[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE
HEALTH COVERAGE
=======================================================================
JOINT HEARING
before the
SUBCOMMITTEE ON HEALTH
and the
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 28, 2001
__________
Serial No. 107-52
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL BILIRAKIS, Florida JOHN D. DINGELL, Michigan
JOE BARTON, Texas HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RALPH M. HALL, Texas
PAUL E. GILLMOR, Ohio RICK BOUCHER, Virginia
JAMES C. GREENWOOD, Pennsylvania EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia SHERROD BROWN, Ohio
STEVE LARGENT, Oklahoma BART GORDON, Tennessee
RICHARD BURR, North Carolina PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
GREG GANSKE, Iowa ANNA G. ESHOO, California
CHARLIE NORWOOD, Georgia BART STUPAK, Michigan
BARBARA CUBIN, Wyoming ELIOT L. ENGEL, New York
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona GENE GREEN, Texas
CHARLES ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi TED STRICKLAND, Ohio
VITO FOSSELLA, New York DIANA DeGETTE, Colorado
ROY BLUNT, Missouri THOMAS M. BARRETT, Wisconsin
TOM DAVIS, Virginia BILL LUTHER, Minnesota
ED BRYANT, Tennessee LOIS CAPPS, California
ROBERT L. EHRLICH, Jr., Maryland MICHAEL F. DOYLE, Pennsylvania
STEVE BUYER, Indiana CHRISTOPHER JOHN, Louisiana
GEORGE RADANOVICH, California JANE HARMAN, California
CHARLES F. BASS, New Hampshire
JOSEPH R. PITTS, Pennsylvania
MARY BONO, California
GREG WALDEN, Oregon
LEE TERRY, Nebraska
David V. Marventano, Staff Director
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Health
MICHAEL BILIRAKIS, Florida, Chairman
JOE BARTON, Texas SHERROD BROWN, Ohio
FRED UPTON, Michigan HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania TED STRICKLAND, Ohio
NATHAN DEAL, Georgia THOMAS M. BARRETT, Wisconsin
RICHARD BURR, North Carolina LOIS CAPPS, California
ED WHITFIELD, Kentucky RALPH M. HALL, Texas
GREG GANSKE, Iowa EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia FRANK PALLONE, Jr., New Jersey
Vice Chairman PETER DEUTSCH, Florida
BARBARA CUBIN, Wyoming ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
ED BRYANT, Tennessee JOHN D. DINGELL, Michigan,
ROBERT L. EHRLICH, Jr., Maryland (Ex Officio)
STEVE BUYER, Indiana
JOSEPH R. PITTS, Pennsylvania
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(ii)
Subcommittee on Oversight and Investigations
JAMES C. GREENWOOD, Pennsylvania, Chairman
MICHAEL BILIRAKIS, Florida PETER DEUTSCH, Florida
CLIFF STEARNS, Florida BART STUPAK, Michigan
PAUL E. GILLMOR, Ohio TED STRICKLAND, Ohio
STEVE LARGENT, Oklahoma DIANA DeGETTE, Colorado
RICHARD BURR, North Carolina CHRISTOPHER JOHN, Louisiana
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
Vice Chairman JOHN D. DINGELL, Michigan,
CHARLES F. BASS, New Hampshire (Ex Officio)
W.J. ``BILLY'' TAUZIN, Louisiana
(Ex Officio)
(iii)
C O N T E N T S
__________
Page
Testimony of:
Aronovitz, Leslie G., Director, Health Care Issues, U.S.
General Accounting Office.................................. 21
Chiplin, Alfred J., Managing Attorney, Health Care Rights
Project, Center for Medicare Advocacy, Inc................. 53
Cullen, Timothy F., Chairman, United Government Services, LLC 51
Mangano, Michael F., Acting Inspector General, Department of
Health and Human Services.................................. 12
Serota, Scott P., Acting President and CEO, Blue Cross and
Blue Shield Association.................................... 44
Scully, Thomas, Administrator, Center for Medicare and
Medicaid Services.......................................... 4
Material submitted for the record by:
American Dental Association, prepared statement of........... 66
Aronovitz, Leslie G., Director, Health Care Issues, U.S.
General Accounting Office, letter dated August 17, 2001,
enclosing response for the record.......................... 70
Mangano, Michael F., Acting Inspector General, Department of
Health and Human Services, letter dated August 15, 2001,
enclosing response for the record.......................... 82
Medical Device Manufacturers Association, prepared statement
of......................................................... 67
(v)
PATIENTS FIRST: A 21ST CENTURY PROMISE TO ENSURE QUALITY AND AFFORDABLE
HEALTH COVERAGE
----------
THURSDAY, JUNE 28, 2001
House of Representatives,
Committee on Energy and Commerce,
Subcommittees on Health,
and Oversight and Investigations,
Washington, DC.
The subcommittees met, pursuant to notice, at 10 a.m., in
room 2123, Rayburn House Office Building, Hon. Michael
Bilirakis (chairman) presiding.
Members present Subcommittee on Health: Representatives
Bilirakis, Ganske, Norwood, Bryant, Brown, and Capps.
Members present Subcommittee on Oversight and
Investigations: Representatives Greenwood, Bilirakis, and
DeGette.
Staff present: Erin Kuhls, majority counsel; Julie
Corcoran, majority counsel; Kristi Gillis, legislative clerk;
Amy Hall, minority professional staff; Bridgett Taylor,
minority professional staff; and Karen Folk, minority
professional staff; and Chris Knaur, minority investigator.
Mr. Bilirakis. This joint hearing of the Subcommittees on
Health and Oversight and Investigations is the fourth in a
series held jointly by the Subcommittees on Health and
Oversight and Investigations this year as part of our
initiative to improve Federal health care programs and to put
patients first. To that end, we are continuing our review of
the programs, policies and operations of the Centers for
Medicare and Medicaid Services or as I like to refer to it, as
C-M squared S--it's actually CMS--formerly known as the Health
Care Financing Administration.
Today we will examine Medicare's existing contracting
authority and proposals to refine this authority with the goal
of securing the efficient and responsive delivery of high
quality services to Medicare beneficiaries.
Medicare contractors play a critical role in the Medicare
program. These contractors process and pay claims, identify
potential fraud, respond to inquiries, and educate
beneficiaries and providers. The relationship between Medicare
and its contractors and the complexities of the current
contracting system are important factors to consider when
discussing ways to protect and strengthen the program for the
future.
Today's hearing presents a forum to discuss the current
Medicare contracting environment and the various reform
proposals expected to promote greater efficiency, enhance
contractor performance, and improve services to beneficiaries.
I am pleased to welcome our witnesses, and I want to thank
them all for joining us today. Our first witness is Tom Scully,
the Administrator of CMS, who will present the Administration's
contracting reform proposal and explain the need for such
reform.
Michael Mangano, the Acting Inspector General of the
Department of Health and Human Services, will testify about
past contractor integrity issues and weaknesses in CMS'
oversight and management of its contractors. He will be joined
by Leslie Aronovitz, director of health care issues for the
General Accounting Office, who will report on the merits and
challenges of expanding Medicare's claims processing
contracting authority.
I would also like to welcome Scott Serota, the Acting
President and CEO of the Blue Cross and Blue Shield
Association, and Tim Cullen, the Chairman of United Government
Services, LLC, one of Medicare's largest claims administration
contractors.
Finally, I am pleased to welcome Alfred Chiplin, the
managing attorney of the Health Care Rights Project at the
Center for Medicare Advocacy. Representing Medicare
beneficiaries, Mr. Chiplin will testify about one of the most
important contractor functions. That is the beneficiary
outreach and education.
I look forward to a productive hearing today, and I want to
thank our witnesses for their participation. I am hopeful that
this discussion will lead to improvements in the administration
of the Medicare program and ultimately, and most importantly,
to improvements in the quality of care provided to Medicare
beneficiaries.
I yield to Mr. Brown for his opening statement.
Mr. Brown. Thank you, Mr. Chairman. I appreciate this
hearing today. I would like to thank Tom Scully, and welcome
him to our committee for the first time as the CMS, I guess,
administrator. I remember he was sort of hiding inconspicuously
until we mentioned it in the back of the room when we had the
four former HCFA administrators. We all appreciate your being
here for that and listening to some old hands at this to help
you do your job now. We welcome you here.
Medicare contractors perform core functions for the biggest
insurance company, biggest insurance program in the country.
Their resources are limited. Their responsibilities are
considerable. Because of frequent statutory and regulatory
changes, the program that they administer is ever-changing. We
should appreciate the important role that Blue plans and other
contractors have played in the program's 36-year success. That
is not to say we should maintain the status quo. Contract
reform is necessary and long overdue. But it would be unfair to
ignore the contributions made by contractors, particularly
given the immense challenges that they face.
A couple of years ago, I worked with a provider in my
district for nearly a year as that provider wrestled with its
carrier over a post-payment audit. It was an eye-opening
experience. The carrier lost records, used a new coverage
standard to evaluate old claims. By the way, that new and
significantly different coverage standard had never been
approved by HCFA. Made sampling errors that inflated the
overpayment by hundreds of thousands of dollars. It would take
longer than my 5 minutes to recount all those frustrations. No
provider should have to go through that.
For the sake of providers and beneficiaries and the
integrity of the Medicare program, contractors need to be held
to higher standards. They need additional resources. They
require more oversight. They should be held accountable not
only for paying claims accurately and minimizing fraud and
abuse, but for delivering high quality consumer service to
beneficiaries and to providers. That means providing timely and
accurate and consistent information. It means treating
providers with respect and fairness. It means coordinating and
maintaining open communications with CMS.
CMS should be held accountable for making sure these goals
are met, which means hiring the right contractors and working
more closely with them to ensure that Medicare coverage is
properly administered.
Congress, we should be held accountable for giving CMS the
authority, the flexibility, and the funding it needs to manage
and pay contractors for Medicare properly. My guess, Mr.
Chairman, is that even more than CMS oversight, improving
contractor performance depends but increasing the resources we
provide to these contractors. We cannot expect Medicare
contractors to provide appropriate customer service unless we
give them the resources they need to do the job. Fiscal
intermediaries and carriers are Medicare's frontline. If CMS
truly wants to improve its image, it should fight for those
resources.
I thank the chairman.
Mr. Bilirakis. And I thank the gentleman, and I agree with
him. If they truly want an increase in those resources, they
should be presenting them and fighting for them. That is
something that has not been taking place.
The Chair is pleased to recognize the chairman of the
Oversight and Investigations Subcommittee, who has done a
terrific job on this issue, Mr. Greenwood.
Mr. Greenwood. Thank you, Mr. Chairman. I don't have a
formal statement, but would comment that when we first decided
to go into the issue of HCFA reform, one of the first things
that this committee did was to go to Baltimore to visit the
HCFA, then HCFA facility. We met with the acting director and
many of the senior staff. We sat around a table and said tell
us what we should be looking at when it comes to trying to
improve the way this organization provides services. I think
the very first comment that was made was change the contractor
system. That it is essentially a relic that goes back to the
origins of Medicare, and reflected the political and the other
realities of that time and not the current situation.
So I am delighted that the Administration has submitted a
plan, and that it seems to be so far at least, relatively
uncontroversial. I look forward to working with you to enact
it.
Thank you, Mr. Chairman. I yield back.
Mr. Bilirakis. The gentlelady from Colorado, Ms. DeGette.
Ms. DeGette. Thank you, Mr. Chairman. I don't have a formal
opening statement either. I would just like to welcome Mr.
Scully and wish you godspeed on your challenges that lie ahead,
and look forward to working with you.
I yield back the balance of my time.
Mr. Bilirakis. Thank you, gentlelady.
The vice chairman of the subcommittee, the Health
Subcommittee, Dr. Norwood.
Mr. Norwood. Thank you very much, Mr. Chairman. I ask
unanimous consent that my statement be placed in the record,
and take this opportunity to thank both of the chairmen here
for having this hearing. It is a subject of great interest to
many Americans, particularly those that are patients and treat
patients. We are right on the subject.
I want to thank Mr. Scully. I think we have got a good man
at the helm at times where we do need to make changes.
I look forward to hearing your testimony this morning, Mr.
Scully.
Mr. Chairman, I yield back.
Mr. Greenwood. I believe that concludes our opening
statements.
Mr. Scully, as you are aware, this is a hearing, it's a
joint hearing between the Health and the Oversight and
Investigations Subcommittee. It is the practice of the
Oversight and Investigations Subcommittee to swear in its
witnesses. Do you have any objections to testifying under oath?
Mr. Scully. No.
Mr. Greenwood. Okay. I should also inform you that you have
the right to an attorney. Do you with to be represented by
counsel?
Mr. Scully. No, I do not.
Mr. Greenwood. You do not? You are a brave man, Mr. Scully.
In that case, if you will raise your right hand, I will give
you the oath of office.
[Witness sworn.]
You are now under oath. We look forward to your testimony.
TESTIMONY OF THOMAS SCULLY, ADMINISTRATOR, CENTER FOR MEDICARE
AND MEDICAID SERVICES
Mr. Scully. Thank you, Mr. Chairman, and Chairman
Bilirakis, Mr. Brown, and Ms. DeGette, and Mr. Norwood. I hope
this is the first of many cooperative and friendly reform
appearances before the committee. I have worked with the
committee a lot in the past, and I look forward to working on a
lot of issues. As you mentioned, I think this is one of the
highest priority ones.
First, I would say that I have an agreement with the
Secretary that I have to pay him a buck every time I mention
HCFA, so maybe if I do that by accident, which I know it's
tough, during the hearing, I will pass around a collection
plate at the end.
I do have a written statement for the record. I would like
to give an abbreviated version of that. Let me start by in my
written statement I have a quote from a former deputy
administrator of what was then HCFA, now is CMS, who once said
there is substantial evidence that the Medicare cost-based
contracts do not contain sufficient incentives for efficient,
innovative, and cost-effective operations. Since contractors
are reimbursed for whatever reasonable costs they incur, they
have no financial motivation to be innovative and attempting to
improve service to beneficiaries or in saving money. In other
areas of the Federal procurement of this magnitude, contractors
are required to compete for the business, and are rarely
reimbursed under the kind of no risk, cost-based contracts
which are used in Medicare.
Those are not my words, but from 1980, from Earl Collier,
who was the deputy HCFA administrator, deputy to Leonard
Schaeffer, I think, at the time, who some of you know. My point
there is that really nothing has changed in 21 years.
Twelve years ago, when I was at OMB, I pushed contractor
reform. I think we had 72 contractors then. We are down now to
49. But these issues have been around for a long time, through
Democratic administrations, Republican administrations. There
has been a consistent belief in management circles that the
right thing to do is reform the contractor process. It has
never happened. I think the reason for that is it has always
been a relatively low priority for various administrations. It
ended up just kind of dwindling in the lower end of what was
important, and never happened.
In this administration, it is absolutely the opposite.
Secretary Thompson, as you know, also spent a week at HCFA,
excuse me, CMS. There is the first buck.
Mr. Greenwood. It was HCFA then. That doesn't count.
Mr. Scully. Thank you. He spent a week at the then HCFA,
now CMS, and learned a lot of things, and I think went from
being quite a skeptic about CMS to being very supportive of
lots of our efforts. But the one thing that really hit him as
pretty outrageous was the way the contractor system worked. He
has prodded me virtually every day since to make this a top
priority. It is a top priority for him as well, to get this
fixed. I think that as all the members of this committee have
talked to him, and I think all of them have, realize, it's hard
to talk to him for more than 5 minutes without CMS contractor
reform coming up.
So it is a very big personal issue for the Secretary, for
this administration. I hope we can work cooperatively with all
of our contractors to get this done this year. I will refer
later to some of the other testimonies, but I think in reading
Scott's testimony and some of the other testimony from GAO,
there may be a lot more common ground than there has been in
the past, and I think that is terrific.
As you mentioned, Mr. Chairman, the design of the program
is really from 1965. It just doesn't work, doesn't make a lot
of sense. Our contractors do a great job. I won't get into
reevaluating our budget request this year, but they do have a
huge workload. Arguably in some cases, they do heroic jobs, and
there are many concerns and many complaints, some Blue Cross
complaints in their testimony this morning about change orders.
They are very legitimate. We will do our best to work some of
those out.
But the existing contracting system gives CMS very little
flexibility, allows us to have very little ways to encourage
innovation or accountability from the contractors. I think in
any rational evaluation of it would say that it is very ripe
for reform.
I think the angle we all have is to have higher quality
customer service for our beneficiaries and for providers, to
make sure that the 40 million people on Medicare get better
quality services. That is what we are trying to do today, every
day at CMS, is to find every way we can to fix the systems.
Just to run through the basic ideas in our bill, which in
fact was I believe submitted to Congress formally this morning,
is first I think we believe the Secretary needs to have the
ability to find and select the best qualified contractors to do
the job through a full and open contracting process. Today on
the Part A side, for instance, and this has been going on
forever, from the beginning of the program, the hospitals have
the ability to pick their fiscal intermediaries. As many of you
know, I used to be in the hospital business, and I used to
lobby myself to keep that every year. I always thought it was
pretty wild we got away with that, to be perfectly honest. I
don't think that there's really any rational reason why
hospitals in the current environment should be allowed to
nominate individually their providers. It is a vestige of the
1965 law, and I just don't think that there really is a real
substantive reason for that to still occur.
Blue Cross Blue Shield Association is the prime contractor
for fiscal intermediaries. Out of the 28 fiscal intermediaries
who process Medicare claims, we only have direct contracts with
three. Twenty five of them are subcontractors through the Blue
Cross Blue Shield Association. I think we have a very good
relationship with them, but the structure of the existing
contract to go through the association just doesn't make sense.
We can't contract directly, for instance, with one of your
other companies on the panel today, is United Wisconsin. Blue
Cross of Wisconsin, United Government Services, who is one of
our bigger contractors, we contract with them through the
National Blue Cross Blue Shield plan, which I don't think makes
much sense.
We need to have the freedom to contract more open and more
sensibly. We would like very much to work with the Blues to
pull this off. I think it is going to take a number of years.
It is going to have to be phased in. I read Scott Serota's
testimony last night. I think that a lot of his ideas I agree
with. We don't want this to be CMS trying to come in and push
the Blues out of the program. If we got to our eventual goal of
18 to 20 contractors in 5 years, I think we could do that very
cooperatively.
If you took our existing 49 contractors and consolidated
them in the overlaps of Part A and Part B, as you can see in
those charts, we would already be at 30. So our real goal here
is to find the 18 to 20 best contractors over the next 5 years,
and get from the 30 contractors we currently have overlapping
down to a little less than 20, and be able to pick them a
little more sensibly, and incentivize them a little more
sensibly. We would like to do that in partnership with the
Blues and the other carriers and FIs, and do it in a
cooperative way. So I hope that no one perceives this as an
adversarial process, but hopefully a cooperative process.
As I said, there are 28 fiscal intermediaries and 20
carriers. Part A is fiscal intermediaries, Part B is carriers
to process current fee-for-service Medicare claims. In 1989,
when I first got involved, we had 72, so there has been some
contraction. On average in the last 10 years, we have lost--we
have had four contractors a year pull out of the program. So
there is a natural contraction and consolidation going on in
the program anyway. What we would like to do is structure a
little more rationally, push maybe a little quicker
consolidation, and cooperatively work with our contractors to
get to a more rational program.
We would also like, as a second step, to have legal
authority to contract on an incentive basis rather than a cost
basis. I don't think there are many cost-based systems left in
the government. There certainly aren't many left in Medicare.
On the payment side, we have gone to DRGs, PPS, virtually
everything, and gotten away from cost-plus contracts. I think
the evidence in Medicare is abundant that cost-plus contracts
aren't rational and don't work. Whether you go through
hospitals, outpatient clinics, virtually every sector of
Medicare, we can go into perspective payment or some type of
bundled payment. I believe we should do virtually the same type
of thing on the contractor side.
We need to start looking at contractors, the contracts
based on performance, whether they are cost-plus which is what
a lot of people, including some of our contractors suggested,
whether we start to look at more fixed price per member per
month contracts. I think we need to start working with our
contractors to be more innovative and come up with new ideas.
I am planning to start some demonstration programs this
fall, hopefully with the agreement of the committee, to start
looking at some of these ways to come up with new, more
innovative contracts, to make them better. I hope we will do
that with you and your staff's support.
The only one agreement I would point out with some of the
other testimony you are going to hear later this morning is I
do think that whether we have a merged Part A or Part B in the
program payments, it doesn't make much sense on the
contractor's side to have different payments for fiscal
intermediaries and carriers. I do think that even though it
should probably be done gradually and gently, it is rational to
merge the carrier NFI process to come up with a merged Part A
and Part B contractors payment system.
So in summary, let me just say that I think having read
last night the GAO testimony and the Blue Cross testimony,
which are the ones I had, I think our differences here are not
that great. I think the issue is we need change. Change is long
overdue. It probably needs to be phased in to make sure it
comes off in a rational, productive way. I do think we need one
system that is 15 to 20 contractors, with Part A and Part B
merged.
Many of the complaints that Blue Cross has about change
orders and helter skelter direction from the agency at CMS, I
am determined to fix. I think a lot of those complaints are
legitimate, and we will do the best we can to make the system
work better. We would like to have a friendly transition with
our partners and ease into a more rational system. We can find
the best performance-based contractors, provide them with some
risk and reward to be better contractors for our beneficiaries
and our providers, and come up with a long-term, more rational,
more incentive-based partnership.
So I was very happy to read the Blue Cross testimony and
the GAO testimony that you will hear later. I think there is a
lot of common ground to work with, and I hope we can work
closely with our contractors, GAO, the inspector general, and
the committees to make this a more rational system, hopefully
this year, so I won't have to come back 12 years from now and
give the same talk.
Thank you very much, Mr. Chairman.
[The prepared statement of Thomas Scully follows:]
Prepared Statement of Thomas Scully, Administrator, Centers for
Medicare and Medicaid Services
Chairman Bilirakis, Chairman Greenwood, Congressman Brown,
Congressman Deutsch, distinguished subcommittee members, thank you for
inviting me here to testify about Medicare contracting reform.
A former Deputy Administrator in the Health Care Financing
Administration, now known as the Centers for Medicare and Medicaid
Services (CMS), once said, ``There is substantial evidence that the
Medicare cost-based contracts do not contain sufficient incentives for
efficient, innovative and cost-effective operations. Since contractors
are reimbursed for whatever ``reasonable costs'' they incur, they have
no financial motivation to be innovative in attempting to improve
service to beneficiaries or in saving money. In other areas of federal
procurement of this magnitude, contractors are required to compete for
the business and are rarely reimbursed under the kind of no-risk, cost
based contracts which are used in Medicare.'' These are not my words,
but words that were spoken in 1980 by Deputy Administrator Earl Collier
at a Ways and Means Health Subcommittee hearing on fee-for-service
contractors. My point is that contracting reform has been needed for
decades, but nothing has changed.
Efforts to reform Medicare's contracting arrangements have been
around for years. When I was at the Office of Management and Budget
from 1989 to 1993, I pushed it without success. Let me assure you,
however, that no Administration, Secretary, or Administrator, has been
nearly as committed to fixing this situation than this one.
When Secretary Thompson went to CMS (then HCFA) for a week in May,
he was briefed in depth on a wide variety of issues. He was already
pretty worked up about our outdated computer and accounting systems
before that week. The single issue that outraged him most during his
intense week of Medicare and Medicaid briefings was the crazy and
antiquated way that the Medicare contracting system works. He has been
talking about the issue daily since, and he has been prodding me since,
almost daily, to fix it. I am not always a slow learner--so this is at
the top of the CMS reform list. In the past this has been low on the
reform lists of prior administrations, from Carter and Reagan to Bush
and Clinton. That is no longer the case. A strong Medicare demands a
rational contracting system. The Secretary's intense interest can be a
strong spur to drive this long overdue change--and we are excited to
work with you, and our contractors, to fix the system.
Today, the Administration is proposing legislation to reform the
current system, and I am pleased to discuss the details of that
proposal. I look forward to working with the Committee in the coming
months to achieve this important objective.
background
Since Medicare was created in 1965, the government has used private
health insurance company contractors to process Medicare claims and
perform related administrative services for beneficiaries and health
care providers. Today, CMS uses 49 contractors, across the country,
including the contract with the Blue Cross Blue Shield Association of
America, to process nearly a billion claims each year, from over one
million health care providers, and provide customer services to 33
million Medicare beneficiaries. These contractors employ over 21,000
people. This year, Medicare contractors will pay out more than $175
billion for beneficiary health care services, the vast majority of
these transactions occurring electronically.
The fee-for-service contractors are governed by Medicare laws that
impose outdated requirements and diverge from general federal
acquisition laws in several respects. The current Medicare statute
restricts the Secretary from competing the fee-for-service claim
processing contracts to the most qualified entities. Rather,
institutional providers, such as hospitals and nursing facilities,
nominate the contractor, or fiscal intermediary, that processes and
pays their Medicare Part A claims. While the statute does not require
the Secretary to accept the nominations, it effectively ties the
Secretary's hands because it also does not allow the Secretary to
contract outside the nomination process. In 1965, the American Hospital
Association nominated the Blue Cross Blue Shield Association of America
to be the fiscal intermediary contractor, who subcontracts with local
Blue Cross plans. That arrangement continues today. At the time, some
providers nominated other commercial insurers to serve as their fiscal
intermediaries. Mutual of Omaha is the only major commercial insurer
among that original group that continues as an intermediary today. The
statute was amended in 1977 to allow the Secretary to designate
regional or national intermediaries for administering home health
claims. These intermediaries, referred to as Regional Home Health
Intermediaries (RHHIs), must already be fiscal intermediaries in order
to participate.
For most Part B claims processing, the law is more prescriptive and
requires that the Secretary select and use health insurers, referred to
as carriers, to process claims and make payments to physicians,
ambulance companies, and other suppliers. Similar to the RHHIs, the
statute was amended in 1987 to permit the Secretary to designate
regional carriers to process claims for durable medical equipment,
prosthetics, orthotics, and supplies. These durable medical equipment
regional carriers, or DMERCs, also must be health insurers.
current contractor environment
Today, there are 28 fiscal intermediaries and 20 carriers
processing Medicare fee-for-service claims. Twenty-six of the fiscal
intermediaries are Blue Cross plans and two are commercial insurance
companies. On the Part B side, fifteen of the current carriers are Blue
Shield plans and the remaining five are commercial insurance companies.
As you can see in Chart 1, some contractors, such as Nebraska Blue
Cross, serve only one State. By contrast, many contractors serve
multiple and sometimes non-contiguous states, resulting in a patchwork
of coverage and service across the country. For example, on the Part A
side, Wisconsin Blue Cross (known outside Wisconsin as United
Government Services) serves Wisconsin and Michigan, as well as
California and Nevada. The same holds true on the Part B side of
Medicare as indicated in Chart 2. Some contractors are both fiscal
intermediaries and carriers, for example, South Carolina Blue Cross/
Blue Shield, also known as Palmetto, is a fiscal intermediary, carrier,
DMERC and RHHI. This patchwork of coverage is a result of the large
number of transitions by insurers out of the Medicare program. Since
1994, an average of four contractors has left the program each year
(Chart 3).
Medicare's fee-for-service contractors are responsible for a wide
range of Medicare program activities. The fiscal intermediaries and
carriers receive and control Medicare claims from hospitals and other
providers, as well as perform edits on these claims to determine
whether the claims are complete and should be paid. In addition, the
fiscal intermediaries and carriers calculate Medicare payment amounts
and remit these payments to the appropriate party.
The role of the intermediaries and carriers goes beyond claims
processing. For example, they conduct reviews and hold hearings on
appeals of claims from physicians and providers; they respond to
beneficiary inquiries; they make coverage decisions for new procedures
and devices in local areas; and they conduct a variety of different
provider services, such as enrolling new providers in the program, and
educating them on Medicare's rules and regulations and billing
procedures. The fiscal intermediaries and carriers also staff
Medicare's provider toll-free lines across the country to answer a
wide-range of provider questions. In addition, the fiscal
intermediaries and carriers perform a variety of functions to ensure
the financial integrity of the Medicare program. Currently, all fee-
for-service contractors--the fiscal intermediaries and the carriers
``are governed by cost reimbursement contracts. By broadening the type
of contracts available for use in Medicare contracting and taking
greater advantage of competition and other contracting principles in
the Federal Acquisition Regulation, the Secretary would be allowed to
maximize incentives to encourage more efficient, innovative, and cost-
effective contractor operations.
managing for results
CMS has taken a variety of steps over the last several years to
improve oversight and management of Medicare's fee-for-service
contractors. One of the first, and among the most important, steps we
took was to restructure and consolidate CMS's management of the
contractors. One individual, the Deputy Director for Medicare
Contractor Management, now is directly responsible for all Medicare
contractor management activities within the Agency. When the Agency
restructuring plan I announced earlier this month is fully implemented,
this position will be located in the Center for Medicare Management. We
have created direct lines of communication between the contractors and
the Deputy Director through our Consortium Contractor Management
Officers. These groups are located in each of our four regional
consortia and serve as the ``eyes and ears'' of the Agency for the
contractors. Our goal is to be more consistent in our management of
fee-for-service contractor performance and to open the lines of
communication between our Agency and our contractor partners.
The groups regularly monitor the contractors' performance; provide
management and guidance; work with technical experts in the Agency to
approve budgets, establish Corrective Action Plans; and help to
eliminate Agency obstacles in obtaining answers, feedback, and guidance
from CMS's central office and the regions. Furthermore, the Medicare
Contractor Oversight Board provides executive leadership and
establishes guiding principles for CMSs oversight of the Medicare fee-
for-service contractor network.
We also have made substantial improvements to our contractor
evaluation processes. In 1999, we revamped our Contractor Performance
Evaluation process to ensure greater consistency and objectivity in our
review of the contractors. We have incorporated specific, objective
standards on a wide-range of contractor functions into our annual
review plan. These standards help provide consistent guidance to
contractors as to what is expected of them and what improvements are
needed. Through accountability and leadership at the senior level of
the Agency, we have developed nationally based review protocols and
created national review teams for monitoring and reviewing contractor
performance. These national review teams, which include experts in
Agency business functions, come from every region and the central
office. They help to ensure that performance reviews are consistent
from region to region and contractor to contractor. In establishing our
review of the contractors' performance, we use risk assessment tools to
help focus our monitoring and target our resources most appropriately.
In addition, in an effort to ensure consistency in our review process,
we have increased our educational training and sponsored several
national conferences for our reviewers. Our current evaluations are
focused on the greatest risk--financial integrity. In the future, we
plan to focus our reviews more on customer service. This will include
feedback from providers and beneficiaries. Without contractor reform,
however, our ability to provide strong incentives to reward
improvements in performance is quite limited.
looking towards the future
In conjunction with this new approach to contractor management and
oversight, we are developing a long-term business strategy for Medicare
fee-for-service contractor operations, taking into account both our
past experience and current factors, including the changing business
environment. There are several key factors driving the need for this
strategic business plan. Our primary concerns are the need to prepare
the Medicare program for the future, to ensure that the Medicare fee-
for-service program and its contractors are both responsive to
providers and, above all, contribute to providing high-value services
for beneficiaries; and to protect the trust funds from needless error
and waste while also remaining accountable to taxpayers.
Our strategic business plan will provide us with a framework for
decision-making and articulating our business vision to our
contractors. It also will assist us in improving our management and
oversight and stabilizing our business relationships with them. Our
goal is to promote organizational learning and innovation within the
Agency as well as with our contractors. We know, for example, that
there is a growing need for flexibility in administering the fee-for-
service program. And we have learned a great deal about the need to
respond quickly and think in innovative ways to adapt to changes
following the passage of the Balanced Budget Act, Balanced Budget
Refinement Act, and subsequent legislation. Our business plan will help
ensure that our contractor systems have the operational capacity to
respond to these complex and multiple programmatic changes, such as
modifications to Medicare coverage or the addition of new and complex
payment systems, and to meet future programmatic challenges.
Our business plan also is focused on our continuing to meet the
needs of our beneficiary, provider, and contractor stakeholders. This
includes the transition of claims processing work from a contractor
leaving the program to one assuming additional work with minimal
disruption to providers and beneficiaries, improving educational
services provided to beneficiaries and providers by our contractors,
and compensating contractors appropriately for the work they do. At the
same time, we must strive to improve the financial management of the
Medicare program by minimizing the potential for abuse and errors,
considering cost-effective ways to implement program and system
changes, and improving the integrity of the provider enrollment
process.
contracting reform
We must continue to manage the Medicare program efficiently and
effectively and to fully implement our business strategy. To do that,
we must fundamentally change our relationship with the Medicare fee-
for-service contractors. I firmly believe that the Medicare fee-for-
service contracting work should be awarded competitively to the best-
qualified entities, using performance-based service contracts that
include appropriate payment methodologies. This is something that
current law will not allow.
I believe these contracts should result in contractors receiving
payment when they deliver something of value, and profit only when they
perform at or above the satisfactory level. We must be able to maximize
economies of scale and improve the level of service to our
beneficiaries and providers. We would like to work cooperatively with
our existing contractors to get to this goal, but these changes require
legislative action. As I mentioned, today we are proposing legislation
to address these differences and we want to work with this Committee
and the Congress on a viable, sensible solution.
Through these legislative changes, CMS hopes to accomplish the
following:
Provide flexibility to CMS and its contractors to work
together more effectively and better adapt to changes in the
Medicare Program.
Promote competition, leading to more efficiency and greater
accountability.
Establish better coordination and communication between CMS,
contractors and providers.
Promote CMS's ability to negotiate incentives to reward
Medicare contractors that perform well.
These changes will enhance the Agency's ability to more effectively
manage claims processing for the Medicare program in the future, and
ensure that the future changes to the Medicare program's operating
structure are free from unnecessary constraints.
We are continuing to proceed with the implementation of our long-
range business strategy. To capture the benefits of integrated data
processing, we have begun to consolidate our claims processing workload
among our existing contractors, and are moving to consolidate and
standardize contractor claims systems. Our goal is to have one system
for intermediary claims, one for carrier claims, and one for durable
medical equipment claims. And we will continue to establish more direct
control of our data centers, which should reduce costs and improve
efficiency. This consolidation will allow us to make changes
efficiently and consistently, and help streamline our information
technology infrastructure. Over time, based on the results of ongoing
risk and cost benefit analysis, we anticipate expanding our current
pool of contractors to include those who can perform specific
functions, such as program integrity and coordination of benefits. In
addition, we will continue to build the systems interfaces needed to
ensure the full integration of Medicare's contractor operations with
the new integrated general ledger accounting system initiative to
enhance the contractors' financial management, and protect the Medicare
trust funds for the future.
conclusion
I appreciate the opportunity to appear before you today and share
our vision for reforming the Centers for Medicare and Medicaid
Services' administration of Medicare's fee-for-service claims
processing contractors. Together, we can take aggressive action to
reform Medicare's current contracting arrangement. We must build on the
strengths of our current contracting relationships and foster a
environment of accountability, innovation, and flexibility. We already
have a strong business strategy in place. Through the implementation of
this plan, and the realization of our contracting reform objectives as
set forth in our legislative proposal, I am confident the Medicare
program will be strengthened and better prepared to meet future
challenges. I look forward to working with this Committee and the
Congress on a bipartisan basis to enact this critical reform
legislation. Thank you and I am happy to answer your questions.
Mr. Greenwood. Thank you, Mr. Scully. It is my
understanding that you will stay with us.
Mr. Scully. Yes.
Mr. Greenwood. We will have the next two witnesses give
their testimony. Then the three of you will take questions as a
panel. So we call forward Mr. Michael Mangano, who the Acting
Inspector General, Department of Health and Human Services, and
Ms. Leslie Aronovitz.
Did I say that right, Aronovitz?
Ms. Aronovitz. That's okay.
Mr. Greenwood. You are both aware that the Oversight and
Investigations Subcommittee has the practice of having its
witnesses give their testimony under oath. Do either of you
object to testifying under oath? Under the rules of the
committee and the House, you are entitled to counsel. Do either
of you wish to be advised by counsel today? In that case, if
you will raise your right hand.
[Witnesses sworn.]
You are both under oath. We will hear first from Mr.
Mangano.
TESTIMONY OF MICHAEL F. MANGANO, ACTING INSPECTOR GENERAL,
DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND LESLIE G.
ARONOVITZ, DIRECTOR, HEALTH CARE ISSUES, U.S. GENERAL
ACCOUNTING OFFICE
Mr. Mangano. Thank you very much, Mr. Chairman, and members
of the subcommittee. I really appreciate this opportunity to
testify before you this morning on the Medicare program, and on
the importance of the Medicare contractors who actually operate
this particular program.
As we all know, these Medicare contractors function well
when providers are promptly paid, beneficiaries receive the
health care services that they are entitled to, and the trust
funds are protected against wasteful spending. When they don't,
the entire program is in jeopardy.
Since the inception of the Medicare program, numerous
legislative changes have been made and amendments added to the
Social Security Act, which have led to substantial changes.
Mr. Bilirakis. Why don't you pull that mike closer, please,
sir?
Mr. Mangano. Yet the way the Centers for Medicare and
Medicaid Services, CMS, actually has decided to select its
contractors and organize its contractors has really remained
much the same over the years, primarily due to the laws.
CMS needs to be given greater flexibility in the methods it
uses to select, organize, and supervise its Medicare
contractors. With this, we believe that it needs to have
authorities to use entities other than insurance companies,
select them competitively, pay them on an other than cost
basis, organize them according to the function and benefit
areas, and hold them accountable for performance.
Over the years, we have identified numerous problems with
contractor operations. Perhaps most troubling of all has
involved lapses in the contractor's own integrity and
involvement in such things as misusing government funds while
concealing their actions, altering documents and falsifying
statements of specific work that was performed, preparing bogus
documents to falsely demonstrate superior performance, which
then led to bonuses being paid by the Medicare program or
additional contracts being given to that particular contractor,
and adjusting their claims processing so that systems edits,
designed to prevent inappropriate payments were turned off,
thus resulting in misspent Medicare trust fund dollars. Since
1993, we have entered into civil settlements with 14 Medicare
contractors, resulting in total settlements in excess of $350
million.
We have also encountered problems associated with financial
management and accounting procedures. For several years, we
have reported serious errors in contractor reporting of
accounts receivable that resulted from weak financial controls.
It is quite clear that the root cause of these problems has
been the lack of an integrated dual entry accounting system,
less than adequate oversight and internal controls that would
have prevented these problems from occurring in the first
place.
CMS also relies on extensive electronic data processing
operations to administer the Medicare program and to process
and account for Medicare expenditures. Here we found numerous
general control weaknesses, primarily with Medicare
contractors. About 80 percent of the 124 problems that we found
in our review of the last financial statement of the Medicare
program identified three general types of controls that we felt
were insufficient, namely, access controls, entry-wide security
programs and systems software controls.
The ability to prevent or correct the problems just
described stem at least in part from the way that CMS is
required to contract with its claims administrators. The
Medicare statute places substantial limits on how CMS can
obtain contractor assistance to administer the Medicare
program, including limiting CMS to choosing only certain types
of companies to process claims and restricting them to a cost-
based reimbursement method.
Although most of government contracts require competitive
bidding, using full and open competition with very few
prohibitions on who can be awarded the government contract, CMS
typically contracts with fiscal intermediaries and carriers
without using full and open competition restricted to health
care companies sometimes selected by health care providers, and
is required to use cost reimbursed contracts where the
government assumes all the risk.
To promote innovations and efficiencies from the private
sector, legislation is needed that would increase their
flexibility in how it contracts by allowing it to contract
competitively and with entities that are not necessarily
insurance companies, allow it to contract with one entity to
perform both contractor and intermediary functions, permit the
Secretary to follow normal government procurement regulations,
and reimburse contractors on a fixed-fee basis when needed.
These changes would provide CMS with greater flexibility,
promote competition, increase CMS' ability to negotiate
incentives, and improve their contractor performance evaluation
process.
We believe these common sense approaches are long overdue
and have consistently testified in their support. CMS needs to
have sufficient flexibility in its authorities to contract with
companies best able to carry out the needed functions, hold
these companies accountable when they fall short, and reward
them when they perform well. Beneficiaries and providers will
be better served when that happens, and CMS will get a better
value for the contracting dollar.
Thank you very much, Mr. Chairman. I will look forward to
answering your questions at the appropriate time.
[The prepared statement of Michael F. Mangano follows:]
Prepared Statement of Michael F. Mangano, Acting Inspector General,
U.S. Department of Health and Human Services
Good morning Mr. Chairmen and members of the Subcommittees. I
appreciate the invitation to testify today on the important issue of
improving Medicare contractor operations.
Medicare contractors are the heart of the Medicare program. When
they function well, providers are paid promptly, beneficiaries receive
the health care services they need, and the Trust Fund is protected
against wasteful spending. When they don't function properly, the
entire program is jeopardized--those who benefit from it, those who
provide care, and those who pay for it all suffer the consequences.
Since the inception of Medicare, numerous legislative changes have
been made and amendments added to the Social Security Act which have
led to substantial changes in the Medicare program.
For example, the way Medicare pays for health care has changed
through time, from primarily cost/charge based payment systems to new
fee-schedule and prospective based arrangements. While the Medicare
program as a whole has seen significant change, the way that the
Centers for Medicare and Medicaid Services (CMS) is allowed to select
and organize its contractors has remained much the same as it has since
the inception of the program.
CMS needs to be given greater flexibility in the methods it uses to
select, organize, and supervise the contractors who handle the day-to-
day operations of the Medicare program. This includes authorities to
use entities other than insurance companies, select them competitively,
pay them on other than a cost basis, organize them according to
functions or benefits areas, and hold them accountable for performance.
background
The Medicare program provides health insurance for 39.5 million
elderly and disabled Americans at a cost of over $220 billion in fiscal
year 2001. Although beneficiaries have a growing number of options
under the Medicare+Choice program, the majority of beneficiaries are
still covered by traditional fee-for-service Medicare. The fee-for-
service program is administered by the CMS with the help of
approximately 50 contractors that handle claims processing and
administration.
Since the Medicare program was created, the government has
contracted with private health insurance companies for claims
processing and related administrative services. There are two primary
types of contractors. Fiscal intermediaries (FIs) process claims filed
under Part A of the Medicare program by institutions, such as hospitals
and skilled nursing facilities. Carriers process claims under Part B of
the program filed by other health care providers such as physicians and
medical equipment suppliers. In addition to these two types, Durable
Medical Equipment Regional Carriers (DMERCs) pay suppliers of durable
medical equipment, prosthetics, and orthotics; and, Regional Home
Health Intermediaries (RHHIs) process home health claims.
Contractor tasks for the Medicare program fall into 5 functional
areas: 1) claims processing, 2) payment safeguards, 3) fiscal
responsibility, 4) beneficiary services, and 5) administrative
activities. Claims processing involves receiving claims, promptly
paying those that are appropriate, taking necessary action to identify
inappropriate or potentially fraudulent claims and either withholding
payment or recovering overpayments. Payment safeguard activities
require additional actions to further safeguard the integrity of the
Medicare program and protect against fraudulent and abusive billing.
Safeguard activities include medical review to determine the medical
necessity of procedures and services, Medicare Secondary Payer (MSP)
review 1, audits, and investigations by fraud units. Fiscal
responsibilities by the contractors include all actions to ensure a
full and accurate reporting of Medicare accounts receivable and
financial reconciliations.
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\1\ Medicare Secondary Payer activities identify other sources of
payment, such as employer-sponsored insurance or other third-party
payer that may cover health claims for Medicare beneficiaries. These
payers are primary and Medicare is secondary with respect to
responsibility for paying a claim.
---------------------------------------------------------------------------
In 1996, the Health Insurance Portability and Accountability Act
(HIPAA) enacted the Medicare Integrity Program, which provided CMS with
new authorities to contract with entities beyond, but also including,
current carriers and fiscal intermediaries to perform specific payment
safeguard functions. Such contractors can take on some, all, or any
subset of the work associated with current contractor payment safeguard
functions including medical and utilization review, cost report audits
and provider education.
Unfortunately, we have identified numerous problems in contractor
operations over the last few years. I will highlight some of these
problems for you now.
integrity problems
Perhaps the most troubling of all the problems that the Office of
the Inspector General (OIG) has observed has involved lapses in
contractors' own integrity--misusing government funds and actively
trying to conceal their actions, or altering documents and falsifying
statements that specific work was performed. In some cases, contractors
prepared bogus documents to falsely demonstrate superior performance
for which Medicare rewarded them with bonuses and additional contracts.
In other examples, contractors adjusted their claims processing so that
system edits designed to prevent inappropriate payments were turned
off, resulting in misspent Medicare Trust Fund dollars.
Since 1993, a number of criminal and civil actions have been taken
against carriers and intermediaries in connection with their
performance under CMS contracts, and we have entered into civil
settlements with 14 Medicare contractors with total settlements
exceeding $350 million. OIG has imposed 8 corporate integrity
agreements in connection with these settlements. Corporate integrity
agreements are mandatory compliance and reporting requirements agreed
to by the contractor to avoid exclusion or debarment. In addition, two
contractors have entered into guilty pleas to the charge of obstruction
of a federal audit.
The following examples illustrate the egregiousness of the problems
which can occur and the consequent exposure to financial losses.
Unfortunately, they are not isolated cases. At any given time, several
contractors may be under investigation by our office. Presently, we
have 24 former or current contractors actively under investigation.
Health Care Service Corporation
In July of 1998, Health Care Service Corporation, the Medicare
carrier for Illinois and Michigan, agreed to pay $140 million to
resolve its civil liability under the Civil False Claims Act and the
Civil Monetary Penalties Law. On an annual basis, CMS evaluates the
performance of its carriers, relying, in large part, on information,
data and certifications provided by the carriers. Carriers that
demonstrate poor performance on these annual reviews are subject to
contract termination or other adverse action by CMS. Between 1985 and
1997, Health Care Service Corporation altered documents and manipulated
data in order to improve its score on these annual reviews. During our
investigation, we found the following problems: improper processing of
Medicare Secondary Payer claims, bypassing the system generated audits
and edits during the processing of Part B claims, and improper deletion
of claims from the system.
In addition to the civil settlement, the corporation pleaded guilty
to obstructing a federal audit, conspiracy to obstruct a federal audit
and six counts of making false statements to CMS. Health Care Service
Corporation paid a $4 million criminal fine in connection with these
charges. Two of the corporation's managers pleaded guilty and five
others were indicted on various criminal charges related to this
scheme. CMS terminated the Medicare contracts with Health Care Service
Corporation as of September 30, 1998. This case resulted in the largest
civil fraud settlement against a Medicare contractor to date.
XACT Medicare Services of Pennsylvania
In August of 1998, a Medicare carrier located in Pennsylvania
agreed to pay $38.5 million to resolve its liability for misconduct in
its performance as a carrier. A joint investigation by the OIG and
other Federal agencies found that during the years 1988 through 1996,
the carrier engaged in the following misconduct: failing to properly
process or take appropriate action to recover improper payments related
to Medicare secondary payer claims; obstructing the carrier performance
evaluation program by rigging samples for CMS audits; failing to
recover overpayments; failing to monitor End Stage Renal Disease
laboratory claims; and overriding payment safeguards to by-pass
electronic audits or edits when processing Part B claims. As part of
the settlement, the carrier agreed to enter into an extensive corporate
integrity program to ensure proper training for its employees and
external reviews of its performance under its contract with Medicare.
Blue Cross/Blue Shield of Michigan
On January 10, 1995, Blue Cross/Blue Shield of Michigan, a Medicare
carrier, agreed to pay $27.6 million to settle a qui tam suit under the
False Claims Act initiated by a former employee. At the time that the
suit was filed, in June 1993, Blue Cross/Blue Shield of Michigan was
also the fiscal intermediary for the Medicare Part A program in
Michigan and was the carrier for the Medicare Part B program. As of
September 30, 1994, CMS terminated both contracts and Blue Cross/Blue
Shield of Michigan no longer serves as intermediary or carrier. As the
intermediary, Blue Cross/Blue Shield of Michigan was responsible for
auditing participating hospitals' cost reports to ensure accuracy. An
Office of Inspector General (OIG) investigation showed that they
performed inadequate, cursory audits in which they disregarded
significant overpayments. They later gave CMS fraudulent work papers in
an attempt to show that complete and accurate audits were performed.
The precise amount of loss to the Government could not be determined
because it would have required auditing more than 200 hospitals. As
part of the settlement, the Blue Cross/Blue Shield of Michigan agreed
to repay the entire amount CMS had paid to perform audits over a 4 year
time period, approximately $13 million.
Blue Cross/Blue Shield of Michigan also agreed to pay an additional
$24 million to settle charges of violating Medicare secondary payer
laws. Under these laws, private insurers are required to act as the
primary benefits payer under certain circumstances when an individual
has medical insurance under both Medicare and an employer health plan.
An OIG audit determined that in its capacity as the Medicare contractor
in Michigan, Blue Cross/Blue Shield of Michigan paid thousands of dual
coverage claims from Medicare trust funds rather than from its own
funds in cases where there was overlapping coverage.
Anthem Blue Cross and Blue Shield of Connecticut
In December of 1999, Anthem Blue Cross and Blue Shield of
Connecticut (Anthem), Connecticut's former Medicare fiscal
intermediary, agreed to pay the Government $74.3 million to resolve
allegations of wrongdoing by its predecessor corporation. The company
allegedly falsified hospital cost reports to meet Government
performance standards as a Medicare fiscal intermediary. The company's
misconduct led several Connecticut hospitals to improperly receive
Medicare overpayments and enabled the company to obtain a better
performance evaluation from CMS than it would have otherwise received.
This settlement represents the largest civil settlement in a health
care fraud case in the State and the second largest Medicare contractor
settlement nationwide. As part of the settlement, the company, which is
no longer an intermediary, agreed to the imposition of a corporate
integrity agreement for 5 years for its Medicare+Choice health
maintenance organization contract, which it still operates.
fraud unit performance
As part of their payment safeguard activities, Medicare contractors
are required to have Fraud Units which are designed to detect and deal
with problems of fraud and abuse within the provider community. The
types of problems detected range from individual cases of suspected
fraud, to patterns of fraud or questionable activity which may
represent a broader program vulnerability.
As we work closely with these units, we in the OIG are keenly
interested in their operations and effectiveness. In 1996, we reviewed
the functions of the carrier fraud units, and in 1998 we reviewed the
fiscal intermediary fraud units. Overall, we found that their
effectiveness varies considerably and often their performance is not
directly related to the size of the unit or the total number of
resources allocated. Total case loads among the Fraud Units varied
considerably, from zero to over 600 for the intermediaries. In
reviewing carrier case files, we also found that some allegations of
fraud were being lost during the overpayment adjustment process and
were not properly developed as potential fraud cases. In addition to
complaints received, Fraud Units are encouraged to proactively develop
their own cases for potential referral to our office. Unfortunately, we
found that less than one-half were actively engaged in developing their
own cases. Similarly, less than one-half of the fraud units were active
in identifying program vulnerabilities.
A key factor is a contractor management's commitment and attention
to fraud matters overall. The most successful Fraud Units are those
given significant prominence in the contractor's organizational
structure, reporting to the highest levels of corporate management.
Overall, however, effectiveness of the Fraud Units has been hampered by
staff turnover, lack of proper background and training, and an overall
lack of uniformity and understanding of key fraud terms and
definitions.
As mentioned earlier, HIPPA provided CMS with new authorities to
contract with entities separate from current carriers and fiscal
intermediaries to perform specific program integrity functions. These
new Program Safeguard Contractors will supplement, and in some cases
replace, the work of fiscal intermediary and carrier fraud units. It is
too early to evaluate the performance of these safeguard contractors;
however, as I will discuss in more detail later, their structure
provides a model on which to base broader contractor reforms.
financial management problems
We have also encountered problems associated with financial
management and accounting procedures and longstanding weaknesses in
internal controls, including deficiencies related to the receivable
amounts reported in CMS' financial statements and electronic data
processing.
Financial Systems and Processes
Along with its Medicare contractors, CMS is responsible for
managing and collecting many billions of accounts receivable each year.
Medicare accounts receivable are primarily overpayments made to health
care providers by contractors that must be repaid to Medicare, and
funds due from other entities when Medicare is the secondary payer. For
FY 2000, the contractors reported about $30 billion in accounts
receivable activity which resulted in an ending gross balance of
approximately $7.1 billion--over 87 percent of CMS' total receivable
balance.
For several years, we have reported serious errors in contractor
reporting of accounts receivable that resulted from weak financial
controls. Control weaknesses were noted again in our FY 2000 audit.
Because the claim processing systems used by the contractors lacked
general ledger capabilities, obtaining and analyzing financial data was
a labor-intensive exercise requiring significant manual input and
reconciliations between various systems and ad hoc spreadsheet
applications. This situation increases the risk that contractors could
report inconsistent, incomplete, or erroneous information.
To address previously identified problems in documenting and
reporting accounts receivable and to accurately determine receivable
balances, CMS began contracting with independent public accountants in
FY 1999. This year, the accountants noted significant improvement in
the CMS central office's analysis of information included in its
financial statements, along with the improvement in contractors'
processing and reporting of receivables. Over the 2-year period,
however, the independent public accountants identified about $590
million in non-Medicare Secondary Payer recorded debt that the Medicare
contractors could not document. While all of these receivables were
written off because of the lack of documentation, some may have
represented actually debt due to Medicare that should have been
collected.
Although it is quite clear that the root cause of the accounts
receivable problem is the lack of an integrated, dual-entry accounting
system, better oversight or implementation of compensating internal
controls could ensure that the receivables will be properly accounted
for and reflected in their future financial reports. For instance, had
CMS regional offices been required to conduct reviews similar to those
conducted by the independent public accountants, many problems could
have been detected earlier or prevented and the need to hire outside
accountants would have been obviated. Similarly, stronger regional
office oversight of the contractors would have helped to ensure that
essential controls, such as reconciliations, were in place to prepare
accurate and complete financial reports. Of the 10 contractors in our
sample, 9 did not reconcile the monthly expenditures reported to CMS to
the actual paid claims tape as CMS requires. Failing to conduct this
reconciliation increases the risk of material misstatements in the
financial statements.
To address its systems problem, CMS plans to develop a state-of-
the-art Integrated General Ledger Accounting System. However, the
system will not be fully operational until 2007. Until then, stronger
internal controls and oversight of the Medicare contractors are
critically needed.
Electronic Data Processing
The CMS relies on extensive electronic data processing (EDP)
operations at both its central office and Medicare contractors to
administer the Medicare program and to process and account for Medicare
expenditures. Internal controls over these operations are essential to
ensure the integrity, confidentiality, and reliability of critical data
and sensitive information while reducing the risk of improper Medicare
payments disruption of critical operations, and malicious changes that
could interrupt data processing or destroy data files.
However, we again found numerous EDP general control weaknesses,
primarily at the Medicare contractors. About 80 percent of the 124
weaknesses that we noted involved three types of controls:
Access controls ensure that critical systems assets are
physically safeguarded, that logical (e.g. electronic) access
to sensitive computer programs and data is granted only when
authorized and appropriate, and that only authorized staff and
computer processes access sensitive data in an appropriate
manner. Weaknesses in these controls represented the largest
problem area. At several contractors, for example, programmers
had inappropriate access to beneficiary history files, and
passwords were not properly administered.
Entry-wide security programs ensure that security threats are
identified, risks are assessed, control techniques are
developed, and management oversight is applied to ensure the
overall effectiveness of security measures. At several sites,
we found that contractors lacked fully documented,
comprehensive entity-wide security plans.
Systems software controls help to prevent unauthorized
individuals from using software to read, modify, or delete
critical information and programs. We noted problems in
managing routine changes to systems software to ensure their
appropriate implementation and in configuring operating system
controls to ensure their effectiveness.
In addition, the prior control weaknesses concerning the Medicare
data centers' access to the software program coding of the ``shared''
system used by certain Medicare contractors remains unresolved. This
weakness has been expanded to include the Common Working File system,
which all shared systems use to obtain authorization to pay claims and
to coordinate Medicare Parts A and B. Access to source code renders the
Medicare claim processing system vulnerable to abuse, such as the
implementation of unauthorized programs.
current structural basis for medicare contracting
The ability to prevent or correct the problems just described stem
in part from the way CMS is required to contract with its claims
administrators. The Medicare statute places substantial limits on how
CMS may obtain contractor assistance to administer the Medicare
program, including limiting CMS to choosing only certain types of
companies to process claims and restricting them to a cost-based
reimbursement method.
I will describe how Medicare currently contracts with its carriers
and fiscal intermediaries and contrast that with the flexibility in
contracting authority already available to most other government
agencies.
Medicare Contracting Entities
Carrier, Fiscal Intermediary, DMERC and RHHI Contracts. The
legislative authorities under which CMS contracts with carriers and
fiscal intermediaries are found in Title 42 of the United States Code
(U.S.C.).2 Currently, these contracts are governed by laws
that are more restrictive than general federal contract laws. These
contracts are not subject to the general government contracting
authorities which are found in Title 41 of the United States Code, nor
are they subject to the Federal Acquisition Regulation (FAR).
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\2\ Social Security Act, Sections 1842 (42 U.S.C. 1395u) and 1816
(42 U.S.C. 1395h).
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Program Safeguard Contracts. Contracts with program safeguard
contractors are subject to FAR and Title 41 of the U.S.C. 3
The contracts must be awarded using full and open competition with few
prohibitions on who can hold these contracts. These contracts can be
entered into for up to 5 years and can be reimbursed using either fixed
price or cost-reimbursement methodologies. In addition, the program
safeguard contracts can be terminated at the Government's
``convenience.''
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\3\ Social Security Act, Section 1893, 42 U.S.C.1395ddd.
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Awarding the Contract
Although most government contracts require competitive bidding
using full and open competition with very few prohibitions on who can
be awarded a government contract, CMS is limited as to which entities
it may contract with. Under Part A, the statute allows for a process
under which hospitals and certain other institutional providers
nominate an organization to serve as a representative for its members.
Currently, the National Blue Cross/Blue Shield Association, designated
by the providers, serves as the prime contractor with CMS. As such, it
subcontracts with its local member plans to perform as fiscal
intermediaries. Presently, all fiscal intermediaries are insurance
companies. For home health and hospice providers, CMS has designated a
small number of FIs to serve as Regional Home Health Intermediaries
(RHHIs), based on its current authority to designate an intermediary to
serve a class of providers.
Carriers are defined by statute to be non-governmental
organizations engaged in ``providing, paying for, or reimbursing the
cost of health services under group insurance policies or contracts,''
or other such group arrangements. This requirement has effectively
limited such contracts to insurance companies. By statute, carrier
contracts may be entered into without competition. CMS contracts with
DMERCs under a separate authority and uses a competitive bidding
process to award these contracts. (See Table 1 for a comparison of how
and to whom contracts are normally awarded.)
Table 1--Contract Award
------------------------------------------------------------------------
------------------------------------------------------------------------
General Government Contracts.... Competitive....... Any organization
Program Safeguard Contractors... Competitive....... Any organization
Fiscal Intermediaries........... Non-competitive... Insurance co.
nominated by a
provider group
RHHI............................ Non-competitive... Fiscal
intermediary
designated by CMS
Carriers........................ Non-competitive... Company with
health insurance
experience
DMERC........................... Competitive....... Company with
health insurance
experience
------------------------------------------------------------------------
Contract Type
Generally, government contracts can be either fixed-price contracts
or cost-reimbursement contracts. In a fixed-price contract, the
contractor has the full responsibility for the performance costs and
resulting profit or loss. Fixed-price contracts are preferred since the
contractor guarantees performance of the work as a condition of getting
paid. In a cost-based contract, the government assumes the risk for all
allowable costs. The contractor is liable for delivering only its best
effort, not successful performance. General government contracts can be
up to 5 years.
On the other hand, Medicare's fiscal intermediary, carrier, RHHI
and DMERC contracts are generally limited to cost-reimbursement
contracts. For these contracts, CMS and the contractor negotiate an
overall amount for the contract based on standards established by CMS.
These contracts are only made for a year.
Table 2--Contract Types
------------------------------------------------------------------------
------------------------------------------------------------------------
General Government Contract..... Fixed-price or Up to 5 years
cost-
reimbursement.
Program Safeguard Contractors... Fixed-price or Up to 5 years
cost-
reimbursement.
Fiscal Intermediaries........... Cost-reimbursement 1 year
RHHI............................ Cost-reimbursement 1 year
Carriers........................ Cost-reimbursement 1 year
DMERC........................... Cost-reimbursement 1 year
------------------------------------------------------------------------
Contract Renewal and Termination
In general, government contracts can be renewed as long as the
contractor meets or exceeds the performance requirements established in
the current contract. Most contracts may be terminated by the
government at any time for default of the contract or for the
convenience of the government. If the government terminates the
contract for its convenience, then the government must compensate the
contractor for any preparations and for any completed and accepted
work.
The CMS contracts with carriers and fiscal intermediaries,
including RHHI and DMERC contracts, have automatic renewal clauses. As
long as the contractors meet or exceed the standards that CMS publishes
annually, the contracts are renewed. If CMS terminates the contract
upon a determination that the contractor has failed to properly carry
out its contracted duties or is not operating in an efficient and
effective manner, the contractor has a right to a hearing. Because
contracts with fiscal intermediaries and carriers are generally only
one year in duration, these contracts are rarely terminated. Instead,
CMS simply does not renew the contract at the end of the one year
period. The contractor, on the other hand, can terminate at any time
upon written notice to the government. Under CMS' prime contract with
the National Blue Cross Association, when one of the local Blue plans
does not renew its contract, the Association may choose the replacement
contractor, thus further limiting CMS' choice of future contractors.
Table 3--Contract Renewal and Termination
------------------------------------------------------------------------
------------------------------------------------------------------------
General Government Contract..... May renew......... No hearing
Program Safeguard Contractors... May renew......... No hearing
Fiscal Intermediaries........... Automatic renewal. Hearing
RHHI............................ Automatic renewal. Hearing
Carriers........................ Automatic renewal. Hearing
DMERC........................... Automatic renewal. Hearing
------------------------------------------------------------------------
models for contractor reform
As noted earlier, under the Health Insurance Portability and
Accountability Act of 1996, CMS was granted new authority and
flexibility in contracting separately for program integrity functions.
It may enter into contracts or work orders for specific program
safeguard functions, such as medical review, fraud detection, cost
report audits, and reviews to identify primary payers to whom Medicare
is the secondary payer.
To date, CMS has awarded 19 contracts to Program Safeguard
Contractors (PSCs) to carry out a wide range of activities. These tasks
include supplemental activities, such as an analysis of Y2K issues,
which have not replaced regular contractor functions. Other tasks in
part or in whole replace safeguard functions currently being done by
contractors. For example one PSC is performing program integrity
activities to target vulnerabilities in therapy services. Another PSC
is tasked with conducting postpayment medical review fraud detection
and data analysis for 12 Western states.
It is too soon to fully evaluate the success of this model;
however, preliminary results are encouraging. We support this new
authority and look forward to continued improvements in program
operation and oversight that are taking place under the Medicare
Integrity Program.
Another promising development is the designation of specialty
contractors such as the Durable Medical Equipment Regional Carriers.
They review and pay all claims for medical equipment and supplies.
There are only four of them, which appropriately concentrates their
expertise in this complex area. They are bolstered by a data analysis
unit, staffed by one of these carriers but supporting all four. This
enables them to analyze payment and usage patterns which may suggest
possible improper or questionable conduct. They are also able to
effectively collaborate on the formulation of national coverage
policies and payment control systems.
A recent OIG evaluation found that these entities are effective. We
believe that specialty contractors, with a supporting analytic unit,
would make sense for problematic areas and recommend that they be more
widely used.
proposed legislation
To promote innovations and efficiencies from the private sector,
legislation is currently being developed that would increase CMS'
flexibility in how it contracts with Medicare fiscal intermediaries and
carriers by allowing it to award work competitively and use performance
based contracts. Through this legislation, CMS hopes to accomplish the
following:
Provide flexibility to CMS and its contractors to better adapt
to changes in the Medicare program.
Promote competition, leading to more flexible efficiency and
accountability.
Establish better coordination and communication between CMS,
its contractors and health care providers.
Promote CMS' ability to negotiate incentives for Medicare
contractors to perform well.
Improve CMS' contractor performance evaluation processes,
while maximizing objectivity in contractor evaluation.
Stabilize and guide CMS' business relationship with its
contractors.
CMS has proposed such broad and more flexible contracting authority
in the past, and we have consistently testified in support. For
instance, we have supported past proposals to allow CMS to enter into
contracts with one entity to perform both carrier and intermediary
functions, allow the Secretary to follow Federal Acquisition
Regulations, and to reimburse contractors on a fixed price basis when
needed. We believe such common sense approaches are long overdue. In
fact, in recent work we found that Medicare's claims processing system
did not prevent duplicate payments by multiple carriers for any of the
242 services in our audit sample. An ability to consolidate the number
of contractors would help to prevent such types of duplicate payments
from occurring.
More flexibility and specialization will, we believe, bring greater
expertise and efficiency to contractor operations. This will, in turn,
improve their relations with providers and facilitate provider
education and understanding of Medicare rules and regulations. Further,
the ability to pay contractors on a fixed-cost basis would offer the
flexibility to award contracts for the best possible value.
conclusion
Through our investigations, financial audits, and evaluations of
management practices, we continue to identify problems at the Medicare
contractors which run the gamut from operational inefficiencies to
deliberate defrauding of the Medicare program. Taken as a whole, these
problems underscore the critical need for immediate contracting
reforms.
CMS needs to have sufficient flexibility in its authorities to
contract with the companies best able to carry out the needed
functions, to hold these companies accountable when they fall short,
and to reward them when they perform well. Beneficiaries and providers
will be better served, and CMS will get better value for its
contracting dollars.
We fully support the need for Medicare contracting reform
legislation. We also support a reduction in the number of private
health insurance companies that process claims to a more manageable
number. We look forward to the changes in Medicare contracting that are
already taking place under the new Medicare Integrity Program and look
forward to changes brought about by more global contracting reforms as
well.
Mr. Greenwood. Thank you for your testimony.
Ms. Aronovitz, you are recognized for 5 minutes.
TESTIMONY OF LESLIE G. ARONOVITZ
Ms. Aronovitz. Thank you, Chairman Bilirakis, Chairman
Greenwood, and members of the subcommittees. I am pleased to be
here today as you consider how Medicare might be improved
through contracting reform. What you will hear from us is a lot
of agreement about the need for new contract authorities. How
CMS ultimately plans and implements their use will be key. That
is what we really want to talk about.
The original Medicare statute, along with subsequent
regulations and practices, limits how the program contracts for
claims administration services. As Mr. Scully and Mr. Mangano
have already indicated, there is no full and open competition
for these contracts. The agency is limited to choosing from a
small pool of health insurers. Contracts generally cover all
claims-related activities. Contractors are paid for costs, but
do not earn profits. The agency is limited in its ability to
terminate contracts. Most Federal programs do not face these
restrictions. There has been concern that these policies may
impede effective program management.
Today, I am focusing on how contracting reform might help
to address these concerns, but especially on the challenges CMS
faces in implementing contractor reform. First, Medicare could
benefit from contracting reform legislation that authorized
full and open competition for claims administration contracts,
and provided greater flexibility in how contracts are
structured. Full and open competition would allow CMS to select
contractors on a competitive basis, which could help promote
better performance and greater accountability, as you have
heard from the other witnesses.
We also agree that it would allow CMS to select from a
broader array of entities, capable of performing needed tasks
and not just from among the dwindling number of health insurers
interested in obtaining these contracts. Providing greater
flexibility in how contracts are structured could also have
benefits. It would allow CMS to issue contracts for discrete
program functions, and that could improve performance through
specialization. Although CMS has not stated what functions it
might separately contract for, we know that there is wide
variation in how different contractors inform providers about
program policy changes and respond to provider concerns. So,
for example, having special contractors handle those
responsibilities could lead to more consistency and better
relations between the program and providers.
Allowing contractors to earn a profit would let CMS craft
incentives to reward contractors for high quality performance.
Bringing contractor termination procedures into line with those
of other Federal programs could make it easier for CMS to
terminate poor performers.
While Medicare could benefit from contracting reforms,
freeing the program from current contracting restrictions would
only be a first step in realizing the potential benefits. For
example, CMS would need to carefully define the scope of work
in any new contract--that is not an easy thing to do--and
develop sound contractor selection criteria. Transition to full
and open competition for all contractors would need to be
phased in to ensure effective coordination among all
contractors, and avoid disruption in service to beneficiaries
and providers, especially in the claims processing stream.
Adequate performance goals and measures would need to be
developed to evaluate how well contract specifications were
met, and whether any financial incentives had been earned. The
recent experience in hiring special contractors for program
safeguard activities provides useful lessons about the
challenges that would need to be addressed. It took CMS
officials about 3 years to determine how best to implement the
authority to hire program safeguard contractors, develop the
contract specifications, issue proposed regulations governing
those contractors, develop selection criteria, review
proposals, and select contractors. It then took additional time
for these contractors to hire staff, develop systems, and to
begin performing their duties.
We expect it will also take time to fully utilize these new
authorities. We think it would be prudent for CMS to take an
incremental approach as it proceeds.
Accordingly, removing Medicare's contracting limitations to
promote full and open competition and increase flexibility,
could lead to more efficient and effective management. However,
reform will not yield immediate results. We believe that there
is a need for careful and deliberate implementation of any
reforms that may be enacted.
This concludes my oral comments. I would be happy to answer
any questions you may have.
[The prepared statement of Leslie G. Aronovitz follows:]
Prepared Statement of Leslie G. Aronovitz, Director, Health Care--
Program, Administration and Integrity Issues, GAO
Messrs. Chairmen and Members of the Subcommittees: I am pleased to
be here today as you continue to consider how the Medicare program
might be modified. Discussions about how to reform and modernize
Medicare have, in part, focused on whether the structure that was
adopted in 1965 is optimal today. In that context, questions have been
raised about whether the program could benefit from changes to the way
Medicare's claims processing contractors are selected and the functions
they perform.
The original Medicare statute, along with subsequent regulations
and practices, limits how the program may contract for these services
in ways that differ from most federal contracts. There is no full and
open competition for the contracts; the agency is limited to choosing
among health insurers; contracts generally must cover the full range of
claims processing and related activities; and the agency is limited in
its ability to terminate contracts. The Health Care Financing
Administration (HCFA), recently renamed the Centers for Medicare and
Medicaid Services (CMS), has, since 1993, repeatedly proposed
legislation to lift current contracting restrictions in order to
increase competition for these contracts and provide more flexibility
in how they are structured.1 This year, the agency again
plans to seek such changes in order to improve program management.
---------------------------------------------------------------------------
\1\ Our statement will continue to refer to HCFA where our findings
apply to the organizational structure and operations associated with
that name.
---------------------------------------------------------------------------
To assist the Subcommittees as they consider ways to strengthen
Medicare's program administration, my remarks today focus on our
analysis of contracting reform issues. Specifically, I will discuss (1)
how reform might help to address concerns that current contracting
policy may impede effective program management, and (2) challenges in
implementing reform. My comments are based on our prior and ongoing
work related to strengthening Medicare operations.
In summary, Medicare could benefit from full and open competition
and its relative flexibility to promote better performance and
accountability. If legislation removes the current limits on Medicare
contracting authority, CMS could (1) select contractors on a
competitive basis from a broader array of entities capable of
performing needed program activities; (2) issue contracts for discrete
program functions to improve contractor performance through
specialization; (3) pay contractors based on how well they perform
rather than simply reimbursing them for their costs; and (4) terminate
poor performers more efficiently.
Freeing Medicare from current contracting limitations is only the
first step in realizing potential benefits. Recent experiences with
special contractors for Medicare program safeguard activities provide
useful lessons that the agency could draw upon if it were free to use
full and open competition. These experiences also presage the
challenges in achieving the potential benefits of more flexible
contracting authority. For example, CMS would need to marshal its
expertise to effectively use competitive bidding authority and
increased flexibility. It would need to carefully define the scope of
work in any new contracts and develop sound contractor selection
criteria. Transition to full and open competition for all contractors
would need to be phased in to ensure effective coordination of
functions among all contractors and to avoid disruption in service to
beneficiaries and providers. And, if contracts with financial
incentives for high-quality performance were used, CMS would need to
develop adequate performance goals and reliable measures to monitor and
evaluate the extent to which contract specifications were being met and
awards earned.
background
Medicare is a federal health insurance program designed to assist
elderly and disabled beneficiaries. Hospital insurance, or part A,
covers inpatient hospital, skilled nursing facility, hospice care, and
certain home health services. Supplemental medical insurance, or part
B, covers physician and outpatient hospital services, laboratory and
other services. Claims are paid by a network of 49 claims
administration contractors called intermediaries and carriers.
Intermediaries process claims from hospitals and other institutional
providers under part A while carriers process part B claims. The
intermediaries' and carriers' responsibilities include: reviewing and
paying claims; maintaining program safeguards to prevent inappropriate
payment; and educating and responding to provider and beneficiary
concerns.
Medicare contracting for intermediaries and carriers differs from
that of most federal programs. Most federal agencies, under the
Competition in Contracting Act and its implementing regulations known
as the Federal Acquisition Regulation (FAR), 2 generally may
contract with any qualified entity for any authorized purpose so long
as that entity is not debarred from government contracting and the
contract is not for what is essentially a government function. Agencies
are to use contractors that have a track record of successful past
performance or that demonstrate a current superior ability to perform.
The FAR generally requires agencies to conduct full and open
competition for contracts and allows contractors to earn profits.
---------------------------------------------------------------------------
\2\ 48 CFR, Chapter 1.
---------------------------------------------------------------------------
Medicare, however, is authorized to deviate from the FAR under
provisions of the Social Security Act enacted in 1965.3 For
example, there is no full and open competition for intermediary or
carrier contracts. Rather, intermediaries are selected in a process
called nomination by provider associations, such as the American
Hospital Association. This provision was intended at the time of
Medicare's creation to encourage hospitals to participate by giving
them some choice in their claims processor. Currently, there are three
intermediary contracts, including the national Blue Cross Blue Shield
Association, which serves as the prime contractor for 26 local member
plan subcontractors. When one of the local Blue plans declines to renew
its subcontract, the Association nominates the replacement contractor.
Carriers are chosen by the Secretary of Health and Human Services from
a small pool of health insurers, and the number of such companies
seeking Medicare claims-processing work has been dwindling in recent
years.
---------------------------------------------------------------------------
\3\ Section 1816 addresses fiscal intermediaries and section 1842
addresses carriers.
---------------------------------------------------------------------------
The Social Security Act also generally calls for the use of cost-
based reimbursement contracts under which contractors are reimbursed
for necessary and proper costs of carrying out Medicare activities but
does not expressly provide for profit.4 Further, Medicare
contractors cannot be terminated from the program unless they are first
provided with an opportunity for a public hearing--a process not
afforded under the FAR.
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\4\ CMS has some limited authority to build financial incentives
into intermediary and carrier contracts. This authority was granted
under section 2326(a) of the Deficit Reduction Act of 1984 and made
permanent by section 159 of the Social Security Act Amendments of 1994.
---------------------------------------------------------------------------
medicare could benefit from open competition and increased flexibility
Medicare could benefit from various contracting reforms. Freeing
the program to directly choose contractors on a competitive basis from
a broader array of entities able to perform needed tasks would enable
Medicare to benefit from efficiency and performance improvements
related to competition. It also could address concerns about the
dwindling number of insurers with which the program now contracts.
Allowing Medicare to have contractors specialize in specific functions
rather than assume virtually all claims-related activities, as is the
case now, also could lead to greater efficiency and better performance.
Authorizing Medicare to pay contractors based on how well they perform
rather than simply reimbursing them for their costs, as well as
allowing the program to terminate contracts more efficiently when
program needs change or performance is inadequate, could also result in
better program management.
Ability to Contract With a Broader Array of Entities Would Expand CMS
Options
Since Medicare was implemented in 1966, the program has used health
insurers to process and pay claims. Before Medicare's enactment,
providers feared that the program would give the government too much
control over health care. To win acceptance, the program was designed
to be administered by health insurers like Blue Cross and Blue Shield.
Subsequent regulations and decades of the agency's own practices have
further limited how the program contracts for claims administration
services. The result is that agency officials believe they must
contract with health insurers to handle all aspects of administering
Medicare claims, even though the number of such companies willing to
serve as Medicare contractors has declined and the number of other
entities capable of doing the work has increased.
While using only health insurers for claims administration may have
made sense when Medicare was created, that may be much less so today.
The explosion in information technology has increased the potential for
Medicare to use new types of business entities to administer its claims
processing and related functions. Additionally, the need to broaden the
pool of entities allowed to be contractors also has increased in light
of contractor attrition. Since 1980, the number of contractors has
dropped by more than half, as many have decided to concentrate on other
lines of business. This has left the program with fewer choices when
one contractor withdraws, or is terminated, and another must be chosen
to replace it.
Since 1993, the agency has repeatedly submitted legislative
proposals to repeal the provider nomination authority and make explicit
its authority to contract for claims administration with entities other
than health insurers. Just this month, the Secretary of Health and
Human Services told the Senate Finance Committee that CMS should be
able to competitively award contracts to the entities best qualified to
perform these functions and stated that such changes would require
legislative action. With such changes, when a contractor leaves the
program, CMS could award its workload on a competitive basis to any
qualified company or combination of companies--including those outside
the existing contractor pool, such as data processing firms.
Contracting for Specific Functions Could Strengthen Service to
Beneficiaries and Providers
Allowing Medicare to have separate contractors for specific claims
administration activities--also called functional contracting--could
further improve program management. Functional contracting would enable
CMS to select contractors that are more skilled at certain tasks and
allow these contractors to concentrate on those tasks, potentially
resulting in better program service. For example, the agency could
establish specific contractors to improve and bring uniformity to
efforts to educate and respond to providers and beneficiaries, efforts
that now vary widely among existing contractors.
Currently, CMS interprets the Social Security Act and the
regulations implementing it as constraining the agency from awarding
separate contracts for individual claims administration activities,
such as handling beneficiary inquiries or educating providers about
program policies. Current regulations stipulate that, to qualify as an
intermediary or carrier, the contracting organization must perform all
of the Medicare claims administration functions. Thus, agency officials
feel precluded from consolidating one or more functions into a single
contract or a few regional contracts to achieve economies of scale and
allow specialization to enhance performance.
CMS has had some experience with functional contracting under
authority granted in 1996 to hire entities other than health insurers
to focus on program safeguards.5 CMS has contracted with 12
program safeguard contractors (PSC) who compete among themselves to
perform task-specific contracts called task orders. These entities
represent a mix of health insurers, including some with prior
experience as Medicare contractors, along with consulting
organizations, and other types of firms. The experience with PSCs,
however, makes clear that functional contracting has challenges of its
own, which are discussed later in this testimony.
---------------------------------------------------------------------------
\5\ This authority was granted under section 1893 of the Social
Security Act as amended. Program safeguard activities are intended to
prevent and detect fraudulent and abusive activities of providers and
beneficiaries. These activities include (1) medical review of claims to
determine if they are for covered, medically necessary and reasonable
services, (2) reviews to identify other primary sources of payment, (3)
audits of cost reports submitted by institutional providers to
determine if costs are allowable and reasonable, (4) identification and
investigation of possible fraud cases, and (5) provider education and
training related to Medicare coverage policies and appropriate billing
practices.
---------------------------------------------------------------------------
Offering Contractors Payment Incentives Could Result in Greater
Efficiencies
Allowing Medicare to offer financial incentives to contractors for
high-quality performance also may have benefits. According to CMS, the
Social Security Act now precludes the program from offering such
incentives because it generally stipulates that payments be based on
costs. Contractors are paid for necessary and proper costs of carrying
out Medicare activities but do not make a profit. Repeal of cost-based
restrictions would free CMS to award different types of contracts--
including those that provide contractors with financial incentives and
permit them to earn profits. CMS could test different payment options
to determine which work best. If effective in encouraging contractor
performance, such contracts could lead to improved program operations
and, potentially, to lower administrative costs. Again, implementing
performance-based contracting will not be without significant
challenges.
CMS Needs to be Able to Terminate Poor Performers More Efficiently
Allowing Medicare to terminate contractors more efficiently may
also promote better program management. The Social Security Act now
limits Medicare's ability to terminate intermediaries and carriers, and
the provisions are one-sided. Intermediaries and carriers may terminate
their contracts without cause simply by providing CMS with 180 days
notice. CMS, on the other hand, must demonstrate, that (1) the
contractor has failed substantially to carry out its contract or that
(2) continuation of the contract is disadvantageous or inconsistent
with the effective administration of Medicare. CMS must provide the
contractor with an opportunity for a public hearing prior to
termination. Furthermore, CMS may not terminate a contractor without
cause as can most federal agencies under the FAR.
In past years, the agency has requested statutory authority to
eliminate the public hearing requirement and the ability of contractors
to unilaterally initiate contract termination. Such changes would bring
Medicare claims administration contractors under the same legal
framework as other government contractors and provide greater
flexibility to more quickly terminate poor performers. Eliminating
contractors' ability to unilaterally terminate contracts also may help
address challenges the agency faces in finding replacement contractors
on short notice.
contracting reform poses many implementation issues
While Medicare could benefit from greater contracting flexibility,
time and care would be needed to implement changes to effectively
promote better performance and accountability and avoid disrupting
program services. Competitive contracting with new entities for
specific claims administration services in particular will pose new
challenges to CMS--challenges that will likely take significant time to
fully address. These include preparing clear statements of work and
contractor selection criteria, efficiently integrating the new
contractors into Medicare's claims processing operations, and
developing sound evaluation criteria for assessing performance. Because
these challenges are so significant, CMS would be wise to adopt an
experimental, incremental approach. The experience with authority
granted in 1996 to hire special contractors for specific tasks related
to program integrity can provide valuable lessons for CMS officials if
new contracting authorities are granted.
Contracting With New Entities Will Take Time and Require Careful
Planning
If given authority to contract competitively with new entities, CMS
would need time to accomplish several tasks. First among these would be
development of clear statements of work and associated requests for
proposals detailing work to be performed and how performance will be
assessed. CMS has relatively little experience in this area for
Medicare claims administration because current contracts instead
incorporate by reference all regulations and general instructions
issued by the Secretary of Health and Human Services to define
contractor responsibilities. CMS has experience with competitive
contracting from hiring PSCs. It did take 3 years to determine how best
to implement the new authority through its broad umbrella contract,
develop the statement of work, issue the proposed regulations governing
the PSCs, develop selection criteria, review proposals, and select
contractors.6 Program officials have told us they are
optimistic about their ability to act more quickly if contracting
reform legislation were enacted, given the lessons they have learned.
However, we expect that it would take CMS a significant amount of time
to develop its implementation strategy and undertake all the necessary
steps to take full advantage of any changes in its contracting
authority. CMS took an incremental approach to awarding its PSC task
orders, and the same would be prudent for implementing any changes in
Medicare's claims administration contracting authorities.
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\6\ CMS developed an indefinite-delivery/indefinite-quantity
contract that allowed it to select contractors and outline in broad
terms the activities to be performed. Each task order identifies a
specific function to be performed. For example, one task order involves
conducting unannounced site visits to selected community mental health
centers to determine whether they are complying with Medicare
regulations.
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Even after new contractors are hired, CMS should not expect
immediate results. The PSC experience demonstrates that it will take
time for them to begin performing their duties. PSCs had to hire staff,
obtain operating space and equipment, and develop the systems needed to
ultimately fulfill contract requirements--activities that often took
many months to complete. Without sufficient start-up time, new
contractors might not operate effectively and services to beneficiaries
or providers could be disrupted.
Coordination Is Critical for Functional Contractors
Developing a strategy for how to incorporate functional contractors
into the program and coordinate their activities is key. While there
may be benefits from specialization, having multiple companies
performing different claims administration tasks could easily create
coordination difficulties for the contractors, providers, and CMS
staff. For example, between 1997 and 2000, HCFA contracted with a
claims administration contractor that subcontracted with another
company for the review of the medical necessity of claims before they
were paid.7 The agency found that having two different
contractors perform these functions posed logistical challenges that
could make it difficult to complete prepayment reviews without creating
a backlog of unprocessed claims.
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\7\ According to a CMS contracting official, a claims
administration contractor has the flexibility to subcontract under
section 1842 of the Social Security Act.
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The need for effective coordination was also seen in the PSC
experience. PSCs and the claims administration contractors need to
coordinate their activities in cases where the PSCs assumed
responsibility for some or all of the program safeguard functions
previously performed by the contractors. In these situations, HCFA
officials had to ensure that active claims did not get lost or ignored
while in the processing stream.
Coordination is also necessary to ensure that new efficiencies in
one program area do not adversely affect another area. For example,
better review of the medical necessity of claims before they are paid
could lead to more accurate payment. This would clearly be beneficial,
but could also lead to an increase in the number of appeals for claims
denials. Careful planning would be required to ensure adequate
resources were in place to adjudicate those appeals and prevent a
backlog.
CMS has not stated how claims administration activities might be
divided if the agency could do functional contracting. It would be wise
for CMS to develop a strategy for testing different options on a
limited scale. In our report on CMS' contracting for PSC services, we
recommended, and the agency generally agreed, that it should adopt such
a plan because CMS was not in a position to identify how best to use
the PSCs to promote program integrity in the long term.8
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\8\ Medicare: Opportunities and Challenges in Contracting for
Program Safeguards (GAO-01-616, May 18, 2001).
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Experience Is Needed to Develop Effective Evaluation Criteria
Taking advantage of benefits from competition and performance-based
contracting hinges on being able to identify goals and objectives and
to measure progress in achieving them. Specific and appropriate
evaluation criteria would be needed to effectively manage any new
arrangements under contracting reform. Effective evaluations are
dependent, in part, upon clear statements of expected outcomes tied to
quantifiable measures and standards. Because it has not developed such
criteria for most of its PSC task orders, we reported 9 that
CMS is not in a position to effectively evaluate its PSCs' performance
even though 8 of the 15 task orders had been ongoing for at least a
year as of April 2001. If CMS begins using full and open competition to
hire new entities for other specific functions, it should attempt to
move quickly to develop effective outcomes, measures, and standards for
evaluating such entities.
---------------------------------------------------------------------------
\9\ GAO-01-616, May 18, 2001.
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Effective criteria are also critical if financial incentives are to
be offered to contractors. Prior experiments with financial incentives
for Medicare claims administration contractors generally have not been
successful. This experience raises concerns about the possibility for
success of any immediate implementation of such authority without
further testing. For example, between 1977 and 1986, HCFA established
eight competitive fixed-price-plus-incentive-fee contracts designed to
consolidate the workload of two or more small contractors on an
experimental basis. Contractors could benefit financially by achieving
performance goals in certain areas at the potential detriment of
performance in other activities. In 1986, we reported that two of the
contracts generated administrative savings estimated at $48 million to
$50 million.10 However, the two contractors' activities also
resulted in $130 million in benefit payment errors (both overpayments
and underpayments) that may have offset the estimated savings. One of
these contractors subsequently agreed to pay over $140 million in civil
and criminal fines for its failure to safeguard Medicare funds.
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\10\ Medicare: Existing Contracting Authority Can Provide for
Effective Program Administration (GAO/HRD-86-48, Apr. 22, 1986).
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concluding observations
Removing the contracting limitations imposed at Medicare's
inception to promote full and open competition and increase flexibility
could help to modernize the program and lead to more efficient and
effective management. However, change will not yield immediate results,
and lessons learned from the experience with PSC contractors underscore
the need for careful and deliberate implementation of any reforms that
may be enacted.
This concludes my statement. I would be happy to answer any
questions that either Subcommittee chairman or Members may have.
GAO Contact and Staff Acknowledgments
For further information regarding this testimony, please contact me
at (312) 220-7600. Sheila Avruch, Bonnie Brown, Paul Cotton, and Robert
Dee also made key contributions to this statement.
Related GAO Products
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).
Medicare: Program Safeguard Activities Expand, but Results
Difficult to Measure (GAO/HEHS-99-165, Aug. 4, 1999).
Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their
Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).
HCFA Management: Agency Faces Multiple Challenges in Managing Its
Transition to the 21st Century (GAO/T-HEHS-99-58, Feb. 11, 1999).
Medicare: HCFA Faces Multiple Challenges to Prepare for the 21st
Century (GAO/T-HEHS-98-85, Jan. 29, 1998).
Mr. Greenwood. Thank you for your testimony.
Mr. Scully, if you will return.
The Chair recognizes himself for 5 minutes for questions.
I would like to ask each of you how you see these proposed
contract reforms affecting the average Medicare beneficiary, my
mother, my father, other beneficiaries? How would they, if they
would, notice or benefit from these changes?
Let me start with you, Mr. Scully.
Mr. Scully. I think hopefully, I mean we have some great
contractors who do a terrific job. I used to represent a couple
of them when I was a lawyer. We also have some that have not
done such a great job, and our ability to identify the ones
that have done the best job and been the most responsive to
providers and beneficiaries is limited. To our ability to
switch work flows from one place to another is very limited. So
when we have a contractor who is the lowest rated and is the
least responsive to providers and beneficiaries, it's tough to
make a change. Our ability to switch work flows to another FI
is very limited. It has to go through the Blue Cross Blue
Shield Association.
I represented Blue Cross of California when they were being
pushed out of the program in the early 1990's. They fixed their
problems and stayed in for a few more years. But I have been on
the other side of it. I think there is a pretty substantial
difference in the quality of contractors. But our ability to
adjust our work flows, depending on who the best contractors
are, is pretty limited. I don't think that is really good
policy.
I think if we could identify instead of 49 FIs and
carriers, a more limited number of people who we could move the
work flows around to, depending on their performance, we would
have a much better situation.
I also think some of the things that were referred to as
far as local medical decisions and things like that with a more
consolidated group of contractors, that we had probably a
better, more rationally motivated relationship with, you would
probably find more consistent decisionmaking as well.
Mr. Greenwood. Mr. Mangano?
Mr. Mangano. I think in this country we expect high
quality. We expect high quality out of our health care system,
out of our automobiles, and every other part of the economy
that we deal with.
If we have a system that allows CMS to find the best
contractors that can operate most efficiently, and that
efficiency enhances the effectiveness of their services to the
beneficiaries, that is, when beneficiaries have problems and
they want to call their Medicare contractor, if we have the
contractors that perform best at doing those functions, then I
think people are going to feel that they have responsive
government on their hands, and they are going to be able to get
their questions answered, and they are going to be able to get
the services they are entitled to under the Medicare program.
Ms. Aronovitz. We talk about full and open competition. One
of the underpinnings for full and open competition is the
principle of getting the best value for your product or
service. That involves cost, but it also involves performance
or quality and timeliness. I think what Mr. Scully and Mr.
Mangano said is that CMS should be in a position to be able to
have the flexibility to assure that its contractors are
performing well and according to whatever measures have been
set out.
But an even more direct result of new authority could be in
the area of functional contracting. I'm not sure that this
would be the most feasible, but it is something CMS needs to
consider. We know that there are some direct interactions that
occur between contractors and the providers and the
beneficiaries right now in terms of answering questions on the
telephone, sending newsletters to the providers, and developing
carrier and intermediary websites.
In the process of looking at those mechanisms that create
an environment for good provider and beneficiary relations, it
is possible that a functional contract, where experts
understanding how to communicate with beneficiaries and
providers, might turn out to be a very good thing. So there are
ways to immediately get some of the benefits from authorities
if you could find a functional contract that could address some
of the immediate problems that you have.
Mr. Greenwood. The contractors sort of seems to need to
serve three masters, at least. You have the obligation to the
taxpayers to provide the service at a cost-efficient way. You
have the obligation to interact with the beneficiaries in a way
that is appropriate. Then you have the obligation to
interrelate with the providers, who are often frustrated in
their interactions with the providers.
How, with the latitude of these reforms, how does CMS
manage to weigh these three competing demands and make sure
that in the interests of serving one of those masters, we don't
begin to do a lesser job with the others? Any one of you want
to try that? Tom?
Mr. Scully. It is always a tough balance. Again, I don't
want to complain about contractors. There are some very good
ones. It is just our limited ability to find the ones who get
that balance right the most. I think there's some like United
Wisconsin, I guess is the United Government Services, which is
Blue Cross Wisconsin, there are some Blues that have made a
fundamental decision this is something they are in for the long
haul and are very focused on. Pal Meadow in South Carolina is
one. Wisconsin is another. There are others that do a pretty
good job. I don't want to evaluate all of them right here.
There are others that aren't as interested in it. Blue Cross of
North Carolina, Mr. Burno dropped out about 2 weeks ago. They
just made a decision this was not a core business strategy of
theirs. I respect that, but some people are more focused on it
than others, and some are more interested in this business. We
want to identify with those people and become tighter, better
partners, and make sure we get that balance right.
Another point which I didn't make earlier is that right
now, you have to be an insurance carrier. So for instance, EDS,
which I would argue is one of the better information transfer
agents, wanted to get into this business. They had to go out
and buy a shell insurance company to do it. Other people we
have looked at that are trying to get in this business, to
maybe potentially be additional good contractors, credit card
companies and others, can't do it under the existing statute.
So our flexibility to find people that want to be in this
business and want to establish long-term partnerships is
limited by the statute that says you have to be an insurance
carrier.
Mr. Greenwood. Do either of the other of you wish to
testify? My time is up, so please be brief.
Mr. Mangano. Not really. It is just a question of, I think,
making expectations clear, having contracts that are written
clearly enough in terms of explaining what the requirements are
in the provision of services to beneficiaries as well as to
provide services to suppliers who are going to be billing the
Medicare program.
To the degree to which those specifications can be clear
and that the contractors can be held responsible for delivering
services on a performance basis, I think you are going to
increase the opportunity to having more success with contractor
operations.
Mr. Greenwood. Okay. My time is expired.
The Chair recognizes the gentleman from Ohio, Mr. Brown,
for 5 minutes.
Mr. Brown. Thank you, Mr. Greenwood, Mr. Chairman.
Mr. Scully, I have regular Medicare meetings in my
district, which many Members have, just to familiarize
beneficiaries with various Medicare services and answer
questions, all that. We may have 50 people there. We may have
200 people there. We also have all these meetings. One of the
presenters is from the Ohio State Health Insurance Counseling
Assistance Program, OSHIP and Ohio SHIP, whatever, and in other
States.
They are important because they translate education
outreach efforts to the State and local level. They also, as
you know, are heavily reliant on volunteers. The SHIP programs,
I believe, get about $15 million spread across the country, the
50 State agencies. How will CMS ensure, as it is getting more
and more difficult for them with this pretty small amount of
money to do what they need to do? The services they give are
obviously very important. How do you plan to ensure that these
agencies have the sufficient resources and staff to respond to
an increase in referrals generated by the 1-800 number and all
that that entails?
Mr. Scully. Well, I think the SHIPs do a great job. I think
it's $13 million. It might be $15, but it is in that range,
which is obviously a limited amount of money. Probably my No. 1
priority tied with contractor reform is beneficiary education.
As you may have seen, we have already announced that we are
planning to spend $35 million this fall on I think an
unprecedented level of beneficiary education.
One of the biggest efforts in that, I think it's about $17,
$18 million is substantially enhancing the 1-800 number. What
happens now, if you call 1-800-MEDICARE from Ohio or from
Philadelphia, is you generally get a very basic level of
information and then you get transferred off to a SHIP, which
are generally volunteers. They get an increasingly intense
level of call-ins to our 1-800 number.
One of the things that is going to happen starting October
1, is when you call in, you are going to have an entire new
tier of the Medicare 1-800 number that you will get a person on
the phone who is familiar with your Ohio district or
Philadelphia or Florida, whatever, that will give you a whole
level of information about your Medicare, Medigap benefits,
your Medicare benefits, your out-of-pocket costs. They won't
pick a whole package for you, but they will give you a whole
level of assistance parallel with what the SHIPs are doing.
So I think one of the things that you are going to get, and
it's also going to be 24 hours a day, 7 days a week, instead of
the current 8 hours a day, 5 days a week. So one of the things
that this will do is I think substantially reduce the referrals
to the SHIPs. SHIPs do a great job. They do such a good job
that we are basically trying to turn our 1-800 MEDICARE numbers
into basically a massive SHIP service. The SHIPs are basically
through the State insurance commissioners.
Mr. Brown. Do you see placing, as some have suggested, a
Medicare representative in every Social Security Office so
people can have that one-on-one contact?
Mr. Scully. You know, that used to be--that is a very
complicated issue, because obviously CMS/the old name evolved
out of Social Security. So for years, there was a Medicare
person in each Social Security Office, which was helpful. As
the budgets were squeezed at various departments over the
years, the Social Security obviously--their No. 1 priority was
not Medicare. Medicare people disappeared from that.
We are intensely focused on beneficiary education. Whether
the best way to do that is to put people back in Social
Security offices or to do it through senior centers, or to do
it through others ways are things that I am very open to and I
have been looking at it. But we are very focused on beneficiary
education. I think it is going to be pretty hard this fall for
anybody in the United States to miss our beneficiary education
campaign, hopefully.
Mr. Brown. The last question, Mr. Chairman, along these
lines, Medicare plus choice or its predecessor used to--managed
care generally used to provide more money for various kinds of
agency information. That has been cut over the years, what
managed care has provided. Sort of two parts to the question.
As you strive to increase the involvement of managed care in
Medicare, whether you are successful in that or just the fact
that we have provided managed care a good bit more money in
this $11 billion last year and lots of dollars before that, do
you plan to call on managed care, on Medicare plus choice
participants to provide more education resources so that OSHIP
and others complementarily, if you will, can provide better
kind of service?
Mr. Scully. Through the user fee package?
Mr. Brown. Well, however you would use the power of this
office to encourage managed care companies, to encourage
Medicare plus choice to provide more agency information.
Mr. Scully. Yes. We are clearly going to do that. How it's
funded, I think the user fee was reduced last year in
legislation, so there is some limited discretion over that.
We are clearly going to put out a lot more information on
our website and various other places about plans. Just to
clarify, by the way, I am trying to knock the word managed care
out of my vocabulary. Private health plans--I have been
misquoted frequently as wanting to double managed care. My
point, which was widely reported about the Medicare+Choice plan
was that in 1997 when the bill passed, CBO had anticipated by
2002 that you would have about 30 percent of people in
Medicare+Choice. That number has now dropped to 15 percent. I
have every indication more people are going to drop out this
summer.
What I have been saying is that I think a lot of seniors
who have private health plan choices like the drug coverage, we
tend to keep those people in, and then try to get back to what
most people anticipated was the growth curve. But it is not
that I am out there trying to pump managed care. We are very
interested in making seniors know about other options, whether
it's Medicare+Choice, Medicare Select, Medigap.
One of the things when I came into this job I found was
that our data and our polling show seniors really do not
understand the benefits at all, even the base benefit. They
don't understand the co-payments and the deductibles. So I am
interested in educating them as thoroughly as we can, and
whatever option they decide to pick is great, as long as they
know what they are doing.
Mr. Greenwood. The time of the gentleman has expired. The
Chair recognizes the chairman of the Health Subcommittee, Mr.
Bilirakis, for 5 minutes.
Mr. Bilirakis. Thank you, Mr. Chairman. Last week we had a
hearing, a young lady from HHS--I don't remember whether she
was from CMS or not, C-M squared S, but she stayed in the
audience. That was very impressive, that you had someone doing
that. I would hope that you would have someone sitting in here
taking notes when the next panel comes up. I think it is so
very important. It makes people feel good too, that someone
cares.
Mr. Scully. It would probably be me, Mr. Chairman. I am
still a staff person.
Mr. Bilirakis. There is a June 28 letter from Secretary
Thompson to Speaker Hastert regarding your recommendations on
needed legislative changes to the law. Are you, Mr. Mangano or
Ms. Aronovitz, familiar with that? Have you had a chance to
look at it?
Ms. Aronovitz. I think we received it this morning. But I
think in some ways it is very similar to prior year proposals.
Mr. Scully. Yes.
Mr. Bilirakis. We have two mikes there. We ought to be able
to use them.
So you are familiar with it?
Mr. Mangano. Yes. I had seen the bill a couple of days ago.
Mr. Bilirakis. Okay. You have seen it before we have this
morning.
I am not asking about it now, but I would hope that you
would submit to us any thoughts you have on these
recommendations and your recommendations regarding them. That
could be very, very helpful.
Mr. Mangano. I would be happy to.
Mr. Bilirakis. We would appreciate that very much.
Mr. Scully, in your written testimony you state that ``Many
contractors serve multiple and sometimes non-contiguous States,
resulting in a patchwork''--underlined--``Patchwork of coverage
in service across the country.'' We found out that that is one
of the problems, that there is a patchwork, lack of
consistency, if you will, a lack of contract authority, and
what CMS aimed with expanded contract authority, would CMS aim
to minimize this current patchwork? What benefits do you
believe could be achieved from more regional contracts or
single contracts?
Look at the charts. There you see fiscal intermediaries,
carriers. Is there a need to have separate fiscal
intermediaries from carriers? If there is no need, would that
be more efficient, result in better efficiency and less costs?
Mr. Scully. I think eventually it would. I am not sure
right now, as many people stated, I don't think you can do this
over night. I think this is a multi-year phase in. I mean you
definitely have completely different Part B and Part A
deductibles and systems. In some of the States that overlap,
like Blue Cross of Florida I think or Trail Blazer, as both
contracts, which I think is actually I didn't realize until
last night when I was reading, that that is actually part of
Blue Cross of South Carolina as well.
Mr. Bilirakis. But they are separate contracts.
Mr. Scully. They have two contracts, but they have two
different systems, two different groups of people.
Mr. Bilirakis. Right.
Mr. Scully. Arguably, if Trail Blazer is doing Texas in
Part A and Part B, those functions could be merged. There has
also been a lot of discussion, whether it happens or not, in
Congress about eventually merging Part A and Part B in some
form anyway. So I don't think whether that ever happens or not,
the merging of the contractor systems to me intuitively makes a
lot of sense. That there's not a great ability----
Mr. Bilirakis. Even if Parts A and B are merged, so you
would only have one carrier that would handle the fiscal as
well as the rest of it, makes sense. Does it not?
Mr. Scully. Yes.
Mr. Bilirakis. It certainly sounds more efficient. It
sounds like probably less costly.
Mr. Scully. Well, I would hope so. At some point it should
be. I also think fundamentally I am not a believer in cost-
based systems any place in Medicare. Whether you look at it for
hospitals or any of our old cost-based systems, there is not
immediate overnight savings. With the DRGs, there probably
won't be immediate overnight savings when we go from rehab
hospitals to PPS this year. But I think all the prospective
payments systems show that if you incentivize people correctly,
eventually there are cost savings and there are efficiencies. I
think most of these companies will tell you that they would
rather do rather than a cost-based contract is just the
tradition. That they would much rather be incentivized.
Mr. Bilirakis. You don't feel that you have the legal
authority to make these changes now though? You would need
changes made in the law?
Mr. Scully. We believe we clearly don't.
Mr. Bilirakis. Okay. If we go ahead and incorporate these
as we contemplate doing in our ``Medicare Reform Modernizing''
or whatever we want to call it, prescription drug legislation,
you would go right into trying to make some of these changes as
rapidly as you reasonably can?
Mr. Scully. Yes. I would not expect that we are going to
get to 18 and 20 overnight, but I do think that we could
identify in those charts the people who are our best partners,
and generally start to move work toward them and start to find
the best people who are doing the best services, and give them
more work, and gradually phaseout the people that----
Mr. Bilirakis. You know for years we have heard about
problems like this. I can't recall any emphasis made on the
part of the old HCFA people over the years. I am not referring
to any particular administration coming up here and placing
emphasis on these things. In fact, Mr. Brown keeps talking
about additional resources. He means money, I guess. The point
is, yes, if that is needed, there should be requests for it.
But that certainly in and by itself never gives us the answer
in and by itself. Nor do I recall much emphasis being placed on
people coming up here basically demanding, at least explaining
the need for that money.
Mr. Scully. I think some form of this bill, I know all 4
years of the first Bush Administration I was in, we set
something up. But there always seemed to be other
controversies, whether it was RBRBS back then or whatever. But
in Nancy Eon's case, who is a good friend of mine or the most
recent administrator, she had Y2K, BBA, lots of other things
going on. I think this just fell down the priority list. But
for whatever reason right now, it is a big priority for us and
a huge one for the Secretary. So we are happy to explain what I
think is a long overdue need.
Mr. Bilirakis. Mr. Chairman, may I continue on? I realize I
have gone past my time.
Mr. Greenwood. Just this once.
Mr. Bilirakis. Just this once. He's paying me back, is what
he is doing.
Mr. Mangano, we have talked before. The fraud provisions
and what not, we have all placed emphasis on that. How much of
the fraud claims that are taking place out there would you say
is the result of lack of communication, lack of education? I
would say on the part of providers as well on the part of the
contractors in the old HCFA. It is a big problem, certainly in
my congressional district, as you know. I am trying to get to
the meat of that. I mean, you know, I just can't believe that
all of these providers are bad guys. I just wonder how much of
it might be due to lack of communication and what not. If that
is much of the case, I would hope that Mr. Scully will be aware
of it so that again, we can have uniformity of communications
and adequate communications and that sort of thing. Not much of
a question, but if you have any quick comment.
Mr. Mangano. Well, each year that we have done our review
of the payment claims, the improper payment report we call it
in our office, we have seen dramatic improvements in terms of
the reduction in improper payments. From the first year we did
it, 1996, it was running at 14 percent or $23 billion, to the
last year that we did it, where it was down to just under 7
percent, at $11.9 billion.
Each year we have done this review, we have made
recommendations. HCFA has basically agreed that we have to
increase the education component of the Medicare program.
Providers have every right to know how to bill properly. When
they bill properly, everybody succeeds.
There have been efforts across the country and conferences
have been held in local areas. Our staff goes out many, many
times during the year to meet with local groups as well as
professional groups to help explain the compliance rules from
our perspective and the CMS perspective, et cetera.
But we still need to do more of it. It is clear to us there
is not the level of clarity that needs to be existing out there
for everybody to be able to understand the rules and to bill
properly.
Mr. Bilirakis. Yes. From an image standpoint, they are
guilty. They are guilty even if found innocent later on. It
gets around the community and there goes their reputation and
all of their hard work and education down the drain. So it is
something we have got to emphasize.
Thank you very much, Mr. Chairman. I appreciate your
indulgence.
Mr. Greenwood. The Chair recognizes the gentlelady from
Colorado, Ms. DeGette, for 5 minutes.
Ms. DeGette. Thank you, Mr. Chairman.
In the next panel, Mr. Chiplin is going to testify, and we
talked about this a few minutes ago, that the beneficiaries
require a lot of information so that they can make an informed
decision about their health care decisions. I guess I would ask
you, Mr. Scully, how well CMS ensure that beneficiaries can get
this information if the contractor functions are parceled out
to two, three, or four different entities?
I can see the rationale for that in a lot of contexts, but
in the context of beneficiary information, won't they get
confused trying to call one contractor to get benefit
information, another to get eligibility information, and
someone else to get the status of their claim?
You testified earlier that it used to be that before the
budget cuts, there would be more people in the Social Security
offices and so on to give this information. How are we going to
get that education to the beneficiaries?
Mr. Scully. As far as I think the GAO testimony was that
there is some merit in contracting our more and splintering our
contracts further, which we are looking at. I have not quite
reached that decision yet, for some of the reasons you
suggested, which is I am worried about becoming too splintered.
But we are in the process of evaluating that.
I can tell you since the day I walked in the door, my No. 1
focus, and I think the staff will tell you this, has been
beneficiary education and putting together this major campaign
to educate seniors and beneficiaries.
I think a lot of that is done more through us than through
the contractors. I think, for instance, if you look at our
website, which doesn't get many hits. If you are a dialysis
patient, there is no question in my mind if you go into Denver
and pull up dialysis centers, there is very detailed
information on quality on dialysis centers. People don't use
it. They go when the nephrologist tells them to go.
Similarly, the information on nursing homes is not I don't
think quite objective enough, and we are working on that. But
my goal is to basically provide a lot more quality, objective,
fair information for people to make better decisions. That is
going to be probably my No. 1 push, as long as I survive 3\1/2\
years.
Ms. DeGette. I think that is an admirable goal. But don't
you think that that particular component of beneficiary
education would be made more difficult if contractor functions
are parcelled out?
Mr. Scully. Well, I think that is the balance to weigh. But
I think what we are talking about here fundamentally to begin
with is probably contraction of contractors, where you have
more consistent contracting. Whether it is also a good idea, as
we have done in some of the fraud abuse efforts, to subcontract
out specific issues to subcontractors who are more focused on
particular beneficiary education areas, we have not made that
decision yet. I think it is being discussed. That is one of the
recommendations GAO had, but I think the balance there is
splintering it too much.
Ms. DeGette. Ms. Aronovitz, would you comment on that?
Ms. Aronovitz. I think there is a difference between having
fewer contractors, but still having an interface and having
oversight in management so that you would still have local
connections. If somebody calls an 800 number, they don't
necessarily know that they are getting a Blue Cross Blue Shield
company in Alabama versus in North Dakota. There are a lot of
ways to still maintain the local relationship between
beneficiaries. We would not want CMS to ever consider any kind
of functional contract that would break the relationship in
that way. So it is a matter of figuring out how to be very
specific about what you are asking for and then finding experts
who could bid on these contracts that could provide that kind
of quality.
Ms. DeGette. I think that that is an important concept to
keep in mind as you go through this.
Let me follow up, Ms. Aronovitz, just about functional
contracting. It seems to me that if it is going to work well,
CMS is going to need to clearly lay out the scope of
responsibilities and expectations for each contractor, and make
sure that the contractors are not duplicating work or letting
responsibilities fall through the cracks, some of the same
problems that you are suggesting this to remedy.
What steps will CMS need to take to administer Medicare
properly if they use functional contracting?
Ms. Aronovitz. I think functional contracting is a very,
very good concept theoretically. But I think implementation-
wise, there are a lot of challenges. I think CMS is learning a
lot from its contracting for program safeguard contracts. A lot
of those are functional contracts. They are very specific.
We issued a report about 2 or 3 months ago on the status of
CMS' efforts to implement its PSC or MIP authority on these
functional contracts. Basically there are two issues that CMS
really has to be careful about. The first one is being very
specific about defining or putting your arms around what that
function would be. It is not that easy to do, but if you don't
do a good job, then you are going to get somebody to bid on
something less than what you are actually expecting.
The second thing is that you have to have performance
measures and standards in place because if you don't have
performance measures articulated well upfront, you are not
going to know whether you are getting what you are paying for.
Those are the types of activities that become critical in any
type of contracting, whether it is an invitation for bid or a
request for proposal. In either case, you really need to
understand what type of performance you are expecting. It's not
easy.
Ms. DeGette. Thank you.
Mr. Greenwood. The time of the gentlelady has expired. The
Chair recognizes for 5 minutes Dr. Norwood.
Mr. Norwood. Thank you, Mr. Chairman.
Mr. Mangano, you have been with HHS a long time. You have
been working in the area of Medicare a long time. You have been
involved in subcontracting area a long time. I think we all
would agree that systems developed over 35 years ago probably
at least need to be changed. If we were starting from scratch,
they might not even recognize each other.
Now do you ever sit around fantasizing what this really
ought to be? How this system really should deal with
subcontractors? Because you have a lot of experience and I
value your thought.
Mr. Mangano. Well, I would like to answer it this way. The
Congress and the American people have every right to expect
that the Medicare system be run efficiently and effectively.
I would like to maybe use a little bit of imagination now
and think that we have all just started up a new company. This
company is going to do about $200 billion worth of business
each year. We are going to have 40 million customers. We are
going to have over a million different providers of service
here. You are the board of directors, and you are interviewing
potential candidates that are applying to be your chief
executive officer. A young chap comes walking in the door and
he says, ``I have got a great new business plan for you. Here
is how we are going to run our company. First, we are not going
to do any open or full competition for any of the contracts for
the people who are actually going to manage our program on an
every day basis . . .''
Mr. Norwood. Mr. Mangano?
Mr. Mangano. Yes, sir.
Mr. Norwood. Forgive me. I did ask our witness the
question. I want it in writing. You are in charge. You are king
for the day. You start from scratch. Tell me how you would do
the subcontractors. Give me your opinion at the same time on
the changes that Mr. Scully brings to us today from the
Administration that they would like to see in a bill.
I would absolutely love to sit here and hear the answer,
but we don't have time. So I take my question to you very
seriously. I think you could bring a lot to the table for us to
look at as this subcommittee tries to accommodate Mr. Scully,
the Administration, and make some finally changes in Medicare.
Mr. Serato states in his written testimony that at last
count, Medicare contractors receive on average a new
instruction from CMS every 5 hours of every day of the year.
What happens, Tom, talk to me in terms of being a hospital man,
not head of this agency. What happens when CMS sends these
instructions down to the subcontractors? What do they do with
those instructions? Do they send them to your hospital?
Mr. Scully. I think they send them everywhere. That is part
of the problem with the whole system. There are a lot of great
people in CMS. I think the Secretary found that, and I have
found that too. But there has been a mode over the years of
just sending out random strafing runs from everybody. I am
trying to change that.
Mr. Norwood. Did you receive those in your hospitals? In
other words, it isn't just the subcontractor who receives the
new document or change order every 5 hours, it is also those on
the other end that are providing the care?
Mr. Scully. I think the change orders he is talking about
are the ones that actually go to the FIs and the carriers. But
separate and apart from that, HCFA puts out a lot of
regulations and program memorandums that go directly to the
providers outside of that everyday. One of the first steps--I
am not sure you have seen our response yet to the committee,
but the Secretary announced the regulatory reform effort last
week which is a first step, and this is the regulatory side.
Starting October 1, CMS is going to put out a compendium of all
its regulations each quarter. There will be a menu of
everything coming out that quarter. If it is not on there, it
won't come out.
Second, we are going to put out regulations and program
memorandums 1 day a month. So that if you are a hospital or a
physician or a provider, you will only have to look at the
Federal Register 1 day a month. Now it is a self-imposed
regulation. We are trying to simplify the process.
Mr. Norwood. What you are saying is you are going to have
less than one every 5 hours under your regime?
Mr. Scully. I think that is to the carriers, what he is
talking about. But the first step----
Mr. Norwood. But the carrier passes it on down the line.
Mr. Scully. Yes. No question. Well indirectly.
Mr. Norwood. Not maybe every time, but frequently.
Mr. Mangano, I wondered if you knew there was a change
order every 5 hours? Did you know that before coming in here?
Mr. Mangano. I did not know it was once every 5 hours, but
I do know there are a lot of them.
Mr. Norwood. Now could you somehow logically put together a
relationship that that might have a lot to do with some of your
investigations into what is called waste, fraud, and abuse, and
there is where we save all our money?
Mr. Scully. One thing I would argue, one argument for
reform is that in a cost-based system, you send out a change
order. They may be upset about it, but they just build it into
their cost. If we went to a more rational contracting system,
there would be a lot more push back all----
Mr. Norwood. That hospital can't build it into its costs
very readily.
Mr. Scully. This is to the carriers.
Mr. Norwood. I know. But they come from the carrier. I
promise you, the carrier doesn't sit there with it. They tell
us what to do because of what CMS told them what to do. I am
asking for somebody to say they understand that perhaps some of
this so-called waste, fraud, and abuse is being stimulated out
of Baltimore, out of people who are honestly trying to do right
in the system, who can't keep up with the change order every 5
hours or even if there is one a week.
Mr. Scully. I totally agree with you. One thing I have
tried to bring, sometimes to the great pain of my staff in the
3 weeks I have been there, is to have them view it from the
local provider side, because in a lot of cases, they have the
best of intentions, and they don't understand what happens to
the docs and the hospitals at the other end of what they are
doing. I think I have made a pretty big push already to make
them understand that.
Mr. Norwood. Thank you. I see the red light, Mr. Chairman.
I'm sorry about it, but I see it.
Mr. Greenwood. We noticed you care about this issue, Mr.
Norwood.
The gentlelady from California is recognized for 5 minutes.
Ms. Capps. Thank you, Mr. Chairman. Thank you very much for
the testimony of each of the three of you. I was sitting here
thinking of a kind of theoretical, sort of sophisticated
question, set of questions I could pose to you. Then I thought
of a rural county that I represent in central California, San
Luis Obispo.
I am thinking of a provider, one in particular, who wrote
me such a painful letter. I had a conversation with him it was
so troubling to read his letter. The reimbursement rate is
third lowest in the State, in that particular county, although
I have worked hard, we got it raised 12 percent. It is because
the cost of living doesn't match it in any way. It is an area
where Medicare+Choice is pretty much vacated.
But I am talking now about the provider, who when we had a
change of carriers about a year ago, all of a sudden there was
a delay in payment. Many of the providers took liens on their
practices and mortgages on their houses and went into debt.
Rural areas have their own peculiar challenges.
This one, this doctor is--I hope he is still in practice,
just a couple years from retirement, really not equipped to do
anything else--so far in debt, not able to have enough other
kinds of insurance patients and Medicare reimbursing so little
anyway for the cost of service to provide, feeling a
responsibility toward providing for his patients as providers
leave. Then patients have to drive even further distances, and
Medicare patients have challenges. Many of them are elderly.
I was hard pressed to know how to respond to him. He said
can't the system--the margin is so small anyway. When the
carrier changes and all of a sudden there is a delay, we get
really involved in our congressional office because they call
us right away. ``What's wrong? I am not able to meet my
expenses.''
I just, I don't know how to pose the questions to you, but
I don't know how to deal with this troubling, troubling
situation in my community.
Mr. Scully. Well, I am sorry to hear that. I hope you will
call me if you have----
Ms. Capps. I have called. Well, it was your predecessor.
Mr. Scully. You have called me already?
Ms. Capps. No, I haven't called you yet, but thank you for
the offer.
Mr. Scully. Because I already have to go to about seven,
there are eight different States, and I would love to visit
Santa Barbara as opposed to North Dakota.
Ms. Capps. No, this is San Luis Obispo.
Mr. Scully. I'm know. I'm kidding. And San Luis Obispo.
Ms. Capps. Santa Barbara though is No. 4 lowest in
reimbursement. That is considerably lower than next door
neighbor county to the south.
Mr. Scully. Yes. I am pretty familiar with your district. I
obviously will try to help. I was not familiar with that
change, and that there was a slowdown.
As a general matter, I think it is United Government
Services, my general experience with them is that they are one
of the better contractors. So I am sorry to hear that. I think
they have the whole State.
Ms. Capps. I thought this one was Heritage, but I looked at
your list and I didn't see that particular one.
Mr. Scully. Heritage is EDS, I believe. Yes, Heritage is
EDS. Must be HI, I guess.
Ms. Capps. I am not trying to lay the finger on a
particular carrier. But if this is what happens as changes are
made, you just have to know that there are real-life
consequences that are very, very painful.
Now in terms of our beneficiaries, we have a wonderful
program, pretty much volunteer, a voluntary program called
HICAP. I think it is throughout the State of California, which
they do a marvelous job of interpreting regulations and
answering questions and referring patients, and explaining the
services. But I have had tremendous challenges in meeting the
requests for ``help us'' from both providers and also
hospitals. So many are so close to going under, been in the red
so long, and it is really troubling. Medicaid and Medicare, we
call it Medi-Cal, are really their main sources of income.
Mr. Scully. Well, in fairness to defend Medicare to some
degree since I used to be in the hospital business until 3
weeks ago, Medicare believe it or not, is generally the best
and fastest, the fastest payer, far faster than most of the
private because under statute we have to be.
But if you have problems with your carriers--it is EDS,
Heritage is their insurance company--if you have problems with
them, I would be happy to get the men to sit down with you in
our regional office in San Francisco, and try to make sure that
we incentivize them to better performance.
Ms. Capps. Is this part of what I guess, my question then
to you and your testimony or I will take a response from anyone
else. I don't want this to be a complaining session. But is the
goal then of this time of organization to prevent these kinds
of things from happening? I guess I am not quite----
Mr. Scully. I guess I am surprised, because generally EDS,
I thought was pretty good. I hope this is a unique problem. But
my goal is basically to find the best contractors, exactly in
your situation, find the 18 to 20 best Part A, Part B
contractors together and gradually evolve to a system where we
have got the best people who perform the best to pick up more
and more volume so that the people who end up providing
services in your county are our best contractors.
Right now, our ability to shift workload to the best people
is not very good. It is very limited. So my hope is in 5 or 6
years, we can sit down as CMS and say everybody has got one of
our top 20 performing contractors, and that they are
incentivized. I personally just think cost-based contracting is
crazy. Get into appropriate incentivized contracts,
incentivized to perform better.
Ms. Capps. I wondered when I first began hearing your
testimony what is the incentive for anyone to want to volunteer
to work with you. Then I am also of course very aware of your 2
percent administrative costs. I mean who else does business
like that?
Ms. Aronovitz. I just want to add one thing. That is, that
what I hear you saying does not have to do with ongoing
performance of the contractor.
Ms. Capps. No.
Ms. Aronovitz. But when a contractor leaves.
Ms. Capps. Changing.
Ms. Aronovitz. Right. Transitions in HCFA have been
notoriously challenging. It is a difficult thing to try to get
a whole new contractor in place.
Ms. Capps. I appreciate that.
Ms. Aronovitz. I think that is a really important lesson. I
think CMS has gotten much, much better in transition, in doing
transitions than it did several years ago, where we were very
concerned. But it is a lesson to keep in mind when you are
going to be consolidating or using new authorities to
consolidate your contractors because if you are not careful and
you don't do it slow enough and do a lot of planing, then you
might have these disruptions in service. One of the really
critical challenges that the agency faces is to avoid those
kinds of disruptions.
Ms. Capps. I appreciate that. Thank you.
Mr. Greenwood. The time of the gentlelady has expired. The
Chair recognizes the gentleman, Mr. Ganske, for 5 minutes.
Mr. Ganske. Thank you, Mr. Chairman.
On June 6, I gave special orders on Medicare reform. I have
a copy here which I will provide to you, Mr. Scully. I have 26
recommendations for Medicare CMS reform. It is not meant to be
exclusive. I am sure there are many other suggestions. Number
26 says the efficient organization, performance, and oversight
of Medicare fiscal intermediaries and carriers is hampered by
legislative prohibitions against competition and financial
incentives for good performance which should improve contractor
performance by modernizing the legislative authorities,
including the authority to compete for contracts and to
financially reward good performance.
I think those are principles that we need to look at,
consistent with what this hearing is about. But the details are
very important on this. So I guess I have a question in terms
of how do you define or what are you thinking about when you
are talking about functional contracting?
Mr. Scully. Functional contracting, and it is something
that has been debated in CMS since I got there, which is how
good an idea it is. I mean the basic issue is do you want to
take some of the functions that our carriers and FIs have done,
such as reviewing claims patterns for upcoding, fraud and
abuse, things like that, and break them out of existing
contracts and give them to a separate subcontractor who is
focused just on that as a functional contract. I think their
argument is to have both ways. As Ms. DeGette suggested, I
think finding people who are most effective at their subset of
the world is a great idea. But to the point where we balkanize
the system so that we have got too many overlapping
contractors, I think that is a tension that we need to resolve
in CMS, to what works best.
We have broken some of it out already in the MIP program,
the Medicare Integrity Program for subcontracting. Some of the
contracts have come back and said look, we can do the same
thing. You are reinventing the wheel, and you are wasting your
time. I think that is just something we need to look further
into and find the right balance as to what the carriers and
FIs, hopefully consolidated together, can do best and can we
really go out and find people who are focused on specific
claims review can do for us a little better. But I am concerned
about just balkanizing the whole program and having contractors
crawling over each other, which is the worst of all worlds.
Mr. Ganske. I share your concern on that. I think there are
some elements in this proposal that tend to be both centripetal
and centrifugal. In other words, there are some parts of the
proposal I think tend to go toward fragmentation, parts tend to
pull back in. For instance, the issue of executing combined
Part A and Part B contracts. Tell me how you think that would
work.
Mr. Scully. I think it is a complex transition, but I think
right now, my understanding, and I have only been there 3 weeks
so I am still learning, is that we have totally separate Part B
and Part A systems. So even if you are Trail Blazer or Blue
Cross of Georgia, I think, or some of the others that have both
halves of the contract, both parts of the contract, they really
operate in separate worlds. There is a common working file that
ties them together to some degree, but there is a limited
amount of discussion between those two sides.
I think to some degree a phasing in where you had overlap
would be helpful in a whole variety of ways, including the fact
even when you get to things like lifetime deductibles and
outlays for Medicare, it is hard to track. So running a
coordinated program, it seems for a variety of policy reasons
as well as just functionally running the carriers better, in
the long run, I don't think it can happen overnight, trying to
develop our new systems toward an integrated Part A and B
system. Whether Part A and B are together or separate, it just
seems to me it would be a more rational way to deliver the
services.
Mr. Ganske. I think before heading in that direction, you
need to answer the question. There are many reasons why Part A
and Part B have been separate traditionally over the years. You
need to decide whether in fact that is a way to go in the first
place, and then if you decide that it would be, how well you
could make it functionally work. I think Mr. Serota has some
testimony that he will give us today on how complicated that
actually could be.
I don't think that we as a committee have come to any
consensus on that issue over the combination of Part A and B. I
certainly have not.
Mr. Scully. I would hope that I could work with you. One of
my ideas this fall is to find some of the places where Part A
and B overlap, and there are a number of States, and to try to
do some pilots and demos that are incentive-based, where you
have an overlapping contract to see how well it works, and see
what the problems are. Because clearly, we do not want to dive
into this head first without knowing where we are going.
Mr. Ganske. I would tend to agree with that because I think
that rather than instituting a broad, overall change without
first realizing what some of the consequences could be would be
foolhardy.
So anyway, I will get a copy of this to you. I would very
much appreciate it if in some way, you could respond to each of
these points that I make in my speech so I get some idea of
what you are thinking about these issues.
Mr. Scully. We have a new hopefully implemented policy
responding to all congressional inquiries in 14 days. Twenty
six questions might take a little longer, but hopefully we will
be pretty quick.
Mr. Ganske. Thank you. I yield.
Mr. Greenwood. The time of the gentleman has expired. All
of the members of the panel have had the opportunity to inquire
of these witnesses. So there is a floor vote being called now.
In fact, there are a series of them. So this panel is excused.
We thank you for your testimony. I look forward to working with
you in the future.
We will recess until 12:30.
[Brief recess.]
Mr. Greenwood. The committee will come to order. The Chair
would ask the third panel, consisting of Mr. Scott Serota,
President and CEO of Blue Cross and Blue Shield Association,
and Mr. Timothy Cullen, Chairman of United Government Services,
Mr. Alfred Chiplin, Managing Attorney, Health Care Rights
Project, Center for Medicare Advocacy, Inc. to come forward.
Welcome, gentlemen. Thank you for indulging us while we had
the series of votes. Appreciate your presence.
You gentlemen are aware that this is a hearing, a joint
hearing between the Health and the Oversight and Investigations
Subcommittees. It is the practice of the Oversight and
Investigations Subcommittee to take testimony under oath. Do
any of you have any objections to giving your testimony under
oath?
Mr. Serota. No, sir.
Mr. Greenwood. Pursuant to the rules of the committee and
the House, you then have the right to be represented by
counsel. Do any of you wish to be represented by counsel during
your testimony?
Mr. Serota. No, sir.
Mr. Greenwood. Okay. In that case, if you will rise and
raise your right hand I will give you the oath.
[Witnesses sworn.]
Mr. Greenwood. You are under oath.
Mr. Serota, if you would begin by giving your testimony,
you will be recognized for 5 minutes.
TESTIMONY OF SCOTT P. SEROTA, ACTING PRESIDENT AND CEO, BLUE
CROSS AND BLUE SHIELD ASSOCIATION; TIMOTHY F. CULLEN, CHAIRMAN,
UNITED GOVERNMENT SERVICES, LLC; AND ALFRED J. CHIPLIN, JR.,
MANAGING ATTORNEY, HEALTH CARE RIGHTS PROJECT, CENTER FOR
MEDICARE ADVOCACY, INC.
Mr. Serota. Thank you, Mr. Chairman, and members of the
subcommittees. I am Scott Serota, President and Chief Executive
Officer of Blue Cross Blue Shield Association. I appreciate the
opportunity to testify today. I also appreciate your interest
and leadership in identifying ways to improve the Medicare
contractor program to enhance services for beneficiaries and
providers.
Many of our plans contract with the government to handle
much of the day-to-day Medicare administrative activities. We
pay claims, provide customer service, educate providers, and
fight waste, fraud, and abuse. Our contractors are committed to
achieving outstanding performance. Blue Cross Blue Shield plans
are proud of their role as Medicare administrators. Even with
soaring workloads we have remained cost-effective, keeping
administrative costs to less than 1 percent of the total
Medicare benefits.
We also protect the trust fund by saving the government $17
for every dollar invested in program safeguard activities. We
support efforts to improve the ability of both contractors and
the CMS to provide the highest level of service to Medicare
beneficiaries.
Before discussing our specific recommendations on
contractor reform, I would like to provide you with a
perspective on the challenges we face as contractors. First,
inadequate funding, coupled with rising workloads impede
contractors' ability to provide service levels beneficiaries
and providers expect and frankly, deserve. Our contractors have
been severely under-funded since the early 1990's, while claims
volume have risen almost 70 percent.
While the additional funding provided through a permanent
appropriation in 1996 for dedicated fraud and abuse activities
has helped, it has not solved the budget problems for the rest
of the contractor budget, which are needed to pay claims,
provide customer service, and educate providers. This is still
subject to the annual appropriations process. We are pleased
the Administration and many members of this committee have
recognized the need for additional administrative resources. We
would like to work with you to make this happen.
Second, the Medicare program has grown more and more
complex in recent years. Over the past few years, several new
payment mechanisms were implemented and benefits added. In
addition, HIPAA administrative simplification provisions and
privacy rules must be implemented. Just as each of you have
heard from providers about Medicare complexities, so do we as
contractors hear these same complaints from the providers.
Third, frequent changes in program direction challenges our
contractors. At last count, Medicare contractors received an
average of a new instruction from CMS every 5 hours of every
day of the year. Finally, many legislative changes to Medicare
are rarely accompanied by administrative funding or appropriate
transition time for proper implementation.
I will turn to our specific recommendations for contractor
reform. These recommendations are based on the broad outline of
CMS' proposal since we just this morning received specifics. In
general, we agree with most of CMS' proposal. We agree that
competition can be strengthened in the program. CMS should be
able to contract with any qualified entity, not just health
insurers. In doing this, CMS should focus on competitively
bidding those contracts with those contractors which are
voluntarily exiting the program or those contractors which
perform poorly. This would allow the government to maintain
those contractors that are providing quality service and
meeting CMS' performance expectations.
We also would support the elimination of provider
nominations, so long as the provider community is in agreement.
We strongly support modernizing current cost-based contracts.
Currently, most contractors are paid cost up to a cap set by
CMS. There is no opportunity for profit. We believe CMS should
be allowed to use other payment options, such as cost-plus
contracting.
Our bottom line objective with any reform effort is to
ensure that the services to beneficiaries and providers are not
disrupted or made more complicated. We must improve the
program, not make it more difficult. It is for this reason we
would encourage the committee to establish a more businesslike
contracting environment, with a clear and definitive statement
of work, disciplined and controlled change orders, sufficient
funding to accomplish the work in a timely and professional
manner, with prompt responses to contractors' budget requests,
and contracting officers that are fully empowered within CMS to
manage the contractual relationship.
There are two areas in which we differ with CMS. We do not
agree that CMS should further fragment the program through
functional contracting. Our understanding is that CMS wants to
separately contract each function. For example, have one
contractor pay claims, one provide beneficiary services,
another for education. We just don't think this makes any
sense.
When a provider or beneficiary calls, they don't want
answers, they want action. They want a problem solved.
Functional contracting would diminish the current single point
of accountability that our contractors represent. In addition,
it disrupts effective management of the program, and has the
potential to increase, not decrease costs, because each entity
will have its own budget and coordination costs.
We do not believe that A and B contractor operations should
be merged. We believe the objective of approved care for
beneficiaries and more uniform medical policies can easily be
accomplished without having to change contractor operations.
Data can be shared and combined, and local medical policies can
be brought into agreement.
I do have one final recommendation not included in the CMS
proposal. That is, to provide stable and adequate funding. It
is simply unrealistic to expect contractors to meet
expectations without appropriate resources. To achieve this
goal, we recommend a new funding methodology be developed for
Medicare contractors. Congress should explore employing
mechanisms similar to those used to fund Social Security
administrative costs and Medicare peer review organizations.
I urge the committee to increase the permanent MIP
appropriation that is capped at $720 million in fiscal year
2003 and beyond, despite the continued increase in claims
volume. If fraud and abuse efforts are to be effective, MIP
funding must keep pace with the increasing workloads.
In summary, we are committed to achieving outstanding
performance by providing high quality service to beneficiaries
and providers. We believe more can and should be done to
improve contractor operations and oversight. We look forward to
working with the committee on these recommendations to improve
the program. Thank you.
[The prepared statement of Scott Serota follows:]
Prepared Statement of Scott Serota, President and Chief Executive
Officer, Blue Cross and Blue Shield Association
Mr. Chairmen and members of the Oversight and Investigations and
Health Subcommittees, I am Scott Serota, President and Chief Executive
Officer of the Blue Cross and Blue Shield Association. We represent 45
independent, locally operated Blue Cross and Blue Shield Plans
throughout the nation. I appreciate the opportunity to testify before
the Subcommittees on Medicare contractor reform.
Since 1965, Blue Cross and Blue Shield Plans have played a leading
role in administering the Medicare program. They have contracted with
the federal government to handle much of the day-to-day work of paying
Medicare claims accurately and in a timely manner. Nationally, Blue
Cross and Blue Shield Plans serve as Part A Fiscal Intermediaries (FIs)
and/or Part B carriers and collectively process most Medicare claims.
Medicare contractors have four major areas of responsibility:
1. Paying Claims: Medicare contractors process all the bills for the
traditional Medicare fee-for-service program. In FY 2001, it is
estimated that contractors will process over 900 million
claims, more than 3.5 million every working day.
2. Providing Beneficiary and Provider Customer Services: Contractors
are the main points of routine contact with the Medicare
program for both beneficiaries and providers. Contractors
educate beneficiaries and providers about Medicare and respond
to about 40 million inquiries annually.
3. Handling Hearings and Appeals: Beneficiaries and providers are
entitled by law to appeal the initial payment determination
made by carriers and FIs. These contractors handle over 7.4
million annual hearings and appeals.
4. Special Initiatives to Fight Medicare Fraud, Waste, and Abuse: All
contractors have separate fraud and abuse departments dedicated
to assuring that Medicare payments are made properly. According
to the Department of Health and Human Services (HHS), these
activities saved the government $9 billion in 1998.
Medicare contractors operate under detailed instructions from the
Center for Medicare and Medicaid Services (CMS), formerly known as the
Health Care Financing Administration. As government contractors,
Medicare contractors must comply with numerous federal statutes,
regulations, and Executive Orders. In addition, contractors must follow
extensive CMS-issued program guidelines and manual instructions. To
monitor compliance with these guidelines, contractors are visited
several times each year by their local CMS regional office staff for an
assessment of their performance against CMS' requirements. These
reviews, termed Contractor Performance Evaluations, are conducted
across all aspects of contractor operations--claims processing
timeliness and accuracy, customer service, fraud and abuse detection
efforts--and culminate in a formal annual report called the Report of
Contractor Performance. Also, CMS routinely contracts with private
companies to review various critical aspects of contractors operations.
Blue Cross and Blue Shield Medicare contractors are proud of their
role as Medicare administrators. While workloads have soared, operating
costs--on a unit cost basis--have declined about two-thirds from 1975
to 2001. In fact, contractors' administrative costs represent less than
1 percent of total Medicare benefits. Few government expenditures
produce the documented, tangible savings of taxpayers' dollars
generated by Medicare anti-fraud and abuse activities. For every $1
spent fighting fraud and abuse, Medicare contractors save the
government $17.
Blue Cross and Blue Shield Medicare contractors are committed to
achieving outstanding performance. We support efforts to improve the
ability of both contractors and the CMS to cost-effectively provide the
highest service levels to Medicare beneficiaries.
With this as background, I would like to focus my testimony on the
following two areas:
I. Current challenges facing Medicare contractors; and
II. BCBSA recommendations for contractor reform.
i. challenges facing contractors
There are four key challenges currently facing Medicare
contractors:
1. Inadequate funding levels with rising workloads;
2. Increased complexity of Medicare rules;
3. Frequent changes in program direction; and
4. Legislative mandates not accompanied by additional funding.
Inadequate funding levels: Of utmost importance to attaining
outstanding performance is an adequate budget.
However, Medicare contractors have been severely underfunded since
the early 1990's and are facing poor prospects of receiving adequate
funding next year. During the early to mid-1990's, reductions in
funding concurrent with increases in workload seriously eroded
contractors' ability to fight fraud and abuse. Between 1989 and 2000,
the number of Medicare claims climbed almost 70 percent to over 800
million, while payment review resources grew less than 11 percent. As a
result, the amount allocated to contractors to review claims shrank
from 74 cents to 48 cents per claim. Because of the significant cost of
reviewing claims, this decline in funding resulted in CMS' directions
to contractors to reduce the percentage of claims that were scrutinized
and investigated. Similarly, the percentage of cost reports audited
declined--between 1991 and 1996, the chances that any institutional
provider's cost report would be reviewed in detail fell from about 1 in
6 to about 1 in 13.
Throughout this period, contractors identified to CMS additional
anti-fraud efforts they could undertake if awarded additional
resources. BCBSA and Blue Plans urged both Congress and the
Administration to allocate significantly more funds for critical anti-
fraud and abuse efforts. Finally, in 1996, Congress created the
Medicare Integrity Program (MIP) in the Health Insurance Portability
and Accountability Act. MIP provided a permanent, stable funding
authority for the portion of the Medicare contractor budget that is
explicitly designated as fraud and abuse detection activities. MIP
funding was set at $500 million in 1998 and is authorized to rise to
$720 million in 2002. After 2002, the permanent authorization is capped
at $720 million despite continuing estimated increases in claims
volumes.
Thanks to this new funding mechanism, Medicare contractors have
been able to improve their efforts to reduce the amount of fraud,
waste, and abuse in the Medicare program. Contractors' enhanced anti-
fraud and abuse efforts due to MIP funding contributed to the
significant decline in improper claims and documentation submission by
providers. The OIG audit of FY 2000 claims estimated that improper
Medicare payments had dropped to $11.9 billion, or about 6.8% of the
$173.6 billion in Medicare payments. The improper payment rate declined
by over 50% or $11 billion in five years.
But, the creation of MIP did not solve the budget problems for the
remainder of the contractor budget. The largest portion of the
contractor budget--program management--is subject to the annual
appropriations process and continues to face severe funding pressures.
Program management activities include claims processing , beneficiary
and provider communications, and hearings and appeals of claims
initially denied. Under the appropriations process, contractors must
compete for funding with high priority programs such as the National
Institutes of Health and education.
For example, between 1989 and 1998, funding for program management
activities (adjusted for inflation) declined by 18 percent. During this
period, the volume of Medicare claims increased by 84 percent; Medicare
outlays (in real dollars), by 65 percent. Whenever possible,
contractors responded to reduced funding by achieving significant
efficiencies in claims processing, lowering program management costs
per claim by 56 percent in real dollars over this period. But even
these efficiencies have not been enough to keep pace with rising
Medicare claims volume and diminishing funding levels. For example,
this year, contractors have been instructed to cut back on customer
service plans, responding to inquiries, provider training and other
provider services in order to live within the 2001 budget.
Inadequate budgets for program management also impact Medicare's
fight against fraud and abuse. While many think of program management
activities as simply paying claims, these activities are Medicare's
first line of defense and are critically linked to MIP anti-fraud and
abuse activities. As an example, many of the front-end computer edits
(e.g., preventing duplicate payments and detecting suspicious claims)
are funded through program management. Inadequate funding impacts
different functions at different times, but always disrupts the
integration of all the functional components needed to ``get things
right the first time.'' It thus results in inefficiency and higher
costs.
We are pleased that Secretary Thompson and many Members of this
Committee have recognized the need for additional administrative
resources at CMS. However, we are concerned that the Administration's
FY 2002 budget relies on $115 million in new user fees from doctors,
hospitals, and other providers. Congress has consistently rejected user
fees and BCBSA would recommend they be rejected again. We also strongly
recommend Medicare contractor funding be increased to $1.567 billion in
FY 2002 to ensure adequate resources are available to provide the high
quality services beneficiaries and providers deserve.
Increased Complexity of Medicare Rules: The Medicare program
continues to grow more and more complex. It takes a great deal of time
and resources to educate providers and beneficiaries about new laws and
rules as well as answer questions. Contractors have been challenged
over the years with enormous program changes such as:
New payment mechanisms for outpatient departments, home health
agencies, and skilled nursing facilities.
Changes to Medicare coverage rules: Balanced Budget Act (BBA),
Balanced Budget Refinement Act (BBRA), and the Beneficiary
Improvement and Protection Act (BIPA).
Implementation of the administrative simplification provisions
of HIPAA.
Just as Members of Congress are hearing from providers on the
program's complexities, so too are contractors who must answer their
questions and concerns.
Frequent Changes in Direction: Medicare contractors are challenged
by the very nature of the business. At last count, Medicare
contractors, received on average a new instruction from CMS every five
hours of every day of the year. This constant state of change requires
contractors to be extremely flexible--both in terms of operations and
budget. It has not been uncommon in the past for contractors to be
forced to abandon projects or reallocate staff mid-year in order to
adapt to CMS' suddenly revised priorities or modified funding levels.
Medicare contractors operate under cost contracts, and CMS places
budget caps, or limits, on the unit costs paid to contractors to
process claims. By law, Medicare contractors are not allowed any
profit. Under these contracts, Medicare contractors essentially do
whatever work CMS requests, without ``change orders.'' There is not a
clear statement of work at the beginning of the year, and contractors
generally must comply with constant change orders from CMS without
additional reimbursement. These demands make the Medicare contractor
business extremely challenging.
Legislative Mandates Without Funding: Legislative changes to
Medicare are rarely accompanied by administrative funding or
appropriate transition time for proper implementation. This is
extremely cumbersome for contractors that are already strapped for
resources.
bcbsa recommendations to improve the medicare contractor program
BCBSA agrees that revisions to the Medicare contractor program
could strengthen contractors' ability to effectively and efficiently
handle day-to-day administration of the Medicare program. Blue Cross
and Blue Shield Medicare contractors are committed to achieving
outstanding performance levels and providing superior service to
Medicare beneficiaries and providers. We want to work with the Congress
and CMS to attain this objective. While CMS has outlined a number of
changes, we understand the specific proposal is still under
development. Therefore, our comments reflect our best understanding of
their proposal at this time.
Competitive Contracting: We believe that Congress should explore
revising Medicare contracts to allow qualified companies to compete
based on a modified Federal Acquisition Rule (FAR)--the federal
government's rules on competitive contracting. The FAR would instill at
least two disciplines now missing in the program: a clear scope of
work, and a professional contracting officer for each contract, through
whom contract changes are made. Conducting such competitions under the
FAR would ensure that contracts are awarded on the basis of fair
competition, and it would give all contractors appropriate appeal
rights and due process.
HHS has indicated its intent to reduce the number of contractors to
fewer than 20 by 2006. We would point out that such consolidation is
already occurring without legislation. In fact, the number of FFS
contractors has declined from nearly 50 in 1985 to 32 at the present
time. We would caution the Congress and the Administration against
moving precipitously with additional consolidation. It could have the
potential of seriously disrupting program operations, which in turn
could hinder provider services and beneficiary care. To ensure
stability of the Medicare program, BCBSA recommends that CMS only put
to competitive bid poor performing contractors or those that occur when
a contractor is voluntarily exiting the program, rather than using an
artificial and mandated timetable for consolidation. This would allow
the government to maintain those contractors that are providing quality
services and meeting CMS' performance expectations.
Allowing Non-Health Insurers: BCBSA does not oppose the CMS
proposal to allow non-health insurance entities as FFS contractors. In
fact, we believe CMS already has this authority under current statute
and would question whether CMS actually needs additional legislative
authority to accomplish this. However, we strongly support the
development of criteria to ensure that entities allowed to compete are
well qualified to provide the full range of Medicare administrative
services.
Functional Contracting: We understand that CMS would like
additional authority to further fragment current contractor functions.
CMS already has considerable authority to contract separately for
Medicare processing functions. For example, the MIP authority under
HIPAA permits HHS to separately contract for payment safeguard
functions and last year's Medicare legislation requires separate
contracting for second level appeals.
We believe it is unwise for CMS to further fragment Medicare
functions because it would diminish the current single point of
accountability that fiscal intermediaries and carriers represent to
providers and beneficiaries. By breaking up contracting functions and
spreading them among a large pool of new entities--many of whom would
be inexperienced in Medicare--the claims payment process could be
impaired, which is likely to disrupt effective management of the
program. Costs would invariably increase because claims processing,
customer service, and fraud and abuse activities are interconnected;
for example, claims processing and fraud control efforts would still
require coordination and extensive data sharing after these
responsibilities are divided. At the very least, a comprehensive plan
to ensure efficient coordination among the functional contractors and
an infrastructure to support the coordination must be developed and
implemented prior to adopting any provisions to further fragment
program operations.
Moreover, separating key functions to different contractors could
hinder efforts to fight fraud and abuse and disrupt services to
beneficiaries and providers for several reasons:
1. Fragmentation is likely to create competing, counterproductive
incentives.
2. Staffing resources required to implement and manage this type of new
contracting authority are so immense that they would undermine
CMS' efforts to administer its other initiatives effectively.
3. Contracts could be awarded to entities that have no experience
working with the Medicare program (a current program
requirement), or even entities that have no familiarity with
health claims processing.
4. Functional contracts are likely to increase, not decrease costs.
Above all else, fragmenting the claims payment process would
destroy the current single point of accountability now available to
CMS, providers, and beneficiaries. I cannot emphasize enough the
potential confusion and difficulty that may arise from managing a
multitude of independent specialty contractors who share work but do
not share accountability for the outcome (e.g., for a correctly and
efficiently processed claim), and may even consider themselves
competitors to each other. It is conceivable that under CMS's proposal
an individual claim could be handled by three or more individual
contractors before it is finally processed. This fragmentation could
remove any accountability for processing a single claim properly--from
beginning to end.
Combine Part A and B Contractor Operations: The Medicare program is
unique in that two distinct operations exist for Parts A and B, each
having been designed separately. We do not believe that merging
contractor operations would improve the program for beneficiaries. In
fact, it could have the opposite effect, hindering operations and
causing disruptions in services. Part A is geared toward interactions
with hospitals and the provider community while Part B contractor
operations are targeted toward interactions with beneficiaries.
Because of the differing benefit structures, which led to separate
Part A and Part B contractors, Medicare's information systems have not
advanced the techniques for consolidated processing. In fact, since
CMS's aborted attempt to construct a single processing platform in the
early 1990s (the Medicare Transaction System or MTS), CMS has pursued a
strategy of separate automated systems for Part A and Part B, and an
additional automated claims processing system for its Durable Medical
Equipment Regional Contractors. As the General Accounting Office
testified recently before your Committee: ``HCFA lacks [the capacity to
collect comprehensive information on services and payments in the
aggregate and for individual beneficiaries] today, not because it has
separate contractors for parts A and B, but because of deficiencies in
its information systems.''
We can appreciate the advantages of having a common database of
beneficiary and claims information to promote customer service and
medical review. Similarly, local medical policies should not differ
between Part A and Part B in the same states or major metropolitan
areas. These two concerns, however, are easily dealt with without
having to change contractor operations: data can be shared and
combined, and local medical policies can be brought into agreement.
Eliminate Provider Nominations: Provider nomination was originally
implemented to offer greater ease and simplicity of claims payment for
institutional providers. This process has been important for provider
chains that are able to choose one contractor to handle claims from
their providers on a nationwide basis. As you consider this
recommendation, we suggest consulting with the provider community on
the impact of such a change. BCBSA would not oppose this, which would
include elimination of our Prime Contract, so long as the provider
community is in agreement.
Drop special contractor termination provisions: CMS clearly has the
authority to terminate current contractors if they are not meeting
performance expectations. We understand that CMS is considering a
proposal that would eliminate contractor's current termination rights,
primarily the payment of phase-out costs. Continuing contractors should
retain their existing termination rights.
The original construction of Title XVIII intended contractors to be
reimbursed at neither profit nor loss and permitted contractors
termination rights and payment for phase-out costs. Had the statute
envisioned today's typical FAR contracting rules, termination rights
and reimbursements would be handled differently. If, in the future,
Medicare FFS contracts are procured under the FAR, then interested
parties will be able to consider those termination provisions in their
bid proposals. Contractors that are not given the opportunity to rebid
under different termination rules, should retain the current
contractual rights.
CMS authority to award other than cost reimbursement contracts: We
agree with CMS that the current cost based contracting system should be
modernized. Currently, most contractors are paid costs up to a cap set
by CMS; there is virtually no opportunity for profit. We believe CMS
should be allowed to use other payment options, such as cost plus
contracts.
We would like to again highlight that contractors have been
extremely efficient. Unit costs have dropped two-thirds over the last
25 years; administrative costs represent less than 1 percent of benefit
payments. This has been achieved by the many technological advances
employed by contractors.
As previously stated, a major challenge over the past 10 years has
been inadequate funding, coupled with rising workloads and legislative
changes necessitating major payment systems revisions. The prospects
for adequate funding for next year do not appear promising. Any change
to how contractors are paid must be accompanied by sufficient overall
funding.
Stable and Adequate Funding is Necessary. While Blue Cross and Blue
Shield Medicare contractors are committed to continually achieving
greater efficiencies, it is simply not realistic to expect contractors
to attain outstanding performance levels with greater workloads and
tighter budgets.
We urge Congress to provide adequate funding levels to assure that
contractors can perform the range of functions necessary to safeguard
program funds and support high quality service levels to beneficiaries
and providers. As highlighted earlier, funding has not kept pace with
programmatic needs--important functions are not being funded. We have
two specific recommendations that are not included in the CMS package:
First, we urge Congress and the Administration to assure
Medicare administrative funds keep pace with workload increases
and new legislative/regulatory requirements. Congress also may
wish to explore using a new methodology to develop Medicare
contractor budgets, such as those mechanisms used to fund
Social Security Administration administrative costs and
Medicare Peer Review Organizations.
Second, we urge the Committee to increase the permanent MIP
appropriation, which is currently capped at $720 million in
2002 and beyond. If fraud and abuse efforts are to be
effective, MIP funding must keep pace with workload increases.
MIP has also had a positive effect on Medicare's financial
situation, lowering FFS inflation and extending Part A Trust
Fund solvency, according to the OIG and Medicare Trustees.
Therefore, it is critical this program be continued.
BCBSA would like to work with Congress to assure adequate funding
is available each year for high quality provider and beneficiary
services.
conclusion
Blue Cross and Blue Shield Medicare contractors are committed to
achieving outstanding performance. We believe more can and should be
done to improve Medicare contractor operations and CMS oversight.
Success in Medicare claims administration requires that CMS and the
contractors work together toward their mutual goal of providing high
quality services to beneficiaries and providers, including accurate and
timely claims payment.
BCBSA look forward to working with this Committee and CMS to make
these needed improvements.
Mr. Greenwood. Thank you for your testimony.
Mr. Cullen, you are recognized for 5 minutes.
TESTIMONY OF TIMOTHY F. CULLEN
Mr. Cullen. Thank you, Mr. Chairman, and members of the
subcommittees. My name is Tim Cullen. I am Chairman of the
Board of United Government Services. We are the largest
Medicare Part A intermediary. We process about 20 percent of
all Part A claims. We employ 1,300 people in eight different
States.
We support the Medicare Contractor Reform proposals of the
Secretary and CMS. We welcome and support more competition in
Medicare contracting. We have competed for and won contracts in
the Medicare program. In our private business side at Wisconsin
Blue Cross, we compete for business every day.
The Medicare contractor program needs to change and be
administered within the context of free market competition.
This is the clear and obvious direction of nearly every segment
of our society. The program needs competition. It needs
incentives. It needs reasonable limits on contractor liability.
The current program of cost contracts, with no incentives
to excel and unlimited liability, is essentially a program of
all stick and no carrot. The current system of throwing out
non-compliant contractors, but not rewarding good ones simply
encourages mediocrity. That does not serve the senior citizens
of America well.
We support moving away from cost contracts. Cost contracts
do not reward excellence. Cost contracts require CMS to
micromanage contractors. We need to move to incentive-based
contracts through the competitive bid process. I have no doubt
that CMS can successfully manage the changes proposed by the
Secretary and the administrator.
Transitions of business to new contractors would occur with
reform. There would be this movement of business to different
contractors. This does not need to be disruptive to senior
citizens or providers. Working closely with CMS, we at United
Government Services have successfully completed large
transitions in Michigan, Virginia, West Virginia, and
California, all in the past 4 years. In addition to these
States for the Part A side, we also assumed workloads for the
federally qualified health centers in all 50 States, as well as
regional home health intermediary for eight more western
States.
If you address the issues involving the employees currently
doing the work, it is a key factor in that success. We also go
out and meet with provider groups, meet with beneficiary groups
in advance of the transition date so they know who the
contractor and intermediary is going to be, and know how to get
a hold of us. You can mitigate a lot of those transitional
issues if you meet with people in advance.
The Medicare contractor budget of over $1 billion does not
go out for bid today really unless the contractor leaves
voluntarily or involuntarily. As a matter of public policy, we
do not think this is defensible, particularly for large
contractors and intermediaries.
We support the elimination of the provider nomination
process, and therefore, the Blue Cross Association master
contract with CMS. As a practical matter, on a day-to-day
basis, we intermediaries interact with CMS daily, hourly, and
not that often involving the association. So as a practical
matter, the relationship is between us as intermediaries and
with CMS.
Regarding changes to termination agreements and costs, we
must recognize and protect existing contracts with employees,
such as our unionized employees in downtown Milwaukee. We are
proud of our employment record on the new contracts we have
been awarded, and are well aware that both the committee and
CMS value continuity of services when intermediaries change.
Contract incentives can be structured to be very beneficial
to a senior citizen. Incentives can reward contractors for
speed and accuracy, for example, in handling customer service
phone calls. Have the incentives reward the kind of behavior
that benefits the senior citizen.
Competition and properly structured incentives will
encourage excellence in Medicare contracting. This serves the
senior citizens of America.
I thank you for this opportunity to testify. I will be
pleased to try to answer any questions of the subcommittees.
Thank you.
[The prepared statement of Timothy F. Cullen follows:]
Prepared Statement of Timothy F. Cullen, Chairman, United Government
Services, LLC
Mr. Chairman and members of the Committee I am pleased to testify
before you today. I am Chairman of the Board of United Government
Services (UGS). As the largest Medicare Part A intermediary we process
20% of all Part A claims. We employ 1,300 people in eight states.
We support the Medicare Contractor Reform proposals of the
Secretary and CMS.
We welcome and support more competition in Medicare contracting. We
have competed for and won contracts in the Medicare program and on our
private business side, at Wisconsin Blue Cross, we compete for business
everyday.
The Medicare contractor program needs to change and be administered
within the context of free market competition. This is the clear and
obvious direction of nearly every segment of our society.
The program needs competition, incentives and reasonable limits on
contractor liability.
The current program of cost contracts, with no incentives to excel
and unlimited liability, is essentially a program of no carrot and all
stick.
The current system of throwing out non-compliant contractors but
not rewarding the good ones encourages mediocrity and that does not
serve the senior citizens of America well.
We support moving away from cost contracts. Cost contracts do not
reward excellence. Cost contracts require CMS to micromanage
contractors. We need to move to incentive-based contracts through the
competitive bid process.
I have no doubt that CMS can successfully manage the changes
proposed by the Secretary.
Transitions of business to new contractors would occur with reform.
This does not need to be disruptive to senior citizens or providers.
Working closely with CMS, we at UGS have successfully completed large
transitions in Michigan, Virginia, West Virginia and California all in
the past four years. Addressing issues involving the employees
currently doing the work is a key factor in this success.
The Medicare contractor budget of over one billion dollars does not
go out for bid unless a contractor leaves voluntarily or involuntarily.
As a matter of public policy we do not think this is defensible for
large contractors and intermediaries.
We support the elimination of the provider nomination process and
therefore the Blue Cross Association Master Contract with CMS. As a
practical matter, on a day to day basis we intermediaries interact
directly with CMS and only on a rare basis involve the Association.
Regarding changes to termination agreements, we must recognize and
protect existing contracts with employees such as our unionized
employees in downtown Milwaukee. We are proud of our employment record
on the new contracts we have been awarded and are well aware that both
the Committee and CMS value continuity of services when intermediaries
change.
Contract incentives can be structured to be very beneficial to
senior citizens. For example, incentives can reward contractors for
speed and accuracy in handling customer service phone calls. Incentives
can reward contractors for answering a high percentage of phone calls
in a short period of time.
Competition and properly structured incentives will encourage
excellence in Medicare contracting and this serves well the senior
citizens of America.
Thank you for this opportunity to testimony and I will try to
answer any questions from the Committee.
Mr. Bilirakis. Thank you very much, Mr. Cullen. I apologize
for this shifting around up here, but you have been up here
enough to know what it is like.
Mr. Chiplin, who is the Managing Attorney for the Health
Care Rights Project, Center for Medicare Advocacy. Welcome,
sir. Please proceed.
TESTIMONY OF ALFRED J. CHIPLIN, JR.
Mr. Chiplin. Thank you, Mr. Chairman, and subcommittee
members. My name is Alfred Chiplin. I am the Managing Attorney
in the Washington, DC based Health Care Rights Project at the
Center for Medicare Advocacy.
Thank you for this opportunity to testify on Medicare
contractor issues affecting older and disabled Americans,
particularly as the Center for Medicare and Medicaid Services,
CMS, takes on new leadership and is in the midst of another of
its all too frequent reorganizations.
Beneficiaries need good information from carriers and
intermediaries. One of the more critical functions of carriers
and intermediaries is to educate people about Medicare options
and about how to get medically necessary services. From our
experience, we have learned that people with Medicare need to
hear about their Medicare options from multiple sources
multiple times. Unfortunately, CMS has cut carrier and
intermediary funding to provide these important educational
services. Other than the State health insurance assistance
programs, which are substantially under-funded to meet
community needs, the elderly and people with disabilities have
few places to turn for good information.
Beneficiaries need timely information about the
Medicare+Choice program and its plans. Recent actions by the
Secretary of HHS are likely to undercut significantly any
legitimate CMS efforts to provide reliable and timely
beneficiary information necessary to make decisions about
choosing a Medicare+Choice plan.
On May 25 of this year, the Secretary sent a letter to the
American Association of Health Plans, summarily giving HMOs
additional time in which to inform CMS of their proposed
benefits and premiums for their 2002 Medicare plans, and
whether they plan to participate in the Medicare program. A
number of beneficiary organizations and individual
beneficiaries have recently filed suit against the Secretary,
complaining that this action is illegal. They allege that the
delay in this important information deadline from July 1, 2001,
to September 17, 2001, will prevent older and disabled
Americans from receiving Medicare and You, the annual
government mailing with comparative health plan information, in
time to make an informed choice about services.
The Secretary's decision also allows HMOs to mail out
marketing materials with unapproved information as long as it
includes a disclaimer explaining that the information is
subject to final approval.
We also note that the Secretary is doing a few things that
we think are useful in this regard. He is taking the Medicare
hotline, the 1-800 number, and moving that to a 24 hour a day,
7 day a week service, which we think will be helpful. We also
are pleased that in this whole movement, they are moving to
extending the special enrollment period through the month of
December. These actions we think will be helpful. But overall,
it puts beneficiaries in a bad position with respect to being
able to have good information both for the plans, for carriers,
for intermediaries about making health plan choices. We think
this will redown to much confusion, and will have a number of
negative repercussions at all levels with respect to
decisionmaking.
In addition, beneficiaries need all types of information
from their carriers and intermediaries. We also note that
Medicare continues to be a program full of what I call
bifurcations. What I mean by that is that intermediaries and
carriers, carriers and their staff, generally rely on various
Medicare manuals, program instructions, and other kinds of
interpretations in making decisions about Medicare claims. In
many instances, these instructions and interpretations are in
fact inconsistent with the Medicare statute and implementing
regulations. Much attention needs to be given to that.
We are also concerned about issues of contractor oversight.
We note that CMS responded to a letter of proposals by
Congressman Stark and Congresswoman Johnson on June 14, saying
that it is exploring incorporating the use of best practice
standards from the private industry. We have no basic problem
with this, although we caution that the adaptation and use of
such practices is not a substitute for good statutory and
regulatory enforcement and contract enforcement.
Similarly, we have just learned of a durable medical
equipment carrier making coverage decisions on the basis of a
publication called Home Medical Equipment Answer Book. This of
course is not an official Medicare manual, nor regulation, but
rather an industry synthesis of Medicare law and practice. CMS
should assure that carriers and intermediaries use such non-
Medicare tools in a fashion that does not compromise Medicare
law. It is illegal to use screens in norms of treatment and
treatment rules of thumbs to deny Medicare coverage without
first providing a Medicare beneficiary with an opportunity for
an individualized evaluation of his or her medical factual
situation.
We are also concerned that beneficiaries and carriers and
intermediaries need to look at and address the whole question
of managing the local coverage determination process known as
LMRPs. In this system, carriers and intermediary functions to
make, review and approve local coverage determinations about
Medicare. In fact, 95 percent of all coverage policies are made
on the local level, with 5 percent being made and developed on
the national level. Currently there are some 8,000 LMRPs. The
local carrier advisory committee develops these with input from
State medical societies, medical directors, and advocacy
groups.
Mr. Bilirakis. Please summarize, Mr. Chiplin, if you would,
please.
Mr. Chiplin. The concern here is that you have all these
carriers, all this information being developed by different
people. There is no commonality of information. One
intermediary in one area gives coverage for certain things, and
one the next day doesn't give it. People are all over the
place. There is no way to get these processes harmonized. It
means beneficiaries go without coverage. That is the basic
summary of that.
The main thing that we would say in summary about this
whole set of issues of carrier and intermediary contracting
concerns is that they need to be adequately funded. They need
to be funded specifically to address the question of
beneficiary information in all of its forms.
We also need to have them to address ways of getting at
information. There is a lot of concern about whether the
Internet is in fact a vehicle useful for older people. The
geriatological research on that is rather mixed.
So we strongly encourage more funding, careful analysis,
and if you move to a different system of contractors, that
there is ample experimentation and transition planning so that
we don't have the kinds of problems that Congresswoman Capps
identified in her comments earlier this morning.
Thank you.
[The prepared statement of Alfred J. Chiplin, Jr. follows:]
Prepared Statement of Alfred J. Chiplin, Jr., Center for Medicare
Advocacy, Inc., Healthcare Rights Project
Good morning, ladies and gentlemen. My name is Alfred J. Chiplin,
Jr. I am the managing attorney in the Washington, DC-based Healthcare
Rights Project of the Center for Medicare Advocacy, Inc., (the Center).
The Center represents elders and people with disabilities who are
unfairly denied Medicare and/or access to necessary healthcare.
Thank you for this opportunity to testify on Medicare contractor
issues affecting older and disabled Americans. This is an important and
highly relevant topic, particularly as the Centers for Medicare and
Medicaid Services (CMS), formerly known as the Health Care Financing
Administration (HCFA), takes on new leadership and is in the midst of
another of its all too frequent reorganizations.
About the Center for Medicare Advocacy, Inc.
In addition to the Healthcare Rights Project, located here in
Washington, DC., the Center for Medicare Advocacy has its headquarters
in Connecticut, a data unit in Maine, and a consulting attorney in
Tucson, AZ. The Center celebrated its 15th anniversary on March 1,
2001.
The Center for Medicare Advocacy, Inc., (the Center) is staffed by
attorneys, paralegals, nurses, and technical assistants who provide
legal advice, self-help materials, and representation to elders and
people with disabilities. The Center operates a Medicare toll-free
telephone hotline for Connecticut residents. This line responds to over
a 1,500 calls per calendar quarter from persons seeking information
about Medicare coverage and related issues.
In addition to this state specific work, the Center is involved in
national advocacy on behalf of improvements in Medicare coverage and
appeals processes. Attorneys for the Center have participated in most
of the major beneficiary-focused Medicare litigation that has been
brought over the years--including issues of access to Medicare covered
services for persons with chronic conditions, the lack of notice that
comports with due process when skilled nursing facilities decide to
terminate services for beneficiaries, and the problem of lack of notice
or inadequate notice when managed care organizations decide to deny,
reduce or terminate Medicare covered services. Similar litigation has
been brought in the context of the home health benefit.
The Center is called upon frequently to provide training for
attorneys and other advocates who seek to represent Medicare
beneficiaries. Center staff regularly provide Medicare training at
national conferences and at state and local events. The Center has
assisted organizations in establishing local Medicare education
efforts, including brochures, pamphlets, and other writings of interest
to those who represent beneficiaries. Our most recent effort in this
regard is our Medicare Handbook, published in July 2000. An updated
version of this text is at the printers for a re-issue date of August
2001. In addition, we maintain an informational website at
www.medicareadvocacy.org. The site was visited 28,000 times last
quarter.
Beneficiaries need good information from carriers and intermediaries.
Older and disabled Americans need access to meaningful and accurate
information to make informed health care choices, to gain access to
health care that is medically necessary, and to assure access to a
health care system that responds to their needs and the needs of their
community. Any changes to the Medicare carrier and intermediary
contracting system should strive to realize these needs.
One of the carriers' most critical functions is to educate people
about Medicare options and how to get medically necessary services. I
am sure you know from personal experience and experiences your
constituents have shared with you how very difficult it is to make good
health care choices. For the elderly and people with disabilities,
these decisions are particularly hard because they tend to have low
fixed incomes and a high likelihood of needing substantial health care
services.
From our experiences, we have learned that people with Medicare
need to hear about their Medicare options from multiple sources,
multiple times. Carriers, which have local offices throughout
communities, provide education through face-to-face meetings, and are
viewed as a trusted source by people with Medicare. Carriers have also
instituted toll-free hotlines for consumers, have begun to provide more
free information to providers, and have expanded their educational
reach through their web sites.
Unfortunately, CMS has cut carrier funding to provide these
important educational services and, other than the State Health
Insurance Assistance Programs which are substantially underfunded to
meet community needs, the elderly and people with disabilities have few
places to turn for good information.
Timely information about Medicare+Choice Plans.
In addition to the lack of funding questions raised above, there is
the problem of providing timely and accurate information necessary to
make Medicare+Choice plan choices. Recent actions by the Secretary of
the Department of Health and Human Services are likely to undercut
significantly any legitimate CMS effort to provide reliable and timely
beneficiary information necessary to make decisions about choosing a
Medicare+Choice plan. In a May 25, 2001 letter to the American
Association of Health Plans, Secretary Thompson summarily gives HMOs
additional time in which to inform CMS of their proposed benefits and
premiums for their 2002 Medicare plans and whether they plan to
participate in the Medicare program.
A number of beneficiary organizations and an individual Medicare
beneficiary have recently filed suit in federal district court for the
District of Columbia alleging that the Secretary's action is
illegal.1 They allege that the delay in the deadline from
July 1, 2001 to September 17, 2001 will prevent older and disabled
Americans from receiving Medicare and You, the annual government
mailing with comparative health plan information, in time to make an
informed choice about their health care options.
---------------------------------------------------------------------------
\1\ See, The Gray Panthers Project Fund, et al., v. Thompson,
Secretary of Health and Human Services, Civil Action No. 1:01CV01374
(HHK)(D. DC, filed June 22, 2001).
---------------------------------------------------------------------------
Since Medicare+Choice was enacted in 1997, HMOs have been required
by law to submit their Medicare plan information to HCFA, now CMS,
which is responsible for reviewing and analyzing the data, putting it
in a comparative format and sending it to the nearly 40 million peoplw
with mMedicare 15 days before November 1, in time for Medicare's open
enrollment period. This year, however, the Secretary authorized CMS to
mail out Medicare and You 2002 without the comparative information on
premiums, benefits, and cost-sharing for every Medicare HMO in the
community.
The Secretary's decision also allows HMOs to mail out marketing
materials with unapproved information as long as it includes a
disclaimer explaining that the information is subject to final
approval. And, he is extending the time frame for the HMOs to mail out
their own marketing materials, including information on benefit and
premium changes.
Consumer advocates are also concerned because beginning January
2002, those enrolled in Medicare HMOs will be ``locked-in'' to their
healthcare choices. They will only be permitted to make one change
during the first six months of the year and later during the open
enrollment period in the fall of the year.
People who lose their HMO coverage can enroll in Original Medicare
(fee-for-service) and may purchase a supplemental (Medigap) policy if
they do so during a special time period that begins October 2, 2001 and
ends March 4, 2002. About 27 percent of people with Medicare have one
of the 10 different Medigap plans, the price for which varies depending
on the amount of coverage one buys. Those interested in choosing
another HMO option, if one exists in their community, are advised to
research the cost of premiums, benefits and co-payments, what doctors
and hospitals participate in a given plan, and prescription drug
coverage available. Over the last three years, about 1.7 million older
and disabled Americans had to find new healthcare coverage when their
HMOs dropped out of the Medicare program.
The results of this approach to information dissemination is likely
to include many negative repercussions for carriers and intermediaries
as they try to help people with questions and options in this uncertain
environment. The law of unintended consequences, particularly of the
``negative kind,'' is likely to be monstrously evident throughout this
up-coming M+C plan election process.
Carrier and Intermediary Education about Medicare coverage.
Medicare continues to be a program filled with unfortunate
bifurcations. Intermediaries and carriers and their staffs generally
rely on the various Medicare manuals and program instructions
comprising the agency's interpretation of the statute they administer.
In many instances these instructions and interpretations are in fact
inconsistent with the Medicare statute and implementing regulations.
Beneficiaries often have to continue through the administrative review
process until they reach the Administrative Law Judge (ALJ) level of
review before the applicable Medicare law and regulation is applied.
This is wasteful and time-consuming for all parties concerned. More
attention should be given to assuring that carrier and intermediary
policies and practices conform to the law. In this regard, we caution
that Congress not take the easy way out and simply ratchet down the
ability of ALJs to go beyond carrier and intermediary interpretations
of the law, but rather strive to assure that carrier and intermediary
policy is in conformance with the Medicare statute and regulations.
Reforms in this area should include a focus on assuring that
carriers and intermediaries have been advised that their practices and
pronouncements on a given issue are outside the statute and
regulations. Moreover, carriers and intermediaries must be monitored to
assure that once advised, corrective actions are taken. We have, for
example, encountered many situations where carriers and intermediaries
consistently misapply Medicare law and regulation with respect to
granting Medicare coverage of services and procedures for persons with
chronic conditions where skilled maintenance therapies are reasonable
and necessary and have been prescribed by the patient's physician. This
is particularly a problem in the area of Medicare covered home health
services. It is long-settled that such coverage is appropriate under
the Medicare program
Assuring contractor oversight.
We note in CMS' June 14, 2001, response to Congressman Stark's and
Congresswoman Johnson's proposals for administrative reform, that it is
exploring incorporating the use of best-practice standards from the
private industry. While we have no problem with this in the main, we
caution that the adaptation and use of such practices is no substitute
for statutory and regulatory enforcement or contract enforcement.
We have just learned of a Durable Medical Equipment Review
Contractor (DMERC) making coverage decisions on the basis of a
publication called a Home Medical Equipment Answer Book. This, of
course, is not an official Medicare manual or regulation, but rather an
industry synthesis of Medicare law and practice. CMS should assure that
carriers and intermediaries use such non-Medicare tools in a fashion
that does not compromise Medicare law. It is illegal to use screens and
norms of treatment, and treatment ``rules of thumb'' to deny Medicare
coverage, without first providing a Medicare beneficiary with an
opportunity for an individualized evaluation of his or her medical-
factual situation.
Similarly, our experience is that CMS, formerly HCFA, rarely takes
serious and significant enforcement steps against recalcitrant carriers
and intermediaries. Best practice and continuous quality improvement
approaches to quality must not be allowed to become an impediment to
the use of more forceful sanctions where appropriate. We are not
suggesting that only the severest of penalties be considered in all
circumstances, but rather that there is established a culture and
practice of the use of the full range of the agency's tools and
resources to assure statutory, regulatory, and contractual compliance.
Managing the local coverage determinations process.
Another important carrier and intermediary function is to make and/
or review and approve local coverage determinations, also called Local
Medical Review Policies or LMRPs. Ninety-five percent of all coverage
policies are made on the local level, with 5% being developed on a
national level. Currently, there are approximately 8,000 LMRPs The
local carrier advisory committee (CAC) develops these LMRPs, with input
from state medical societies, medical director groups, and advocacy
groups responding to consumers, and uses carrier data that indicates
high utilization of a particular treatment or procedure.
LMRPs in Medicare, until recently, have been a relatively hidden
element of the Medicare coverage process. They reflect differences in
local community medical practices and norms of treatment which in many
ways belie the over all notion of Medicare as a uniform system of
coverage and procedural rules for the operation of the federal Medicare
program.
Given the lengthy time it often takes for a national coverage
decision to be approved, from six months to several years, local
coverage determinations are in many cases viewed as practical or
expedient. In many instances, LMRPs can be and are the first step in
developing new national coverage determinations by proving the success
of the treatment or procedure on a local level, which can then be
subject to more stringent national review when national coverage
determinations are made. Nonetheless, their proliferation, without
uniform oversight and without notice and opportunity for beneficiary
involvement, leads to program fragmentation and inconsistencies in
coverage and to litigation in some instances.
We note in CMS' June 14th letter of response to Representatives
Pete Stark and Nancy Johnson's proposal of CMS administrative reforms,
hat on the issues of LMRPs, that the agency acknowledges the problems
of inconsistent policies and that standardization is necessary. We
strongly encourage the agency to follow through on standardizing these
policies. This is essential if the Medicare program is to be a national
and uniform and reliable program of services and benefits.
Balancing local and national coverage determinations.
Medicare needs to strike a good balance between national and local
coverage determinations, as both have advantages. National
determinations ensure that everyone with Medicare is given access to a
particular service, no matter where they live. Local determinations
ensure that people with Medicare can get access to serious, life-saving
treatments in their community, even when no national coverage decision
has been made. LMRPs have also proved helpful in extending coverage to
people with Medicare for life-changing services outside of the area in
which the LMRPs were implemented.
For example, a Medicare HMO beneficiary in Pennsylvania was denied
a treatment for severe back pain. She was wheelchair-bound because of
her back problems. Over the years she had numerous back surgeries and
underwent treatment at several pain management clinics. Her doctor
requested that the HMO authorize a consultation with an out-of-network
doctor in New York to see if she would be a candidate for Percutaneous
Laser Disc Decompression (PLDD), a procedure that was covered by the
Medicare carrier in New York, but not by the carrier in Pennsylvania.
The HMO denied pre-authorization claiming that PLDD was without
proven clinical efficacy, and that the HMO did not have to cover the
procedure because it was not available in Pennsylvania. With the
recommendation of her doctor who claimed that the HMO would cover the
service, the beneficiary borrowed money from the bank, had the
consultation and eventually the procedure. The surgery allowed her to
dispense with her wheelchair, and resume many of her daily activities.
After receiving multiple denials for coverage by the HMO, an
administrative law judge overruled arguments that since PLDD was not
covered in Pennsylvania, the carrier in Pennsylvania did not have to
cover it and required the HMO to reimburse the beneficiary for the
procedure.
While there may be good reason to change the Medicare contracting
system, any reforms should bear in mind the risk of losing the
expertise of local carriers, making Medicare education less available,
and possibly jeopardizing local coverage determinations. Carriers today
are generally the only source for information about local coverage
rules, although CMS has now contracted-out the cataloging and compiling
of LMRPs on a website .
We have found that even Medicare managed care plans, although
required to cover the same services as original Medicare in their
geographical area, often do not know what Medicare covers . A carrier
responsible for a broader area such as an entire region would face the
challenge of keeping updated information regarding the various local
coverage determinations throughout the states under its jurisdiction.
Carriers also serve as the critical link between CMS policymakers
and local providers by sharing information about providers' experiences
with the government, and educating providers about new government
regulations or administrative directives. The local nature of the
carriers also allows them to better represent to CMS the concerns of
people with Medicare in their state.
The Centers for Medicare and Medicaid Services (CMS) have announced
a $35 million national Medicare education campaign to inform people
about their Medicare options. A portion of this money should be
allocated to carriers to reinforce their role as Medicare educators and
to allow them to expand their hotline and counseling services. In short
any contractor reform initiatives must appreciate that access to good
information and good health care are the foundation of a strong
Medicare program.
Conclusion.
We appreciate the opportunity to testify on these important issues.
We recognize the large and important task that confronting CMS as an
agency and as a community of concerned and dedicated staff. Further, we
recognize that CMS can not meet its many responsibilities to provide
meaningful beneficiary education and services to Medicare beneficiaries
through its carriers and intermediaries without adequate staffing and
funding. We feel the agency has all too often been cobbled by the
combined curse of under-funding, under-staffing, and seemingly
rudderless change and reorganization. In this regard, CMS staff need
the assurance of sound and reliable direction and authority so that
they can work with carrier and intermediary staff with confidence in
the laws, regulations, and instructions that govern the Medicare
program and with confidence in the tools of oversight and enforcement
extended them by the agency itself.
Thank you very much.
Mr. Bilirakis. Thank you. Thank you, Mr. Chiplin. I might
add that particularly the areas that you mentioned are the same
areas that we are concerned with.
Mr. Greenwood, to inquire.
Mr. Greenwood. Thank you, Mr. Chairman. Address a question
to Mr. Serota, if I might.
A for-profit private contractor is going to obviously have
an obligation toward its bottomline, toward its profit, toward
its stockholders if there are stockholders. It also has an
obligation to the taxpayers, obviously. CMS will want to make
sure that it gets the most efficient use of taxpayers dollars.
It also has an obligation to the beneficiary to provide prompt,
clear, usable information and so forth. Then finally, a very
important obligation to the providers to make their life as
manageable as possible.
What are the ways that we can construct, that CMS can
construct contracts so that the private for-profit contractor
doesn't skimp on any of its other obligations in the name of
maximizing its profit?
Mr. Serota. Well, I think there are a number of ways. I
think the first probably is to reform the methodology for
reimbursement for contractors so that there is an opportunity
for them to earn a margin on the business. I think if the
statement of work is clearly statement, the accountability is
clearly stated, and there are clear indications of the
expectations, our contractors, our Blue contractors as well as
others will be able to evaluate whether they can in fact meet
all those obligations in a cost-effective fashion.
That kind of statement of work put out to competitive bid
would allow plans to make an assessment and participate in the
program when they can meet all those obligations. They should
be held to very high performance standards to ensure that they
meet those obligations, principally to the beneficiaries and
the providers. I think with a reasonable opportunity to earn a
return, they will be able to satisfy their shareholders as
well.
Mr. Greenwood. Let me be more specific. If I am an
optomologist and I have a patient, and I want to do a surgical
procedure that has to do with lifting an eyelid for instance,
and because that provides better eyesight. So it is covered--I
am making this up, but it is covered if it is to improve the
eyesight. It is not covered if it is cosmetic. So the physician
makes whatever the term is, an application to have that
procedure reimbursed. Do you have an obligation as a private
contractor to try to make extra certain that you don't pay for
something you shouldn't? You owe that to the taxpayers, you owe
that to your bottomline. But the patient and the provider out
there are frustrated because they are going through whatever
paperwork, hoops you make them go through.
So the question is how do we end up rewarding the
contractor who manages to fulfill the obligations in terms of
cost, but do it in a way that makes the providers stand up and
cheer, and say that is what we have been waiting for, that kind
of responsiveness, that kind of effectiveness.
Mr. Serota. Well, I think by putting performance standards
into the contract, which requires decisions to be made in a
timely fashion upon receipt of information, I think is
certainly one way to hold contractors accountable. I also think
with a clear statement of expectation, that this is what is
expected so that the providers, the beneficiaries, and the
contractors all understand their expectations and their
responsibilities on the front end, will also allow those kinds
of things.
Mr. Greenwood. How would you feel about a mechanism that
allowed the providers to provide, to offer some input into how
well those expectations are being met?
Mr. Serota. I think that that is the best way to get
feedback on whether you are satisfying your customers. Just ask
them. Clearly providers and beneficiaries are our customers in
this regard. We survey in our private business, providers and
consumers all the time to be certain we are meeting their
expectations. I think that that would be a reasonable way to
ensure that we were meeting our expectations in the provider
contracting area as well.
Mr. Greenwood. Mr. Cullen, could you comment on those
questions, please? You will need to pull one of the microphones
toward you.
Mr. Cullen. Well, I think that you would set standards for
the contract that we would have to perform, if there was
incentives in it. Then the marketplace will decide it.
Businesses that don't want to get into this business, will look
at the return, the risk and so on, and decide whether to get in
or not. I think that can work.
I also think that we as contractors or intermediaries have
a function like most insurance companies, which is if you will,
we are sort of the heavy. We are the one responsible for
delivering the bad news, talking about costs on the commercial
side, and here denying care based on regulations that we are
meant to enforce. I think that is our job. I think to the
extent this morning that Congresswoman Capps thought it was the
Part B carrier's problem in California and her constituent
thought it was the Part B carrier's problem, not Congresswoman
Capps'. To this extent, I think the way the system is supposed
to work. It is our job to please these customers. We would be
incentivized to do it if we got past the cost contract
environment.
Mr. Greenwood. My time has expired. I thank the chairman.
Mr. Bilirakis. Mr. Brown, to inquire.
Mr. Brown. Thank you, Mr. Chairman.
Mr. Chiplin, there is a study by Judith Hipper or Hibbard
for AARP on the information that older consumers use to make
health plan choices. I have looked at those materials sent out.
I am pretty confused. I do health care a lot here. I have got
to think that seniors are at least as confused by this sort of
cascading of information that they receive.
It is pretty clear from this study that seniors prefer one-
on-one support assistance, as I guess probably we all do.
Sometimes it is not especially available. I am concerned that
CMS' new education initiative doesn't place enough emphasis on
getting seniors that one-on-one assistance. Do you tend to
think that way also?
Mr. Chiplin. Well, I do. The big concern right now and the
primary vehicle for getting the one-on-one assistance is
through the State health insurance counseling system, they call
them SHIPs. In California, they call them HICAPs. They have
different names. But they are very under-funded. Carriers and
intermediaries also play a role in the beneficiary education
side of it. But getting good information out through lots of
venues is very important. Medicare information is inherently
complicated. So I think the more vehicles you can use, the
better, and that you keep the information in small bite-sized
pieces, and have lots of different writings that target
particular coverage issues.
Mr. Brown. So funding SHIP is one we talked about that is
funding I thought $15 million. The administrator earlier, Mr.
Scully, said $13 million. Whatever it is, it is clearly--I know
it is with Nationwide in Ohio, the carrier there, it is pretty
clearly under-funded even with the reliance on volunteers the
way that they do.
What about the proposal to put a Medicare person in the
Social Security offices? Does that make sense?
Mr. Chiplin. I think it does. That would really be helpful
because we often get questions about Medicare coverage and
people say I have gone to my Social Security office and there
wasn't anybody there that really could answer the question. So
that would help.
I think also with that you would probably need to have a
number of people at the Social Security office who could act as
what you might call an ombudsman or some other kind of person
who could sit down and spend a little bit more time with an
individual to look at coverage, both coverage issues,
eligibility issues, access to service issues.
Mr. Brown. Any other thoughts on what we should direct HCFA
or direct CMS to do, what ways through which education program
other than better funding for SHIPs, other than potentially
putting a Medicare person in the Social Security offices?
Mr. Chiplin. One other thing that comes to mind is to look
inter-generationally. Older people rely often on their children
and other young people or younger people in their lives and
community. We find that when we do some pairing of older and
younger around, understanding information, that that is also
another and positive avenue of getting information out to
people.
Mr. Brown. Let me in my remaining time, Mr. Chairman, let
me ask a different question, Mr. Chiplin. There was testimony
earlier that we should consider consolidating the number of
contractors. Our experience has been that contractors will make
local coverage determinations, obviously based on local
interests, local needs, local circumstances. Is there a
contradiction there if we do more of this contractor kinds of
consolidation that the uniqueness or the sort of home rule, if
you will, or decisionmaking, local decisionmaking will suffer
and that patients will not and Medicare beneficiaries will not
have the kind of service that they might have otherwise?
Mr. Chiplin. That is one of the most tangled area of
Medicare practice I know of, of this whole business of local
medical coverage, local medical practices, and you have
national ones, and how all those things integrate. I think
Medicare needs to re-look at that from beginning to end.
I do think that under the current system, having some
ability for coverage issues to bubble up, if you will, from the
local area and local practice has some merit. But you do end up
with a very bifurcated national program. That, as you see in my
testimony, is a major problem where you have carrier A covering
something and carrier B not covering it. This is supposedly a
national program.
So I think that you could put money into it and you could
do some specialization with various carriers around coverage
and coverage policy questions, but you still don't deal with
the larger question of a uniform program.
Mr. Brown. Mr. Serota, do you want to respond to that?
Mr. Serota. Well, I think that it is important to recognize
that healthcare is a local phenomenon. It is delivered locally.
It is delivered in every community, and that we are trying in
this environment to deliver a national program Medicare on a
local basis. There needs to be some ability, and we have that
through the--I will give you the wrong name, but the medical
advisory groups and the Part B local medical groups to modify
the practice to fit more appropriately with what is available
in a local community. I think that that's important. That is
the flavor of American health care. Frankly, that is one of the
reasons the Blues have been as successful as they have been,
because we are on the ground in every market.
So I think you need to ensure that we don't get too uniform
in an administration so that we can't take advantage of
innovation and creativity, which happens in a local market, so
we need to allow that flavor to continue to exist.
Mr. Bilirakis. Do you agree with that, Mr. Cullen?
Do you agree with that too, Mr. Chiplin?
Mr. Cullen. This issue is already here, if nothing else
that's been talked about today ever occurs. We are the Part A
all the way in seven States from Virginia to Hawaii. So we are
trying to be consistent across in several territories. We
process claims through 12 time zones, way out into the Pacific.
I think in the end, because it is a national program, Mr.
Chiplin in any case, that a lot of these decisions have to be
decided nationally because health care is delivered locally as
Mr. Serota says, but local, is that all just all of Virginia,
is that local? Or an area of Virginia or all of Wisconsin? It
gets pretty broad right away, just with all the contractors,
intermediaries we have today. I think it has to be decided
nationally.
I also would say that--I wasn't asked, but on the customer
service, that putting somebody in every Social Security office
would certainly be helpful, but of course there is not a Social
Security office in every community. In my home county, there is
one. But there are lots of people who wouldn't have access
easily.
The 1-800 number which you have funded, which is now toll-
free, has tremendously increased the number of phone calls we
get because now senior citizens can call not on their own
nickel. They can call an 800 number toll free and get questions
answered. That, as you look to what needs to be funded, to fund
the customer service area of our work so we can handle all
those phone calls is one of the better ways in 2001 probably to
serve senior citizens in terms of answering their questions.
Mr. Bilirakis. Mr. Chiplin, do you have anything more you
wanted to offer or have you explored that pretty deeply?
Mr. Chiplin. I agree in part with Mr. Serota. I do think it
is a lot of value of having coverage issues worked through
locally, but I think we end up in the situation where we don't
have any uniformity of standards, no dependability in the
program with respect to coverage policy. That really hurts
beneficiaries, especially since it takes so long to get things
through the approval process.
Mr. Bilirakis. We get a lot of complaints toward that end.
When we first started on this path of patients first,
taking a look at what was in HCFA, and taking a look at the
need to make some changes, and to do it with them and not to
basically shove it down their throats, we made the comments a
number of times that we weren't attacking HCFA. This wasn't a
witch hunt. But they don't have a very good image out there. I
dare say that if the beneficiaries had a better knowledge of
HCFA's performance over the last number of years, that image
would probably be even worse. But certainly with the providers,
I think you all have to agree the image is not a very good one.
I guess the biggest complaint we ever get from any of these
people over the years has been about HCFA. It hasn't been so
much reimbursements or low reimbursements or anything of that
nature. I have had doctors say all I have to do is tell me what
I can charge and stick with it for a while and I'll charge it,
whatever it is. I won't question it. But to not know, to not
know and to basically be in fear of getting into trouble is
just a terrible thing.
We are looking at ways to try to make things a little more
efficient, but we are an ivory tower. We don't really know it
as well as we sometimes think we do.
I guess I do not quite understand, now Trail Blazer in
Texas is the carrier. Trail Blazer in Texas is also a fiscal
intermediary, for the most part. Mutual of Omaha is in there.
Are there any other smaller ones or any others?
Mr. Serota. There may be. I am not sure.
Mr. Bilirakis. There may be, but it would be a small
percentage if there were, right?
Trail Blazer is able to conduct both functions. But we are
talking about two separate contracts, two separate groups of
people? Take me through that. Why can't Trail Blazer under one
contract do--they do both jobs in Texas. Whether it's the same
people, who do it or not, I don't know. Can someone take me
through that to try to explain that to me?
Mr. Serota. I don't think I can take you in depth through
the Trail Blazer. I can give it conceptually.
Mr. Bilirakis. I am sure we can pick at Blue Cross.
Mr. Serota. Well, Trail Blazer is Blue Cross. It is owned
by Blue Cross of South Carolina.
Mr. Bilirakis. Oh it is? See, that's what we know up here.
Mr. Serota. There are functions in A and B that are
designed differently. The Part A is primarily focused on
dealing with the hospitals, and the providers to Part B, is
primarily focused on dealing with beneficiaries.
However, there are functions that overlap. In those
instances where the functions overlap, they are combined when a
single FI and carrier hold the contract. They are combined, and
they do work together. But it is a small piece of the
administrative function. Predominantly the functions are
different. The two contracts are serving different purposes and
different masters. But where those functions do overlap, they
do combine and consolidate and take advantage of the
efficiencies.
Mr. Bilirakis. But even if the functions don't overlap, and
I appreciate the distinction between Part A and Part B,
although there is an awful lot of combining the two, as you
know. But even if they weren't combined, why couldn't Trail
Blazers under one contract basically handle both?
Mr. Serota. Well, if they were in a competitively bid
situation, the best to do both, then I think there isn't a
reason why they couldn't. The issue that concerns us is to
force contractors, which may not be the best in both to do
both, rather than competitively bid them both.
I think over time, you might get to a point where that
makes sense, but given the current systems and structures that
exist between A and B, you might end up with an inferior
contractor in one A or B.
Mr. Bilirakis. If we gave CMS the additional authority, the
flexibility, they would be able to go in from a bidding
standpoint to determine, right? Whereas now, we basically tell
them what they have to do.
Mr. Serota. But we don't think it should be forced. If the
competitive marketplace causes it to happen, then certainly we
are supportive of it. But what we don't think should happen is
a forced scenario where A and B are forced together and bid
together. We think that they are different enough that they
should be bid separately and the best provider should be
selected.
Mr. Bilirakis. But if they are blended together, if A and
B, it's based on what we are thinking up here--I still haven't
decided in my own mind whether it is a good idea or not--then
you are going to have to be forced, I guess.
Mr. Serota. I guess my point is at this moment in time, I
don't think that is the right course to take. I think that the
programs are different enough today and the infrastructure
doesn't exist yet at CMS to bring those two functions together.
That would be my advice.
Mr. Bilirakis. Yes. You have testified to that.
Well, all right. Anything further?
Mr. Brown. No.
Mr. Bilirakis. Well, this is a tough subject. I don't
really know what our timeline is up here. To be honest with
you, we should know but we aren't sure. We may go back into
contracting in a subsequent hearing and we may not. I don't
know. But we definitely are intent, both sides, and the staffs
have been working together on this issue of repairs,
improvements to help the agency to do a better job for the
people.
We would always welcome, and we do welcome, suggestions
from you toward that end. Please don't hesitate. I mean you
only testified for a few minutes here. You waited a long time
to do that. We apologize for the delays. But again, feel free.
We will have questions to you, and we are requesting that you
respond to those questions in a timely fashion. But again, we
ask you to submit additional ideas and suggestions to us. You
have an opportunity now. We are intent on making the changes.
Mr. Brown. Mr. Chairman?
Mr. Bilirakis. Yes, sir.
Mr. Brown. I have a question from Mr. Strickland, if he
could submit it in writing, actually to Mr. Scully, but any
other questions that any members have for any of the panelists.
Mr. Bilirakis. Well we are going to do that. I am not sure
whether we have had unanimous consent. All members of the
subcommittee, their opening statements will be made a part of
the record. I don't know whether we have done that or not.
We appreciate your being here. And HHS is represented? Is
somebody here taking notes? A couple, two or three hands up
there. So they are represented, and they are taking notes, and
they have heard your concerns.
Thank you very much.
Mr. Serota. You're welcome. Thank you. We wish you good
luck.
Mr. Bilirakis. Thank you.
[Whereupon, at 1:20 p.m. the subcommittees were adjourned,
subject to the call of the Chair.]
[Additional material submitted for the record follows:]
Prepared Statement of The American Dental Association
The American Dental Association (ADA) believes Medicare
modernization and improvements are critical to the future stability and
success of the program. The ADA is a professional organization that
represents more that 144,000 licensed dentists in the United States.
The ADA seeks to advance the art and science of dentistry, and to
promote high-quality dental care and the oral health of the American
public.
Medicare does not cover most dental services. But the program
affects thousands of small employer dentists and their Medicare-covered
patients. For example, due to inconsistencies in Medicare regulations,
some dentists can be required to file claims for clearly non-covered
services. In addition, many dentists who provide covered services to
Medicare beneficiaries on a regular basis must grapple with redundant
notices and other unnecessary paperwork problems that can and should be
ameliorated.
The dental delivery system is very different from the medical
model. Most private sector dentists are solo practitioners with fewer
than four employees. Very few dental offices employ more than one
administrative staff person, who often also serves as the receptionist.
This structure is sufficient to handle private insurer rules and
regulations and process reasonable administrative demands of public
programs. However, the staff resources necessary to address the
enhanced administrative burdens caused by contradictory regulations and
outdated rules can easily outstrip the dental office administrative
staff's capabilities. Unnecessary requirements increase the cost of
providing dental services to Medicare beneficiaries in a price
sensitive dental market, which could adversely affect access.
medicare requirements that need modernization and reform
Claims Submission for ``Non-covered'' Medicare Services
As stated above, Medicare generally does not cover dental care,
except in limited situations. While non-covered services are exempt
from Medicare policies, any Medicare beneficiary that receives a dental
service may require a dentist to submit a Medicare claim. This
requirement can occur because a Health Care Financing Administration
(HCFA) rule, which has been interpreted by the agency and its fiscal
intermediaries as giving the beneficiary a right to file a Medicare
claim for virtually any dental service, has taken precedent over the
Medicare statute excluding the vast majority of dental services.
If a Medicare beneficiary receives non-covered, categorically
excluded dental services and requests that the dentist file a Medicare
claim, despite the fact that Medicare does not cover the services
provided, the dentist must comply. The dentist must honor this request
and all parties affected (the patient and HCFA, as well as the dentist)
must absorb the financial burden of filing an unnecessary claim.
There are additional costs for HCFA and dentists related to the
filing of a Medicare claim for non-covered services. Because the
program does not reimburse for most dental services the majority of
dentists are not Medicare providers and, therefore have not filled out
the lengthy application form in order to receive a provider number.
Provider enrollment is an administratively complex process that can
take numerous hours for the provider to complete and the agency to
process. This process adds unnecessary costs to the health care system
and could be easily remedied by HCFA. The ADA believes HCFA should
bring its regulation into conformance with the Medicare statute and
make it clear to carriers, dentists, and Medicare beneficiaries that
there is no obligation to submit a claim for categorically excluded
dental services. The Association would be willing to work with the
Committee to provide language to accomplish this change.
The Association also believes it is necessary to include dentists
in the private contracting law. This is important not only because it
is fundamentally fair to allow any practitioner the ability to decide
whether the practitioner wants to participate in a federal program, but
also because opting out eliminates unnecessary paperwork affecting all
of those associated with the Medicare system. However, dentists, unlike
many other providers, are unable to decline or withdraw participation
in Medicare. Section 1802 of the Social Security Act, as amended by
Section 4507 of the Balanced Budget Act of 1997, permits a physician or
practitioner to enter into private contracts and effectively withdraw
their Medicare participation with Medicare beneficiaries, if specific
requirements are met. The ADA supports an amendment to section 1802 to
include dentists.
Advance Beneficiary Notices
An Advanced Beneficiary Notice (ABN) must be completed on behalf of
a Medicare beneficiary when there is uncertainty as to whether a given
health care service is covered by the program. The form notifies the
patient that Medicare may not pay for the services rendered by the
provider, thus the patient may be responsible for any and all charges.
This form must be completed and filed for each visit, even if the
purpose of the visit is for the continuation of care in a series of
treatments for a specified illness. As a result, at times redundant
ABNs are filed, which provide no new notice to the patient. HCFA,
participating dentists and their patients would all benefit from a
change in policy on this matter to permit the filing of a single ABN
that would be valid for all procedures intended to address a single
illness.
Provider Enrollment Forms
Medicare's provider enrollment form is the source of quandary for
many dentists who participate in the Medicare program. When they apply
for a Medicare provider number, all dentists, regardless of whether
they are generalists or specialists, must use the same provider
category, which is category 19 (Dentist-Oral Surgeon). This is, at
best, misleading because oral surgeons are a specialty within
dentistry, representing a relatively small segment of all practicing
dentists. HCFA should offer provider categories for all dental
specialties as well as general dentists. This would avoid confusion and
help alleviate problems encountered by oral surgeons, who too
frequently are denied reimbursement for medical procedures for which
they are qualified to perform because the carrier incorrectly assumes
all procures performed by an oral surgeon are dental services, which
are generally not covered by Medicare. The current system unnecessarily
expends HCFA and dental office resources and delays proper payment on
behalf of Medicare beneficiaries.
Mr. Chairman and members of the committee, thank you for providing
the ADA with this opportunity to discuss our concerns about the need to
modernize Medicare and modify the program's regulations in a manner
that will save scarce HCFA resources and reduce burdens placed on
dentists and many of their patients. The Association looks forward to
working with you on this issue.
______
Prepared Statement of the Medical Device Manufacturers Association
The Medical Device Manufacturers Association (MDMA), the national
voice for the entrepreneurial sector of the medical device industry,
appreciates the interest displayed by the Subcommittee on Health and
the Subcommittee on Oversight and Investigations on reforming the
systems that the Medicare program uses to contract for the processing
of claims.
Our statement focuses on the role that Medicare's contractors play
in developing local Medicare coverage decisions, also known as local
medical review policies (LMRP). While MDMA believes there are certainly
areas of Medicare contracting for which close scrutiny is long overdue,
we do support the concept of local Medicare coverage policymaking, and
we believe that technological innovation would suffer if Medicare
carriers did not have the discretion to develop a local coverage policy
in the absence of a national policy. Nevertheless, we need to instill
in the local policymaking process much of the same openness,
transparency, and accountability that the Centers for Medicare and
Medicaid Services (CMS) are attempting to bring to the national
process.
MDMA welcomed CMS's November 24, 2000 program memorandum
(Transmittal AB-00-116) to its contractors on the development of local
medical review policies in the Medicare program. The memorandum
mandated new open LMRP development requirements and new draft LMRP
publication requirements. We saw the program memorandum as a long-
awaited first step toward modernization of the local processes for
determining Medicare coverage of medical procedures and technologies
where no national policy exists.
However, MDMA and its members remain concerned with the contractor
medical director (CMD) workgroups and the role they play in developing
local coverage policy; both are subjects that the program memorandum
did not address. These CMD workgroups are not specifically authorized
by law or regulation, do not meet publicly, and are not required to
disclose the nature of their deliberations or to justify their
decisions. Nevertheless, the work of these CMD workgroups is the basis
for hundreds of local medical review policies that determine what
medical procedures and technologies are available to Medicare
beneficiaries.
These CMD workgroups wield significant power in determining how
federal entitlement benefits will be administered, yet they effectively
are accountable to no one. MDMA believes that as CMS modernizes its
national and local processes, CMS should do away with the CMD
workgroups, one of the last vestiges of ``behind-closed-doors''
Medicare policymaking.
background
CMS contracts with private insurance companies to carry out various
duties under the Medicare program, such as processing claims,
investigating fraud and abuse, and determining coverage policies for
medical procedures. Local ``carriers'' administer the Medicare Part B
benefit (physician services, laboratory and diagnostic tests, certain
medical equipment and supplies, and other related services).
For most Part B services, CMS has not issued national Medicare
coverage policies. The carriers develop the vast majority of Medicare
coverage determinations. Local coverage policies, also known as local
medical review policies (LMRP), are supposed to be developed according
to procedures set forth in CMS's Medicare Program Integrity Manual and
are supposed to be published in periodic newsletters or similar
documents issued by each carrier. According to CMS, 300 national
coverage policies have been developed over the last 35 years, while
more than 6,000 LMRP have been developed over just the past ten years.
According to Chapter 1, Section 2.7 of the Medicare Program
Integrity Manual, each carrier must establish one Carrier Advisory
Committee (CAC) per state in which the carrier operates. The purpose of
a CAC is to provide:
a formal mechanism for physicians to be informed of and to
participate as advisors in the development of LMRP,
a mechanism to discuss and improve administrative policies,
and
a forum for the exchange of information between carriers and
physicians.
CMS also instructs its carriers to release proposed LMRP to the
public for comment prior to implementation.
In addition, Medicare Part B carriers have also formed a number of
contractor medical director (CMD) workgroups to develop templates for
future LMRP development. These CMD workgroups do not meet publicly, yet
the templates they develop are circulated among all carriers and often
are used as the basis for the development of LMRP by other carriers.
CMS's November 24, 2000 program memorandum mandates new open LMRP
development requirements and new draft LMRP publication requirements.
According to the program memorandum, Medicare contractors now must
allow for the submission and presentation of information from members
of the general public in the LMRP development process. Medicare
contractors also must provide open meetings for the purpose of
discussing draft LMRP, and these meetings must be held prior to the
presentation of these policies at CAC meetings.
The program memorandum, however, is silent on the role of the
contractor medical director workgroups.
problem
Contractor medical director (CMD) workgroups play a significant
role in the development of local Medicare medical review policies, yet
these workgroups, unlike the CACs, are not specifically authorized
under Medicare law, regulation, or administrative procedures. The
Medicare Program Integrity Manual only mentions these workgroups in
passing in Chapter 1, Section 6, when it lists ``(p)articipating in CMD
clinical workgroups'' as one of the ``other duties'' of contractor
medical directors.
These CMD workgroups apparently meet periodically, yet neither the
agenda nor the minutes of these meetings are published publicly, nor do
we know whether CMS even requires that the CMD workgroups file such
documents with the agency. Moreover, their membership is not published
in any official CMS document immediately available to the public, nor
do we know how their membership is determined.
MDMA understands that during these CMD workgroup meetings, the
Medicare contractor medical directors discuss whether new technologies
or procedures are worthy of being covered under the broad discretion
granted by CMS to Medicare carriers. Although there is no instruction
or discussion in the Medicare Program Integrity Manual of a process for
the development of ``model'' or ``template'' LMRP by these CMD
workgroups, a cursory review of LMRP shows that such models or
templates are cited frequently by contractors as the basis for their
own local policies. We understand that most of these model or template
LMRP are developed by CMD workgroups.
Even more curiously, we hear that Medicare carriers often adopt as
``informal'' LMRP the results of the discussions at these workgroup
meetings, which completely circumvents and negates the LMRP development
process. Finally, we understand that CMS staff attends many of these
CMD workgroup meetings, which certainly lends the CMS imprimatur to
these workgroups' decisions and actions.
MDMA and its members are not the only CMS ``stakeholders''
concerned with the actions of these CMD workgroups. For example, the
American College of Surgeons raised detailed concerns similar to ours
in response to CMS's 1998 ``town hall'' meeting on modernizing the
Medicare coverage process:
At the present time, some carriers are developing and
announcing policy without CAC input while other carriers obtain
input from the CAC but ignore it and issue final policies
without any apparent response to the comments it received. Of
particular concern to the College is the dissemination of
``model'' policy, which some carriers seem to view as a form of
national policy that must be followed without question . . .
. . . the College has significant concerns about the current
model (recently renamed ``template'') policy development
process. Under this process, a small number of contractor
medical directors develop policy without providing physician
organizations or other stakeholders an opportunity to provide
input or to review early drafts. Once the contractor medical
directors have completed their work on so-called templates,
these materials are sent to all the carriers for their
consideration. Generally speaking, carriers then proceed to
adopt the templates as model policy. However, even when a
carrier provides its carrier advisory committee with a chance
to comment on the model policy, our impression is that the
offer comes too late in the policy development process. The
label ``model'' appears to signal that the issue has already
been subject to a rigorous review, that further analysis and
comment is unnecessary or unwanted, and that the policy should
be accepted ``as is.'' In fact, we consider the template
process to be a CMS-sanctioned attempt to bypass the usual,
albeit limited, due process safeguards associated with national
coverage policy making. [October 19, 1998 letter from ACS to
Jeffrey L. Kang, M.D., M.P.H., Director, Office of Clinical
Standards and Quality, CMS re September 25, 1998, Open Town
Hall Meeting To Discuss the Medicare Coverage Process]
solution
Again, MDMA appreciates CMS's ongoing efforts to modernize the
local Medicare coverage policymaking process. The ability to
participate in a transparent and predictable process, as well as to
understand the criteria by which their technologies will be evaluated
during that process, will help medical technology entrepreneurs develop
innovative new products that meet the needs of the Medicare program and
its beneficiaries.
However, CMS needs to take the next step toward true reform of the
LMRP development process by disbanding the contractor medical director
workgroups. Under the new open local process, CMS should not permit the
development of model or template policies, including de facto national
coverage (and non-coverage) policies and ``informal'' policies, by
contractor medical directors absent public scrutiny and accountability.
The early stages of LMRP development should be equally as open, if not
more so, as the later stages.
Furthermore, we believe there simply is no need for CMD workgroups
to develop model or template policies. Local medical review policy was
intended by CMS to be an administrative and educational tool that
describes how contractors will review claims to ensure that they meet
Medicare coverage requirements. Local Medicare contractors are supposed
to develop LMRP based on a perceived need for clarification, and they
are supposed to develop these policies locally.
The model or template policies developed by CMD workgroups become
de facto national policies as local contractors adopt them. If there is
a need for clarity across the nation, then CMS should initiate the
process of making a national coverage decision. Simply put, there
should only be one national Medicare coverage process, and that process
should be conducted by CMS.
We thank the subcommittees for your consideration of our
perspective.
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