[Congressional Record Volume 141, Number 145 (Monday, September 18, 1995)]
[Senate]
[Pages S13740-S13742]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROCKEFELLER:
  S. 1255. A bill to amend title XVIII of the Social Security Act to 
provide for Medicare contracting reforms, and for other purposes; to 
the Committee on Finance.


                 medicare contractor reform act of 1995

 Mr. ROCKEFELLER. Mr. President, I am pleased to introduce a bill to 
reform the way Medicare administers its health benefits. Under current 
law, Medicare is not allowed sufficient flexibility to award contracts 
to administer Medicare benefits based on performance, skill and 
expertise, or competition. This bill is long overdue and follows up on 
an oversight hearing I held as chairman of the Medicare subcommittee a 
few years ago.
  When Medicare was enacted 30 years ago, private health insurance 
companies were awarded the task of administering the program. GAO 
recently testified before the Finance Committee that when Medicare was 
enacted ``legislation essentially delegated many day-to-day 
administrative decisions to private insurers, to further lessen the 
risk of undue Federal interference and to better ensure that Medicare 
would treat its beneficiaries no differently than the private 
insured.'' Under my legislation, important administrative functions 
would still be performed by private sector companies but the pool of 
eligible companies would be broadened. Medicare would also have the 
opportunity to take advantage of private sector initiatives to improve 
customer service, lower administrative costs, and improve operational 
efficiency.
  Mr. President, there is bipartisan recognition that funding for 
Medicare's administrative operations is currently inadequate. Funding 
for contractors has actually declined over the last several years. When 
adjusted for inflation, Medicare's contractor budget actually declined 
by 37 percent over the last 6 years. The Finance Committee, on which I 
serve, has heard testimony from the General Accounting Office, the HHS 
Office of Inspector General, and others in support of higher spending 
for Medicare administrative services. Increased spending on payment 
safeguard activities can actually save the Medicare Program money. 
According to the GAO, every dollar spent on Medicare safeguard 
activities returns at least $11 to the Medicare Program.
  But, Mr. President, before we spend additional money on program 
administration we need to make sure that the Health Care Financing 
Administration [HCFA] has the ability to spend its contractor funds 
wisely and to enter into contracts with the most efficient entities.
  The legislation I am introducing today replaces outdated Medicare law 
and gives HCFA the tools to take full advantage of innovations and 
efficiencies in the private sector when it comes to utilization review, 
detecting fraud and abuse, and processing claims. No longer would all 
Medicare contractors be required to perform all Medicare administrative 
activities. This legislation would permit the Secretary of HHS to 
selectively contract with any agency or organization that is capable of 
carrying out specific administrative functions, such as fraud and abuse 
detection, customer service, or utilization review.

  Under current law, Medicare is restricted to contracting with health 
insurance companies. In the private sector, many large employers 
selectively contract with companies that specialize in, and have 
expertise in, utilization review or in adjudicating claims. The 
Medicare Program should not be prohibited from making similar 
competitive decisions. This flexibility will not only increase 
competition but it will enhance contractor performance by allowing 
Medicare to contract with entities who excel in a specific function.
  Under current law, Medicare is forced to pay the costs of terminating 
a Medicare administrative contract even if the contract is terminated 
for cause, including poor performance, outright fraud, or even if the 
contract merely expires. Medicare is the only Federal program required 
to pay for these extraordinary termination costs. This is inconsistent 
with the Federal contracting authority and should be changed 
immediately.
  Mr. President, my legislation would change current law that 
automatically renews Medicare's administrative contracts every year. 
More important, the decision on the awarding administrative contracts 
for part A would be given to HCFA while preserving a provider's right 
to choose its own fiscal intermediary. Because most hospitals have 
nominated the national Blue Cross-Blue Shield Association as their 
fiscal intermediary, when a State Blue Cross-Blue Shield plan leaves 
the Medicare Program the national Blue Cross-Blue Shield Association 
chooses which State Blue Cross-Blue Shield plan becomes the fiscal 
intermediary for the hospitals in that State. Under my legislation, new 
contractors would be awarded contracts using the same competitive 
requirements that apply throughout the Federal Government.
  Hospital and nursing homes would still be able to choose their fiscal 
intermediary every 5 years from a list of at least 3 approved 
contractors. This freedom of choice keeps pressure on contractors to 
continuously improve customer service to beneficiaries and health care 
providers.
  HCFA would also be allowed to monitor and respond to instances when a 
health insurance company is processing claims or auditing costs reports 
of health care providers that it owns. As the distinction between 
providers and insurers becomes blurred, a serious conflict of interest 
could emerge in these types of situations and HCFA must have the 
ability to safeguard the Medicare Trust Fund from these types of 
conflicts of interest.
  Just as Medicare has reformed its payments to doctors and hospitals 
over the past decade, and is considering changes to the way it pays 
health maintenance organizations, it is time to consider alternative 
ways to pay contractors. Current Medicare law that requires cost-based 
reimbursement is inconsistent with payment performance incentives and 
competitive bidding.
  Mr. President, I believe my legislation updates current Medicare law 
and is long overdue. This bill would equip the Health Care Financing 
Administration with the tools to move the Medicare Program into the 
next century. I ask unanimous consent that a copy of the legislative 
proposal be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1255

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE AND REFERENCES IN ACT.

       (a) Short Title.--This Act may he cited as the ``Medicare 
     Contractor Reform Act of 1995''.
       (b) References in Act.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference 

[[Page S 13741]]
     shall be considered to be made a section or other provision of the 
     Social Security Act.

     SEC. 2. INCREASED FLEXIBILITY IN CONTRACTING FOR MEDICARE 
                   CLAIMS PROCESSING.

       (a) Carriers To Include Entities That Are Not Insurance 
     Companies.--
       (1) Section 1842(a) (42 U.S.C. 1395u(a)) is amended in the 
     matter preceding paragraph (1) by striking ``with carriers'' 
     and inserting ``with agencies and organizations (hereafter in 
     this section referred to as `carriers')''.
       (2) Section 1842(f) (42 U.S.C. 1395u(f)) is repealed.
       (b) Choice of Fiscal Intermediaries by Providers of 
     Services; Secretarial Flexibility in Assigning Functions to 
     Intermediaries and Carriers.--
       (1) Section 1816(a) (42 U.S.C. 1395h(a)) to read as 
     follows:
       ``(a)(1) The Secretary may enter into contracts with 
     agencies or organizations to perform any or all of the 
     following functions, or parts of those functions (or, to the 
     extent provided in a contract, to secure performance thereof 
     by other organizations):
       ``(A) Determination (subject to the provisions of section 
     1878 and to such review by the Secretary as may be provided 
     for by the contracts) the amount of the payments required 
     pursuant to this part to be made to providers of services.
       ``(B) Making payments described in subparagraph (A).
       ``(C) Provision of consultative services to institutions or 
     agencies to enable them to establish and maintain fiscal 
     records necessary for purposes of this part and otherwise to 
     qualify as providers of services.
       ``(D) Serving as a center for, and communicate to 
     individuals entitled to benefits under this part and to 
     providers of services, any information or instructions 
     furnished to the agency or organization by the Secretary, and 
     serve as a channel of communication from individuals entitled 
     to benefits under this part and from providers of services to 
     the Secretary.
       ``(E) Making such audits of the records of providers of 
     services as may be necessary to ensure that proper payments 
     are made under this part.
       ``(F) Performance of the functions described under 
     subsection (d).
       ``(G) Performance of such other functions as are necessary 
     to carry out the purposes of this part.
       ``(2) As used in this title and title XI, the term `fiscal 
     intermediary' means an agency or organization with a contract 
     under this section.''.
       (2) Subsections (d) and (e) of section 1816 (42 U.S.C. 
     1395h) are amended to read as follows:
       ``(d) Each provider of services shall have a fiscal 
     intermediary that--
       ``(1) acts as a single point of contact for the provider of 
     services under this part,
       ``(2) makes its services sufficiently available to meet the 
     needs of the provider of services, and
       ``(3) is responsible and accountable for arranging the 
     resolution of issues raised under this part by the provider 
     of services.
       ``(e)(1)(A) The Secretary shall, at least every 5 years, 
     permit each provider of services (other than a home health 
     agency or a hospice program) to choose an agency or 
     organization (from at least 3 proposed by the Secretary, of 
     which at least 1 shall have an office in the geographic area 
     of the provider of services, except as provided by 
     subparagraph (B)(ii)(II)) as the fiscal intermediary under 
     subsection (d) for that provider of services. If a contract 
     with that fiscal intermediary is discontinued, the Secretary 
     shall permit the provider of services to choose under the 
     same conditions from 3 other agencies or organizations.
       ``(B)(i) The Secretary, in carrying out subparagraph (A), 
     shall permit a group of hospitals (or a group of another 
     class of providers other than home health agencies or hospice 
     programs) under common ownership by, or control of, a 
     particular entity to choose one agency or organization (from 
     at least 3 proposed by the Secretary) as the fiscal 
     intermediary under subsection (d) for all the providers in 
     that group if the conditions specified in clause (ii) are 
     met.
       ``(ii) The conditions specified in this clause are that--
       ``(I) the group includes all the providers of services of 
     that class that are under common ownership by, or control of, 
     that particular entity, and
       ``(II) all the providers of services in that group agree 
     that none of the agencies or organizations proposed by the 
     Secretary is required to have an office in any particular 
     geographic area.
       ``(2) The Secretary, in evaluating the performance of a 
     fiscal intermediary, shall solicit comments from providers of 
     services.''.
       (3)(A) Section 1816(b)(1)(A) (42 U.S.C. 1395h(b)(1)(A)) is 
     amended by striking ``after applying the standards, criteria, 
     and procedures'' and inserting ``after evaluating the ability 
     of the agency or organization to fulfill the contract 
     performance requirements''.
       (B) The first sentence of section 1816(f)(1) (42 U.S.C. 
     1395h(f)(1)) is amended--
       (i) by striking ``develop standards, criteria, and 
     procedures'' and inserting ``, after public notice and 
     opportunity for comment, develop contract performance 
     requirements'', and
       (ii) by striking ``, and the Secretary shall establish 
     standards and criteria with respect to the efficient and 
     effective administration of this part''.
       (C) The second sentence of section 1842(b)(2)(A) (42 U.S.C. 
     1395u(b)(2)(A)) is amended to read as follows: ``The 
     Secretary shall, after public notice and opportunity for 
     comment, develop contract performance requirements for the 
     efficient and effective performance of contract obligations 
     under this section.''.
       (D) Section 1842(b)(2)(A) (42 U.S.C. 1395u(b)(2)(A)) is 
     amended by striking the third sentence.
       (E) Section 1842(b)(2)(B) (42 U.S.C. 1395u(b)(2)(B)) is 
     amended in the matter preceding clause (i) by striking 
     ``establish standards'' and inserting ``develop contract 
     performance requirements''.
       (F) Section 1842(b)(2)(D) (42 U.S.C. 1395u(b)(2)(D)) is 
     amended by striking ``standards and criteria'' each place it 
     appears and inserting ``contract performance requirements''.
       (4)(A) Section 1816(b) (42 U.S.C. 1395h(b)) is amended in 
     the matter preceding paragraph (1) by striking ``an 
     agreement'' and inserting ``a contract''.
       (B) Paragraphs (1)(B) and (2)(A) of section 1816(b) (42 
     U.S.C. 1395h(b)) are each amended by striking ``agreement'' 
     and inserting ``contract''.
       (C) The first sentence of section 1816(c)(1) (42 U.S.C. 
     1395h(c)(1)) is amended by striking ``An agreement'' and 
     inserting ``A contract''.
       (D) The last sentence of section 1816(c)(1) (42 U.S.C. 
     1395h(c)(1)) is amended by striking ``an agreement'' and 
     inserting ``a contract''.
       (E) Section 1816(c)(2)(A) (42 U.S.C. 1395h(c)(2)(A)) is 
     amended in the matter preceding clause (i) by striking 
     ``agreement'' and inserting ``contract''.
       (F) Section 1816(c)(3)(A) (42 U.S.C. 1395h(c)(3)(A)) is 
     amended by striking ``agreement'' and inserting ``contract''.
       (G) The first sentence of section 1816(f)(1) (42 U.S.C. 
     1395h(f)(1)) is amended by striking ``an agreement'' and 
     inserting ``a contract''.
       (H) Section 1816(h) (42 U.S.C. 1395h(h)) is amended--
       (i) by striking ``An agreement'' and inserting ``A 
     contract'', and
       (ii) by striking ``the agreement'' each place it appears 
     and inserting ``the contract''.
       (I) Section 1816(i)(1) (42 U.S.C. 1395h(i)(1)) is amended 
     by striking ``an agreement'' and inserting ``a contract''.
       (J) Section 1816(j) (42 U.S.C. 1395h(j)) is amended by 
     striking ``An agreement'' and inserting ``A contract''.
       (K) Section 1816(k) (42 U.S.C. 1395h(k)) is amended by 
     striking ``An agreement'' and inserting ``A contract''.
       (L) Section 1842(a) (42 U.S.C. 1395u(a)) is amended in the 
     matter preceding paragraph (1) is amended by striking 
     ``agreements'' and inserting ``contracts''.
       (M) Section 1842(h)(3)(A) (42 U.S.C. 1395u(h)(3)(A)) is 
     amended by striking ``an agreement'' and inserting ``a 
     contract''.
       (5) Section 1816(f)(1) (42 U.S.C. 1395h(f)(1)) is amended 
     by striking the second sentence.
       (6)(A) Section 1816(c)(2)(A) (42 U.S.C. 1395h(c)(2)(A)) is 
     amended in the matter preceding clause (i) by inserting 
     ``that provides for making payments under this part'' after 
     ``this section''.
       (B) Section 1816(c)(3)(A) (42 U.S.C. 1395h(c)(3)(A)) is 
     amended by inserting ``that provides for making payments 
     under this part'' after ``this section''.
       (C) Section 1816(k) (42 U.S.C. 1395h(k)) is amended by 
     inserting ``(as appropriate)'' after ``submit''.
       (D) Section 1842(a) (42 U.S.C. 1395u(a)) is amended in the 
     matter preceding paragraph (1) by striking ``some or all of 
     the following functions'' and inserting ``any or all of the 
     following functions, or parts of those functions''.
       (E) The first sentence of section 1842(b)(2)(C) (42 U.S.C. 
     1395u(b)(2)(C)) is amended by inserting ``(as appropriate)'' 
     after ``carriers''.
       (F) Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended 
     in the matter preceding subparagraph (A) by inserting ``(as 
     appropriate)'' after ``contract''.
       (G) Section 1842(b)(7)(A) (42 U.S.C. 1395u(b)(7)(A)) is 
     amended in the matter preceding clause (i) by striking ``the 
     carrier'' and inserting ``a carrier''.
       (H) Section 1842(b)(11)(A) (42 U.S.C. 1395u(b)(11)(A)) is 
     amended in the matter preceding clause (i) by inserting ``(as 
     appropriate)'' after ``each carrier''.
       (I) Section 1842(h)(2) (42 U.S.C. 1395u(h)(2)) is amended 
     in the first sentence by inserting ``(as appropriate)'' after 
     ``shall''.
       (J) Section 1842(h)(5)(A) (42 U.S.C. 1395u(h)(5)(A)) is 
     amended by inserting ``(as appropriate)'' after ``carriers''.
       (7)(A) Section 1816(c)(2)(C) (42 U.S.C. 1395h(c)(2)(C)) is 
     amended by striking ``hospital, rural primary care hospital, 
     skilled nursing facility, home health agency, hospice 
     program, comprehensive outpatient rehabilitation facility, or 
     rehabilitation agency'' and inserting ``provider of 
     services''.
       (B) Section 1816(j) (42 U.S.C. 1395h(j)) is amended in the 
     matter preceding paragraph (1) by striking ``for home health 
     services, extended care services, or post-hospital extended 
     care services''.
       (8) Section 1842(a)(3) (42 U.S.C. 1395u(a)(3)) is amended 
     by inserting ``(to and from individuals enrolled under this 
     part and to and from physicians and other entities that 
     furnish items and services)'' after ``communication''.
       (c) Elimination of Special Provisions for Terminations of 
     Contracts.--
       (1) Section 1816(b) (42 U.S.C. 1395h(b)) is amended in the 
     matter preceding paragraph (1) is amended by striking ``or 
     renew''.

[[Page S 13742]]

       (2) The last sentence of section 1816(c)(1) (42 U.S.C. 
     1395h(c)(1)) is amended by striking ``or renewing''.
       (3) Section 1816(f)(1) (42 U.S.C. 1395h(f)(1)) is amended--
       (A) by striking ``, renew, or terminate'', and
       (B) by striking ``, whether the Secretary should assign or 
     reassign a provider of services to an agency or 
     organization,''.
       (4) Section 1816(g) (42 U.S.C. 1395h(g)) is repealed.
       (5) The last sentence of section 1842(b)(2)(A) (42 U.S.C. 
     1395u(b)(2)(A)) is amended by striking ``or renewing''.
       (6) Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
     striking paragraph (5).
       (d) Repeal of Fiscal Intermediary Requirements That Are Not 
     Cost-Effective.--Section 1816(f)(2) (42 U.S.C. 1395h(f)(2)) 
     is amended to read as follows:
       ``(2) The contract performance requirements developed under 
     paragraph (1) shall include, with respect to claims for 
     services furnished under this part by any provider of 
     services other than a hospital, whether such agency or 
     organization is able to process 75 percent of 
     reconsiderations within 60 days and 90 percent of 
     reconsiderations within 90 days.''.
       (e) Repeal of Cost Reimbursement Requirements.--
       (1) The first sentence of section 1816(c)(1) (42 U.S.C. 
     1395h(c)(1)) is amended--
       (A) by striking the comma after ``appropriate'' and 
     inserting ``and'', and
       (B) by striking ``subsection (a)''and all that follows 
     through the period and inserting ``subsection (a).''.
       (2) Section 1816(c)(1) (42 U.S.C. 1395h(c)(1)) is further 
     amended by striking the second and third sentences.
       (3) The first sentence of section 1842(c)(1) (42 U.S.C. 
     1395u(c)(1)) is amended--
       (A) by striking ``shall provide'' the first place it 
     appears and inserting ``may provide'', and
       (B) by striking ``this part'' and all that follows through 
     the period and inserting ``this part.''.
       (4) Section 1842(c)(1) (42 U.S.C. 1395u(c)(1)) is further 
     amended by striking the second and third sentences.
       (5) Section 2326(a) of the Deficit Reduction Act of 1984 is 
     repealed.
       (f) Competition Required for New Contracts and in Cases of 
     Poor Performance.--
       (1) Section 1816(c) (42 U.S.C. 1395h(c)) is amended by 
     adding at the end the following new paragraph:
       ``(4)(A) A contract with a fiscal intermediary under this 
     section may be renewed from term to term without regard to 
     any provision of law requiring competition if the fiscal 
     intermediary has met or exceeded the performance requirements 
     established in the current contract.
       ``(B) Functions may be transferred among fiscal 
     intermediaries without regard to any provision of law 
     requiring competition.''.
       (2) Section 1842(b)(1) (42 U.S.C. 1395u(b)(1)) is amended 
     to read as follows:
       ``(b)(1)(A) A contract with a carrier under subsection (a) 
     may be renewed from term to term without regard to any 
     provision of law requiring competition if the carrier has met 
     or exceeded the performance requirements established in the 
     current contract.
       ``(B) Functions may be transferred among carriers without 
     regard to any provision of law requiring competition.''.
       (g) Waiver of Competitive Requirements for Initial 
     Contracts.--
       (1) Contracts that have periods that begin during the 1-
     year period that begins on the first day of the fourth 
     calendar month that begins after the date of enactment of 
     this Act may be entered into under section 1816(a) of the 
     Social Security Act (42 U.S.C. 1395h(a)) without regard to 
     any provision of law requiring competition.
       (2) The amendments made by subsection (f) apply to 
     contracts that have periods beginning after the end of the 1-
     year period specified in paragraph (1).
       (h) Effective Dates.--
       (1) The amendments made by subsection (c) apply to 
     contracts that have periods ending on, or after, the end of 
     the third calendar month that begins after the date of 
     enactment of this Act.
       (2) The amendments made by subsections (a), (b), (d), and 
     (e) apply to contracts that have periods beginning after the 
     third calendar month that begins after the date of enactment 
     of this Act.
                                 ______