that must be carefully considered by any entity 
interested in this business. The weighing of potential risk against 
potential financial reward is an important factor in making the 
decision to compete for Medicare administrative business. The revised 
standards for liability and indemnification of Medicare Administrative 
Contractors proposed in H.R. 2768 are inadequate for the levels of risk 
to which carriers and intermediaries are exposed. They would greatly 
increase the business risk of being a contractor. Insuring for the 
added risk would also increase contractors' operating costs and thus 
the government's cost of administering the program.
    We urge that the liability and indemnification provisions of H.R. 
2768 be reexamined. The liability provisions that CMS has incorporated 
in the contracts that it has awarded under the Medicare Integrity 
Program contracting authority are not appropriate for the program 
management work performed for Medicare by carriers and intermediaries. 
We believe that, when CMS moves beyond the limited projects that have 
been awarded thus far under MIP, it will find itself pressured by MIP 
contractors to adopt contract liability language comparable to that in 
current intermediary and carrier contracts.

    Contractor Termination Costs--Under their current contracts, 
carriers and intermediaries do not make a profit. They have many career 
employees with 20 or more years of service that must be provided 
severance pay if a contractor leaves the Medicare program.
    At the beginning of the Medicare program, the government agreed 
that, under the long-term cost-reimbursement relationships envisioned, 
carriers and intermediaries would be entitled to recover their 
termination costs regardless of whether the government or a contractor 
decided to end the relationship. In view of this agreement, carriers 
and intermediaries have not been allowed to include any charge for 
funding termination costs as an ongoing operating cost to be reimbursed 
by the government. We believe that CMS intends to end this longstanding 
commitment when it enters into new FAR contracts with existing carriers 
and intermediaries. Termination costs would be allowed only if the 
government cancels a contract. This would be extremely unfair to 
existing contractors--especially so in view of the fact that, since 
1965, more than 40 contractors have left the program subject to the 
existing termination rights.
    If the Medicare program continues to contract on a cost-
reimbursement or cost plus incentive fee basis, the traditional 
termination provisions should be retained in new contracts. If, 
instead, it changes from cost-reimbursement to fixed price contracting 
and forces contractors to give up their traditional right to 
termination costs, it is critically important that the change be 
applied prospectively.
    Unless current contractors are assured that the potential severance 
pay and lease termination expenses accrued up to this point will 
continue to be covered should they decide to leave Medicare, many may 
quickly drop out of the program under their existing contracts, in 
order not to lose their right to recover termination costs. 
Importantly, if the accrued termination costs of existing contractors 
are recognized under new contracts, the potential cost to the 
government will eventually disappear as the contractors' current 
employees leave or retire and are replaced by personnel not covered by 
the traditional contract language. Moving forward all bidders will 
simply include their prospective termination costs in the prices they 
bid for Medicare contracts.


               Statement of the Power Mobility Coalition

    The following statement is respectfully submitted to the U.S. House 
of Representatives Committee on Ways and Means on behalf of the Power 
Mobility Coalition (''PMC''). The PMC is a coalition of suppliers and 
manufacturers who provide power mobility equipment and services, such 
as motorized wheelchairs and scooters, to Medicare beneficiaries 
nationwide. PMC members represent well over half of the nation's power 
mobility market and our members are located in all regions of the 
    The members of the PMC would like to thank the Subcommittee on 
Health of the Committee on Ways and Means for its work on Medicare 
reform and for holding their recent hearing concerning H.R. 2768, the 
``Johnson-Stark Medicare Regulatory and Contracting Reform Act of 
2001.'' We are grateful that the Subcommittee is addressing legitimate 
concerns raised by suppliers and providing regarding regulatory and 
administrative issues in the Medicare program.
    Suppliers of power mobility equipment and services spend much of 
their time and effort interpreting and complying with Medicare's 
complex regulatory and procedural requirements. In addition to dealing 
with Medicare laws and regulations, PMC members must also deal directly 
with the Durable Medical Equipment Regional Carriers (``DMERCs''), the 
entities that are charged with administering payment on behalf of CMS. 
While CMS has overall responsibility for program management, many of 
the responsibilities related to reimbursement and medical policy have 
been delegated by the agency to the DMERCs. Unfortunately, the DMERCs 
have used this authority to create new policies, often in direct 
contrast to existing policy published by CMS. For example, the DMERCs 
often conduct random audits of suppliers of so-called ``high 
utilization'' items without adhering to published standards governing 
such audits, and use ``overpayment'' calculation methods such as 
extrapolation to recoup funds that have already been appropriately paid 
out by the Medicare program.
    These actions have led to an erosion of the due process afforded to 
those who choose to provide items and services to program 
beneficiaries. In this context, we offer the following comments.

    The PMC supports legislation that prohibits recovery of 
overpayments until the Administrative Law Judge (''ALJ'') level of 
appeal is completed.
    The current system requires suppliers and providers to repay the 
government and then undergo a lengthy appeals process to win back 
monies to which they are entitled. It is not unusual for a supplier/
provider to wait one or two years for a claim to be completely 
    During the appeals process, a supplier continues to provide the 
equipment and service to the beneficiary--to do otherwise would force 
the supplier to forfeit its right to appeal. The appeals process 
typically results in payment to the supplier who provided equipment and 
    Pursuant to the order certified by the physicians in compliance 
with Medicare rules. According to statistics cited in the September 
1999 Report issued by the Office of Inspector General of the Department 
of Health and Human Services, entitled ``Medicare Administrative 
Appeals--ALJ Hearing Process,'' 78 percent of DME appeals studied were 
``reversed at the ALJ level'' and 81 percent of home health appeals 
studied ``were reversed at the ALJ level.''
    With a reversal rate of roughly 80 percent, it does not seem fair 
that a company would have to forfeit the right to reimbursement without 
having the ability to adjudicate these disputed claims prior to 
repayment. Further, the supplier who wins a case is, under the current 
law, not entitled to interest on reversed claims even though there has 
been no break in service, or removal of equipment from, the Medicare 

    The current arbitrary use of the technique of extrapolation to 
calculate so called overpayments creates an undue hardship on suppliers 
and providers participating in the Medicare program. The PMC supports 
legislation that limits the use of extrapolation and would recommend 
that extrapolation not apply to customized items of equipment such as 
power mobility equipment.
    Extrapolation works in the following manner: a carrier draws a 
``sample'' of claims (often as few as thirty) from a universe of claims 
for that supplier a defined period of time. If, for example, the 
carrier reviewer determines that 50% of the claims should not have been 
paid (even though the treating physician has certified the need for the 
equipment), that non-payment amount is then ``extrapolated'' to the 
universe of claims. If there are a hundred claims in the universe, the 
company will owe repayment for 50 electric wheelchairs ($250,000) 
rather than 15 wheelchairs ($75,000). The overpayment amount is due 
within thirty days of the DMERC reviewer's determination. Even though, 
typically, the supplier wins most, if not all, of the overpayment back 
on appeal, the business is severely damaged.
    The indiscriminate use of extrapolation for costly, customized 
items of medical equipment such as electric wheelchairs, is creating 
hardships for dealers and has forced many businesses to face 
bankruptcy. Although CMS has the discretion to allow the supplier to 
pay back a large overpayment in installments, such payment arrangements 
are usually granted only for a twelve-month period, with interest of 
around 14% is assessed on all outstanding ``overpayments'' even while 
they are being appealed.
    The use of extrapolation saddles the supplier, who is trying to 
provide a service in his/her community, with a large overpayment 
assessment, as well as additional costs including, fees for 
representation and interest on any assessed ``overpayment.'' In 
addition, the supplier is required to pay back the government within 
thirty days. The company who finds itself in this position will take 
little comfort in the fact that the ultimate reversal rate for these 
cases is, according to CMS's own figures, roughly 80 percent. That is 
because the business may very well not survive the next year or two of 
working through this CMS/DMERC controlled process. An appeal for relief 
to federal court is not possible until administrative remedies are 


   Medical Review and Audits Should Be Conducted Based on Good Cause

    Medicare audits and medical reviews should be conducted based on 
good cause and should adhere to established standards and guidelines. 
Toward that end, CMS developed standards for the audit process in an 
August 7, 2000 Program Memorandum entitled the Medicare Review 
Progressive Corrective Action plan. These standards require that 
intermediaries/carriers should ``subject providers only to the amount 
of medical review necessary to address the nature and extent of the 
identified problem.''
    Many of the audits conducted upon suppliers are not based on an 
``identified problem'' but rather are triggered on the use of a code 
for equipment for which utilization has increased. For example, the 
Region D DMERC, the Medicare Part B carrier overseeing 17 states 
spanning the entire Western part of the country, has developed a series 
of pie charts highlighting the top suppliers of power wheelchairs for 3 
month periods. Each of the suppliers cited on these pie charts are 
subsequently targeted for an audit based solely on the ``high 
utilization'' of this equipment.
    What is troubling is the fact that the Region D DMERC's own pie 
charts demonstrate that the targeted suppliers are providing only 
between six and eight wheelchairs a month to Medicare beneficiaries. 
Providing less than ten wheelchairs a month does not constitute high 
utilization in a Region spanning 17 states. Further, the information 
provided to industry by the Region D DMERC appears to be inconsistent. 
One chart used by the Region D DMERC cited the top supplier for the 
first quarter of 2000 as providing 32 wheelchairs while another chart 
used by the same DMERC for the same quarter of 2000 cited a company as 
providing 39 wheelchairs.
    The Region D DMERC audit process is consistent with CMS/carrier 
policy of targeting companies that may specialize in a particular area 
and/or companies that have developed a reputation for providing quality 
service and care to Medicare beneficiaries. CMS's policy of targeting 
suppliers of a particular product creates a chilling effect on the 
ability of Medicare suppliers to provide equipment and services to 
patients who qualify for such equipment and services.

 The Current Audit Process Should Not Penalize the Utilization of New 
                     Technology in the Marketplace

    The current process by which companies are being audited raises a 
broader issue concerning CMS's inability or unwillingness to 
acknowledge or recognize the importance of technological advancements 
in the health care field. The development of new technology in the 
power mobility industry has made this equipment available to a larger 
number of disabled people. It is now possible for beneficiaries to 
obtain smaller, more lightweight and maneuverable motorized wheelchairs 
for use inside a patient's home. This new technology allows people to 
move about in small places (e.g., hallways, kitchens, and bathrooms) 
and complete their activities of daily living without being bed-bound 
or sent to nursing homes.
    CMS's targeting of companies based strictly on utilization fails to 
recognize the evolving health care marketplace or changing consumer 
needs and fails to appreciate the rationale for a particular product or 
service being provided to patients throughout our country.

    Carrier Audit Determinations Should Be Consistent With Medical 
          Necessity Standards Established By Congress and CMS

    The CMS Medical Review Progressive Corrective Action plan states 
that ``after validating that claims are being billed in error, target 
medical review activities at providers or services that place the 
Medicare trust funds at the greatest risk while ensuring the level of 
review remains within the scope of the budget for medical review.''
    Unfortunately, the criteria the carriers use to determine that 
``claims are being billed in error'' are inconsistent with criteria 
already established by Congress and CMS. Current Medicare policy 
governing the use of power mobility equipment requires that a supplier 
submit, on behalf of a beneficiary, a certificate of medical necessity 
(``CMN'') form signed and completed by the patient's treating 
physician, with each power mobility claim. Congress passed legislation 
in 1994 defining a CMN in the following manner:

          A form or other document containing information required by 
        the carrier to be submitted to show that an item is reasonable 
        and necessary for the diagnosis or treatment of illness or 
        injury to improve the functioning of a malformed body member.

    CMS worked with the medical community on the development of the CMN 
for power mobility equipment (as well as CMNs for other DME items) and 
received approval from the Office of Management and Budget for these 
forms pursuant to the Paperwork Reduction Act. When submitting the CMN 
forms to OMB for approval, CMS explicitly declared that the CMN forms 
are ``needed to correctly process claims and ensure that claims are 
properly paid'' and that ``these forms contain medical information 
necessary to make an appropriate claims determination.'' In fact, the 
treating physician (or clinician familiar with the patient's condition) 
is required to complete the detailed medical necessity information on 
the CMN and certifies that such information is true and accurate.
    The CMN process has been quite effective. The PMC sampled roughly 
20,000 power mobility CMNs and discovered that over 75% of the patients 
failed to qualify based on responses to medical necessity questions 
established on the CMN form. Only the 25% of patients who have met the 
medical necessity requirements established on the CMN form were 
provided with power mobility equipment that was billed to the Medicare 
    Despite the legal/medical necessity significance of the CMN form as 
envisioned by Congress, CMS and the OMB, the DMERCs have often 
disregarded the information contained on the forms, particularly when 
conducting audits, to determine the validity of claims. On numerous 
occasions, power mobility suppliers have been assessed overpayments 
even though the equipment was provided pursuant to a properly completed 
CMN form signed and certified by the patients treating physician.
    One power mobility supplier, a company with revenues between 1 and 
2 million a year, was assessed an overpayment of nearly $500,000. Upon 
making this overpayment assessment, the carrier informed the supplier 
in writing that the ``CMN represents nothing more than a Medicare pre-
payment tool which has been abbreviated as much as possible to reduce 
physician paperwork.'' Another small power mobility supplier was 
assessed an overpayment of over $600,000 and informed by the carrier in 
writing that ``the CMN itself does not provide sufficient documentation 
of medical necessity. . . . Suppliers are not required, nor should 
they, sell equipment to unqualified beneficiaries merely because they 
have a physician's written order and a CMN.''
    In these cases, and in other similar cases throughout the country, 
the supplier had fully complied with the rules established by the 
Medicare program and yet were penalized based on new and arbitrary 
criteria developed by the carrier after the equipment had been 
delivered to the patient and after the claim had originally been paid. 
While these companies will most likely be vindicated during the appeal 
process, the damage to the company has taken place and the company's 
ability to survive has been impacted. As set forth above, the inability 
of CMS to effectively monitor the performance of the Part B carriers 
results in an unfair burden and cost to suppliers and providers who 
serve beneficiaries.