[Senate Hearing 107-264]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-264

 OVERSIGHT OF THE CENTERS FOR MEDICARE AND MEDICAID SERVICES: MEDICARE 
                PAYMENT POLICIES FOR AMBULANCE SERVICES

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



                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION


                               __________

                           NOVEMBER 15, 2001

                               __________

      Printed for the use of the Committee on Governmental Affairs


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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel
              Jason M. Yanussi, Professional Staff Member
      Debbie Forrest, Legislative Assistant for Senator Lieberman
        Steve Wyrsch, Congressional Fellow for Senator Lieberman
         Jason VanWey, Legislative Assistant for Senator Dayton
         Hannah S. Sistare, Minority Staff Director and Counsel
                Ellen B. Brown, Minority Senior Counsel
               Elizabeth A. VanDersarl, Minority Counsel
                     Darla D. Cassell, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Dayton...............................................     2
    Senator Collins..............................................     2
    Senator Carnahan.............................................     8
Prepared statement:
    Senator Torricelli...........................................    33

                               WITNESSES
                      Thursday, November 15, 2001

Hon. Thomas A. Scully, Administrator, Centers for Medicare and 
  Medicaid Services, U.S. Department of Health and Human Services     5
Mark D. Lindquist, M.D., Medical Director, Emergency Department, 
  St. Mary's Regional Health Center..............................    14
James N. Pruden, M.D., FACEP, Chairman, New Jersey EMS Coalition.    16
Gary L. Wingrove, EMT-P, Minnesota Ambulance Association.........    18
Mark D. Meijer, Owner and CEO, Life EMS Ambulance Service........    20
Laura A. Dummit, Director, Health Care-Medicare Payment Issues, 
  U.S. General Accounting Office.................................    26
Deputy Chief John Sinclair, Secretary, Emergency Medical Services 
  Section, International Association of Fire Chiefs..............    27
Lori Moore, MPH, EMT-P, Assistant to the General President, 
  International Association of Firefighters (IAFF)...............    30

                     Alphabetical List of Witnesses

Dummit, Laura A.:
    Testimony....................................................    26
    Prepared statement...........................................    67
Lindquist, Mark D., M.D.:
    Testimony....................................................    14
    Prepared statement...........................................    43
Meijer, Mark D.:
    Testimony....................................................    20
    Prepared statement...........................................    54
Moore, Lori, EMT, MPH:
    Testimony....................................................    30
    Prepared statement...........................................    83
Pruden, James N., M.D.:
    Testimony....................................................    16
    Prepared statement...........................................    46
Scully, Hon. Thomas A.:
    Testimony....................................................     5
    Prepared statement...........................................    35
Sinclair, Deputy Chief John:
    Testimony....................................................    27
    Prepared statement...........................................    80
Wingrove, Gary L., EMT-P:
    Testimony....................................................    18
    Prepared statement...........................................    48

                                Appendix

Chart entitled ``Medicare Ambulance Payments 1991-2000,'' 
  submitted by Mr. Scully........................................    87
Prepared statements referenced in Senator Carnahan's statement:
    Metropolitan Ambulance Services Trust (MAST) with attachments    88
    Ambulance District Association of Missouri...................    99
    Missouri Emergency Medical Services Association (MEMSA)......   100
    Missouri Ambulance Association...............................   101
    State Advisory Council on Emergency Medical Services.........   102
    Kansas Emergency Medical Services Association (KEMSA)........   103
Prepared statements submitted for the record:
    Hon. Don Wesely, Mayor of Lincoln, Nebraska..................   104
    Oregon State Ambulance Association...........................   105
    National Association of State EMS Directors with an 
      attachment.................................................   106
    National Association of Emergency Medical Services Physicians 
      (NAEMSP)...................................................   108
    Lifeline Ambulance Services, Inc.............................   110
    American Medical Response, Steven Murphy.....................   113
    Emergency Medical Coalition of Ambulance Providers, Brian J. 
      Connor, Chairman, President, Massachusetts Ambulance 
      Association, and Chief Executive Officer, Armstrong 
      Ambulance Service..........................................   117
Question submitted by Ranking Member Fred Thompson and response 
  from Mr. Scully................................................   123

 
 OVERSIGHT OF THE CENTERS FOR MEDICARE AND MEDICAID SERVICES: MEDICARE 
                PAYMENT POLICIES FOR AMBULANCE SERVICES

                              ----------                              


                      THURSDAY, NOVEMBER 15, 2001

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:19 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, Dayton, Carnahan, and Collins.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
morning. I am delighted to welcome everyone to this oversight 
hearing on the proposed changes in Medicare reimbursement of 
ambulance services and the impact the changes will have on the 
beneficiaries who rely on them.
    I am pleased to open this meeting of our Committee as 
Chairman of the Committee, but I will in a few moments turn the 
gavel happily over to Senator Mark Dayton of Minnesota, whose 
interest and energy in this important subject has led to, 
facilitated, and enabled this hearing. For that, I thank him.
    Let me start out by saying that the provision of ambulance 
transport in emergency situations is a critical aspect of 
access to medical care that must be preserved and protected. 
When Medicare beneficiaries call 911 in a medical emergency, 
they have every right to expect that an ambulance will arrive 
in a timely manner. It is our responsibility to ensure that 
this right is honored and that our national health care policy 
does nothing to jeopardize it.
    That said, problems with Medicare's ambulance service 
reimbursement system are, unfortunately, longstanding and in 
dire need of reform. In the last decade alone, the General 
Accounting Office and the Department of Health and Human 
Services have issued 10 separate reports detailing these 
problems, specifically with regard to payment structure, the 
claims review and adjudication processes, and coding practices.
    Under the Balanced Budget Act of 1997, ambulance 
requirements were supposed to move to a fee schedule instead of 
a reimbursement system based on medical diagnosis, and the 
Centers for Medicare and Medicaid have been working on that 
shift for quite some time. It now sounds like the rule on the 
fee schedule will be issued, hopefully, early next year. The 
reimbursement levels presented by the proposal have, 
nonetheless, raised concerns among a number of our witnesses 
today, although I gather that the International Association of 
Firefighters supports the fee schedule as negotiated last year.
    So we all want to avoid any situation that jeopardizes the 
livelihood of ambulance providers and employees or that will 
disrupt services for Medicare beneficiaries. We also want to 
avoid continuing problems with claims denials, inconsistent 
application of standards and adjudication process, and 
prolonged delays in claims processing that have led to 
unnecessary stress for patients.
    This is a critically important subject and I am very 
grateful that Senator Dayton has taken the lead on it and 
Senator Collins is here as an expression of her interest in 
this, as well.
    If I may say, just on a personal note, when I first came on 
this Committee in 1989 as a freshman, the then-Chairman John 
Glenn surprised me by telling me that if I had an interest in 
any subject and I wanted to do a hearing on it, to let him know 
and he would enable me to do that. I am happy that I told that 
story to Senator Dayton. [Laughter.]
    So in fairness, and I guess some kind of validation of the, 
what is it, what goes around comes around, or what comes around 
goes around, or one good deed definitely should engender 
another, I am really proud to turn the gavel over to an 
outstanding freshman Member of the Senate for whom I think this 
will be the first of many hearings he will conduct, Senator 
Mark Dayton. There ought to be a ceremony of some kind. Take 
care.

              OPENING STATEMENT OF SENATOR DAYTON

    Senator Dayton [presiding]. It is certainly a first for me. 
Thank you, Mr. Chairman. Thank you.
    I certainly want to thank the departing Chairman for this 
opportunity. They say freshmen are meant to vote the way the 
leadership tells them to and not be heard otherwise, so I am 
pleased that Senator Lieberman was true to his word, and 
Senator Collins, I thank you for joining me here. I know you 
said you have to go on to another hearing, so why do I not let 
you go ahead, if you have any opening remarks.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Mr. Chairman. That is 
very kind of you, and thank you for chairing this oversight 
hearing on Medicare's payment policies for ambulance services.
    I am particularly concerned about the effects that the new 
fee schedule will have on our rural ambulance providers, and I 
know this is a central concern of yours, as well. Payment under 
this new fee schedule will preclude providers of ambulance 
services from recouping their actual costs. For the average 
high-volume urban provider, this should not pose a significant 
problem.
    For ambulance providers in rural areas, however, it is a 
different story. Ambulance services in rural areas tend to have 
higher fixed costs and low volume, which means that they are 
unable to take advantage of any economies of scale. I am, 
therefore, very concerned that the proposed rule failed to 
include a meaningful adjustment for rural low-volume ambulance 
providers.
    Several ambulance providers in my home State of Maine have 
expressed their concerns to me about the impact of the proposed 
fee schedule. Let me just give one example of the impact that 
this change will have on one of Maine's hospital-based 
ambulance providers, Franklin Memorial Hospital in Farmington, 
Maine.
    Logging, tourism, and recreational activities are central 
to the economy of this region and good emergency transport is 
essential. Franklin Memorial owns and operates five local 
ambulance services that cover more than 2,000 square miles of 
rural Maine. They serve some of the most remote areas of our 
State and ambulances frequently have to travel more than 80 
miles to reach the hospital. Moreover, these trips frequently 
involve backwoods and wilderness rescues, which require a 
highly trained staff. Since there are only 30,000 people in 
Franklin Memorial's service area, however, volume is very low.
    Under the current Medicare reimbursement system, Franklin 
Memorial has just managed to break even on its ambulance 
services. Under the proposed fee schedule, however, these 
services stand to lose up to $500,000 a year systemwide. While 
the small towns served by Franklin Memorial have helped to 
subsidize this service, there is simply no way that they can 
absorb a loss of this magnitude.
    The Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act did increase the mileage adjustment for rural 
ambulance providers driving between 17 and 50 miles by $1.25. 
While this is helpful, it does not begin to adequately 
compensate low-volume ambulance services like Franklin Memorial 
Hospital.
    Congress has required the General Accounting Office to 
conduct a study of the costs in low-volume areas, but any GAO 
recommendations for adjustments in the ambulance fee schedule 
would not be effective until 2004. I have, therefore, joined 
with Senator Russ Feingold in introducing the Rural Ambulance 
Relief Act, S. 1367, to provide a measure of immediate 
financial relief to rural providers, and I know that our 
Chairman also has legislation.
    Our legislation establishes a ``hold harmless'' provision 
allowing both hospital-based and freestanding rural ambulance 
providers to elect to be paid on a reasonable cost basis until 
the Centers for Medicare and Medicaid Services is able to 
identify and adjust payments under the new ambulance fee 
schedule for services provided in low-volume rural areas.
    Mr. Chairman, as we review Medicare's payment and coverage 
policies for ambulance services, I believe that it is critical 
that we take the unique needs of rural providers into account. 
I, therefore, hope that we can have some change in the fee 
schedule or perhaps legislative action to provide relief and 
ensure that those of our constituents who are living in rural 
areas still have access to the ambulance care that they need.
    In closing, I would note that Mr. Scully told me this was 
an issue that was coming up in his town meetings. When I was 
traveling throughout the State of Maine and visiting several 
hospitals in the month of August and since then, it came up 
repeatedly. It is very much of a problem and I am concerned 
that if we do not rectify and come up with a reasonable fee 
schedule, that we really will jeopardize ambulance service to 
many of our constituents.
    So thank you for your leadership and I do very much 
appreciate your allowing me to proceed so that I can go on to 
an education conference. Thank you.
    Senator Dayton. Thank you, Senator Collins. Minnesota and 
Maine share many characteristics, including a wide expanse in 
our rural areas, and those are very much the same concerns that 
my ambulance providers in Minnesota expressed to me.
    We are very pleased that Administrator Scully is here today 
and is able to not only speak, but as I understand, to be here 
until shortly before 10:30 a.m., when you need to go on to meet 
with Senator Stevens of Alaska, who as the ranking member of 
the Appropriations Committee is certainly someone you want to 
be timely to meet with.
    Mr. Scully. He is not really happy with me on another 
issue, so it is a bundle of joy in this job. [Laughter.]
    Senator Dayton. That is right, and there are 100 of us and 
only one of you, so I am going to forego my opening statement. 
I am going to put it into the record.
    [The prepared statement of Senator Dayton follows:]

                  PREPARED STATEMENT OF SENATOR DAYTON

    Mr. Dayton. Reliable ambulance service is often a matter of life 
and death. There are growing problems that are putting ambulance 
providers in Minnesota and across the country in financial jeopardy and 
affecting their ability to deliver emergency services to patients.
    This summer my staff in Minnesota met with ambulance providers and 
Medicare beneficiaries in Hibbing, Duluth, Moorhead, St. Cloud, 
Bemidji, Marshall, and Harmony, Minnesota to listen to their concerns 
over Medicare ambulance services. In every part of the state the 
stories were the same. The biggest concern was Medicare's denial of 
ambulance claims. Medicare has denied claims for such medical 
emergencies as cardiac arrest, heart attack, and stroke.
    The family of a deceased woman was charged for an ambulance trip 
between a rehabilitation facility and a short-term care facility. 
Medicare denied that the ambulance transfer was medically necessary. My 
staff obtained notes from two doctors, one which documented the need to 
discharge the patient to a facility that could closely monitor her 
medical condition. The other letter explained the need for an ambulance 
as the patient required oxygen during the entire trip. Only after these 
efforts did Medicare agree to reopen the case and paid the initial 
ambulance charge and the mileage to the next closest facility (the 
family paid the rest of the bill).
    The date of her transport was on October 29, 1999. The constituent 
died soon after, and her daughter contacted my campaign office on July 
30, 2000. My staff contacted the rehabilitation facility she was 
transported from, the short-term facility she was transported to, the 
family on multiple occasions. In addition, my staff had her two doctors 
document why she needed ambulance transportation. As a result, the 
ambulance contractor, Noridian agreed to re-open her case on November 
11, 2000, and subsequently pay for part of the bill on April 9, 2001.
    In another instance, an elderly woman experienced nausea, vomiting, 
chest and abdominal pain. She was taken to the emergency room, where 
she was admitted to the hospital for a 3-day stay.
    Medicare denied the claim because ``Ambulance service is not 
covered when other transport could be used without endangering the 
patient's health. This rule applies whether or not such other means of 
transport is actually available.'' Medicare representatives felt the 
ambulance was a convenience and asserted that the patient's daughter 
(who lives over 200 miles away) should have driven her to the ER.
    After months, the claim was finally paid. But the elderly woman 
from Duluth, Minnesota was so upset with the Medicare process, that 
when she needed an ambulance again she called a taxi. This is 
unacceptable.
    To make matters worse, when Congress enacted the Balanced Budget 
Act of 1997 it required that ambulance payments be moved to a fee 
schedule on a cost-neutral basis. Moving to a fee-schedule makes sense, 
but not on a cost-neutral basis for a system that is already 
underfunded. The proposed fee-schedule is especially unfair to rural 
areas and will mean the end of small ambulance providers in Minnesota 
and throughout the country.
    Medicare beneficiaries deserve more from the health insurance 
system than additional anxiety in an emergency situation for a system 
into which they have paid. When people in Minnesota and across the 
country have an emergency requiring an ambulance, they want to know 
that they will quickly and reliably get the care they need. However, 
current Medicare policies and procedures are putting quality ambulance 
service at risk and are forcing many ambulance providers to struggle to 
stay in business--especially in rural communities.

    Senator Dayton. I just want to say that, obviously, the 
issues that Senator Collins has raised and others are of great 
concern to me and to Minnesota, as well, and would ask you to 
proceed, then, with your opening statement. Then we will have a 
chance to hopefully hear from other panelists who can give you 
their first-hand experience with some of the difficulties they 
have encountered. Please proceed.

 TESTIMONY OF HON. THOMAS A. SCULLY,\1\ ADMINISTRATOR, CENTERS 
 FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH 
                       AND HUMAN SERVICES

    Mr. Scully. Sure. Thank you, Senator. Thank you for having 
me here today. As you will find in this statement, I have spent 
a lot more time on ambulance issues than I could have ever 
imagined 6 months ago when I decided to take this job.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Scully appears in the Appendix on 
page 35.
---------------------------------------------------------------------------
    I think we have all been sensitive to the vital role that 
emergency service providers play in care for all patients, 
including Medicare beneficiaries, but I think the events of the 
last 2 months have even raised and heightened the awareness of 
all of us to that, certainly what is going on all across the 
country, but in New York City as recently as the other day in 
Queens. So we have always been extremely aware of the 
importance that ambulance providers provide to the country with 
their services, but even more so now.
    We are in the very final--very, very final stages of 
putting this regulation out. It is already a couple of years 
late, as you know, and I think it will be out before the end of 
the year. Our goal is to have it be effective April 1, and I 
think most of the ambulance community is aware of that.
    The current ambulance payment system, as I think you 
probably found out, is very outdated and has led to huge 
discrepancies in the payments between geographic regions, 
between different providers. It is also incredibly burdensome 
from an administrative basis and requires substantial record 
keeping.
    Congress has generally, since 1981, been moving towards 
what is called prospective payment and towards modernized fee 
schedules all across the board. The ambulance sector was really 
one of the very few places we were actually still paying on 
costs or charges, which are kind of amorphous terms, and I 
think it was a wise move for Congress to direct HCFA, now CMS, 
to move towards up with an ambulance fee schedule.
    These systems generally, whether it is PPS or a fee 
schedule, are much more accurately reflecting the resources 
that are used in providing services. They generally reflect 
regional cost differences much better. And overall, I think 
almost every move we made to prospective payment or to a fee 
schedule, whether it is the physician fee schedule, hospital 
prospective payment, nursing home prospective payment, and home 
health prospective payment, every one of these--and I just left 
the hospital business--was greeted with great fear and 
skepticism ahead of time, and after they are actually phased in 
and folded in, I believe in almost every case they have turned 
out to be much more appropriate, much better payment systems, 
and have worked that much better. So that is certainly our goal 
with the ambulance fee schedule.
    I certainly understand the concern people have any time you 
make a change and transition to a new fee schedule and I am 
sure those fears are appropriate, but I hope we are going to 
find in a couple years that the transition will have turned 
into a much better payment system, as it has with all the other 
payment systems.
    Over the last 10 years, and I think I was going to put a 
chart up here,\1\ the Medicare fees for ambulances have 
increased by nearly $1 billion, and the point of this chart is 
really, and I will get to it in a minute, is to show that the 
goal here when you go to PPS is to take what you would have 
spent under the old Medicare ambulance system and pay exactly 
the same amount under an improved and more appropriate and more 
adequate ambulance system. So that trend line that keeps going 
up, we are expecting about $2.3 billion in ambulance spending 
this year, going up to, I think it is $2.5 billion and $2.7 
billion.
---------------------------------------------------------------------------
    \1\ Chart referred to by Mr. Scully appears in the Appendix on page 
87.
---------------------------------------------------------------------------
    Our goal here is to restructure the ambulance payment 
system so it works better but we pay the ambulance providers 
exactly the same under the new law as they would under the old 
law. That is one of the major concerns the ambulance providers 
have expressed to me, and I will get into that in a minute, and 
it is a very legitimate one and I have done everything we can 
to make sure it works more appropriately.
    In 1997, the BBA, Congress mandated that we switch to a 
national fee schedule, and in mandating that fee schedule, they 
suggested--Congress directed us to have a negotiated 
rulemaking. This was obviously in the last administration. 
Under the Clinton Administration, every major party in the 
ambulance world was involved in a very long and detailed 
negotiated rulemaking process that took a year, and in addition 
to CMS, then HCFA, the American Ambulance Association, the 
American Hospital Association, the Association of Air Medical 
Services, the International Association of Firefighters, the 
Association of Fire Chiefs, the Volunteer Fire Council, the 
Association of Counties, the State Emergency Medical Services 
Directors, on and on, basically every major group was involved 
in this, and having been involved in a number of negotiated 
rulemakings when I was running a hospital association, I can 
tell you they are complex agreements, but generally at the end 
of them, everybody signs on the dotted line, which is what 
happened in this case and everybody agrees to go forward.
    So there was under the Clinton Aministration a year-long 
negotiated rulemaking. Everybody agreed to it. It was basically 
done and it had been put out as a notice of proposed 
rulemaking. It was finished. And so when I came in in May, I 
found that we had still many controversies going on. So we have 
reopened the rule, but there was an agreed-upon negotiated 
rulemaking that was completed in February 2000 and there was a 
consensus agreement.
    As I have gone around the country, I have personally spent 
many hours on this, hundreds of hours looking at ambulance 
regulations, and I have also been to town hall meetings with 
Senator Hutchinson and Senator Lincoln in Arkansas, where this 
probably took most of the day, with groups of ambulance 
providers driving in from many States to express their 
unhappiness with the ambulance regulation. I did town hall 
meetings in Tennessee, Alabama, Kentucky, North Carolina, spent 
a day largely on ambulance issues in Montana with Senator 
Baucus, so there is no shortage of people concerned about this 
rule and I am intensely aware of the concerns and have spent a 
lot of time trying to fix it.
    As I said, I have spent hundreds of hours on this rule. 
Secretary Thompson has personally spent dozens of hours with me 
on this rule, so there is nobody at HHS at any level that has 
missed the importance of this rule, and I would say that $2 
billion is a relatively small piece of the Medicare program, 
about less than one percent, but it is taking a 
disproportionately enormous amount of our time, as it deserves, 
in the last few months.
    I am confident that we are very aware of most of the 
providers' concerns. I cannot get into the details under the 
Administrative Procedures Act of everything that is in the rule 
that is coming out, but I do think that we have addressed most 
of them and that the rule that comes out will be a significant 
improvement over what was in the notice of proposed rulemaking.
    There are a lot of concerns, certainly, about rural 
providers. As I mentioned in this chart, one of the most 
appropriate concerns, since I spent many years at OMB--in the 
last Bush Administration, I was at OMB and the White House for 
4 years--one of the concerns when people switch from an old fee 
schedule to a new fee schedule is that we make hundreds of 
actuarial judgments about what the payment fee schedule should 
look like so $2.3 billion of spending under System A works out 
to $2.3 billion under System B, and their concern is that we 
make all these assumptions and instead of spending $2.3 
billion, we spend $1.8 billion and the money is gone, and I 
think that was one of the major concerns the ambulance 
providers had in the assumptions we made about our initial 
regulations.
    I have gotten into that process in great detail. I think in 
the draft regulation that is coming out, we made a number of 
adjustments that will assure that, in fact, the new system 
spends what was projected to be spent under the old system. I 
think the system is a substantial improvement over the old 
system. It is also phased in over a number of years, and I am 
confident there is no doubt that any time you have one of these 
systems, whether it is skilled nursing facilities or hospitals 
or physicians, somebody is always unhappy because there is a 
redistribution of funds.
    But I do think the impact on the redistribution has been 
minimized. I think the rule is a much more rational payment 
system and I am confident that in a couple of years that the 
ambulance community will find out that this is a much better 
payment system that is fair for everybody, so I hope you find 
that, as well.
    But anyway, Senator, thank you for having me here today and 
I am happy to answer any questions.
    Senator Dayton. Thank you, Administrator Scully.
    We are pleased to be joined here today by Senator Jean 
Carnahan of Missouri. Senator Carnahan, do you have an opening 
statement you would care to make.

             OPENING STATEMENT OF SENATOR CARNAHAN

    Senator Carnahan. Thank you, Mr. Chairman. The events of 
September 11 have certainly reinforced the importance of 
emergency medical services. They are among our first responders 
and they are on the front lines of the war on terrorism. It is 
important to remember that their services are not only needed 
during major medical incidents, they are oftentimes needed 
other times, as well. They are ready and required to serve all 
Americans on a 24-hour basis, 7 days a week, when any person 
has a medical emergency.
    When someone is having a heart attack, they call an 
ambulance. When there is a car accident, they call an 
ambulance. Ambulance providers and emergency personnel need the 
financial resources to perform their job well and to provide 
the quality of services that Americans expect.
    I commend Senator Dayton for calling for today's hearing. 
The purpose of the hearing is to examine the new fee schedule 
for ambulance services. Recently, I have heard from both urban 
and rural ambulance providers in Missouri who are opposed to 
the level of reimbursement under the new fee schedule. They are 
concerned about the impact the decrease in Medicare 
reimbursement would have on their ability to provide services.
    Missouri would be hit particularly hard by the changes, 
since the State provides advanced life support services and the 
proposed fees are significantly below the cost of providing 
this high-quality care. The Metropolitan Ambulance Services 
Trust, also known as MAST, serves 17 municipalities in Missouri 
and Kansas, including the Kansas City metropolitan area. MAST 
estimates that it would lose $2 million due to lower Medicare 
reimbursements the first fiscal year that the new schedule is 
implemented. This loss would increase to $2.9 million annually 
when the fee schedule is fully phased in.
    The impact on rural areas is also significant. The 
Ambulance District Association of Missouri represents tax-
supported medical and service transports in Missouri. Its 
members are predominantly rural and must rely on third-party 
payers--insurance, Medicare, and Medicaid--to provide the 
majority of its revenues. The Ambulance District Association 
has informed me that the proposed changes in Medicare funding 
would shift the financial burden from the Federal to the local 
level. But the many rural districts in Missouri do not have the 
tax base to replace the lost Federal revenue.
    Other Missouri organizations have expressed concern about 
the reimbursement level under the new fee schedule for 
ambulance services. Mr. Chairman, I would like to insert for 
the record testimony that has been submitted by the following 
organizations: The Metropolitan Ambulance Services Trust, the 
Ambulance District Association of Missouri, the Missouri 
Emergency Medical Services Association, the Missouri Ambulance 
Association, the State Advisory Council on Emergency Medical 
Services, and the Kansas Emergency Medical Services 
Association.\1\ I take the concerns of these organizations 
seriously because of what they could mean, a reduction in the 
availability and quality of emergency response services. Lives 
are at stake.
---------------------------------------------------------------------------
    \1\ The information submitted by Senator Carnahan appears in the 
Appendix on pages 88 thru 103 respectively.
---------------------------------------------------------------------------
    I think that CMS should be very cautious not to implement 
changes that would harm the country's emergency medical 
services. This is particularly true given the increased demands 
that are being placed on emergency personnel since the 
September 11 attacks. I look forward to hearing from Mr. Scully 
about what steps CMS has taken or plans to take to ensure that 
these cuts do not do irreparable harm. Thank you.
    Senator Dayton. Thank you, Senator Carnahan, and without 
objection, the additional testimony will be submitted for the 
record. Thank you.
    Mr. Scully, there seems to be a disconnect between the 
assurances that you have given this Committee and expressed in 
all good faith in terms of the proposed new fee schedule and 
its fairness and its sufficiency and what Senator Carnahan has 
heard from her constituents, what Senator Collins expressed 
before, and what I have heard from people in Minnesota, 
especially in greater Minnesota, the more rural area of our 
State where the ambulance services are increasingly dependent 
upon Medicare and Medicaid reimbursements for their livelihood. 
The impact of this and the potential catastrophic effect--
literally ambulance services going out of business if there is 
a shortfall that cannot be made up from any other source--have 
the providers and me seriously alarmed. Can you explain why 
there seems to be this gap between what the rates that you are 
proposing and where you think the equity lies and these 
concerns?
    Mr. Scully. Well, I do not want to promise you that they 
will love it. Someone is not going to. But the process was that 
there was a negotiated rulemaking from February 1999 to 
February 2000 that came out with--the result was a negotiated 
rulemaking by the government. The Clinton Administration, Nancy 
Ann DeParl, who was my predecessor and a good friend, was 
negotiated actually by the National Mediation Service, I think, 
and all the various groups. The Department adopted it, put it 
out as an NPRM for comment, got 340-some comments, not all of 
them happy, as you can tell from what you have heard, and 
basically, I did not get involved in the process until I was 
confirmed in May.
    So we basically have been in the process of taking the 
comments and the proposed rule, and under the negotiated 
rulemaking, because it theoretically is an agreement among all 
the parties and all the hospital groups in the country and the 
administration agreed to it, it is a little more difficult to 
make changes. But I have gotten into the details of every nook 
and cranny of the regulation and we have made changes. We spent 
a lot of time with all the ambulance providers and made changes 
where appropriate.
    So I cannot tell you that the regulation is perfect. It 
still is based on the notice of proposed rulemaking that was 
negotiated 2 years ago. But I think it is substantially better 
or will be substantially better. Again, I do not want to have 
my lawyers tell me I am violating the APA again, because the 
regulation will not be out for probably a couple more weeks or 
maybe longer.
    But our goal is to have it in effect on April 1. It will be 
phased in over multiple years. And I think that most of the 
major concerns that I have heard from the ambulance community 
have been addressed fairly substantially. That does not mean 
they are all going to like it.
    I mean, coming into it initially--I used to run a hospital 
association and sign on the dotted line of many negotiated 
rules I did not like, but the process of a negotiated 
rulemaking is you sit around for a year and you pound out your 
differences with the government and you either agree or you do 
not agree, and so there was a basis that, theoretically, 
everybody agreed to, and so when the new administration came 
in, as any group of providers would, they wanted to reopen it, 
and they did, and I think we have responsively reopened the----
    Senator Dayton. And I am not questioning the process, but 
the people that provide the services are going to have to live 
with the result, not the process. I guess my concern--I have a 
couple of concerns, and we are all concerned about cost 
controls for these large systems, but in some cases, the cost 
control has been seen to be driving the process and the 
product. Are you satisfied that these reimbursement levels are 
appropriate for the actual services being provided or do you 
see this as being used as a way of spreading the pain or the 
funding gap perhaps equitably and up to date, but effectively 
reducing these payments below levels that the services are 
actually providing?
    Mr. Scully. I am comfortable that this is a responsible 
level of payment across the board. I think when you look at the 
variation in costs and charges State by State--for instance, if 
you look at West Virginia, over Tennessee or North Carolina, 
all of whom, I think, have sued us at various points for being 
underpaid under the old system and are very anxious to have the 
new system come in, they were vastly underpaid, arguably, and 
other States, arguably, in some places, there were things being 
overcharged.
    Any time you move to a new payment system, there are going 
to be some winners and losers. I am comfortable the system is 
going to work much better. I have also spent a lot of time with 
the ambulance providers, including a good part of the day 
yesterday, telling them that as this rule goes forward, we will 
continue to work with them to tweak it to make it work better.
    It is phased in over multiple years so there will not be an 
immediate harsh impact, I do not believe, on anybody. It is a 
mix of the new system and the old system for multiple years, 
more than 4 years, at least, and I am comfortable that--I have 
been through this in the hospital business when we went to 
outpatient PPS last year, which, when I used to run a hospital 
association, including 40 hospitals in Missouri, we all thought 
that the outpatient hospital system was going to be a disaster 
when it phased in last year, and there were certainly 
difficulties, but I think it is a much better payment system.
    I think, in the long run, this is a better payment system. 
There will be people that will not be happy with it, but I 
think it is very equitable and it makes much more sense as a 
much more rational payment system.
    Senator Dayton. My time for my first round of questions is 
up. Senator Carnahan.
    Senator Carnahan. Ambulance and emergency medical service 
providers in Missouri have raised some concerns about the use 
of 1998 data to calculate the reimbursement levels. The concern 
is that these numbers are outdated and do not adequately 
reflect the current costs. How would you address this concern?
    Mr. Scully. I think we already have addressed it. Again, I 
do not want to get punched by one of my attorneys here, but the 
issue for the NPRM was the best data we had at the time was 
1998 data, and that was updated and inflated up to current 
terms. The concern I think that some of the people in the 
provider community had was that there were not as many services 
provided in 1998 as 2000 and that data might skew or throw off 
the numbers.
    I think we have adjusted it to do it appropriately. The 
negotiated rulemaking was based on 1998 data. The 2000 data 
really is not clean enough to use yet, so if we had to use it, 
it would probably delay the rule by a year, and there are some 
people that are very unhappy that the rule is already a year 
and a half late.
    So I think we have taken the 1998 data, which is the best 
data available, inflated it and updated it for 2000, and I am 
comfortable that the data is appropriate.
    I think the biggest issue from the first day, and this is a 
little bit of budget wonkish stuff, that the ambulance 
community had, their number one concern is that we are going to 
spend $2.3 billion this year on ambulance spending under the 
old system. As we move to the new system, when you make all 
these assumptions about the level of services, that when you 
throw all the services up in the air and recalculate them, we 
might come back under conservative administration assumptions 
and only spend $1.9 billion or $2 billion, and the way the 
budget system works, you have a new base and the money 
evaporates forever.
    That was a very legitimate concern. I think I have gone to 
great lengths in the rule to take care of that and I am very 
confident that the money we spend under the new system will be 
virtually as close as is humanly possible to the money that 
would have been spent under the old system, and I think that 
was the basis of their--the fundamental core of their concern 
and I think that has been addressed.
    Senator Carnahan. When it comes to providing for rural 
services, what is CMS doing about the unique needs of emergency 
medical service providers in these rural communities, and how 
has CMS responded to GAO's concern that the new fee schedule 
does not adequately address the needs of these providers in the 
most isolated areas?
    Mr. Scully. There are a number of changes we made in the 
rule that is coming out to address those things. I think of the 
seven or eight major concerns that the ambulance sector has 
raised to us, we have addressed, I think, all of them. A couple 
of them, we did not agree on, but there are a number of changes 
that will help rural areas.
    And I think if you look at the distribution tables that 
eventually come out, you will find that, for the most part, it 
is not necessarily every rural area of every rural State, but 
the rural States generally actually do considerably better 
under this rule, and I think we have taken virtually everything 
that we can, within reason, into account to make the rural 
payments more appropriate.
    Senator Carnahan. You say they will be doing considerably 
better?
    Mr. Scully. I can tell you, when you look through the 
tables, which I have been able to do and they will be out at 
some point in the regulation, it is not direct rhyme or reason, 
it is not that always the urbans do better than the rurals, but 
a lot of rural States do significantly better and I think in a 
lot of cases the rural payment will be more appropriate.
    Senator Carnahan. The negotiations that led up to the 
creation of the new fee schedule took place before September 
11. What is CMS doing to ensure that the new fee schedule 
addresses the increased demands that are going to be placed on 
ambulance providers?
    Mr. Scully. Well, the payments are based essentially on the 
services, so if the volume of services go up, and obviously, in 
a lot of cases there will be many more calls to ambulance 
services for things, the payments go up. So, essentially, if 
the volume of services this year went up 10 or 12 percent, 
there is no cap over all the payments, so the actual volume of 
services go up. So if you have an advanced life services call 
in St. Louis or Kansas City and they just happen to have more, 
they will get paid more. So there could be significant 
inflation in the ambulance sector.
    So the payments are set to the per visit, per service, and 
if there happens to be a greater volume, then the payments go 
up, so there is not really any limit on it. If there is more 
volume, they will get paid for more volume.
    Senator Carnahan. Thank you, Mr. Chairman.
    Senator Dayton. Thank you, Senator Carnahan.
    The two main categories of concern I have--one is the 
amount of payments and their sufficiency and the second is the 
timeliness of the payments and the difficulty that a lot of 
ambulance providers in Minnesota report to me they have getting 
their legitimate claims processed by the CMS. Why are such a 
significant number of ambulance claims being denied by Medicare 
contractors in Minnesota on the first submission and paid on 
the first appeal?
    Mr. Scully. Senator, I cannot tell you that I am totally 
familiar with the Minnesota situation, but I spent a whole day 
in Montana with Senator Baucus, most of that day spent in an 
interesting debate between the air ambulance and ambulance 
people and Blue Cross of Montana, and it is a pretty small 
State so they know each other pretty well, at least population-
wise.
    And part of it, I think, is due to the fact that it is one 
of the few places we still pay based on costs and charges, so 
it is very difficult. The ambulance providers have to do a 
significant amount of documentation for what are actually costs 
or charges, depending whether they are hospital-based or 
independent, and the Blue Cross plans, who are the Federal 
Government contractors--largely Blue Cross, there are others 
around the country--are obviously protectors of the trust funds 
to spend money appropriately are tasked with asking tough 
questions about whether the services were appropriate.
    When you are under basically a heavy paperwork, heavy 
documentation system, which the old one is, where you have to 
justify your costs and charges for every visit, there is just a 
lot more controversy before it gets paid and I think it slows 
up the system.
    I believe the new system, which will be much clearer on 
what the allowable fees are and charges, it will be a lot 
easier to implement and a lot less paperwork, a lot less 
controversy over what gets paid and probably will speed up the 
payment process. That is certainly one of the goals.
    But I can tell you, having sat there with Blue Cross of 
Montana, which is a pretty community-friendly organization, and 
the tension between them and the ambulance providers over the 
many unpaid bills was--I think that is going on in every State. 
Some of that is the complexity of the system, and to be honest 
with you, I hope--in many cases, I do not want to discourage 
our local Medicare contractors from questioning bills anywhere, 
as long as it is appropriate. But I think the new system is 
going to be a lot better as far as making the payment 
simplified and clear.
    Senator Dayton. Medicare's claim processors often deny 
claims as ``not medically necessary'' based on the codes 
provided by ambulance personnel, even though a patient had an 
obvious emergency and needed an ambulance. A more appropriate 
``condition code'' has been developed with the involvement of 
Medicare officials. Is this something that you can implement 
administratively to reduce the number of denials?
    Mr. Scully. Well, I talked to some ambulance folks about 
this yesterday. The condition code thing--again, I was not 
here, this was 2 years ago--was apparently a kind of side group 
of the negotiated rulemaking that went up and talked about 
condition codes, which is a good idea. Apparently some then-
HCFA, now CMS, staff were involved in that and were aware of 
it, but it was not part of the negotiated rulemaking as it went 
forward.
    There really is not a direct tie between the payments and 
the condition codes. The condition codes can help, but it is 
something that we are very interested in moving forward and 
working with the providers on. But if we had adopted those 
condition codes, they are just not technically ready and I 
think that is pretty clear and it would have delayed the rule 
at least a year and it is something I think we need to keep 
working on.
    The concept of the condition codes is a good concept, but 
it is just not ready to put in this regulation and there was no 
way to implement it in this regulation. So there really is not 
a crosswalk between the condition codes and the payment codes 
and we are anxious to work on that and I think a lot of the 
providers think that would simplify their lives, and it may 
well do it, but it is just not--it was not ready to put in this 
regulation.
    Senator Dayton. But do you support it in concept? Are you 
willing to proceed to work with the providers to develop that 
in the months ahead?
    Mr. Scully. Yes, and I think it is important because there 
has been some controversy in the past where the hospitals were 
not wild about condition codes because they do not bill on 
that. They bill on ICD-9 codes and hospital-based codes and I 
think there is some evidence that they are interested in 
sitting down and working that out, too. So we are very 
interested in working it out, but it just was not possible to 
do it in this regulation unless we delayed it another year, and 
there are plenty of people that are not happy with the current 
delay, so----
    Senator Dayton. Thank you very much.
    I would like to call in the second panel of witnesses. I 
would like to invite you, Mr. Administrator, if you would, to 
remain at the table, if we can add another chair. I know you 
have to leave at 10:25.
    Mr. Scully. I will have to sneak out at 10:25.
    Senator Dayton. All right. But I would like to have you 
hear from these people directly. Two of them are from 
Minnesota, so rather than give you another trip to the upper 
Midwest, we will let you do so here. I think it is also 
symbolic that all of you are all on the same side after all 
anyway, and I know share that goal.
    So I now call the second panel, Dr. Mark Lindquist, who is 
the Medical Director of the Emergency Department at St. Mary's 
Regional Health Center; Gary L. Wingrove, EMT with Gold Cross 
Ambulance Service; Mark Meijer, President of Life EMS 
Ambulance; and Dr. James Pruden, Chairman of New Jersey EMS 
Coalition. Welcome, gentlemen.
    Dr. Lindquist, we will begin with you. Welcome.

  TESTIMONY OF MARK D. LINDQUIST, M.D.,\1\ MEDICAL DIRECTOR, 
    EMERGENCY DEPARTMENT, ST. MARY'S REGIONAL HEALTH CENTER

    Dr. Lindquist. First of all, I wish to thank Chairman 
Lieberman and Ranking Member Thompson for inviting me to appear 
before this Committee to discuss the proliferation of Medicare 
denials of ambulance claims and the inconsistent application of 
standards with regard to claim adjudication. I also would like 
to thank you, Senator Dayton, for your hard work on the issues 
that we are talking about today. I am honored to be present for 
this hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Lindquist appears in the Appendix 
on page 43.
---------------------------------------------------------------------------
    I am an emergency physician practicing in Detroit Lakes, 
Minnesota. I am the Medical Director of four advanced life 
support air and ground ambulance services and eight police, 
fire, and rescue departments in Minnesota. I am also the co-
owner of an air ambulance service, an ambulance billing and 
consulting company, and until just recently, two ground life 
support ambulance services.
    On July 17 of the year 2000, my 69-year-old father suddenly 
collapsed while painting a gazebo in the backyard of his home 
in Moorhead, Minnesota. My mother was trapped inside the gazebo 
for a short time as my father was lying unconscious against the 
door, bleeding from a head wound. She was eventually able to 
push the door open, moving him away enough to go to a phone and 
call 911. Fargo-Moorhead Ambulance Service paramedics arrived 
quickly. My father began to regain consciousness. He had marked 
post-concussion confusion and agitation. Whether he also had 
neck or other injuries was unknown at that time.
    He was brought by ambulance to the emergency department at 
a Fargo hospital, where an evaluation showed the presence of a 
large complex brain aneurysm. My father's sudden collapse had 
been caused by a small leakage of blood from the aneurysm, 
which is usually followed within a month by a catastrophic 
aneurysm rupture and massive brain bleeding.
    Because of the size, location, and complexity of the 
aneurysm, he was referred to a neurosurgeon at the University 
of Minnesota who specializes in aneurysm repair and he 
underwent surgery on July 28. The long, complex surgery 
resulted in a serious secondary brain injury. He subsequently 
developed serious infections and respiratory failure and he 
died on August 13, 2000.
    Medicare initially denied payment of the $500 911 ambulance 
call to his home where he had collapsed. The explanation from 
Wisconsin Physicians Services (WPS), the CMS contracted 
carrier, stated that the ambulance transfer from his home to 
the hospital was not medically necessary. Apparently, according 
to WPS, my 67-year-old mother should have been able to load his 
190-pound body into a car and drive him to the hospital.
    Upon being informed that the claim had been denied, my 
mother promptly paid the ambulance bill. It was only when I 
asked her several weeks later whether my father's medical bills 
were being covered that she told me the claim had been denied 
by Medicare. Like most non-medical laypersons, she was unaware 
that 20 percent or more of all Medicare ambulance claims are 
denied by this CMS contracted carrier. I urged her to obtain a 
letter explaining medical necessity from the attending 
physician and appeal the denial.
    The bill was resubmitted to Medicare along with a letter 
from my father's attending neurologist explaining why the 
ambulance transport had been necessary. The explanatory letter 
was returned to the neurologist by a WPS customer service 
employee who stated he did not understand the reason for the 
letter. The bill was resubmitted a third time and was finally 
partially paid by Medicare after the third submission.
    Needless to say, my mother was perplexed. She did not 
understand why the ambulance claims were denied, as she 
strongly felt that skilled emergency medical care was required 
when my father collapsed. I have been unable to give her a 
logical explanation and am, frankly, disgusted by the disregard 
shown by WPS for the competent medical judgment of my father's 
physicians.
    As an owner of ambulance services and an ambulance billing 
company in Minnesota, I am very aware of these frequent claim 
denials, including cases where payment has been denied for 
patients in complete cardiac arrest, the explanation being 
given that an ambulance transport was not necessary, even 
though the patient's heart had stopped beating.
    This summer, the mother of one of my employees was brought 
by ambulance to a hospital in Fargo after developing pneumonia 
while recovering from a broken hip. The 1-year mortality rate 
for patients recovering from a fractured hip is as high as 50 
percent because of such complications. The woman was short of 
breath, had low blood oxygen levels and a build-up of fluid in 
her chest and she died 16 hours after being brought to the 
hospital. WPS stated the ambulance transfer was not medically 
necessary and denied payment of that claim, also. The patient's 
daughter, who is a flight nurse, resubmitted the claim with a 
harsh letter and it was ultimately partially paid.
    The prudent layperson standard contained in S. 1350, the 
Medicare Ambulance Payment Reform Act of 2001, states that if a 
prudent non-medically-trained layperson has reason to believe 
that a medical emergency exists when calling for an ambulance, 
Medicare would be required to pay the claim. Currently, an 
ambulance claim filed by a patient who suffered chest pain can 
be denied if he or she is eventually found to have a non-
cardiac source of pain. Of course, at the time of initial 
symptoms, it is impossible for the patient, paramedics, and 
even emergency physicians to know that the source of pain is 
not an emergency condition.
    I ask you to carefully consider implementing the prudent 
layperson standard as part of S. 1350, the Medicare Ambulance 
Payment Reform Act of 2001. The standard would eliminate much 
of the inconsistency currently found in the payment or denial 
of Medicare claims.
    Thank you for the opportunity to address this Committee and 
I would be happy to answer any questions you may have.
    Senator Dayton. Thank you, Dr. Lindquist. We will have 
questions after all the panels have had a chance to make their 
presentations. Thank you. Dr. Pruden.

  TESTIMONY OF JAMES N. PRUDEN,\1\ M.D., FACEP, CHAIRMAN, NEW 
                      JERSEY EMS COALITION

    Dr. Pruden. As a member of the New Jersey Statewide EMS 
Coalition, we cannot thank Senator Dayton enough for his 
initiative in identifying shortcomings in the proposed 
ambulance reimbursement fee schedule and we applaud and support 
his efforts to effect remedies. We also appreciate the 
opportunity to speak before this Committee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Dr. Pruden appears in the Appendix on 
page 46.
---------------------------------------------------------------------------
    The proposed fee schedule threatens to dismantle EMS in the 
State of New Jersey. In the Balanced Budget Act of 1997, the 
Secretary was directed to consider appropriate regional and 
operational differences. One of the differences not considered 
is the non-police, non-fire EMS constituency. Eighty percent of 
the EMS squads in the State of New Jersey are such squads. 
Additionally, in the State of New Jersey, we have a unique 
system for delivery of ALS care, and that, too, was not 
recognized in the negotiated rulemaking process. Let me 
describe that system briefly.
    When a 911 call goes to an ambulance, a basic life support 
unit, BLS unit, is dispatched. Again, 80 percent of the time, 
those calls are answered by volunteer squads that do not charge 
the patient nor the insurance for the services they provide. 
Last year, 400,000 ambulance transports were accomplished by 
volunteers. This saved Medicare $48 million in charges and, at 
an 80 percent reimbursement rate, saved them $39 million in 
costs. In the State of New Jersey, only BLS units are allowed 
to provide a transport.
    The BLS component--when your 911 call suggests a more 
serious illness--crushing chest pain, severe allergic reaction, 
breathing difficulty--the paramedics are dispatched 
simultaneously with the BLS squad, two rigs responding to the 
same call. Is this inefficient? Well, nationally, 30 percent of 
the time a patient goes to the hospital by pre-hospital 
transport, they are accompanied by paramedics. In the State of 
New Jersey, only 13 percent of the time are they accompanied by 
paramedics. If you get there, and you do not need medics, they 
can leave. This allows us to cover the entire State with 
advanced life support capability.
    So what? Medics are expensive, take 2 years of additional 
training. They have additional skills and equipment. The 
average charge for a paramedic-accompanied call in the State of 
New Jersey is $525. With implementation of the base 
reimbursement rate at $152 and the mileage and the gypsy 
considerations, the average reimbursement would be about $373 
per ALS call, a loss of $150. That is if it is accompanied by 
volunteers. If you have the proprietary ambulance accompany the 
ALS squad, they are entitled to their cut, which takes away an 
additional $200 per call, on average. Paramedics are based at 
hospitals in the State of New Jersey and the hospitals would 
stand to lose about $19.5 million a year on ALS runs if this is 
implemented.
    So what would happen? Well, the hospitals would either get 
out of the ALS business or the hospitals would start 
transporting, and then if the hospital starts transporting, 
there will be turf wars between proprietary and hospital 
transport units. The volunteers who get their greatest sense of 
reward by responding to people in the greatest need would get 
to a scene, an ALS transport unit would be there, they (the 
volunteers) would have no role to play, they would go home. It 
would not be long before the volunteer system would disappear 
in the State of New Jersey.
    Now, what would that mean? That would mean that the $48 
million in charges and $39 million in costs that Medicare does 
not have to pay right now, they will have to pay when this 
reimbursement takes place.
    Additionally, disasters--in the events of 9/11, in the 
first few hours, 450 ambulance squads from New Jersey reported 
to assist. Ninety percent of those squads reporting were 
volunteer squads. Additionally, the entire New Jersey 
Congressional delegation has supported the efforts of this 
coalition, every member of the House, every member of the 
Senate, Democrats and Republicans, have supported our efforts 
to avoid implementation of this process.
    So what are the options? The options are, leave it alone, 
let it be as it is. Other options are to establish a carve-out. 
The Secretary is entitled to establish a carve-out or waiver 
for different States to cover the cost of pre-hospital care. 
CMS has the legal authority to grant this carve-out waiver. 
Whatever options are addressed; whether your bill goes through 
or they choose to leave us alone, or they implement a waiver, 
it is imperative that the implementation of the present 
reimbursement design by HCFA CMS, does not go through as it is 
now or we stand to lose significantly in the State of New 
Jersey.
    Senator Dayton. Thank you very much, Dr. Pruden. Mr. 
Wingrove.

 TESTIMONY OF GARY L. WINGROVE,\1\ EMT-P, MINNESOTA AMBULANCE 
                          ASSOCIATION

    Mr. Wingrove. Senator Dayton and Members of the Committee, 
thank you for having me here today. This is a big day for me 
because I am here with you and the Committee and the other 
panelists and Administrator Scully.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Wingrove appears in the Appendix 
on page 48.
---------------------------------------------------------------------------
    My name is Gary Wingrove. I am a paramedic. I represent the 
Minnesota Ambulance Association and MAA President Buck McAlpin 
is also present today.
    There are two major problems facing the ambulance industry 
and these include an increase in the number of denied Medicare 
emergency ambulance claims and the impact of the proposed fee 
schedule.
    In the written testimony that I submitted, I told you about 
four Minnesotans--I would like to describe two of them today--
that have used ambulance service. A woman had an implanted 
defibrillator that failed to function. She was in cardiac 
arrest. The paramedics were summoned and successfully 
resuscitated her using an external manual defibrillator.
    A woman was moving a mattress in her apartment. She lost 
her balance. The mattress fell on top of her and she could not 
breathe. She screamed for help and a neighbor called 911. The 
paramedics arrived and removed the mattress. She had 
excruciating back pain and could not move and was transported 
to the hospital.
    These people have a few things in common. They are all over 
65. They have Medicare as their primary health care insurance. 
They were transported to hospitals for physician evaluation, 
diagnosis, and treatment. Medicare paid all of their hospital, 
physician, lab, and diagnostic bills, yet their ambulance 
claims were denied. The reason given by the contractors was 
that the ambulance was not medically necessary. We disagree, 
and like the beneficiaries, are outraged that this occurred.
    We find that 90 percent of the denied claims are paid on 
the first appeal attempt. One of our members reports that they 
frequently have to fax pages from the carrier's own ambulance 
billing manual back to them because they give wrong information 
over the telephone, both to us as providers and to 
beneficiaries.
    In January of this year, the Medicare contractor processing 
hospital-based ambulance claims in our State put the ambulance 
services on focused review. This means they suspended 100 
percent of the claims submitted by the provider and required 
the provider to submit both the ambulance run form and hospital 
records before they would process the claims. By the middle of 
2001, one hospital-based ambulance provider had over 1,500 
unpaid Medicare claims totaling over $6 million.
    Mr. Chairman and Members of the Committee, we submit that 
the only person who should be allowed to determine whether a 
medical emergency exists is the person who decides whether or 
not to dial 911. Congress should establish a prudent layperson 
standard for the payment of emergency ambulance claims and 
Congress should direct CMS to adopt a condition coding system 
for use in ambulance claims.
    The average Minnesota ambulance service has a payer mix 
that is 50 percent Medicare. We predict a 50 percent decrease 
in reimbursement in our State as a result of the combination of 
mandatory Medicare assignment and the implementation of the 
proposed fee schedule. This means the average Minnesota 
ambulance service will lose 25 percent of their total revenue. 
The ambulance industry in Minnesota bills approximately $140 
million per year, and we are predicting a decline in revenue of 
$37 million.
    While the anticipated payment rates are inadequate for 
urban providers, the situation is much worse for rural 
providers. Many rural government-operated ambulance services 
predict financial insolvency. Some ambulance services are 
anticipating reduction in service provided to Medicare 
beneficiaries from paramedic level ALS to EMT level BLS.
    Even though the fee schedule has not yet been implemented, 
some ambulance services are already in dire financial straits. 
According to the January 2001 edition of the EMS Insider, East 
Texas Medical Center, which provides EMS to dozens of rural 
communities in West Texas, notified residents of Honey Grove, 
Texas, that it would cease providing 24-hour coverage to the 
town, and beginning December 1, 2000, they would station a unit 
at Honey Grove only from 7 a.m. to 4 p.m. on Tuesday through 
Saturday. At all other times, it sends an ambulance from a town 
20 miles away. Then this town has no first responder service.
    To illustrate the difficulties in providing rural ambulance 
service, the cost per hour to provide ambulance service is 
almost identical in greater Minnesota as urban Minnesota, but 
compared to urban revenue, the greater Minnesota revenue per 
day must either cover three units instead of one, or the 
ambulance service must make 1 day of urban reimbursement last 
the entire week.
    The problem of underfunding Medicare ambulance 
reimbursement is disproportionately rural. Congress must 
recognize the fundamental flaw in this historical way that 
ambulance service has been reimbursed. Payments for rural 
ambulance services must be higher than urban payments. We urge 
Congress to set the urban ambulance payment rates at a level 
consistent with the national average cost of providing service 
and require CMS to adopt rural payment adjustments next year in 
a manner yet to be determined by the General Accounting Office. 
The proposed 4-year implementation plan works well for 
Minnesota, since we are a State that will see substantial 
revenue declines.
    And finally, I would like to address the issue of cost 
versus charge. Ambulance service is a health care service that 
is delivered in the public safety environment, and when other 
sectors of health care have moved to fee schedules, as 
Administrator Scully mentioned, and we think that is a good 
thing, too, they have always started from a different model. 
Physicians, hospitals, physical therapists are all full-time 
providers and they are not tax subsidized. Our industry is 
different because we have some full-cost providers. We have 
some very heavily taxed subsidized providers. and then we have 
volunteers.
    So ambulance service charges have nothing to do with the 
cost, and because we have been on a historical charge payment 
system, unlike the other segments that moved to fee schedules, 
the $2.3 billion that you hear about has nothing to do with 
what the actual cost of providing the service is. It is average 
charges.
    Thank you for the opportunity to address the Committee and 
I would be happy to answer any questions you might have.
    Senator Dayton. Thank you, Mr. Wingrove. Mr. Meijer.

    TESTIMONY OF MARK D. MEIJER,\1\ OWNER AND CEO, LIFE EMS 
                       AMBULANCE SERVICE

    Mr. Meijer. Good morning, Senator Dayton.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Meijer appears in the Appendix on 
page 54.
---------------------------------------------------------------------------
    Senator Dayton. Good morning.
    Mr. Meijer. Thank you very much for allowing me to be here 
this morning. I appreciate Gary's comments on his twins and 
their upcoming birthday. Being a fairly new first-time father, 
I could talk all morning about our new daughter. [Laughter.]
    Mr. Meijer. At any rate, I appreciate the staff and the 
guests here at the Senate Committee on Governmental Affairs for 
allowing us to be here. It is an honor to provide testimony 
this morning on behalf of the American Ambulance Association as 
well as on behalf of all of those across the country that may 
have to call 911 in the event of a medical emergency, as well 
as those of us that are entrusted with their care on a daily 
basis.
    I am Mark Meijer and I am the immediate Past President of 
the American Ambulance Association and also a paramedic and 
President of Life EMS Ambulance, where our medics serve a 
combination of urban and rural areas throughout Western and 
Central Michigan.
    Ambulance responders are often the first point of entry for 
patients in our Nation's health care system. Good emergency 
medical care not only saves lives, it also saves money. It 
saves money by providing immediate treatment of sudden 
illnesses and injuries and thus reducing the amount of hospital 
time and rehab time to deal with a patient's final outcome. In 
many respects, ambulance service can be described as the 
ultimate preventative medicine, which sometimes people think, 
how can that be, because we react to existing illness or injury 
occurrences. But, in essence, by preventing that illness or 
injury from becoming worse, we save a tremendous amount of 
dollars as well as lives for the country.
    Due to the fact that Medicare beneficiaries make up a large 
portion of those patients needing ambulance treatment and 
transport, it is critical to the availability of the Nation's 
emergency medical safety net that Medicare provides an 
appropriate level of reimbursement in an efficient manner. 
Since Congress directed Medicare to cover ambulance transport 
years ago, it has often been difficult for many providers to be 
fully participating, in other words, to bill Medicare rather 
than the beneficiary for services provided, because of the 
program's historic low-cost payments and erratic claims 
processing history.
    Just to recount a bit of history, when we first started 
Life EMS Ambulance, my first encounter with directing our 
company to begin participating with Medicare was an outgrowth 
of a patient that we transported, an elderly woman who had a 
hip fracture and happened to be friends of my parents. I was 
called by her husband to come over to the house and essentially 
sit down at their kitchen table to look at this pile of 
invoices and paperwork to do with this one hip fracture 
occurrence where he had claim forms and bills and what have 
you, and it was at that point in time that I decided that there 
is no way that the beneficiaries can be expected to bill for 
these services, that we have to be able to bill those and know 
how to do it efficiently as a provider of service, even though 
we were not happy with the payment levels or the process at 
that time, but we could not expect our patients to deal with 
that quagmire of paperwork.
    Decades later, we are here today discussing below-cost 
payment levels, more specifically to do with the upcoming fee 
schedule, as well as erratic claims processing.
    I appreciated Mr. Scully's comment at the outset, and those 
of us from the American Ambulance Association certainly 
appreciate Mr. Scully and Mr. Patel and all the folks at CMS 
for their generous amount of time in meeting with us, as well 
as being very candid in trying to work through some of the 
issues.
    Some of the things that we would like to stress, and Mr. 
Scully referenced the negotiated rulemaking process being a 
consensus effort, it certainly was. I was President of the 
American Ambulance Association at that time and was involved in 
every one of those meetings, as were some of the folks in this 
room. And clearly, the American Ambulance Association stands 
behind the agreement that we entered into in the consensus 
making process in the negotiated rulemaking.
    However, the issues that we have brought forth to CMS 
regarding the proposed rule and fee schedule have to do with 
things that then-HCFA, now CMS, did not allow us to address in 
the negotiated rulemaking process, that being primarily the 
proposed rate as well as getting into things like the condition 
codes that Gary has mentioned, which are critical to the 
success of any new national fee schedule. To move forward with 
the national fee schedule without having the condition codes in 
place would be an extremely dangerous move for this country's 
ambulance providers.
    In addition to that, we certainly would like to mention 
that the American Ambulance Association has provided the basis 
for a crosswalk, as Mr. Scully identified one of the challenges 
of moving from the current payment coding situation to the 
condition codes. We have provided a basis for that and we 
certainly will work with CMS to make that condition code 
process happy.
    Finally, I certainly would like to thank you, Senator 
Dayton, for introducing S. 1350. It certainly would address a 
lot of these issues in a very up-front manner and we appreciate 
the opportunity to describe some of our challenges here today.
    Senator Dayton. Thank you, Mr. Meijer.
    Mr. Scully, I know you have to leave. Thank you very much 
for staying and listening to this panel and we look forward to 
working with you and your staff as you implement the new 
regulations and also to make, hopefully, some of these other 
improvements, as well. So thank you very much. Will someone in 
your operation be able to stay here, then, for the balance of 
this testimony?
    Mr. Scully. Yes. Hopefully, she will be here quickly. I can 
stay for a couple more minutes. Linda Fishman, who is the 
Policy Director at CMS and the former chief health care staffer 
for the Ways and Means Committee for a number of years, who is 
pretty familiar with a lot of these issues and has worked a lot 
on this regulation, is going to come in a minute.
    I would just say one thing. I know it is frustrating. In 
the, for instance, Wisconsin Physician Services, the 
contractor, believe it or not, is actually one of our better 
contractors. It is a huge program, $240 billion a year, and we 
make lots of mistakes and do lots of dumb things and we are 
doing the best we can to fix it. Obviously, the situation with 
your parents and a lot of other problems, it is just the nature 
of having a massive program.
    One of the things we are trying to do, which I have 
mentioned, is contractor reform, which I hope is going to pass 
the Senate and looks like it is going to pass the House, which 
would take the 51 contractors we have nationally and try to 
cull them back to a smaller, more manageable group of our 
better contractors, and generally what I have seen, believe it 
or not, Wisconsin Physician Services is one of our better 
contractors and does a pretty good job.
    But it is just a very big program and a lot of people do 
not realize that when they get mad at Medicare, it is generally 
done through the 51 Blue Cross plans, Mutual of Omaha, and some 
others around the country that are our carriers and 
contractors, and getting everything right in the context of the 
program group, a little over 10 percent last year, in the 
context of an enormous program that is growing very fast, and 
probably too fast to be sustained in the long run, is not easy.
    So we are doing the best we can, and obviously, you are 
going to find in a program that big a lot of indefensible 
things, and we do and they are certainly not intentional, but 
we are doing the best we can to fix them. Thank you.
    Senator Dayton. I appreciate that, and obviously, we all 
look for perfection that is not achievable in a big system. I 
would just make the observation that I think Dr. Lindquist's 
testimony was pretty compelling. As both a physician, a 
provider, and a person whose father and mother were directly 
involved by the nature of an ambulance service, each one is a 
crisis that involves someone's life or death situation. I think 
the impact of any of these denials, or the emotional effect of 
them are compounded by the nature of the milieu in which you 
and they are operating.
    I would also say--and you are probably aware of this--I was 
particularly struck in Minnesota by the percentage of the costs 
of these, in many cases, small businesses and close-to-the-
margin providers--the percentage of their operating cost that 
have to go into claims administration and refiling and the 
like. I certainly support what you said to the Administrator 
about the need for vigilance on the part of the payer, but also 
anything that can be done to make this whole process more 
efficient and, therefore, less costly and improves the quality 
of the service that can be provided and that serves everybody's 
purpose.
    Mr. Scully. I do think, Senator, it will eventually be a 
better payment system and we will do everything we can to work 
with people like New Jersey who have some unique issues to make 
sure it works.
    Senator Dayton. And I look forward to being involved with 
you in that as well. Thank you very much for being with us 
today.
    Let me ask a few questions here and invite each member of 
the panel then to respond in turn. Going back to the point I 
raised with Administrator Scully just a moment ago, can you 
give me an estimate of what percent of the claims that you 
believe, either in your service or in the system you are 
representing here today, that are denied at the first 
submission? Dr. Lindquist?
    Dr. Lindquist. Well, the numbers vary greatly, anywhere 
from 20 percent all the way up to 85 percent. I believe in our 
system, our initial denial on the first submission of the bill 
is somewhere around 30 percent.
    Senator Dayton. OK. Dr. Pruden.
    Dr. Pruden. We have no reason to dispute those numbers that 
were just reported by Dr. Lindquist. What would happen to our 
system, though, is we are presently reimbursed under Part A and 
reconciled at the end of the year and that would go away with 
initiation of the reimbursement process.
    May I make a clarification on your condition statement?
    Senator Dayton. Please, yes.
    Dr. Pruden. People may not understand what the condition 
statement versus an ICD-9 code means, but if you imagine a 
mother with a 2-year-old child who has a history of allergies 
to bee stings, severe allergic reactions, and the child gets 
stung by an insect. She is afraid the child is going to die. 
She calls 911. They send out paramedics and they get him to the 
hospital and they find out it was not a bee, it was something 
else. The ICD-9 code would reflect insect bite. That does not 
require a 911 call, but the paramedics and the BLS crew that 
were responding were responding to what they thought was a 
life-threatening condition, and that is why implementation of 
the condition codes is a critical component of this 
implementation process.
    Senator Dayton. That is an excellent example. That 
clarifies my understanding as well, so thank you. Mr. Wingrove.
    Mr. Wingrove. The numbers that Dr. Lindquist said represent 
Minnesota, but I think that the striking thing that I would 
like to point out is that of those claims that get denied, 90 
percent of them are paid on appeal. We are wondering where the 
QA loop is on the other end, because the same claim keeps 
getting denied and denied and denied.
    Senator Dayton. Exactly. Thank you. Mr. Meijer.
    Mr. Meijer. Just briefly, from a national level, Senator, 
it varies wildly, and that is the challenges with all of the 
carriers in that in some States, providers are on 100 percent 
prepayment review and it has literally put operations out of 
business. It seems to kind of cycle around through carriers and 
through States. We went through this in Michigan a number of 
years ago, that actually put a number of ambulance services out 
of business.
    Senator Dayton. Thank you. Going to the other part of my 
comment, then, could you give me an estimate of what percentage 
of you operating costs are associated with claims management, 
with the administrative side of that?
    Dr. Lindquist. I personally cannot tell you with my 
companies. I leave that to the operations director and I pretty 
much stay with the medical direction of the company, so I 
cannot tell you.
    Senator Dayton. All right. Dr. Pruden?
    Dr. Pruden. Again, I do not have specific numbers. I would 
venture to guess, based on other similar components of the 
system, as much as 20 percent to 30 percent of your office 
overhead is related to making claims.
    Senator Dayton. Thank you.
    Mr. Wingrove. I think that is in the ballpark. It is 
certainly the only part of our business that is growing. We are 
cutting to prepare for the fee schedule, but we are increasing 
staff in the business office.
    Mr. Meijer. And one of the critical aspects of that is not 
just the overhead of processing the claims but the timely 
payments. That is really what can be a disaster for, as you 
mentioned, Senator, ambulance services that operate on a low 
margin and the biggest part of our costs, of course, are 
payroll for our medics, and in order to make payroll, ambulance 
services need that consistent reimbursement, quite frankly. So 
it is the timely reimbursement that can be a huge cost to 
services and impact lives.
    Senator Dayton. Any closing remarks any of you would like 
to make, any point that was not made or you want to elaborate 
on for the record? Dr. Lindquist.
    Dr. Lindquist. One thing that struck me when we were 
talking about the urban versus rural mileage differences, I 
realize that determining the nature of a community can be a 
little bit difficult, but if you are familiar with Crookston, 
Minnesota--Crookston is a small town of 7,000 people in 
Northwestern Minnesota. Its nearest town of any size is Grand 
Forks-East Grand Forks, which is probably around 60,000 or 
70,000. But because of the county proximity to that 
metropolitan area, Crookston, Minnesota, is classified as an 
urban area for purposes of reimbursement, and under no 
circumstances could anyone visiting Crookston possibly confuse 
Crookston with an urban area. I think the nature by which these 
determinations are made needs to be readdressed, as well.
    Senator Dayton. Thank you.
    Dr. Pruden. I think Congress and HCFA/CMS are to be 
commended for making an effort to get some control of the 
situation, but it is a very difficult animal to understand, and 
to pretend that a one-size-fits-all solution is going to solve 
the problem is difficult.
    As Mr. Wingrove pointed out, to base your reimbursement on 
charges when charges do not adequately identify the costs, when 
you have a large volunteer system that does not generate any 
charges and then you are trying to reimburse based on that, on 
an average, it becomes very compounded. So I think we have to 
look more closely at identifying some of the difficulties that 
will accrue when this is implemented.
    Senator Dayton. Thank you. Mr. Wingrove.
    Mr. Wingrove. Senator, thank you. I would just like to 
mention that we think that implementation of these condition 
codes is very critical to solving this problem for 
beneficiaries of their claims being denied and for providers 
who have to help them through that process when that happens.
    I do not understand how it is so complex. There are 93 of 
them. It seems that someone could number them 1 through 93 and 
make a small change in the computer program, or just put a 
number in a field in a computer, in a field that we have for 
text, and someone on the other side could see that, and if one 
of the codes is there, they know it is medical necessary and 
the claim gets paid. If the code is not there, we can send that 
one in by hand if something did not match up into that system. 
So I do not understand that point and perhaps someone from CMS 
could delve into that a little deeper with us later.
    Senator Dayton. Well, I think your point is well made. It 
occurs to me that Administrator Scully committed to working 
with myself, with you, and others to undertake that process. 
Let them publish the final rules and then we will proceed on 
that immediately, because I think, as you say, this is one step 
either forward or backward, depending on your point of view, 
but we have got to take some other steps forward.
    Mr. Meijer.
    Mr. Meijer. Thank you, Senator. Just to amplify the 
condition code aspect again, should the fee schedule move 
forward without the condition codes in place April 1, I think 
it will be a disaster for emergency ambulance services across 
the country, and we are committed to assisting that process 
happening and are confident, just as Gary described, that it 
can be done by then.
    I think, as the Administrator mentioned, the spirit of the 
consensus process of negotiated rulemaking was very strong. A 
lot of us in this room spent a lot of time there, and clearly 
one of the resounding things that came out of that process was 
the overall support for condition codes from all areas of 
providers and how everybody identified that that is critical in 
making this work, and I think very consistent with CMS's 
mission, as we heard earlier, of simplifying the coding process 
in the claims processing scenario that we all encounter, the 
condition codes would clearly do that. Thank you very much.
    Senator Dayton. Thank you very much. Thank you all, 
gentlemen, for being here today, for your testimony. If you 
would like to submit any additional testimony for the record, 
please do so by November 21. Otherwise, again, I assure you 
that I will be working with you and others in the industry with 
CMS to try to minimize whatever damage is done by these new 
regulations, and also moving with you to work on some of these 
other areas as quickly as possible. Thank you very much.
    Our next panel, we have Laura Dummit, the Director of 
Health Care-Medicare Payment Issues for the U.S. General 
Accounting Office; Lori Moore, Assistant to the General 
President for EMS Services for the International Association of 
Firefighters; and Chief John Sinclair, Secretary of the 
Emergency Medical Services Section of the International 
Association of Fire Chiefs. Welcome to all of you.
    Let us begin with you, Ms. Dummit. Welcome.

TESTIMONY OF LAURA A. DUMMIT,\1\ DIRECTOR, HEALTH CARE-MEDICARE 
         PAYMENT ISSUES, U.S. GENERAL ACCOUNTING OFFICE

    Ms. Dummit. Thank you. Senator Dayton, I am pleased to be 
here today to discuss Medicare's payment and coverage policies 
for ambulance services.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Dummit appears in the Appendix on 
page 67.
---------------------------------------------------------------------------
    We all understand the important role of ambulance 
transports in a locality's system of emergency medical 
services. Providers must be ready to provide emergency 
transport services rapidly and at all times. However, 
maintaining this ready stance may be difficult for rural 
providers because of their special geographic and economic 
circumstances.
    In our July 2000 report on rural ambulances, we note the 
need to consider these circumstances in developing appropriate 
payment policies. Rural ambulance providers, which may serve 
sparsely populated areas, typically have fewer transports than 
their urban counterparts. Thus, they have fewer trips over 
which to spread fixed costs, such as staff salaries and vehicle 
maintenance. In addition, rural providers tend to have longer 
trips and, therefore, log greater mileage and staff time. 
Longer distances translate not only into higher fuel costs, but 
also the higher costs of maintaining backup capacity as 
emergency equipment and staff may be unavailable for lengthy 
periods.
    Rural providers can also find themselves to be the only 
means of transportation in areas lacking taxis, van services, 
or public transportation. This can be a particular problem when 
a State or local government requires an ambulance provider to 
respond to all emergency calls, even if the patient's condition 
does not warrant payment under Medicare's criteria.
    Finally, questions have been raised about the continued 
availability of volunteer staff. When volunteers cannot be 
recruited, providers have to hire salaried staff, which 
increases the cost of providing services.
    Vagaries in the way Medicare now pays for ambulances have 
added to the challenges facing rural providers. Medicare's 
current payment method has produced wide variation in payments 
for the same service. For example, Medicare paid providers in 
North Dakota about $120 more per service than providers in 
Montana for the same service. Similarly, it paid providers in 
Wyoming about $4 more per mile of ambulance transport than 
providers in South Dakota.
    About 2 months after our report was issued, CMS, then 
called HCFA, published a proposed ambulance fee schedule 
specifying preset payment rates. This schedule is expected to 
reduce payment variations. Fees will vary by the type of 
service provided and account for geographic cost differences. 
The fee schedule will raise payments for providers now 
receiving payment below the national average. Thus, many rural 
providers will actually see an increase in Medicare payments 
under the fee schedule.
    In addition, there will be a payment adjustment for 
providers that transport beneficiaries in rural areas. This 
adjustment is intended to recognize the higher costs of 
essential, isolated ambulance providers. We are concerned, 
however, that the increased payment applies to an excessively 
broad set of providers, so it may not adequately target 
essential providers in isolated areas. Further, the increased 
payment is tied to the mileage reimbursement rather than the 
preset rates for services, so it may not adequately help those 
providers with too few transports to cover their fixed costs. 
In responding to our 2000 report, HCFA stated that it plans to 
work with the ambulance industry to develop an alternative 
adjustment.
    What ambulance services Medicare will cover is also 
important in ensuring access. Providers have noted inconsistent 
treatment of claims, leading to concerns about the fairness of 
claims payment decisions. In the past, claims approval and 
denial decisions have been problematic as, among other things, 
ambulance providers lack standard documentation methods for 
reporting a patient's condition at the time of pick-up. CMS has 
taken steps to clarify Medicare coverage criteria and educate 
providers on aspects of the claims process.
    In conclusion, we believe that Medicare payment policy for 
ambulance services is moving in the right direction in that the 
proposed fee schedule seeks to link providers' payments to the 
resources required to provide those services. Nevertheless, we 
all know that Medicare's payment rates are only as sound as the 
data supporting them. Thus, we believe that ongoing data 
gathering and analysis are critical to enable Medicare to 
revise rates as needed.
    Most importantly, attention needs to be given to the 
refinement of the rural payment adjustment so that it 
appropriately targets providers that most need it. The 
consequences of paying inappropriately for ambulance services 
can result in limiting access to some of Medicare's most 
vulnerable beneficiaries or introducing opportunities to 
exploit the benefit.
    Senator Dayton, as we move forward with the General 
Accounting Office's forthcoming study of the costs of providing 
ambulance services, particularly in rural areas, we look 
forward to working with you and the Congress, and also, 
undoubtedly, we will be speaking with many of the organizations 
that are represented here in this hearing. Thank you.
    Senator Dayton. Thank you, Ms. Dummit. Thank you.
    Chief Sinclair, welcome.

    TESTIMONY OF DEPUTY CHIEF JOHN SINCLAIR,\1\ SECRETARY, 
 EMERGENCY MEDICAL SERVICES SECTION, INTERNATIONAL ASSOCIATION 
                         OF FIRE CHIEFS

    Chief Sinclair. Good morning, Senator. Mr. Chairman and 
Senate staff, my name is John Sinclair and I am the Deputy 
Chief of Operations for Central Pierce Fire and Rescue in 
Takoma, Washington, and I am also the Secretary of the EMS 
Section of the International Association of Fire Chiefs. I 
represented, along with other team members, the International 
Association of Fire Chiefs on the negotiated rulemaking body 
that drafted several components of the Medicare ambulance fee 
schedule.
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    \1\ The prepared statement of Chief Sinclair appears in the 
Appendix on page 80.
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    I represent the fire chiefs and other senior managers of 
the more than 31,000 fire departments across the United States. 
While pre-hospital emergency systems are noted for a wide range 
of organizations that provide emergency medical care and 
ambulance transport, there is one unifying force in nearly all 
EMS systems nationwide: The critical role of local fire 
departments.
    In over 80 percent of America's communities, fire 
departments are the provider of EMS of first response. In 
addition, the fire service is the single largest provider of 
ambulance transport, comprising over one-third of the Centers 
for Medicare and Medicaid Services ambulance transport 
services.
    Mr. Chairman, before turning over to the business of the 
hearing, I would like to thank you for your efforts on behalf 
of emergency and medical services everywhere. Recent events 
have certainly demonstrated the critical importance of local 
EMS systems in the event of a natural or manmade disaster.
    The issues this Committee is hearing about today, timely 
and adequate reimbursement for ambulance transport services, 
are tremendously important to ensuring that local EMS systems 
have the necessary resources to serve their communities in 
times of great need.
    In 1997, Congress passed a Balanced Budget Act that 
mandated a single fee schedule for ambulance reimbursement in 
the United States. The new fee schedule, created through 
negotiated rulemaking process, reflects the consensus of our 
industry on a wide variety of issues. There are, however, 
several issues that were designated as being off the table by, 
at that time, HCFA. We view two of these issues as being the 
most critical to successful implementation of the new fee 
schedule.
    First, the proposed reimbursement rate must be raised to 
reflect the actual cost of providing ambulance transport.
    Second, CMS should implement the system of condition codes 
that have been talked about by several other people. The 
implementation of these codes will reduce the number of denied 
and delayed claims that are a result of current practices and 
minimize the substantial administrative burden of seeking 
reimbursement from Medicare patients.
    The issue of determining the cost of ambulance transport is 
notoriously difficult. The structure of EMS systems varies 
widely across the United States, which makes it difficult to 
estimate costs around the industry. However, we believe it is 
critical that Medicare reimbursement reflect, to the maximum 
extent possible, the actual cost of providing the service.
    Mr. Chairman, you recently introduced a bill, the Medicare 
Ambulance Payment Reform Act of 2001, S. 1350 that would 
require CMS to set the reimbursement rates based on the average 
cost of service. We strongly encourage Congress to direct CMS 
to set reimbursement rates on that basis.
    Of great concern to all ambulance providers is the 
extremely uneven and seemingly arbitrary manner in which claims 
are accepted for or denied payment by the Medicare carriers. 
The General Accounting Office report on rural ambulance payment 
under the proposed fee schedule notes that there are 
significant and somewhat inexplicable disparities in denial 
rates across the carriers. The report states that difficulties 
with claims review and subsequent denial levels are exacerbated 
by the lack of a national coding system that easily identifies 
the beneficiary's health condition and links it to the 
appropriate level of service.
    Let me provide the Committee with a very short example. One 
of the most frequent calls received by EMS providers is for a 
patient with severe chest pain. Given the possibility of a 
life-threatening cardiac event, EMS providers will aggressively 
treat the patient as they rapidly transport to the hospital. 
Upon arrival, the patient is ultimately diagnosed not with a 
heart attack but with a case of severe indigestion. While it is 
impossible for the firefighters in the field to know the 
patient's actual condition, CMS would refuse to reimburse the 
transport, deeming it medically unnecessary.
    Mr. Chairman, this situation is simply unacceptable. 
Firefighters in the field need to make rapid decisions based on 
the best interest of the patient. To tie reimbursement to the 
patient's diagnosis and not to the condition of that patient on 
the scene is dangerous to both the individual patient came and 
the long-term financial health of our local EMS system.
    A subcommittee of the negotiated rulemaking body developed 
a comprehensive list of medical conditions codes. This list 
represents a monumental effort to provide clarity to the issue 
of patient condition and should be utilized as recommended. Its 
implementation would greatly reduce the number of delayed and 
denied claims and ease the administrative burden upon local 
fire departments.
    Finally, we are concerned about the poor coordination of 
Medicare policy through the carriers. It is clear from previous 
experience that discrepancies exist between policy development 
by CMS and the implementation and the administration by the 
carriers. Recently, we have become concerned that the 
implementation of the new fee schedule will be plagued by poor 
coordination, as it has become clear that many of the carriers 
have fundamental misunderstandings of basic definitions and 
level of service designated by CMS. Given the significant 
impact the new fee schedule will have on local government 
finances across the country, it is imperative that CMS 
implement the fee schedule with as little administrative 
confusion as possible.
    America's fire departments are the backbone of the Nation's 
emergency medical response system, providing over 60 percent of 
the Nation's emergency ambulance transports. It is essential 
for the financial stability of our local governments that 
claims filed for Medicare patients be processed and paid in a 
prompt, efficient, and fair manner and that the amount paid 
reflect the actual cost of providing the service.
    Mr. Chairman, the solutions that we have outlined above 
will significantly aid America's fire service as we adapt to 
the reality of the new ambulance fee schedule. We encourage 
Congress to direct CMS to take these steps to ensure the 
financial stability of the Nation's local EMS system so that we 
may maintain the highest level of emergency health care for our 
patients.
    Thank you for providing me with the opportunity to testify 
before you today. I will be happy to answer any questions.
    Senator Dayton. Thank you, Chief Sinclair, and thank you 
and all of your members for the outstanding dedicated service 
you provide to our country. Thank you.
    Chief Sinclair. Thank you.
    Senator Dayton. Ms. Moore.

   TESTIMONY OF LORI MOORE,\1\ MPH, EMT-P, ASSISTANT TO THE 
 GENERAL PRESIDENT, INTERNATIONAL ASSOCIATION OF FIREFIGHTERS 
                             (IAFF)

    Ms. Moore. Thank you, Senator. My name is Lori Moore and I 
am here today to represent the 250,000 professional 
firefighters throughout the United States and their provision 
as the leader in emergency medical services in this country, 
providing EMS to more than 80 percent of this population.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Moore appears in the Appendix on 
page 83.
---------------------------------------------------------------------------
    I also represent the General President, Harold 
Schaitberger, and on his behalf, we will present our comments 
and our position on some of the things that have been said this 
morning as well as our written testimony that has been 
submitted. So if I may, I would just like to speak openly to 
that rather than following the written testimony.
    I am, in fact, a paramedic and have been since 1984, 
operating in a large metropolitan system in Memphis, Tennessee, 
and am now a specialist in EMS system design, evaluation, and 
performance measurement, so I am familiar with most systems 
throughout this country and, in fact, have participated in 
designing the operations of many of those systems. We certainly 
appreciate the opportunity to speak on this fee schedule as 
well as some of the other issues that have been presented this 
morning.
    Just to reiterate some of the information that Mr. Scully 
presented earlier so that everyone in the room understands what 
took place in the process of negotiated rulemaking, there is 
today and has been historically some discrepancy throughout the 
United States on payment for Medicare services provided through 
ambulance services. Again, as the gentlewoman to my right said, 
there are discrepancies city to city for the exact same 
service. I will give you an exact dollar amount, where in parts 
of California for an advanced life support transport pays as 
much as $541. The exact same service here in Washington, DC, 
$113. There is a discrepancy for you. That is what the fee 
schedule was designed to eliminate.
    That is why in the 1997 Balanced Budget Act, we were 
directed to come together as industry leaders to negotiate a 
fee schedule, and that is, indeed, what occurred. The 
organizations, leadership from all of the organizations sat at 
the table. I was one of those that sat at the table, and none 
of the others, I would add, that have testified this morning 
were actually in those negotiations or signed on the dotted 
line. We all signed the agreement that we could live with what 
was negotiated at that table and that is what we expect to be 
implemented by HCFA, or now CMS.
    That fee schedule was something that we all talked through. 
We looked at all the data that was available at the time and we 
all agreed that we could live with it. That includes all 
industry providers. We all compromised, including the 
International Association of Firefighters, as we were there 
seeking certainly payment for treatment separate from 
transport, because under Medicare law today, you have to 
transport the patient before you can be paid. Much of the 
emergency medical services that are delivered in this country 
are delivered separate and prior to the arrival of an ambulance 
on the scene. So no longer is emergency medicine linked to that 
patient transport, and yet we compromised our position on that 
for the betterment of the good and eliminating those 
discrepancies in payment throughout this country today.
    There were also other considerations that took place. We 
did consider the rural providers. There was an adjustment made 
in there and everyone stipulated it was an adjustment that we 
could live with through the mileage adjustment that was made 
for the rural providers. We considered labor costs. We 
considered call volume. We considered historical charges and 
the way that was done.
    So the process that took place throughout the negotiated 
rulemaking and the integrity of that process must be maintained 
and Congress should encourage CMS to implement that fee 
schedule as it has been negotiated.
    We will, however, and stipulate to the fact that there are 
denials of claims that should not be taking place. We will, 
however, also say that through the implementation of the 
negotiated rulemaking fee schedule as it was negotiated, and 
specific instruction to both the carriers and the fiscal 
intermediaries that this can be eliminated, that is what is 
going to have to take place. As the fee schedule is 
implemented, we have to give the instruction to these carriers, 
to the fiscal intermediaries on how they are to process these 
claims. That can be also handled through the process as has 
been laid out to date.
    One other thing I would like to remind everyone in this 
room is that Medicare was never meant to be a funding source 
for emergency medical services systems in this country. That is 
the responsibility of local governments and local governments 
should take on and carry forward that responsibility. Medicare 
is designed as an entitlement program to pay for the services 
that Medicare beneficiaries use, not to fund the base of those 
systems. Just so there is a point of clarification as to the 
intent of what Medicare is supposed to be providing.
    With that, sir, I will sum up, and again encouraging that 
the fee schedule be implemented as it was designed and that 
Congress encourage CMS to do so. Thank you.
    Senator Dayton. Thank you very much.
    I am a member of the Senate Agriculture Committee, which is 
marking up the reauthorization of the Federal law for the next 
6 years and I have an amendment that I need to get there to 
introduce on behalf of Minnesota farmers, so I am going to need 
to bring this hearing to a conclusion. I would like to reserve 
the right to ask questions in writing to this panel and the 
others, as well.\1\
---------------------------------------------------------------------------
    \1\ The question and response from Mr. Scully submitted by Senator 
Thompson appears in the Appendix on page 123.
---------------------------------------------------------------------------
    If you have any additional comments you would like to 
submit for the record, the record will remain open until 
November 21.
    There are other letters including one from the Oregon 
Ambulance Association \1\ and also a prepared statement from 
Steven Murphy, the CEO of National Products and Services for 
American Medical Response, and without objection, those will be 
inserted in the record, as well as any other items that anyone 
wishes to submit before November 21.\2\
---------------------------------------------------------------------------
    \1\ The letter from the Oregon State Ambulance Association appears 
in the Appendix on page 105.
    \2\ The prepared statement American Medical Response submitted for 
the record appears in the Appendix on page 113.
---------------------------------------------------------------------------
    With that, I want to thank you very much for your presence 
here today and I will conclude the hearing. Thank you.
    [Whereupon, at 10:51 a.m., the Committee was adjourned.]


                            A P P E N D I X

                              ----------                              


                PREPARED STATEMENT OF SENATOR TORRICELLI

    Mr. Torricelli. Healthcare in New Jersey has a long history of 
innovation and advancement. From the large number of pharmaceutical 
companies that create new medicines, to the hospitals and facilities 
where innovative therapies are developed, New Jersey remains one of the 
most progressive healthcare States in the country. Our State was one of 
the first to introduce and pass a comprehensive patient's bill of 
rights, and one of the first to recognize the importance of expanding 
access to healthcare to children and low income families.
    One of New Jersey's greatest innovations, and one which truly 
demonstrates the community based approach which has been so successful, 
is the development of our Emergency Medical Services (EMS) system. The 
current EMS system in New Jersey, which has been in place for roughly 
25 years, was designed as a modern remedy to the age old problem of 
guaranteeing access to emergency transport, while at the same time 
preserving local involvement in the delivery of services and preventing 
skyrocketing costs.
    The New Jersey EMS system accomplished all three goals by 
establishing a two-tiered approach to emergency transport. This two-
tiered system includes volunteer and for-profit Emergency Medical 
Technicians (EMTs) who provide basic life support (BLS), and hospital-
based paramedics, who provide advanced life support (ALS). Basic and 
advanced life support are differentiated by the status of the victim, 
with the most serious injuries, such as heart attacks, treated by ALS 
paramedics.
    The two-tiered system has been an unqualified success in New 
Jersey, providing universal access for all residents to affordable 
emergency services, while simultaneously ensuring that those persons in 
need of the most advanced care receive it from the proper authorities. 
The system allows almost 500 local volunteer emergency medical 
technician (EMT) squads to blanket the entire State with quick and 
effective initial responses to emergencies. In the case of more serious 
emergencies, paramedics are strategically stationed at various 
hospitals throughout the State to provide secondary assistance. In 
either case, the EMTs will generally transport patients to the hospital 
with the paramedics along, if necessary, to provide additional care.
    There are currently an estimated 20,000 EMTs providing ambulance 
transportation for virtually all BLS and ALS emergencies, close to 
400,000 calls each year. It is estimated that over 80 percent of these 
calls are handled by volunteers who are not reimbursed by Medicare. In 
contrast, the hospital-based paramedics, also known as mobile intensive 
care units (MICUs), are reimbursed by Medicare when they respond to ALS 
emergencies, just as all other paramedics.
    Unfortunately, the great success of this system would be 
jeopardized if the Centers for Medicare and Medicaid Services (CMS) 
finalizes plans to implement new rules on EMS services, required when 
Congress enacted the Balanced Budget Act (BBA). While I applaud CMS' 
intentions in enacting a new fee schedule, which is designed to control 
costs by enforcing one, standardized, system throughout the country, I 
am dismayed by the impact this will have on New Jersey, an impact that 
runs counter to the spirit of the BBA and the intent of the fee 
schedule itself.
    The proposed Medicare Ambulance Fee Schedule would, in essence, 
require paramedics to be the only responders to provide transport for 
victims, regardless of medical condition, in order to be reimbursed by 
Medicare. This, in turn, would eliminate the two-tier structure by 
solely recognizing MICUs, and thus also eliminate the need for 
volunteer EMS units, which currently provide the bulk of the transport. 
Under the new rules, there would be no incentive for EMS units to 
respond to calls if they know their mission has been given to MICUs.
    Our system, when compared to the system CMS is set to approve, 
would save an estimated $39 million annually, due to the preponderance 
of BLS calls and the large number of EMS volunteers who respond to 
these calls. But beyond the cost savings, the limitation of EMS units 
would jeopardize the prompt service that New Jersey residents have come 
to rely on.
    This hearing is not the first time the Senate has considered the 
impact a proposed fee schedule would have on Emergency Medical 
Services. In a resolution I sponsored that was passed last year during 
consideration of the FY 2001 Labor/Education/HHS Appropriations bill 
(S. Amendment 3612 to H.R. 4577), the Senate unanimously agreed that 
any changes to Medicare's reimbursement for EMS must take into account 
unique systems such as New Jersey's, and that HCFA (now CMS) must do 
its best to preserve this highly beneficial and cost effective system. 
While a Senate Resolution, as we all know, is non-binding, it certainly 
does signal the intent of the Senate to closely monitor subsequent 
developments. CMS has always been a strong supporter of measures that 
improve the delivery of healthcare services, while lowering the cost to 
taxpayers. In passing this amendment last year, the Senate reaffirmed 
its belief that once CMS had been made fully aware of the importance of 
this issue, the agency would act responsibly. To date, CMS has not 
fully acknowledged that any new fee schedule would hurt the two-tiered 
system in New Jersey, nor has CMS committed to preserving the system.
    While undoubtedly my interest in the Medicare Ambulance Fee 
Schedule arises primarily from the impact it would have on New Jersey, 
I am concerned about the national scope of the matter as well. Dozens 
of States, not just New Jersey, stand to be negatively affected by the 
new fee schedule as it now stands. In recognition of this, I was 
pleased to recently become a cosponsor of the Medicare Ambulance 
Payment Reform Act, Senator Dayton's bill to ensure that the new fee 
schedule is based on the national average of ambulance service, and not 
harmful to emergency responders. This bill represents a strong effort 
to address the clear problem that the new fee schedule presents, 
namely, that reimbursements will not be high enough to allow responders 
to continue their work.
    It is my hope that this hearing will finally provide CMS with the 
impetus to implement a fair fee schedule, one that takes into account 
the unique systems in place throughout the country.

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