Medicare: Improvements Needed in Provider Communications and	 
Contracting Procedures (25-SEP-01, GAO-01-1141T).		 
								 
Complete, accurate, and timely communication of program 	 
information is necessary to help Medicare providers comply with  
program requirements and appropriately bill for their services.  
Information provided to physicians about billing and payment	 
policies is often incomplete, confusing, out of date, or even	 
incorrect. GAO found that the rules governing Centers for	 
Medicare and Medicaid Services (CMS) contracts with its claims	 
processors lack incentives for efficient operations. Medicare	 
contractors are chosen without full and open competition from	 
among health insurance companies, rather from a broad universe of
potential qualified entities, and CMS almost always uses	 
cost-only contracts, which pay contractors for costs incurred but
generally do not offer any type of performance incentives. To	 
improve Medicare contractors' provider communications, CMS must  
develop a more centralized and coordinated approach consistent	 
with the provisions of the Medicare Regulatory and Contracting	 
Reform Act (MRCRA) of 2001. MRCRA would require that CMS (1)	 
centrally coordinate contractors' provider education activities, 
(2) establish communications performance standards, (3) appoint a
Medicare Provider Ombudsman, and (4) create a demonstration	 
program to offer technical assistance to small providers. MRCRA  
would also broaden CMS authority so that various types of	 
contractors would be able to compete for claims administration	 
contracts and their payment would reflect the quality of the	 
services they provide.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-1141T					        
    ACCNO:   A01784						        
  TITLE:     Medicare: Improvements Needed in Provider Communications 
             and Contracting Procedures                                       
     DATE:   09/25/2001 
  SUBJECT:   Billing procedures 				 
	     Health care programs				 
	     Managed health care				 
	     Claims processing					 
	     Medicare Program					 

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GAO-01-1141T
     
Testimony Before the Subcommittee on Health, Committee on Ways and Means,
House of Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 10: 00 a. m. Tuesday, September 25,
2001 MEDICARE

Improvements Needed in Provider Communications and Contracting Procedures

Statement of Leslie G. Aronovitz Director, Health Care- Program

Administration and Integrity Issues

GAO- 01- 1141T

Page 1 GAO- 01- 1141T

Madam Chairman and Members of the Subcommittee: I am pleased to be here
today as you discuss modifications to the Medicare program proposed in the
Medicare Regulatory and Contracting Reform Act (MRCRA) of 2001. 1 Providers
have raised concerns that while the Medicare program has become increasingly
complex, the education and outreach services needed to comply with Medicare
coverage and billing policies are inadequate. Others have raised questions
about whether the program could benefit from changes to the way Medicare?s
claims processing contractors are selected and paid for the functions they
perform. 2 To address some of these issues, Members of this Subcommittee and
others in the Congress have introduced legislation, and the Administration
has proposed several new initiatives.

We are currently conducting, or have recently completed, work on several
operational and structural elements of the Medicare program that frustrate
providers and hamper effective management. Specifically, we are reviewing
how the Centers for Medicare and Medicaid Services (CMS) works with its
contractors to facilitate communications with Medicare providers. 3 We have
also evaluated ways in which CMS contracting for claims payment and provider
and beneficiary service activities could be modified to promote better
performance. Accordingly, you asked us to focus our remarks today on our
findings related to (1) Medicare provider education and communications, and
(2) Medicare contracting for claims administration services. Several of the
reforms outlined in the MRCRA proposal address aspects of both issues.

In summary, our ongoing work for the Subcommittee shows that physicians
often do not receive complete, accurate, clear, and timely guidance on
Medicare billing and payment policies. We found shortcomings in print,
electronic, and telephone communications that Medicare contractors use to
provide information to physicians and

1 H. R. 2768, sponsored by Reps. Nancy Johnson, Pete Stark, and others, was
introduced on August 2, 2001. 2 Medicare claims are processed by private
organizations that contract to serve as the fiscal agent between providers
and the federal government. 3 In June of this year, the Secretary of Health
and Human Services (HHS) announced that the agency?s name would be changed
from the Health Care Financing Administration (HCFA) to CMS. Our statement
will continue to refer to HCFA where our findings apply to the
organizational structure and operations associated with that name.

Page 2 GAO- 01- 1141T

respond to their questions. To substantially improve Medicare contractors?
provider communications, we believe that CMS needs to develop a more
centralized and coordinated approach. This is consistent with several
provisions in MRCRA, which require CMS to centrally coordinate contractors?
provider education activities, establish communications performance
standards, appoint a Medicare Provider Ombudsman, and create a demonstration
program to offer technical assistance to small providers. MRCRA would also
require contractors to monitor the accuracy, consistency, and timeliness of
the information they provide.

Further, our analysis of Medicare contracting reform issues has found that
the rules governing CMS contracts with its claims processors lack incentives
for efficient operations. Medicare contractors are chosen without full and
open competition from among health insurance companies, rather than from a
broad universe of potentially qualified entities. In addition, CMS almost
always uses cost- only contracts, which pay contractors for costs incurred
but generally do not offer any type of performance incentives. MRCRA would
broaden CMS authority so that entities of various types would be able to
compete for claims administration contracts and their payment would reflect
the quality of the services they provide.

The operation of the Medicare program is extremely complex and requires
close coordination between CMS and its contractors. CMS is an agency within
HHS but has responsibilities for expenditures that are larger than those of
most other federal departments. 4 Under Medicare?s fee- for- service system-
which accounts for over 80 percent of program beneficiaries- physicians,
hospitals, and other providers submit claims to receive reimbursement for
services they provide to Medicare beneficiaries. In fiscal year 2000, fee-
for- service Medicare made payments of $176 billion to hundreds of thousands
of providers who delivered services to over 32 million beneficiaries.

About 50 Medicare claims administration contractors carry out the day- today
operations of the program and are responsible not only for paying claims but
also for providing information and education to providers and beneficiaries
that participate in Medicare. Contractors that process and

4 Medicare ranks second only to Social Security in federal expenditures for
a single program. Background

Page 3 GAO- 01- 1141T

pay part A claims (i. e., for inpatient hospital, skilled nursing facility,
hospice care, and certain home health services) are known as fiscal
intermediaries and those that administer part B claims (i. e., for
physician, outpatient hospital services, laboratory, and other services) are
known as carriers.

Contractors periodically issue bulletins that outline changes in national
and local Medicare policy, inform providers of billing system changes, and
address frequently asked questions. To enhance communications with
providers, the agency recently required contractors to maintain toll- free
telephone lines to respond to provider inquiries. It also directed them to
develop Internet sites to provide another reference source. While providers
look to CMS? contractors for help in interpreting Medicare rules, they
remain responsible for properly billing the program.

In congressional hearings held earlier this year, representatives of
physician groups testified that they felt overwhelmed by the volume of
instructional materials sent to them by CMS and its contractors. Following
up on these remarks, we contacted 7 group practices served by 3 carriers in
different parts of the country to determine the volume of Medicarerelated
documents they receive from the CMS central office, carriers, other HHS
agencies, and private organizations. Together, these physician practices
reported that, during a 3- month period, they received about 950 documents
concerned with health care regulations and billing procedures. However, a
relatively small amount- about 10 percent- was sent by CMS or its
contractors. The majority of the mail reportedly received by these physician
practices was obtained from sources such as consulting firms and medical
specialty or professional societies.

Congress has also held hearings on management challenges facing the Medicare
program. We recently testified that HHS contracts for claims administration
services in ways that differ from procedures for most federal contracts. 5
Specifically:

 there is no full and open competition for these contracts,

 contracts generally must cover the full range of claims processing and
related activities,

5 Medicare Contracting Reform: Opportunities and Challenges in Contracting
for Claims Administration Services, (June 28, 2001, GAO- 01- 918T).

Page 4 GAO- 01- 1141T

 contracts are generally limited to reimbursement of costs without
consideration of performance, and

 CMS has limited ability to terminate these contracts. Since 1993, HCFA has
repeatedly proposed legislation that would increase competition for these
contracts and provide more flexibility in how they are structured. In June
2001, the Secretary of HHS again submitted a legislative proposal that would
modify Medicare?s claims administration contracting authority.

CMS relies on its 20 carriers to convey accurate and timely information
about Medicare rules and program changes to providers who bill the program.
However, our ongoing review of the quality of CMS? communications with
physicians participating in the Medicare program shows that the information
given to providers is often incomplete, confusing, out of date, or even
incorrect. 6 MRCRA provisions establish new requirements and funding for CMS
and its contractors that could enhance the quality of provider
communication.

We found that carriers? bulletins and Web sites did not contain clear or
timely enough information to solely rely on those sources. Further, the
responses to phone inquiries by carrier customer service representatives
were often inaccurate, inconsistent with other information they received, or
not sufficiently instructive to properly bill the program.

Our review of the quarterly bulletins recently issued by 10 carriers found
that they were often unclear and difficult to use. Bulletins over 50 pages
in length were the norm, and some were 80 or more pages long. They often
contained long articles, written in dense language and printed in small
type. Many of the bulletins were also poorly organized, making it difficult
for a physician to identify relevant or new information. For example, they
did not always present information delineated by specialty or clearly

6 In our study, we reviewed selected contractors? bulletins and Web sites
and evaluated them for consistency, timeliness, clarity, and completeness.
In addition, we visited three contractors to observe their call center
operations and examined their approaches to monitoring the performance of
customer service representatives. To test the quality of contractors?
responses to physicians? phone inquiries, we posed ?frequently asked
questions? that appeared on contractor Web sites to customer service
representatives and assessed the accuracy and completeness of the responses.
Substantial

Improvement Needed in Medicare Provider Communications

CMS Information Was Confusing and Often Inaccurate

Page 5 GAO- 01- 1141T

identify the states where the policies applied. Moreover, information in
these bulletins about program changes was not always communicated in a
timely fashion, so that physicians sometimes had little or no advance notice
prior to a program change taking effect. In a few instances, notice of the
program change had not yet appeared in the carriers? bulletin by its
effective date.

To provide another avenue for communication, carriers are required to
develop Internet Web sites. However, our review of 10 carrier Web sites
found that only 2 complied with all 11 content requirements that CMS has
established. Also, most did not contain features that would allow physicians
and others to readily obtain the information they need. For example, we
found that the carrier Web sites often lacked logical organization,
navigation tools (such as search functions), and timely information- all of
which increase a site?s usability and value. Five of the nine sites that had
the required schedule of upcoming workshops or seminars were out of date.

Call centers supplement the information provided by bulletins and Web sites
by responding to the specific questions posed by individual physicians. To
assess the accuracy of information provided, we placed approximately 60
calls to the provider inquiry lines of 5 carriers? call centers. The three
test questions, all selected from the ?frequently asked questions? on the
carriers? Web sites, concerned the appropriate way to bill Medicare under
different circumstances. The results of our test, which were verified by a
CMS coding expert, showed that only 15 percent of the answers were complete
and accurate, while 53 percent were incomplete and 32 percent were entirely
incorrect.

We found that CMS has established few standards to guide the contractors?
communication activities. While CMS requires contractors to issue bulletins
at least quarterly, they require little else in terms of content or
readability. Similarly, CMS requirements for web- based communication do
little to promote the clarity or timeliness of information. Instead, they
generally focus on legal issues- such as measures to protect copyrighted
material- that do nothing to enhance providers? understanding of, or ability
to correctly implement, Medicare policy. In regard to telecommunications,
contractor call centers are instructed to monitor up to 10 calls per quarter
for each of their customer service representatives, but CMS? definition of
what constitutes accuracy and completeness in call center responses is
neither clear nor specific. Moreover, the assessment of accuracy and
completeness counts for only 35 percent of the total

Page 6 GAO- 01- 1141T

assessment score, with the representative?s attitude and helpfulness
accounting for the rest.

CMS conducts much of its oversight of contractor performance through
Contractor Performance Evaluations (CPEs). These reviews focus on
contractors that have been determined to be ?at risk? in certain program
areas. To date, CMS has not conducted CPE reviews focusing on the quality or
usefulness of contractors? bulletins or Web sites, but has begun to focus on
call center service to providers. Again, the CPE reviews of call centers
focus mainly on process- such as phone etiquette- rather than on an
assessment of response accuracy.

CMS officials, in acknowledging that provider communications have received
less support and oversight than other contractor operations, noted the lack
of resources for monitoring carrier activity in this area and providing them
with technical assistance. Under its tight administrative budget, the agency
spends less than 2 percent of Medicare benefit payments for administrative
expenses. Provider communication and education activities currently have to
compete with most other contractor functions in the allocation of these
scarce Medicare administrative dollars. CMS data show that there are less
than 26 full- time equivalent CMS staff assigned to oversee all carrier
provider relations efforts nationwide, representing a just over 1 full- time
equivalent staff for each Medicare carrier. This low level of support for
provider communications leads to poorly informed providers who are therefore
less likely to correctly bill the Medicare program for the services they
provide.

Despite the scarcity of resources, CMS has begun work to expand and
consolidate some provider education efforts, develop venues to obtain
provider feedback, and improve the way some information is delivered. These
initiatives- many in the early stages of planning or implementation- are
largely national in scope, and are not strategically integrated with similar
activities by contractors. Nevertheless, we believe that these outreach and
education activities will enhance some physicians? ability to obtain timely
and important information, and improve their relationships with CMS.

For example, CMS is working to expand and consolidate training for providers
and contractor customer service representatives. Its Medlearn Web site
offers providers computer- based training, manual, and reference materials,
and a schedule of upcoming CMS meetings and training opportunities. CMS has
produced curriculum packets and conducted in CMS is Making Efforts to

Improve Provider Communications

Page 7 GAO- 01- 1141T

person instruction to the contractor provider education staff to ensure
contractors present more consistent training to providers. CMS has also
arranged several satellite broadcasts on Medicare topics every year to
hospitals and educational institutions. In addition, CMS established the
Physicians? Regulatory Issues Team to work with the physician community to
address its most pressing problems with Medicare. Contractors are also
required to form Provider Education and Training Advisory groups to obtain
feedback on their education and communication activities.

We believe that the provisions in Section 5 of MRCRA can help develop a
system of information dissemination and technical assistance. MRCRA?s
emphasis on contractor performance measures and the identification of best
practices squarely places responsibility on CMS to upgrade its provider
communications activities. For example, it calls on CMS to centrally
coordinate the educational activities provided through Medicare contractors,
to appoint a Medicare Provider Ombudsman, and to offer technical assistance
to small providers through a demonstration program. We believe it would be
prudent for CMS to implement these and related MRCRA provisions by assigning
responsibility for them to a single entity within the agency dedicated to
issues of provider communication.

Further, MRCRA would channel additional financial resources to Medicare
provider communications activities. It authorizes additional expenditures
for provider education and training by Medicare contractors ($ 20 million
over fiscal years 2003 and 2004), the small provider technical assistance
demonstration program ($ 7 million over fiscal years 2003 and 2004), and the
Medicare Provider Ombudsman ($ 25 million over fiscal years 2003 and 2004).
This would expand specific functions within CMS? central office, which would
help to address the lack of administrative infrastructure and resources
targeted to provider communications at the national level. Although we have
not determined the specific amount of additional funding needed for these
purposes, our work has shown that the current level of funding is
insufficient to effectively inform providers about Medicare payment rules
and program changes.

MRCRA also establishes contractor responsibility criteria to enhance the
quality of their responses to provider inquiries. Specifically, contractors
must maintain a toll- free telephone number and put a system in place to
identify who on their staff provides the information. They must also monitor
the accuracy, consistency, and timeliness of the information provided. MRCRA
Provides Needed

Statutory and Financial Support

Page 8 GAO- 01- 1141T

Current law and long- standing practice in Medicare contracting limit CMS?
options for selecting claims administration contractors and frustrate
efforts to manage Medicare more effectively. We have previously identified
several approaches to contracting reform that would give the program
additional flexibility necessary to promote better performance and
accountability among claims administration contractors.

CMS faces multiple constraints in its options for selecting claims
administration contractors. Under these constraints, the agency may not be
able to select the best performers to carry out Medicare?s claims
administration and customer service functions. Because the Medicare statute
exempts CMS from competitive contracting requirements, the agency does not
use full and open competition for awarding fiscal intermediary and carrier
contracts. Rather, participation has been limited to entities with
experience processing these types of claims, which have generally been
health insurance companies. Provider associations, such as the American
Hospital Association, select fiscal intermediaries in a process called
?nomination? and the Secretary of HHS chooses carriers from a pool of
qualified health insurers.

CMS program management options are also limited by the agency?s reliance on
cost- based reimbursement contracts. 7 This type of contract reimburses
contractors for necessary and proper costs of carrying out Medicare
activities, but does not specifically provide for contractor profit or other
incentives. As a result, CMS generally has not offered contractors the fee
incentives for performance that are used in other federal contract
arrangements.

Medicare could benefit from various contracting reforms. Perhaps most
importantly, directing the program to select contractors on a competitive
basis from a broader array of entities would allow Medicare to benefit from
efficiency and performance improvements related to competition. A full and
open contracting process will hopefully result in the selection of stronger
contractors at better value. Broadening the pool of entities allowed to hold
Medicare contracts beyond health insurance companies

7 According to CMS, requirements of the Social Security Act that call for
the use of costbased reimbursement contracts preclude the program from
offering financial incentives to contractors for high- quality performance.
Contracting Reform

Could Improve Program Management

Current Contracting Law and Practice Limit CMS? Management Options

Medicare Could Benefit From Open Competition and Increased Flexibility

Page 9 GAO- 01- 1141T

will give CMS more contracting options. Also, authorizing Medicare to pay
contractors based on how well they perform rather than simply reimbursing
them for their costs could result in better contractor performance.

We also believe that the program could benefit from efficiencies by having
contractors perform specific functions, called functional contracting. The
traditional practice of expecting a single Medicare contractor in each
region to perform all claims administration functions has effectively ruled
out the establishment of specialized contracts with multiple entities that
have substantial expertise in certain areas. 8 Moving to specialized
contracts for the different elements of claims administration processing
would allow the agency to more efficiently use its limited resources by
taking advantage of the economies of scale that are inherent in some tasks.
An additional benefit of centralizing carrier functioning in each area is
the opportunity for CMS to more effectively oversee carrier operations.
Functional contracting would also result in more consistency for Medicare-
participating providers.

Several key provisions of MRCRA would address these elements of contracting
reform. MRCRA would establish a full and open procurement process that would
provide CMS with express authority to contract with any qualified entity for
claims administration, including entities that are not health insurers.
MRCRA would also encourage CMS to use incentive payments to encourage
quality service and efficiency. For example, a costplus- incentive- fee
contract adjusts the level of payment based on the contractor?s performance.
Finally, MRCRA would modify long- standing practice by specifically allowing
for contracts limited to one component of the claims administration process,
such as processing and paying claims, or conducting provider education and
technical assistance activities.

The scope and complexity of the Medicare program make complete, accurate,
and timely communication of program information necessary to help providers
comply with Medicare requirements and appropriately bill for their services.
The backers of MRCRA recognize the need for more resources devoted to
provider communications and outreach activities,

8 This has recently started to change in response to new contracting
authorities granted by the Health Insurance Portability and Accountability
Act of 1996, which resulted in the selection of 12 Program Safeguard
Contractors that perform specific payment safeguard activities. Concluding

Observations

Page 10 GAO- 01- 1141T

and we believe the funding provisions in the bill will help assure that more
attention is paid to these areas. MRCRA also contains provisions that would
provide a statutory framework for Medicare contracting reform. We believe
that CMS can benefit from this increased flexibility, and that many of these
reform provisions will assist the agency in providing for more effective
program management.

Madam Chairman, this concludes my prepared statement. I would be happy to
answer any questions that you or other Subcommittee Members may have.

For further information regarding this testimony, please contact me at (312)
220- 7767. Jenny Grover, Rosamond Katz, and Eric Peterson also made key
contributions to this statement. GAO Contact and

Staff Acknowledgments

Page 11 GAO- 01- 1141T

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

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

Medicare Contracting Reform: Opportunities and Challenges in Contracting for
Claims Administration Services (GAO- 01- 918T, June 28, 2001).

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

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

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

High Risk: An Update (GAO- 01- 263, Jan. 2001). Medicare: 21st Century
Challenges Prompt Fresh Thinking About Program?s Administrative Structure
(GAO/ T- HEHS- 00- 108, May 4, 2000).

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

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