CONTENTS

Advisory of March 8, 2001, announcing the hearing

WITNESSES

U.S. Department of Health and Human Services, George F. Grob, Deputy Inspector General for Evaluation and Inspections, Office of Inspector General

American Health Care Association, Mary K. Ousley

American Hospital Association, and Northwestern Memorial Healthcare, Gary Mecklenburg

American Medical Association, Richard F. Corlin, M.D.

Center for Medicare Advocacy, Inc., and National Citizens' Coalition for Nursing Home Reform, Toby S. Edelman

Moffit, Robert E., Heritage Foundation

National Association for Home Care, Connecticut Association for Home Care, and Visiting Nurse Association of Central Connecticut, Inc., Susan Wilson

Wilensky, Hon. Gail R., Project HOPE, and Medicare Payment Advisory Commission

SUBMISSIONS FOR THE RECORD

American Association of Homes and Services For the Aging, statement

American College of Physicians-American Society of Internal Medicine, statement

American Occupational Therapy Association, Inc., Bethesda, MD, statement

American Physical Therapy Association, Alexandria, VA, statement

Mayo Foundation, Bruce M. Kelly, letter and attachment

National Association of Chain Drug Stores, Alexandria, VA, statement

SECOND IN SERIES ON MEDICARE REFORM:
BRINGING REGULATORY RELIEF TO BENEFICIARIES AND PROVIDERS

Thursday, March 15, 2001

House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.

The Subcommittee met, pursuant to notice, at 10:10 a.m., in room 1100 Longworth House Office Building, Hon. Nancy L. Johnson [Chairwoman of the Subcommittee] presiding.

[The advisory announcing the hearing follows:]

Chairwoman JOHNSON. Thank you. Today's Subcommittee holds the second in a series of hearings designed to lay the groundwork for the development of legislation to improve and strengthen the Medicare program, while adding a much needed prescription drug benefit to that program.

The first hearing, held last week, gave members a general overview of the reform debate. This and subsequent hearings will focus on particular aspects of the Medicare program in need of reform.

The purpose of this hearing is to examine the impact of the regulatory burden on beneficiaries and the providers that serve them and to examine specific proposals to provide regulatory relief. Our intent is to distinguish between unnecessary regulations and those that are critical to program integrity and effectively deterring fraud and abuse.

Our witnesses will provide us with specific examples of burdensome regulations and specific suggestions for regulatory changes that can be made to promote efforts to improve the Medicare program.

The Subcommittee will be presented with testimony on how the Government can do its job better to ensure that beneficiaries are protected and that taxpayer dollars are used wisely and responsibly, without placing undue burdens on providers.

I thought it was important to begin with this topic because, like many of my colleagues, I hear every day from doctors and home health agencies, from nursing home administrators and ambulance companies, that the status quo is not only unacceptable, it is destructive. Not only is the tremendous explosion of payments diverting valuable nursing hours from patient care, but it is on the verge of severely reducing seniors' access to essential health care services. Indeed, if we cannot return common sense to the Health Care Financing Administration (HCFA) bureaucracy, we will lose the services of small nursing homes whose two Medicare patients are imposing loads of paperwork for all patients, the services of small home health care providers who will simply be unable to serve the dual-eligible because delayed reimbursements cause such severe cash flow problems, and the shower of paperwork imposes such significant new and unreimbursed costs.

The testimony today dramatizes the challenge this Committee faces to preserve Medicare, to strengthen Medicare, to preserve it for our seniors. As this Committee continues to prepare through our hearings and our bipartisan seminars for the development of Medicare improvement legislation, we need to keep what we will hear today from witnesses in the forefront of our minds. We must not, we simply cannot compound the regulatory problems we face. We must instead make it a priority to improve administration responsiveness to beneficiaries and providers.

We will work closely with Secretary Thompson, whom we heard from yesterday, to explore how HCFA can restructure as we work to modernize Medicare. As we think about regulatory relief, however, it is vitally important that we not allow ourselves to believe that all regulation is inappropriate. In fact, patient protections, financial accountability standards, and operational guidance are a vital part of the Medicare program.

Just last week, the Office of Inspector General reported that inappropriate Medicare claims had fallen to 6.8 percent from 14 percent in 1996. That is good news for beneficiaries who are paying the bills and for taxpayers. However, simplifying HCFA's 130,000 pages of regulations will bring these numbers down steeply, as the testimony today clearly indicates, and at the same time protect seniors' access to quality care.

While we must balance accountability and relief, as we will hear from witnesses today, we must move forward in developing legislation, and I am confident that as we work together, we will get it right. No matter what shape a modernized Medicare program ultimately takes, we all know that one of the most important measures of success will be whether we can protect program integrity while ensuring that health care providers can focus on patients rather than paper.

I would like to recognize now Mr. Stark.

[The opening statement of Chairwoman Johnson follows:]

Mr. STARK. Thank you, Madam Chairman.

Just very quickly, as we begin studying possible reforms to HCFA and its regulatory process, I think it is important that we remember that we are responsible for providing the resources to HCFA and the flexibility they need to fulfill their responsibilities. So I am pleased that you are having these hearings and that Secretary Thompson agrees with this notion and said so, I think, in this room just yesterday that he would work with us to see that we get the resources to HCFA to carry out the responsibilities with which we have charged them.

I think it is also important to note, most importantly, that Medicare regulations and policy guidance, as issued by HCFA, merely implement the laws that we--and, actually, we on this Committee--have enacted and that the relative complexity and burden of Medicare regulations rests with us, not HCFA. I also want to congratulate the Chair because this Committee hasn't met for over 6 years to review the regulations and the procedures at HCFA. And, Madam Chair, you are to be commended because we should have been doing this every year, as it used to be done years ago.

HCFA cannot operate with laws that have not been updated and reviewed, and so you are to be credited with understanding this process. HCFA can only promulgate regulations that we tell them to promulgate. They have no independent authority, which means we have to look at ourselves when we look at the problem.

I would also like to point out that, in regard to this burden of paperwork that these poor, overburdened providers face, the physicians in this country continue to be the highest-paid profession in the United States with median incomes of nearly $175,000 a year--exactly those people whom the new tax bill will help the most.

We say nothing about what we are doing to lift the burden on children who don't qualify for CHIP or the 42 million uninsured Americans who are unable to see these well-to-do physicians who are going to complain to us this morning about how tough it is to make $175,000 to $600,000 or $700,000 a year. The same is true of the hospitals. They have had the highest margins, some as high as 45 percent, on their Medicare payments, and they are going to be in here whining about it is so difficult to run a hospital. Boy, if you could run the dotcom businesses with a 45-percent margin today, the stock market would be doing a whole lot better.

We have, because of these regulations, I would like to point out, significantly lowered the improper payment rate. That is not necessarily all illegal activity. That may be mostly mistakes. But the improper payment level has dropped to 6.8 percent from 14 percent 5 years ago. That is a $12-billion saving since 1996. Madam Chair, that these tough regulations have saved the taxpayer. That is a lot of money.

Finally, I would suggest that I have heard from some physicians that they are being harassed by HCFA. I suppose that could be a good rap song, but there were fewer than 100 physicians arrested for Medicare fraud last year; just 12 were convicted. That is out of about 600,000 physicians in our country. My math shows me that that is 0.02 of a percent. Now, I happen to be familiar with the one Member of Congress that I know is under active criminal investigation. That is 0.23 of a percent for our group. So I am saying, Docs, that you are doing a lot better than Congress in terms of those of you who are subject to arrest for fraudulent behavior, and I would count your blessings. When there are as many doctors in jail as a percentage as there are Members of Congress, or former Members, then you might have a reason to complain.

So I think that we do have to look to our own Committee and our own actions to see how we can continually improve and upgrade Medicare, which is the finest, most efficient bill-paying system in the country today. And I thank you very much for beginning these hearings, and I hope it will lead to some serious legislation that will help make our system of Medicare and Medicare reimbursement to the providers continue to be the most efficient, lowest overhead system in the United States.

Thank you, Madam Chair.

[The opening statements of Mr. Stark and Mr. Ramstad follow:]

Chairwoman JOHNSON. Thank you.

I would like to call the first panel forward: Dr. Richard Corlin of the American Medical Association; Gary Mecklenburg, Northwestern Memorial Healthcare from Chicago for the American Hospital Association; Mary Ousley, the senior vice president of health services for the Marriot Senior Living Services for the American Health Care Association; and Susan Wilson, from my own hometown in New Britain, a person I have worked with many years on home care issues and I am particularly pleased to welcome here today for the National Association of Home Care.

Let me just say as you start that I do wholeheartedly agree with Mr. Stark that this is an important time for us to try to do our work fairly. We do seem to have the backing of the administration in looking at both resources and legal authority for HCFA, and I think we do need to do some serious work in that area.

Dr. Corlin? And let me just remind you that because we have two long panels, you do have 5 minutes each, and then the lights will go on, as you can see there, and then we will have time for questioning.

Dr. Corlin?

STATEMENT OF RICHARD F. CORLIN, M.D., PRESIDENT-ELECT, AMERICAN MEDICAL ASSOCIATION

Dr. CORLIN. Thank you. Good morning, Madam Chairman and members of the Subcommittee. My name is Richard F. Corlin, M.D. I am president-elect of the American Medical Association, and I am a practicing gastroenterologist from Santa Monica, California. On behalf of the AMA, I would like to thank you, Madam Chairman, for your commitment to making Medicare more effective and less bureaucratic. Physicians want to spend time on what matters--patient care--and not on paperwork.

We welcome the opportunity to work with the Subcommittee on regulatory relief, the need to modernize the Medicare program, and to create a prescription drug benefit. The AMA recognizes that one of HCFA's most important functions is to maintain program integrity. We also recognize that post-payments audits, if they follow sincere education efforts, can ensure that improper payments do not occur.

I want to emphasize that the AMA in no way condones the behavior of fraudulent providers. We support the Government's effort to root out true causes of fraud from the system.

At the same time, it is becoming increasingly difficult for physicians to comply with Medicare rules. We have reached a point where there are over 110,000 pages of Medicare rules, policies, and regulations. In a recent AMA survey, more than one-third of the responding physicians reported spending an hour completing Medicare forms and administrative requirements for every 4 hours of patient care.

We have also reached the point where physicians are creating documentation in their patients' charts not for the patient's benefit, but simply to meet the Government's demands. Extraneous documentation in patients' charts can lead to unnecessarily delayed care for the critically ill.

Tuesday night I was on call. I spent all except 2 hours of it in the hospital in Santa Monica, and the one patient who was in the intensive care unit, hemorrhaging from an ulcer, it took me 20 minutes longer to go through an unnecessarily long chart to figure out what was going on with that patient before I could get to the patient to take care of him.

Medicare requirements are not only complex, but they are constantly changing so that even carrier employees are not aware of all the current Medicare standards. In the AMA survey, 80 percent of physicians stated that carriers do not give them clear guidance on Medicare requirements with which they are expected to comply. Physicians who call their carriers face personnel who give incorrect answers, refuse to divulge what their names are, and refuse to send physicians written confirmation of the conversations so that they can be used as guidelines in that physician's practice.

In my written statement, I have described in detail the situation physicians face when a carrier alleges they have received an overpayment by mistake, and I want to stress that these situations involve carrier allegations regarding unintentional billing errors, not fraud. When fraud is alleged, HCFA requires the carrier to refer these cases directly to the OIG, and we strongly support the continuation of this policy.

To address these egregious situations, the AMA urges this Subcommittee to support the bipartisan Medicare Education and Regulatory Fairness Act (MERFA), which was recently introduced by Representatives Pat Toomey and Shelley Berkley and which currently has nearly 60 cosponsors. Under MERFA, HCFA contractors would educate physicians and providers on Medicare requirements so that fewer billing errors occur.

On a separate note, we commend Representative Stark for his recognition of the need for this education in his recent comments before the National Academy of Social Insurance.

MERFA would also provide physicians and providers with greatly needed due process rights in these post-payment audit situations and require HCFA to pilot test documentation guidelines to minimize the burden and focus on clinically relevant documentation before they are put into effect nationwide.

Recently, a cardiologist reported that when he made hospital rounds, he found two nurses taking care of patients and six nurses checking documentation, and this simply does not serve patients well.

We also heard from a critical care physician whose practice group staffs a local hospital on a 24-hour-a-day basis, and who was actually the advisor to the local carrier on coding issues. He is now going through a post-payment audit because the carrier has denied all of that physician's nighttime critical care billing charges. The idea that a patient may be critically ill during the day but not critically ill at night is an absurdity.

MERFA provides incremental, modest reforms that should provide immediate relief to physicians and providers who are extremely frustrated with the Medicare program. These changes would help ensure that patients continue to have access to a wide range of physicians and providers in the Medicare program, and we look forward to working with Congress and Secretary Thompson to reform Medicare so that it effectively continues to meet the needs of patients now and in the future.

Thank you.

[The prepared statement of Dr. Corlin follows:]

Chairwoman JOHNSON. Thank you very much, Dr. Corlin. Mr. Mecklenburg?

STATEMENT OF GARY MECKLENBURG, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NORTHWESTERN MEMORIAL HEALTHCARE, CHICAGO, ILLINOIS, ON BEHALF OF AMERICAN HOSPITAL ASSOCIATION

Mr. Mecklenburg. Madam Chairman, members of the Subcommittee, my name is Gary Mecklenburg. I am CEO of Northwestern Memorial Hospital, a large teaching hospital in downtown Chicago. But I am here today as chairman of the board of the American Hospital Association, representing the AHA's nearly, 5,000 hospital and health system members. Thank you for the opportunity to testify.

To be clear, the American Hospital Association does not believe that all regulations are bad. But we do think Government regulations should do at least one of three things: improve the delivery of health care services to patients, enhance patient safety, or facilitate the timely and appropriate distribution of Federal funds to the health care system. Our experience, however, shows that regulations often do not achieve the desired effect. We are subject to 132,000 pages of rules that govern the Medicare and Medicaid program. That is 3 times the size of the IRS Code and its Federal tax regulations.

In addition to Medicare and Medicaid, we face rules from an alphabet soup of Federal agencies, from OSHA and the EPA, to the FDA, the FAA, and the IRS, just to name a few. We have a chart before you that helps show the more than 30 agencies hospitals must answer to.

Complying with standards of this many agencies and so many regulatory tasks is no small task, especially in our small and rural hospitals. For example, I am told that Memorial Hospital in Gonzales, Texas, a 33-bed hospital, has 20 billing staff. At my hospital, I can tell you we spend more than 3,200 staff hours per month sorting through Medicare billing requirements alone. In total, we employ more than 100 full-time staff solely to ensure compliance with a variety of regulatory requirements, 26 of whom have been added just this year. This includes new staff hired to work exclusively on the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and new Medicare outpatient billing requirements.

But the impact of excessive regulation goes far beyond finances. As you know, the health care system is facing a critical, long-term shortage of nurses and other patient care personnel. We also know that one of the significant factors driving staff away from hospitals and making health care a less attractive field for students is the diminished time for bedside care and increasing responsibility for paperwork and compliance. If we are going to meet the future needs of an aging population, we have to get a scarce number of caregivers back to what they were trained for and want to do, that is, patient care.

Excess regulations also affect our patients and families who become frustrated and confused when we can't explain billing procedures or why they must answer the same question over and over again.

To tackle these issues, the AHA Board of Trustees formed a 30-member advisory committee. Allow me to share a few of our suggestions with you now.

First, implementation of regulations should be better coordinated. Hospitals have had to implement too many regulations at the same time that have required wide-ranging impact on our operations. Therefore, we recommend enhancement of the duties of the Office of Information and Regulatory Management at OMB to allow for the more orderly release of regulations to ease these transitions.

Second, hospitals must be able to challenge attempts by HHS to overstep their authority. Today, if hospitals wish to seek judicial review of a regulation, they must knowingly violate Medicare law and risk exclusion from the program. That is too high a price to pay. We are not looking to bring every disagreement to court, but when rulemaking procedures are not followed, hospitals deserve due process. Congress should enact legislation to provide hospitals and other providers with a specific opportunity to appeal decisions made by HHS on questionable Medicare policies.

Third, MedPAC should be required to include hospitals' compliance costs when recommending payment rates. Complex regulations are an increasing hospital cost. An AHA-commissioned study found that the cost of implementing HIPAA could cost as much as $22.5 billion over 5 years for just three of the rule's proposed provisions.

Fourth, paperwork requirements should be streamlined. For example, patients must fill out the 25-question Medicare Secondary Payor questionnaire every time they come to the hospital. We recommend altering this standard to require completion of the MSP every 90 days for recurring services.

Finally, Congress should enact the Regulatory Fair Warning Act, introduced by the 106th Congress. This bill would help stop the enforcement of ambiguous and conflicting regulatory pronouncements.

Though most of the examples I have given today come from my hospital's experience, I believe I speak for hospitals across the country. We need to carefully examine the impact regulation is having on our organizations. We pledge to work to make the health care system better for patients, but need the assistance of the regulatory agencies and Congress to achieve this goal.

Thank you again for the opportunity to testify, and I look forward to answering your questions.

[The prepared statement of Mr. Mecklenburg follows:] 

Chairwoman JOHNSON. Thank you very much, Mr. Mecklenburg. Ms. Ousley?

STATEMENT OF MARY K. OUSLEY, SENIOR VICE PRESIDENT, HEALTH SERVICES, MARRIOTT SENIOR LIVING SERVICES, BETHESDA, MARYLAND, ON BEHALF OF AMERICAN HEALTH CARE ASSOCIATION

Ms. OUSLEY. Good morning, Madam Chairman and members of the Subcommittee. My name is Mary Ousley, and I am here today on behalf of the American Health Care Association. I have been in the caregiving profession for nearly three decades. I am a registered nurse and a licensed nursing facility administrator.

I would like to commend you, Madam Chairman, on your vision for long-term care and for taking the time to know our profession and the care needs of the beneficiaries we serve.

I have worked both formally and informally with the Health Care Administration for many years, representing the long-term care profession. I am not here to bash HCFA. I consider the individuals that I have worked with to be not only my colleagues but also my friends.

However, there is a storm approach long-term care. We have a demographic crisis brewing, and we need to address that today. The baby boomers are retiring, the supply of caregivers is dwindling, and recruitment has become virtually impossible.

Financially, nursing facilities are treading water. We are facing dual fronts with Government financing care at less than cost and a staffing crisis of epidemic proportions. A primary contributor to this crisis is the regulatory oversight system. The system demoralizes caregivers, burdens them with endless paperwork, and perhaps far, far more importantly, affords the long-term care professional very little respect for their hard work and dedication to the seniors of America.

I am not here today to ask for less Government. I am here to ask for smarter, more accountable Government.

We all know that however well intended this system for oversight for nursing facilities has been, it has failed to measure or improve quality in our Nation's nursing facilities. What was originally envisioned by the Institute of Medicine in 1986 to be residence-centered, outcome-oriented, and consistent, there is little resemblance today with what caregivers deal with.

What has evolved is a regulatory system that is subjective, process oriented, a snapshot that focuses on punishment. After three decades in this profession, I can absolutely tell you that we cannot punish our way to improvement. We can only improve if we do that internally and we do it collaboratively.

Let me be clear about one thing. Chronic poor providers, if they are unable or unwilling to meet the standards, should be terminated from the program. But with such a failed system, how can we know what is the right action?

The questions before us are: What is the role of Government in quality? And what reforms would garner the most meaningful improvements?

Number one, we believe that the Health Care Financing Administration must adopt new technologies that create an objective system that provides useful, real-time, accurate information to consumers and providers alike. Such technologies are being used today by health care providers to improve our quality of care. The bottom line is, as quality measurement has improved, HCFA's inspection system has stagnated.

I would like to highlight a few specific recommendations. Number one, as we move forward, allow and create a collaborative system so providers and regulators can work together. Investigators and surveyors must respect the parameters of clinical practice for both physicians and nurses. Prevent HCFA from closing nurse aide training programs unless the deficiencies are tied directly to those programs. And implement a fair and impartial system of appeals that will dispose of grievances in an equitable way, quickly impose citations that are merited, and do away with those that are not. Allow additional caregivers that can demonstrate competency to perform such tasks, such as feeding and hydration, to meet the needs of residents under the direction of a registered nurse. And please stop the punitive approach that is driving caregivers and professionals out of long-term care and help us facilitate a system back to what was originally envisioned of residence-centered.

Second, as we look to the future, I think that the Health Care Financing Administration should grant waivers for States that have innovative ways to improve better oversight.

My third recommendation for reform is broader restructuring and, yes, focusing on resources. We do not believe that the Health Care Financing Administration today has all the resources that they need to get the job done as they are expected to do. And we believe as we move forward that it is imperative that we move toward one primary objective: that policy and oversight of providers be housed together with a distinct philosophy of partnership.

I have confidence that as we all work together in this new spirit of partnership, we can establish a fresh start and provide positive dialogue with the interests of patients always first.

Thank you very much for the opportunity to testify.

[The prepared statement of Ms. Ousley follows:]

Chairwoman JOHNSON. Thank you very much. Ms. Wilson?

STATEMENT OF SUSAN WILSON, R.N., M.P.H., VICE PRESIDENT, CLINICAL OPERATIONS, AND CHIEF OPERATING OFFICER, VISITING NURSE ASSOCIATION OF CENTRAL CONNECTICUT, INC., NEW BRITAIN, CONNECTICUT; PRESIDENT, BOARD OF DIRECTORS, CONNECTICUT ASSOCIATION FOR HOME CARE; AND MEMBER, NATIONAL ASSOCIATION FOR HOME CARE

Ms. WILSON. Thank you, Madam Chairman, Representative Stark, and Committee members, for inviting me to present testimony today on behalf of Medicare beneficiaries and their home health providers. I am Susan Wilson, vice president of clinical operations for VNA of Central Connecticut, president of Board of Directors for the Connecticut Association for Home Care, and a member of the National Association for Home Care.

In preparing for this testimony, we provided you with extensive written testimony in reference to the issues that face us today. If you refer to Attachment 1, it references the 8,000 pages of regulation under which home care is presently working, which was published just between June of 1999 and March of this year. It primarily addresses the two most significant regulations impacting home health care today: the Outcome Assessment Information Set, or OASIS, and the implementation of the prospective payment system.

I would like to just highlight a few areas, one of which, obviously, is the overall concern for the prospective payment system. The stringent payment limits that we experienced under an interim payment system resulted in the closure of approximately 3,400 agencies, and NAHC's preliminary PPS reveals that 45 percent of the remaining agencies are now reporting losses and difficulty in billing. It is understandable that with any new system there are going to be problems; however, the extent of the problems have created a huge impact on cash flow and an overwhelming environment of frustration. We literally have requested hundreds of clarifications from HCFA in reference to the regulations, and essentially they have remained unresolved.

Under PPS, we are mandated to refer to a common working file which was intended to provide us with information regarding the beneficiaries and the benefits they have utilized. It is, however, cumbersome to use, as some providers do not have access to the common working file, and the information that is there is frequently difficult to access, untimely, and inaccurate.

Home health agencies also have difficulty in processing claims. When subject to medical review, they may be denied in part or in full, and HCFA has issued no instructions for what we are to do with partial denials. Also, there are errors which occur, human errors which occur in the processing of claims, and it can take up to an additional 30 days to resolve these, if not more.

Also, beneficiaries are now receiving Medicare summary notices which explain the changes; however, we found that they often overstate the information by as much as 10 times. Notices have been received in which the sum of the episodic payment and the charges are lumped together, giving the appearance that the home health agency has been overcharging or has been overpaid. Although HCFA is in the process of correcting this information, there is no plan to suspend these notices.

Just as the beneficiaries receive notice, we also receive a notice called a remittance advice report. They are fraught with errors and are often incomprehensible, leaving the reports of little value to the providers.

Finally, the case mix adjustment system which is presently used is difficult to use, at best, and found to be slightly better than 30 percent accurate. Changes are definitely needed in this to reflect more in terms of clinical care and clinical factors rather than the service provision itself.

In my own agency, we have had the great fortune of having a highly skilled staff that provide acute clinical interventions and also extensive coordination to the community. I bring to your attention an example of a 102-year-old woman in our community who had pressure ulcers due to an ill-fitting brace. Our intervention was requested twice a day, and the related supplies were extensive. Today, that wound is healing, the family has once again resumed the majority of her care, and inpatient care has been avoided. However, the average cost of supplies was $680 per episode, although we were only reimbursed approximately $50. The agency sustained an average loss on a total reimbursement of $1,410.

We have provided you with a list of recommendations that would help in most of these regards. I do bring to your attention in particular the elimination of the mandatory 15-percent cut.

There are other issues which we face: an extensive assessment form, which in combination can be upwards of 20 pages and duplicative in nature. The other issue which we face has just come upon us: the home health advanced beneficiary notice. This is primarily intended for duly eligible clients. We have found that HCFA failed to provide accurate instruction in a timely manner. It has been very costly for agencies to provide, the forms are confusing, and, in particular, we are asked to provide this information and submit claims on services that we know full well are not provided, for example, home health aide services only. We also have to deal with medical claims reviews, technical denials, and sampling methodology.

In conclusion, on behalf of the National and Connecticut Association for Home Care, we recognize the workload that HCFA presently faces, as we all do. However, it also indicates longstanding operational weaknesses, but we look forward to working with the Committee and with HCFA to help resolve these and would hope in the future that we can work together. I am deeply honored today by the opportunity to represent not only the work of home care providers throughout the Nation but, more importantly, the interests and concerns of the sick, the frail, and the elderly. And I thank you once again, Madam Chairman, and the Committee.

[The prepared statement of Ms. Wilson follows:]

 Chairwoman JOHNSON. I thank the panel for your testimony and for the speed with which you were able to move through the highlights. Indeed, I hope the members of the Committee will take time to read these papers in detail because they are very thoughtful. They do focus on very real, practical problems that I think we really must tend to.

Dr. Corlin, I wanted to mention that the inspector general believes that the bill that you support introduced by Representative Toomey would undermine his ability to eliminate fraud. How do you respond to that?

Dr. CORLIN. We are aware of that interpretation, and we are a bit surprised by it. Nothing could be further from the truth, Madam Chairman.

In any case where fraud is suspected or alleged, that would have to be referred immediately to the OIG, as it is now, and would not be different in any way, shape, or form from the present situation.

Our concerns and the reason we support this legislation are to deal with how inadvertent billing errors are dealt with. We want fraud to be dealt with just as vigorously as it is now and would not impede the OIG in any way in anything they do in a fraud investigation.

Chairwoman JOHNSON. Dr. Corlin, when an inspector general comes into a physician's office, do they differentiate between billing errors that represent an undercoding and billing errors that represent an overcoding?

Dr. CORLIN. Initially, not at all. And what was happening is that assessments were being made based just on overpayments rather than the net of overpayments and underpayments.

Now, at least there is some net charge based on the two, but it just strikes me that if I was an investigator and I went in and I saw a pattern where most of the bills were correct but some of them were wrong, and if all of them were wrong in the positive direction, I would have some real suspicions. But if all of them were wrong and there was a pattern of some being overbilled and some being underbilled, if that is fraud, that is the dumbest fraud I have ever seen in my life. And to me, that should be evidence of the fact that there are problems in lack of education and inefficiency in the billing process, not a deliberate attempt to defraud.

Chairwoman JOHNSON. I don't remember quite how long it took for the inspector general to realize that he needed to offset underpayments and overpayments, but it did take a couple of years. I just want to put on the record the experience of a physician in one of my small towns who had the inspector general come in, and he found $1,742 in overcharges. But through Medicare's methodology, this resulted in a demand to repay $74,000.

So there is a methodological problem there with the way they move from the problems that they have seen and the conclusion that they come to. There also is, I think, just for the Committee's knowledge, no way that a physician can even challenge a single review of a case and say to the overseer, the inspector general's person, that actually this is what the case really was, challenge his interpretation of that case. He really has to abdicate his right. As this doctor says, "I had to choose to either abdicate my rights of appeal and other due process protections, or challenge the Medicare to an adversarial conflict on their turf by their rules."

So there are some significant problems here.

Dr. CORLIN. Madam Chair, we agree absolutely and have seen horror show after horror show take place. One group, if I may give an instance--

Chairwoman JOHNSON. Actually, I don't want to take too much time as chairman, so I would appreciate it if I could just move on to the others.

I just want to mention that I was interested that Northwestern added 26 full-time employees this year solely to comply with new regulations. True?

Mr. Mecklenburg. That is correct. We added 16 additional utilization review staff and 10 additional billing coders this year, primarily for HIPAA and outpatient payment coding.

Chairwoman JOHNSON. And then I would like to ask Ms. Ousley to comment just very briefly, because I would like to ask Ms. Wilson to comment very briefly.

On this issue of the turnover rates in the nursing homes, I know it is almost impossible to recruit new nurses, but this turnover rate, you say, of 80 percent, is that unusual? How many years ago was it that you had a lower turnover rate? And what have been the changes that have caused this?

Ms. OUSLEY. It is unusual and it is growing by unbelievable dimensions today. And as I said, I do believe that it is related very much to the atmosphere in which we are asking our nurses to work. They, again, are afforded so very little respect, and as I indicated, the oversight process that the nurses go through is just almost unbelievable.

There is such a demand for write it down, write it down, document it, that they are getting so frustrated that they absolutely cannot do what they were trained to do, their profession, to provide the care for residents.

A personal example. In one of my facilities just a few weeks ago during the survey process, two of the nursing supervisors--and this is a facility that has been essentially deficiency-free for the last 20 years. One of the nursing supervisors actually got physically sick in the middle of the survey and said, "I have to go home." Another nursing supervisor said, "When it is over, I am done. I can't stay here anymore. I can't go through this again. We work too hard to have to deal with this."

Both those nurses, thank goodness, are still with us today because it is a good and it is a stable community, and the administrator was able to convince them. But that is the type of thing that is happening that is driving good, caring people out of this profession. And I firmly believe that is one of the reasons that it is increasing.

Chairwoman JOHNSON. This is a very big issue, the change that has happened in the survey and certification process over the last 5 or 6 years, and I urge members to go visit their nursing homes and talk to the people who have been through these surveys, talk about what the impact has been on the quality of care of this kind of survey versus the kind of survey work we were doing in a more collaborative environment a few years ago. You can only really get the flavor of the change. There is no question in my mind but that it is forcing people out of the business.

Ms. Wilson, let me just ask you--and thank you for your detailed testimony. It was extremely useful. But one of the things that disturbed me the most is that Congress mandated that there be a case mix adjuster. Now, in your testimony, you mentioned that comorbidities were not taken into account. Could you just describe to us what impact this had? And then save just one minute to also describe what kinds of cases some to you that couldn't possibly be covered by Medicare, and yet you have to go through this time-consuming process that results in a delay for service payment of at least 2 months, and often as much as year. So just would you comment on that comorbidity issue? Because it is astounding to me that this would not have been built into case mix adjustment.

Ms. WILSON. On the issue of comorbidities, when the OASIS data set is completed--and at the start of care, OASIS assessment is comprised of about 83 separate questions. One of the very small factors is, in fact, the diagnosis. There are only three primary diagnoses, which pertains to orthopedics, neurological issues, and diabetes, which are drivers of a differentiation in reimbursement.

Having a population in New Britain which is an older population, our agency primarily serves an older population. Of course, we see people with comorbidities: congestive heart failure, chronic obstructive lung disease, et cetera. It requires intensive intervention on the part of the clinicians. We have to organize many community resources, and obviously all of those factors impact the individual's safety and well-being.

The cost in time and money is astronomical. However, it has absolutely no impact on the cost of reimbursement. Only if, in fact, a primary diagnosis of diabetes, an orthopedic, or a neurological diagnosis were primary would that have any impact whatsoever.

Chairwoman JOHNSON. So the bottom line is that there is very little relationship between the cost of care that senior needs and actually your reimbursement level?

Ms. WILSON. Correct.

Chairwoman JOHNSON. Let me move on now and not go to the other question and give Mr. Stark an opportunity.

Mr. STARK. Thank you, Madam Chair. Just a couple of issues here because I need a little more data from some of our witnesses.

I think, Dr. Corlin, you indicated--and we are going to have a little difference, I suspect--in the testimony today that Medicare's rules and policies are driving physicians from the program.

Now, what we are finding, for example, is that in every State except Missouri, the participating physician rate is higher in 2000 than it was in 1999; MedPAC did a study of physicians, and they found, in questioning physicians about the difficulty of finding a referral, that only 4 percent of the physicians said it was very difficult to find a referral for a Medicare patient, but 3.7 percent had the same difficulties finding referrals for privately insured patients. So there is almost no difference in finding a referral for a Medicare patient. If we were driving the docs out, one would suspect that it would show up there.

By the way, this is a 1999 survey; there is another one in the works. When they surveyed physicians about their attitudes about Medicare and comparisons to Medicaid--which I think is probably the worst in terms of physicians' preference-fee-for-service, PPOs, and private HMOs, Medicare does pretty well. In other words, 54 percent felt that the billing paperwork was a very serious problem for patients served by HMOs, and only 29 percent gave this answer for Medicare. So one could say Medicare is doing better than private HMOs, which should not come as any surprise because the physicians have been supporting our efforts to get the Patient's Bill of Rights passed. That has sort of fallen off.

Dr. CORLIN. No, sir, it has not.

Mr. STARK. Okay, good. But what I guess I am saying is that, while I am perfectly willing to urge my colleagues to move efficiently and to improve Medicare, I think it is fair to say Medicare is--in your own practice, I will bet you--one of the two best or least hassling payers you have got. And I find this is true from many physicians. In Connecticut, for example, the AMA affiliate there is suing Aetna for paying claims slowly.

Now, let's say that a doctor's practice grosses 2 million bucks. That is before it pays all the nurses and rent and everything else. We pay--we, being HCFA-clean claims in 30 days. You are lucky if you could tell me with a straight face that managed care plans pay you in under 120 days.

I am suggesting that you get to float a half a million bucks with us that you are not getting out of these other plans. And if you can earn 6 or 8 or 10 percent on that. You don't do so badly. Again, I am not suggesting that we can't improve, but I think you have got to compare us to the others. I don't think, Doctor, that you would ask me to turn Medicare over to Aetna without any change in regulation and let them pay you under their plan for all your patients. I just think that you would probably have trouble getting re-elected as president. I might have trouble getting re-elected--

Dr. CORLIN. I am only allowed to serve one term, sir.

[Laughter.]

Mr. STARK. Don't mention that to the good folks in the 13th District of California, please.

There is no business operation--and that is what HCFA is--that can't stand improvement and doesn't need constant revision to see that we are using current technology. In fact, we are offering you a buck off, I think, if you will file electronically. Maybe we should charge you a buck--you being your group and other participating doctors--if you don't file electronically to urge you to get out and buy that laptop and help us be more efficient.

There are a lot of ways we can cooperate, but the MERFA may very well completely eliminate any ability to enforce our laws and regulations. It is not the way to go. And I would urge you to--which is unlike previously, 10 years ago with the AMA--continue to be in the tent with us as we write any improved legislation, and I think we can go a long way together.

But, please, you know, for a lot of the guys who work hard, this argument 135,000 pages of regulations is baloney. We have counted them. There are about 35,000, which is maybe too many, but it isn't 135,000. That number came from Mayo, who have refused to send us any documentation of where it came from. But, believe me, I want to stay out of the Mayo Clinic if they can't tell the difference between 135,000 and 35,000, or when they read my cholesterol level, I am going to have a real problem.

So thank you for your organization's support to stop smoking, to get kids insured, to reform managed care. But remember that one of the complaints you have that are fixed in the Patients' Bill of Rights is that you get paid by the private insurers on time. At least we do that. We may come back after you later, and maybe we have to change that. But be careful what you wish for. It could come to pass. And I look forward to working with you.

Now, if I have misstated any of your position or the difference--if you want to shed any light on the difference in our statistics, please do. Sorry, Madam Chair.

Dr. CORLIN. Thank you, Mr. Stark--

Chairwoman JOHNSON. Dr. Corlin, if you will be quite brief, as the red light is already on.

Dr. CORLIN. Yes, I will. I would be pleased to respond.

We are not here today to talk about specifically just payment issues. I can tell you that in virtually every community in which I speak, there are at least one or two of the senior internists who have said, "I have had it with the kind of audit process that they have put me through, and I am not going to see Medicare patients anymore," and that is a shame.

I would like to respond by giving two very, very brief responses which focus on our concerns today, and one has to do with a six-person group dealing in one subspecialty with internal medicine. And I have seven lines that I want to read you about what they went through. They are recognized in the entire area in which they practice as being the most high-quality group in that specialty.

The carrier audited 80 claims from their practice--this is six doctors in a very active practice--and demanded all the supporting documentation within 45 days, which they sent. The carrier then extrapolated from those 80 claims and said that that practice owed somewhere between $99,000 and $285,000, and they would accept the $99,000, but it had to be paid within 30 days, and they had to admit liability.

Also, if they wanted to try to get an extended payment system, they would have to provide financial documents that they were turned down for loans at the bank in order to do it.

The physicians appealed the audit finding after paying the $99,000, with interest, and 3 years later after the initial audit was done, the administrative law judge held that the carrier was wrong and that there was no overpayment and ordered their $99,000 returned to them, without interest.

The other issue we find ourselves in is we are told repeatedly that if you contact the carrier and ask a question and get an answer, you can only rely on that answer if you are subsequently audited, as we did it the way the carrier told us, if you are given a written confirmation of the answer. We are never able to get those.

I would love to be able to tell you that I can go to 300 physicians around the country, ask them to ask the same question of their carrier 10 times each over 3 months, and get 3,000 answers the same. I suspect we would have 1,200 different answers to that same question.

Help us with those issues, and the financial factors that we are concerned about will not be as great.

Mr. STARK. And just a follow-on, Madam Chair, a quick comment. We have about 50 different carriers across the country. They are not Government employees. Generally, they are Blue Cross or Aetna employees who contract with the Government, and each one has a different set of standards. And we recognize that as do you. This is not "the Government." This is 50 different contractors. It is like dealing with 50 different banks around the country chasing you for your visa card bill. And we and HCFA recognize that we don't have common computers.

I mean, I could go on--

Chairwoman JOHNSON. Mr. Stark, we do need--

Mr. STARK. The Chair knows this--

Dr. CORLIN. HCFA, when they say they can't control the carriers--

Chairwoman JOHNSON. I believe the whole point of this hearing is to get this kind of problem on the record, because while in the old days you might be able to tolerate it, now with the incredibly complex cases, the variety of diagnostic treatment and technologies, you cannot put people through this and expect them to participate in the program, and we really have an obligation to hear this and deal with is constructively. Mr. McCrery.

Mr. MCCRERY. Thank you.

I think Mr. Stark does raise a legitimate question, though, and I would like for you, Dr. Corlin, and maybe Mr. Mecklenburg to elaborate.

What is the difference in paperwork requirements or the burden of compliance between HCFA and Medicare and the private sector in your private-pay patients? Dr. Corlin?

Dr. CORLIN. Thank you, Mr. McCrery. It is all across the board with the private payers. Some are very good and respond very quickly and are very efficient. Others, the situation is terrible. And I think probably if you want to characterize managed care, the best thing you can say is if you have seen one managed care plan, you have seen one managed care plan. Some of them work through a delegated model, either fee-for-service or capitation, and work very efficiently with minimal disruption to the practice. We are fortunate in our community that that is the way we work. I have never had a circumstance where I have had to do anything more, if I got a rejection, than call and speak to a medical director over the phone and got it taken care of very quickly. I am talking about authorization, not payment. And many of ours in our own practice are capitated. Some are not. We are much more fortunate than some. It ranges from very good to very bad.

The Medicare payments themselves, the payment system, at least for physicians, is not the problem. We are not complaining that there is slow pay for Medicare.

Now, we had in Southern California 4 months of slow pay, and many physicians didn't get paid at all for 3 months when they switched from one intermediary to another. That is a specific issue. It is not likely to happen again.

But our concern is we want the auditing process that it is the carriers that do to be efficient, appropriate, and businesslike. I would love to be able to come back here near the end of my presidency and congratulate you for making HCFA the Nordstrom of Government agencies.

Mr. Mecklenburg. Mr. McCrery, I would concur with the assessment that we have problems with most of our payers in terms of slow pay, burdensome requirements, added paperwork. I think in terms of Medicare and Medicaid, in our own organization right now we have had two major impacts by example: one, implementation of new outpatient payment regulations that have been very difficult for us to get to a completed and clean claim; secondly, we have had a change in intermediaries, which has already been discussed, with dramatically different paperwork requirements, dramatically different interpretations of Medicare payment restrictions, that have led to dramatic increases in receivables and in our allowance for bad debts.

Mr. MCCRERY. Well, generally, though, can you help me with my question, which is: How does the burden of complying with Medicare compare with the burden of complying with the private sector in general?

Dr. CORLIN. That burden is much, much worse in the standpoint of having--

Mr. MCCRERY. What burden is worse?

Dr. CORLIN. The burden regarding Medicare.

Mr. MCCRERY. Is worse than the private sector?

Dr. CORLIN. It is much worse based upon the uncertainty and inexactitude of knowing what to do. At least with managed care plans, whether we like it or not, we know exactly what has to be done. And if we call and ask a question, chances are we are going to get the same answer time after time. We may not like the consistency, but there is consistency and we know the rules.

There are circumstances in dealing with the Medicare intermediaries where the rules are confusing, the wording is confusing, and when we call we get different answers without the substantiation.

Mr. MCCRERY. So you disagree with Mr. Stark's characterization that the private sector is just as bad as Medicare in terms of the burden it places on you for paperwork and compliance?

Dr. CORLIN. Absolutely. With regard to those aspects of it, I do.

Mr. MCCRERY. Mr. Mecklenburg, how about hospitals?

Mr. Mecklenburg. I would agree with that conclusion. If I can give you one simple example of a difference between Medicare and many of our other payers, every time a Medicare patient receives service, we are required to ask a series of questions about secondary payers. It has 25 questions on it. We have to ask it every single time a patient receives services, whether it is a physician service or a laboratory test. That is not only a burden for our personnel--

Mr. MCCRERY. Private payers don't require that.

Mr. Mecklenburg. Not this kind of questioning. The first question I have to ask a patient every time is: Are you receiving black lung benefits and will services being performed be paid by black lung? A patient that is seeing us every couple weeks for a lab test gets very tired of answering that question.

Mr. MCCRERY. Well, Madam Chair, evidently these witnesses, who are from the health care sector, disagree with the information that Mr. Stark provided us. Maybe we should ask Mr. Stark to provide some witnesses to substantiate the claims that he is making so we could clear this up.

Mr. STARK. If the gentleman would yield?

Mr. MCCRERY. Sure.

Mr. STARK. Most of that comes from MedPAC, and we will hear from them, and they are doing another study. So I think that is right on. We should find out. We will have MedPAC as a witness later.

Mr. MCCRERY. Good.

Ms. WILSON. May I add a comment in reference to your question as it pertains to home care?

Mr. MCCRERY. Sure.

Ms. WILSON. Certainly in terms of the private sector, we definitely have our problems, and there is definitely a financial burden that comes with contracts at substandard pay rates, et cetera. However, when it comes to the coverage, very often, as has been said, we can call, we can discuss what the situation is, and seek some resolution. There is also a very clear process in terms of appeal, and we have utilized that.

One example that we have had with our agency is that the fiscal intermediary routinely does focused medical reviews, and we are not aware of when those are taking place. In April of 1999, we were notified that our agency had undergone a focused medical review of 30 records which resulted in--now, 30 records can total hundreds and hundreds and hundreds of visits. It resulted in a denial of 20 home visits. The penalty was a 30 percent prepayment review for a full quarter, which is going to total about 450 records for our agency.

What that meant was we needed to copy each and every record, send it to the intermediary, have it reviewed, wait for their determination, appeal if necessary. This is a process that goes on for weeks, months, and sometimes could last for a year or more.

However, during that process, what we found was that the intermediary made 18 errors ranging from sending lists of client denials and copies of final determinations belonging to other agencies to claiming denial of visits previously reviewed and already approved by their own medical review department. When this was clarified, what they originally said was 20 home visits was actually a total of eight. However, we still were subjected to the 30 percent prepayment review. There was no getting away from that process.

That I don't believe would have occurred with the private sector.

Ms. OUSLEY. If I could also add, just on behalf of the nursing facilities--

Chairwoman JOHNSON. Very brief, Ms. Ousley. That red light is on.

Ms. OUSLEY. For Medicare, for us, in justifying the 44 category claims requires, again, tremendous documentation, and like my colleagues, with review many times comes numerous denials for paperwork reasons.

Chairwoman JOHNSON. Thank you very much. Mr. Kleczka.

Mr. KLECZKA. Thank you, Madam Chair.

Mr. Mecklenburg, the form that you refer to that has to be asked of every patient coming into the hospital, is that a verbalized form or is it given to the patient and you just check the various questions?

Mr. Mecklenburg. Depending on the patient, it may be done either way.

Mr. KLECZKA. But for the most part, it is given to them and they will just go and check it off? Then also there is another form: Do you use insulin? Are you allergic to anything? Have you seen a doctor? You know, that type of info is also requested, right?

Mr. Mecklenburg. Yes, there is a variety of information--

Mr. KLECZKA. All right. So on the 25 questions, that is probably just given to the patient and they check yes or no, and so that, you know, isn't an overly--I think the presentation here is overly exaggerated on that.

Madam Chair, I think it is important that we look at the regulatory burden of the program. I know full well there are 40 million-plus people getting the services of the program. So, naturally, it is going to be somewhat cumbersome. But to blame all the woes in the medical profession on the regulations of the Medicare program I think is going a little above and beyond where we should be going today. The only thing I haven't heard from this panel is blaming the recent demise of the stock market on the Medicare burdens, but that may come maybe from the second panel, Gail.

Nevertheless, the point I wanted to make is if, in fact, we are going to talk about the issue, I think we better get some facts straight and start with the database that we somewhat agree with. And I think Mr. Stark brought up the fact that there are not 132,000 pages of regulation. That sounds good to the public, and they will scratch their head and say, oh, my gosh, we have got to do something about it. But I am told by the former HCFA Administrator Nancy Ann DeParle that the actual pages, including the manuals, comes out to be about 35,000 pages, which is no small number but, nevertheless, a lot less than 132,000.

Do you agree with that, Mr. Mecklenburg, or not?

Mr. Mecklenburg. I don't know that I do agree with that, but I would be happy to get back to you on that.

Mr. MCCRERY. Where did the 132,000 come from?

Mr. Mecklenburg. I think as Mr. Stark said, it came from a study at the Mayo Clinic.

Mr. MCCRERY. Okay. And are you aware that Nancy Ann DeParle wrote the Mayo Clinic to ask for justification, which they never responded to?

Mr. Mecklenburg. Not until--

Mr. MCCRERY. It is nice to use the number, but I would just make sure we use it with some accuracy.

Dr. Corlin, you indicated a recent situation with your practice, we had to do some paperwork before attending to the patient. I can't find that in your printed statement. Could you just re-relate that to the Committee real quick?

Dr. CORLIN. The circumstance occurred that--and it was Tuesday night. It was one of the three hemorrhaging patients that I got called to see. It was someone who had been in the intensive care unit for several days, and because of the requirements to have each and every physician who sees the patient put documentation that is unnecessary and repetitive, instead of about four or five pages of progress notes, there were 33 pages of progress notes. Simply to find out what had gone on with that patient in the last 72 hours, those had to be read before I could--

Mr. MCCRERY. But the inference was that you were filling out this paperwork while the patient was bleeding. Was that--

Dr. CORLIN. No, no. I didn't say that. I was called in and I had to go over that patient's chart. Prior to a couple of years ago, the same amount of medical information would have all been on the chart in probably four or five or six pages. Now it is over 30 pages.

I would invite you, if you ever come to Southern California, I will take you on rounds with me for a day, and we can go through some of the charts, after I cover the patient's name for their confidentiality, and you can--

Mr. MCCRERY. And you are saying those numerous pages are because of the Medicare rules and regulations?

Dr. CORLIN. Absolutely.

Chairwoman JOHNSON. If the gentleman will yield?

Mr. MCCRERY. Sure.

Chairwoman JOHNSON. We will provide you with a list that the Mayo Clinic actually did of Medicare regulations and supporting documents.

Mr. MCCRERY. Okay.

Chairwoman JOHNSON. And all of the coding books and those kinds of things that are absolutely essential, plus the laws, and that 137,000 does come from that study.

Mr. MCCRERY. Okay. Well, I haven't seen that, and I would like to take a gander at it. But I am told there are 900 pages of statutes, so Congress is not bashful by any stretch. To implement those statutes, there are 1,700 pages of Medicare regulations, and then we do have some HCFA program manuals, and that totals about 32,000. And I am told that is the sum and substance of the Medicare regs that you folks have to adhere to.

But, again, Madam Chair, it is something we should look at. But to blame all the woes, including nursing shortages, on the paperwork I think is a real stretch. I have a niece who is an RN--in fact, I have a couple nieces who are RNs back in Milwaukee, and one is a critical care RN. And the shortage there is a shortage in the nursing profession and not paperwork. And when these nurses have to mandatorily work either another half shift or another full shift at the expense of the family, that gets pretty burdensome. And that is not a Medicare problem.

So I think what we have to do as a Nation and possibly as a Congress is look into the actual nursing shortage, which is, I think, more dominant than paperwork having nurses quit the business.

Thanks.

Chairwoman JOHNSON. I think certainly our goal here in this hearing is not to claim that the change of administrative burden is the whole problem or solving it the whole answer. But it is important, and it is the first time in my experience--and I have been on this Subcommittee for 12 years--that we have ever had a panel like this. It is the first time, I think, that we have ever faced the dimension of problems and, therefore, needed to have this. So it isn't the whole answer, but it certainly is one of our obligations to deal with, Jerry. I didn't mean to imply that it was the only thing. But I think their testimony does help you to see that it is an element in the nursing--

Mr. KLECZKA. Madam Chair, again, I agree with you for the most part that it is something we should look at. The program is getting bigger, and it is going to double in size in our lifetime. But to blame everything in the world on HCFA, I am just not ready to do that.

Chairwoman JOHNSON. I would hope that you would take from this--go visit your nursing homes, go visit doctors who--

Mr. KLECZKA. Oh, I am there all the time.

Chairwoman JOHNSON. Talk with them firsthand. Mr. Ramstad?

Mr. RAMSTAD. Thank you, Madam Chair, and thank you for your leadership in this area. If anything needs to be changed, it is the overregulation of HCFA.

I wish my good friend from California, Mr. Stark, were still here. I would remind him that the Mayo Clinic is recognized as one of the foremost medical centers in the world by virtually everyone in medicine, and I certainly respect and take seriously their concerns with regard to overregulation by HCFA and the overly burdensome, cumbersome Medicare regulations. I meet ever week, virtually, with health care providers in Minnesota. I am home every week. And I hear virtually every time about the crushing paperwork burden imposed on providers by HCFA, as has been testified to here today, duplicative documents, redundant forms that are unnecessary to treat patients, unnecessary for quality health care. Too many providers are spending too much time struggling with paperwork rather than treating patients, and it is time, I believe, to introduce common sense into the HCFA bureaucracy; 130,000 pages of rules and regulations are clearly excessive.

For the first 6 or 8 years I was in office, the IRS managed to garner the most complaints among my constituents. Over the last several years, it has certainly been HCFA.

I just was at a nursing home several weeks ago where the administrator explained to me they just hired two new nurses to do nothing but fill out forms. Two new nurses that could be helping patients, working on health care issues, to do nothing but fill out Medicare forms.

This regulatory burden is unacceptable. Certainly it is necessary to have a reasonable level of documentation to prevent fraud, to improve patient care, but it is time, Madam Chair, for HCFA to start focusing on working with patients, working with the health care industry in a collaborative way, rather than working against health providers in an adversarial way. And from your testimony and from the firsthand accounts of providers in Minnesota in my district, it is certainly the consensus, if not the unanimous feeling, of my providers that they are burdened, overly so, by paperwork. And certainly they corroborate your testimony today, every one of you, despite what some of my friends who sometimes--and they are my friends on the other side. Sometimes I think they are operating on a different planet. I couldn't believe what I was hearing, and I wish they were still here to respond.

But I want to thank you, all four of you here, for telling it like it is. Congress needs to hear from you who are operating in the real world and who deal with patients, who represent the best in providers, and I appreciate your coming forward and being helpful to this Committee, because this Committee is very serious about changing the overly bureaucratic, overly burdensome regulatory scheme, regulatory regime of HCFA. This must change because the current regime is totally unacceptable to quality and cost-effective health care. As you suggest, too many people are being driven out of health care because of HCFA.

Let me just ask Mr. Mecklenburg, if I could, do you have any idea--have you quantified this? What percentage of administrative staffs employed in hospitals today deal for the most part, for most of their time, with Medicare reimbursement issues and regulations? Can you estimate the number or the percentage and/or the cost of the Medicare regulations?

Mr. Mecklenburg. I don't know that I can give you that number. I would be happy to try and find that for you and get back to you.

I would just go back to my testimony. In my organization alone, which is a large teaching hospital, we can identify specifically 100 employees--that ranges from utilization review coordinators, billing coders, corporate complaint staff, internal auditors, various billing folks--that are full-time in compliance. That does not include the staff nurse, the management staff who spend some part of their day. So it is a significant amount of the effort. And what is unfortunate, I think what you can look at, if you are looking at a hospital like mine or many others across the country, if you look at where staff have been added over the years, the high proportion has been made in administrative services, mostly to comply with regulation.

Mr. RAMSTAD. Just like the two nurses just hired by that Dakota County, Minnesota, facility to do nothing but paperwork.

Mr. Mecklenburg. That is correct.

Mr. RAMSTAD. Thank you again. I see my time has expired. Thank you, Madam Chair.

Chairwoman JOHNSON. Thank you.

I am going to recognize Mr. McDermott, and you see people leaving because we have a vote on. I, too, am going to go and vote, but after Mr. McDermott questions, it is my hope that one of the other members who has not had a chance to question will have returned so we can proceed promptly and move on to the next panel.

Mr. McDermott?

Mr. MCDERMOTT. It is kind of a weird experience sitting up here by myself, nobody listening to what I ask.

[Laughter.]

Mr. MCDERMOTT. In listening to this debate here today, one could come down only, it seems like, in extremes, on one side or the other. Either there is an enormous amount of fraud, waste, and abuse out there, and, by God, we are going to find it; or else we are all doing just fine, and why are you being so intrusive. As a practitioner myself, I can feel for what that is like.

I have a couple of questions that I have been thinking about. One is, it seems to me that in 1995 HCFA put out some rules for evaluation and management documentation guidelines, and they barely got those in, and then in 1997 we started with another provision, and in 1998 another set of rules came out, and we are doing it again.

It seems to me that one of the problems may well be that we haven't taken the time to let anything settle in and for people to actually figure out how it works. But I was reading in the MedPAC recommendations where they suggest that HCFA should pilot test documentation guidelines for evaluation and management services before their implementation and/or pilot test any alternative method.

It seems to me that that is partly what is missing here. I was in medicine when we put on the DRG system. It just came out of nowhere, boom. And it was a research tool at Rutgers or some place, and they were looking for something in the Congress on how to deal with costs, so, bang, that is the answer.

When you do it to the whole system without testing, it seems to me that there is a real problem, and I wonder if my perception is correct. And if it is, what kind of pilot test do you think would give HCFA the capacity to figure out what they want to know without running over the doctor-patient relationship and setting the IG at encouraging senior citizens to call in when you find somebody who has mis-paid a bill?

We have created an atmosphere in medicine which I don't--and in health care in general. It is also with hospitals and with home health and so forth, and in nursing homes, that I don't think is a very healthy one. I don't think it is good for the patients.

I wonder what kind of pilot testing you think, starting with you, Dr. Corlin, and perhaps others have some ideas.

Dr. CORLIN. Thank you, Dr. McDermott. And I very much appreciate your comments and that kind of an attitude. I think it is a thing that we look forward to working with and cooperating with. And unlike Mr. Kleczka's comments, we are not blaming everything in the world on this. HCFA does a lot of things very, very well, but it does some things not well and some things that we think are really counterproductive. And we would like to see those things corrected so that there can be better focusing of HCFA's resources as to where the problems are.

With regard to the specific question you ask, first, I think there has to be the realization that, whatever the regulations are, while there has to be clear uniformity and equality in how they are applied, there also has to be a realization that in dealing with medical practices and in patients, this is not a one-size-fits-all situation.

We would like to see one pilot done in a teaching setting where you have physicians in training supervised by staff physicians, to see what kind of requirements are appropriate there.

We would like to see one pilot done in a far rural setting where there are much more limited resources, both on the practitioners there and the patients having fewer resources in terms of do I go to this practitioner or that practitioner or the other practitioner. They may only have one source that they can go to, and we would like to see one setting done there.

We would like to see one pilot done which is the result of a peer-reviewed development, almost a clinical vignette setting: Is this the right way to get the documentation?

I think there has to be the realization that while the public and the Government clearly have the right to say we need to prove that when something is billed for it was actually done, by the same token the patients and the physicians have the right to say, you know, this is not just an accounting exercise where you do double-entry bookkeeping and make sure the numbers add up. It has to be relevant to the medical practice, it has to be clinically appropriate, and it has to not interfere with what the patients need.

We would love to be able to sit down out of the glare of lights and cameras and say: How can we work out these pilot studies? And let's put them into working for a while and have people who are, you know, disinterested and are not biased on either side evaluate the results and see what we come up with.

Mr. MCDERMOTT. Did I misunderstand? Did not the AMA and HCFA work together in putting these E&M criteria together or this classification together?

Dr. CORLIN. The AMA urged a lot of the classification and criteria to be developed. We did not work with the development of a lot of the overly burdensome ones. And in many cases, we will come forth and I believe--I am going to have to check with staff because I was not personally involved with that. We may well have been involved in requesting some of the general category to be addressed, but were not involved in the development of the details.

Now, many of the specialty societies put forth individual items for it, and we coordinated some of that. But we were most distressed, particularly with the 1997 guidelines, because of how clinically inappropriate they were in comparison with what has to be on the chart meeting HCFA's requirements versus what has to be on the chart to document good medical care that is easily retrievable the next time that chart is picked up.

Mr. CRANE. The time of the gentleman has expired.

Mr. MCDERMOTT. Would you extend it for just one second?

Mr. CRANE. All right. One second. One thousand one.

Mr. MCDERMOTT. One of the cases that--the fraud and abuse initiative started in 1998, and an example used as an unsupported service for physician payment was "a routine physical exam." And to put that into the improper payments implies it is bad or fraudulent. How do we get around that? I mean, the IG says he is looking for improper payments.

Dr. CORLIN. I think, sir, that right now there is a reasonably good understanding on everybody's part as to what fraud is. When fraud occurs, fall on them like a ton of bricks, and we will be there clapping. No question about it.

Beyond that, there are the inadvertent billing errors that occur by people who they or their office staff may not know the proper way to do it, and then there is a third thing, which I think, Dr. McDermott, gets to the point you raise, which is the coverage issue. If a routine physical is not a covered benefit--and I am a gastroenterologist; up until July 1st, when, fortunately, it will change--routine colonoscopy may not be a covered benefit, if it is done, if it is needed by the patient for good medical care, if it is documented that it was done but it is not a covered benefit, then simply reject that as not being a covered benefit, send back an EOB saying it is not a covered benefit, and the issue is done with. That is a different category of situation.

Mr. MCDERMOTT. Did I understand, then, they wouldn't have paid for the routine physical exam?

Dr. CORLIN. They shouldn't have. Whether they did or not may be another matter.

Mr. MCDERMOTT. Is there any way it could have gotten paid for? I mean, it would seem to me that the intermediary would have a screen that said any time that comes up, no.

Dr. CORLIN. Well, they probably do and I hope they do. And, again, being a gastroenterologist, let me get back to one example that has caused a lot of confusion in people's minds with regard to the issue of screening colonoscopy, which has gotten a lot more publicity because of Katie Couric and the tragedy of her husband. In the long run, it is going to help people enormously.

People consider screening colonoscopies and don't know what it really means. That doesn't mean a patient who has had, say, an episode of rectal bleeding and comes in to a doctor. That is not a screening test. That is in regard to a specific symptom. A screening test is somebody who is completely healthy, who has no family history of colon cancer, who says I am 50 and I want the test just because I think it is good to have it when I am 50, good medical care says, yes, that is right. Is that a covered benefit of any given program? That is another issue completely, and we would--you know, the coverage issues are the coverage issues. But that is just for screening, not for when someone has symptoms, and one of the difficulties we have had--and I am sure Mr. Mecklenburg can relate the same thing--is confusion in the part of a lot of reviewers' minds of care given on a truly screening or surveillance basis as opposed to the same care given in response to someone who has some history or symptoms that indicate it is specifically necessary.

Mr. MCDERMOTT. If a patient--I am stretching my--

Mr. CRANE. Two seconds.

Mr. MCDERMOTT. Two seconds. With respect to a patient who would come in and say, "I feel bad and I don't know what it is, I just don't feel right," you would so a physical exam. Would that be considered a routine physical exam?

Dr. CORLIN. To my way of thinking, no. A routine exam of any sort, whether it be a general physical, a colonoscopy, a mammogram, a Pap smear, this is something that someone says I am well, I have learned either from my physician or from the media, or whatever, that it is good to have this test every so often, and I want to have mine to be sure I don't have a problem, that is routine screening.

When a patient comes in with any symptoms, that is not routine screening anymore.

Mr. MCDERMOTT. Thank you.

Chairwoman JOHNSON. Mr. Crane?

Mr. CRANE. Thank you, Madam Chairman.

Dr. Corlin, just last week the Office of Inspector General reported that nearly $12 billion in Medicare spending was lost last year to improper payments. And while this represents a welcome improvement over the previous years, it remains unacceptably high.

The OIG has claimed that this bill substantially undermines the program's integrity. How do you respond to that assertion?

Dr. CORLIN. First, let me say that I agree with your initial statements. We are glad the amount is down, it is still far too high, and would support any reasonable efforts to get it even lower. We would disagree with the OIG's conclusion because nothing in this bill would in any way deter or interfere with the investigation of suspected fraud, whether that is the most blatant of fraudulent billings or even--there are certain provisions in the bill that would say if the physician or the practice brings forth concerns about claims that may have been paid improperly, that they cannot be held accountable on fraud for that since they brought it forth.

The OIG complained that, well, the physician could just take all their bills for the year, bring them forth, and say, gee, I may have done it wrongly, can you help me, get the advantage of the float, the way Mr. Stark described it, and immunize themselves on all their claims. That is not true because that pattern of behavior in itself is fraudulent. That clause is given to the physician who finds in an occasional case or, gee, in this one code I just realized I may have been billing it wrong, and I want to get it corrected.

We in no way want to do anything to limit their investigation or prosecution of fraud when it occurs. And if there is anything in this bill that inadvertently would have that result, we would look forward to be supportive of changing language to see to it that that doesn't occur.

Mr. CRANE. And, I don't know, Gary, should I call you "Mr. President"?

Mr. Mecklenburg. Whatever you wish, Mr. Crane.

Mr. CRANE. All right. You mentioned several burdensome operational processes that hospitals are required to do by Medicare. Do other payers, private insurance companies or HMOs, ask you to do the same task but in a less onerous way? And if so, could you elaborate a little?

Mr. Mecklenburg. I think as we talked a little bit before, I think the requirements of each payer can be highly variable. That is another operational problem that we have of inconsistency in the forms, in the data, in the way that we must submit claims.

I would submit that the regulations that come from Medicare and Medicaid are often longer, more onerous, more subject to interpretation perhaps by a variety of people than we experience with most of our payers.

Mr. CRANE. In your testimony, you suggest that hospitals must be able to challenge in Federal court any attempt by HHS to overstep its authority or to enforce questionable policy. Could you please tell us specifically what you are referring to and what sort of questionable Medicare policy have you encountered? And why should your provider seek legal rather than regulatory or legislative remedies?

Mr. Mecklenburg. The problem that we have with this part of the Medicare regulations is that, in order for us to exhaust the administrative processes under Medicare, we have to first be in violation of the Medicare rules or law. And if we are in violation, then we risk being banned from participation in the program. We certainly think that that is not the proper way for us to go about determining whether or not a specific rule or a specific regulation is appropriate or inappropriate inside the law. So we simply think we ought to have the opportunity from time to time to be able to challenge in a due process sense what has been proposed.

Mr. CRANE. Thank you for your testimony, and I yield back the balance of my time, Madam Chairman.

Chairwoman JOHNSON. Thank you very much, Mr. Crane. Miss--Mrs. Thurman from Florida. Sorry about that.

Mrs. THURMAN. It is okay. It has already been a long morning.

I want to add my thanks to the chairwoman for bringing this particular issue to the forefront, because we have all seen this to be a problem.

Dr. Corlin, one of the interesting things, though, that I did notice in one of the responses was that you mentioned that you had gone from about six pages to 33 pages in the last 5 to 6 years. Was that correct? In the paperwork that you were doing?

Dr. CORLIN. Actually, it is probably a more recent time frame. It is probably within about the last 3 or 4 years.

Mrs. THURMAN. So we could actually say that some of this has coincided with the major changes that have been happening here in Congress through the BBA, the buybacks, and then again over the last couple of years where these regulations have actually gone up.

Dr. CORLIN. I think probably related to the 1997 HCFA regulations. If there is any one point that they are key to, it is probably more the 1997 E&M guidelines than anything else, yes.

Mrs. THURMAN. One of the things that I would just caution with this Committee is that we have just also done one this last year, again, and, you know, it is probably apropos that we are talking about this now, because there is probably going to be a whole other set of guidelines out there that potentially will also have an impact on what you are doing, plus the information I know that we are asking from all of the providers now because we, you know, stopped some of the things that have been put in place so that we could gather additional information, so that we could make a better decision on how we might implement any of that. I mean, I think that is true.

So the question that I would ask all of you then is: In the time that we have gone through these transitions, have you used the process of, you know, when the rules are set out there, and are you using the process to give your comments on review as to where you think there are problems? And if you can, can you cite some of those for us so that we can find out potentially from this Committee what has happened to those rule suggestions and how they have been implemented that have not been, you know, what you might have put down as the providers?

Mr. Mecklenburg. I think we consistently comment on various rules and regulations that come out, and we would be happy to provide you back with very specific examples of where we have done so and where we believe the outcome hasn't been appropriate.

Ms. OUSLEY. Certainly, we spend a lot of time commenting on the rules and regulations as it pertains to nursing facilities. One of the issues that we have faced over these last several years, especially with the implementation of the Medicare prospective payment system for nursing facilities, is that we essentially implemented the system with an interim final rule. So it can be said that we were actually flying the airplane as it was being built. So as we would train our nurse aides, train others on exactly what would be required, as we were getting them trained and getting one process implemented, then the process would start to change. So that was very, very difficult, and it really has contributed tremendously to the burdens and some of the issues that we have talked about today.

HCFA certainly listened to our comments and worked with us to try to accomplish all of that under a very short time frame, but it was very, very difficult to accomplish.

Mrs. THURMAN. But they also were given directive by the Congress--

Ms. OUSLEY. Correct.

Mrs. THURMAN. To, in fact, do certain things to have an outcome, which has created--even with the comments sometimes, you know, was maybe not the outcome that you wanted, but certainly might have been the outcome that Congress wanted, I would suggest.

Ms. Wilson, I want to say that you all do have an awful lot of paperwork, and I think probably of all of the areas that beneficiaries see that, more is from your particular area of the visiting nurses or home health care, because I can tell you from just sitting down with my mother, you know, up here and then in Florida, I did the same paperwork ten times. There was no difference. And I was just transferring her from, you know, here to there, and, you know, you do 2, 3 hours as the caregiver to the person who is going to be responsible for taking care of them in your home. And I found that just incredibly--

Ms. WILSON. Well, thank you for mentioning that, because not only am I an administrator of a home health agency, I am also a daughter and a daughter-in-law of aging parents, and it has been astronomical to sit down and try to explain what it is that we are presenting.

One of the common complaints that we have from our clients is that there are too many questions, there are too many papers, I have to sign my name too many times, and I don't know what I am signing.

Mrs. THURMAN. And I heard that from your nurses as well, and they have said to me, if you could do one thing, do that. However, in saying all of that, the other thing that I would ask from all of you is, you know, part of the problem that I think has come to our attention and one of the problems that we face is that at the same time that all of these issues were going on, we were having Operation Trust out there, we had all of this fraudulent activity just recently in Florida under Medicaid. We have now found payments that, you know, could average up to as much as $10 million in the Medicaid fund because people who have died have actually still--Medicaid is still being billed for them.

So I think one of the things that, as we go through any of these changes, is that you have to understand I believe from our side over here that we are also responsible for the dollars that are coming in and that are being spent. You are taxpayers. You understand that. And over the years it has been our responsibility to hold that accountability and to make sure those things aren't happening. And we constantly see from every organization, from all of our constituents, saying I know there is fraud, you know, I have been here, I have done that, we have started programs. And so we are, you know, trying to be helpful, but on the same side of it, we are the protectors of the taxpayers' dollars, and they demand a certain amount of accountability from us to show that we are not allowing these kinds of actions to take place.

Ms. WILSON. May I comment in reference to that? I absolutely agree with you. I do believe that there needs to be oversight. I do believe that there needs to be protection. I absolutely believe that regulations that are in place are there for a purpose.

We did go through a period of time where certainly fraud and abuse was on the front page of every single newspaper in the country. However, in speaking particularly about the Northeast, many of the surveys that were done, the audits that were done, found very, very little. However, agencies continue to be under scrutiny.

Our agency alone, within a period of 18 months, had 12 to 13 different surveys. Every single one of them came out perfectly clean. We turned around and the next proverbial knock would be at the door.

I had one of the staff people say that it got to the point where, while we absolutely agree with zero tolerance as far as fraud and abuse is concerned, that we are now in a system where the best is never enough and everything you do is suspect. And that the staff find intolerable.

Mrs. THURMAN. If I could just say, Madam Chairman, one of the things that I would think that, as Secretary Thompson said yesterday, that we certainly needed to be giving more money to HCFA, that one of the things that I think that we should look into--and I don't want to mandate anything more to HCFA, but is to look at what is happening in the training aspects of both those that are going out to inspect and those that are doing the coding.

I remember in the early 1980s when every Government agency started going on computers, and we spent all this money on computers, but we spent no money on training. So a lot of the computers would sit there because people couldn't use them. And I think we have got a similar situation going on here, and maybe we should be putting a moratorium on any kind of regulations until we can figure out where we are today.

Chairwoman JOHNSON. Thanks very much, Congresswoman Thurman. I thank the panel very much for your excellent testimony and for your patience in answering questions.

We will move on to the next panel now: Toby Edelman, attorney for the Center for Medicare Advocacy; George Grob, the Deputy Inspector General, the Office of the Inspector General; and Bob Moffit, the director of Domestic Policy Studies at the Heritage Foundation; and the Honorable Gail Wilensky, Project HOPE.

As is our usual procedure, you will each have 5 minutes, and then we will turn to questions. As soon as you are ready, Ms. Edelman, if you will proceed.

STATEMENT OF TOBY S. EDELMAN, ATTORNEY, HEALTHCARE RIGHTS PROJECT, CENTER FOR MEDICARE ADVOCACY, INC., AND MEMBER, BOARD OF DIRECTORS, NATIONAL CITIZENS' COALITION FOR NURSING HOME REFORM

Ms. EDELMAN. Good morning. I am Toby Edelman, an attorney with the Center for Medicare Advocacy, and a member of the Board of Directors of the National Citizens' Coalition for Nursing Home Reform. Thank you for the invitation to testify on behalf of Medicare beneficiaries and their advocates. I would like to summarize my written testimony and three points and then elaborate briefly on each of them.

First, Medicare beneficiaries and advocates view HCFA's rules and the regulatory process somewhat differently from the providers who have testified this morning. We see the rules promulgated by HCFA as helping to assure that beneficiaries have full access to high-quality health care.

Second, we know that law and regulations can work. In the area of nursing homes, the nursing home reform law and Federal rules have improved the quality of care for residents in some important respects. The good care practices mandated by the reform law and rules are also cost-effective and save Medicare dollars.

We have seen other examples where HCFA's rules and guidelines are criticized by providers, including this morning the home health advanced beneficiary notice. But these give beneficiaries important information that helps them get the health care they need and are entitled to receive under Medicare.

Third, we believe that HCFA is often overly deferential to the health care industries it regulates and that beneficiaries can be seriously harmed as a result.

Medicare beneficiaries see the rulemaking process, at its best, as both open and highly democratic. The process allows all sectors of the public to participate, to express their views, and to be heard. Beneficiaries as well as providers can influence HCFA's rules and guidelines. The rulemaking process also requires HCFA to respond to these public comments and to explain its rationale in making regulatory decisions.

The reform law enacted in 1987 and its implementation by HCFA are a clear example of how law and regulation work effectively. They established a high level of care as the Federal standard and helped improve the quality of care for residents.

The reform law was based in large part on good practices that had been tried and proven effective in States and facilities, and I would like to discuss just two of the practices this morning: reduction in the use of restraints and resident assessment.

When the law was enacted, nursing practice and the nursing home industry in general believed that restraints would protect residents from injuries and falls. As a result, in the late 1980s an estimated 41 percent of all residents in the country were physically restrained. The reform law changed that paradigm. Based on practices of facilities that had demonstrated that removing restraints was a better and safer way to provide care, Congress and HCFA made restraint reduction a priority concern. In 1999, only 11.2 percent of residents were physically restrained.

The Institute of Medicine report on long-term care that was issued earlier this year called restraint reduction "the greatest improvement in nursing home care." And the Institute of Medicine credited HCFA's regulations and oversight for this tremendous improvement. Being restraint-free is better for residents and it is cheaper for Government payers.

The second example is the requirement from the law that all facilities assess residents using a comprehensive, standardized, reproducible assessment instrument. The minimum data set, or MDS, was developed by HCFA through an intensive public process that involved all sectors of long-term care, and I would add parenthetically that, although the nursing home reform law explicitly authorizes States to develop their own assessment instrument, all States in the country have chosen to use the MDS process that HCFA developed.

An evaluation in 1996 found that MDS improved care outcomes for residents. There were more positive outcomes--more residents had hearing aids; more of them were involved in meaningful activities--and fewer negative outcomes--fewer residents had catheters, for example.

Not only was care better, it cost less. Hospitalizations were reduced by 26 percent, reflecting an annual estimated savings to the Medicare program of $2 billion in hospital costs in 1992 alone.

As I describe in my written testimony, clinical staff and administrators continue to resist using the MDS and have complained about it, even as they acknowledge that it gave them better information about residents and helped them provide better care.

Despite improvements, we know that serious and unconscionable care problems remain in too many nursing homes. Many of these problems were documented by Senators Grassley and Breaux in the extraordinary series of hearings they held in the Senate Special Committee on Aging between July 1998 and September of last year. But these hearings also demonstrated that the care problems resulted primarily from lack of strong public enforcement of the care standards and not from the statutory and regulatory standards themselves. And the recent IOM report agreed with this analysis.

I would like to turn briefly to my third point, that HCFA is too timid in exercising its rulemaking authority and overly deferential to health care providers. In the nursing home area, HCFA at first had difficulty implementing the strong enforcement approach of the reform law in the face of fierce and aggressive opposition by the industry. The weak enforcement system initially established by HCFA's guidelines tolerated high levels of facility non-compliance with care standards. The General Accounting Office reported in July 1998 that 99 percent of facilities that had deficiencies were not subject to any remedy at all. The GAO called this an amnesty program for providers and said they were given a chance to correct their problems.

The weak enforcement of the care standards was a major cause of the care crisis that Senators Grassley and Breaux's hearings vividly documented. Strong congressional oversight and the administration's nursing home initiative have now helped redirect the agency's approach to enforcement to some extent. The enforcement system is now more consistent with Federal law and more likely to achieve its purposes of assuring correction of deficiencies, sustained compliance by facilities, and, of course, most important, high quality of care for residents.

Nevertheless, many beneficiaries have been hurt by what the GAO described as the lax and overly tolerant enforcement system that HCFA at first created in deference to the industry.

I would just like to say something very briefly about benefits of other HCFA rules beyond nursing home care. This morning we heard criticism of the new home health advanced beneficiary notice, which requires home health agencies to use a standard form in notifying beneficiaries when they believe the Medicare program will not cover particular home health benefits. I have three comments about that.

First, this requirement is not new. HCFA has required home health agencies to provide beneficiaries with notice of non-coverage since at least 1975. What is new is the requirement that home health agencies use a form specified by HCFA.

But the second point is that home health agencies had been informed in advance that HCFA intended to mandate use of the HHABNs, and they have been fully involved in the regulatory process since September 1999 in developing that form.

Finally, and I think most importantly, receiving notice about non-coverage of care is critical to beneficiaries. Once beneficiaries receive such a notice, they can require that their home health provider submit what is called a demand bill to the Medicare program. This is the first step in the appeals process. But even at this early step, more than half the beneficiaries who submit demand bills win their claims and get coverage for home health care from the Medicare program. In other words, the home health agencies were wrong in more than half the cases in saying that the services needed by beneficiaries would not be covered by Medicare. The HCFA-mandated notice from the provider and the demand--

Chairwoman JOHNSON. If you would please conclude?

Ms. EDELMAN. Yes, thank you. That--

Chairwoman JOHNSON. I know how important this is to you, and we will get back to it in the question period.

Ms. EDELMAN. Yes, well, thank you very much. The final point about this is that this notice helps beneficiaries pursue their right to Medicare coverage, and without the notice and without the system, beneficiaries would not receive the Medicare coverage of home health care that Congress intended.

Thank you very much.

[The prepared statement of Ms. Edelman follows:]

Chairwoman JOHNSON. Mr. Grob?

STATEMENT OF GEORGE F. GROB, DEPUTY INSPECTOR GENERAL FOR EVALUATION AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES

Mr. GROB. Madam Chairman, thank you so much for the invitation to come before this Committee and to present our views on a daunting challenge that you placed before us, which was to make specific recommendations on how to make the Medicare program better, without increasing, and possibly simultaneously decreasing the burden on our medical care providers. We have taken your charge seriously, and my testimony contains many such specific recommendations. Let me highlight just a few for you right now.

The first recommendation that we have concerns the payment error rate, a subject which you yourself raised in introducing the subject of this hearing. Our office has just reported that the Medicare payment error rate for the year 2000 was approximately $11.9 billion, with a 6.8-percent error rate, a quite significant reduction from the first year in which we prepared the study, where we had a $23.2 billion problem and a 14-percent rate. And I would like to emphasize--I think I said it in my testimony, but you said it, too--that the best way to solve that problem is to reduce the error. And where we have made this kind of accomplishment, the hassle has gone down along with the reduction, and let me give you one example from that.

Out of the 5 years in which we conducted that study, in the last two we did not detect in the hospital industry any payment error that was due to improper documentation. It did not happen that we detected in the last 2 years that the hospital industry was deprived of one dime because their documentation wasn't correct. They got all the money that was due to them, and Medicare did not have to hassle anybody about that. It was a savings to Medicare, and the hassle factor was reduced. And I am absolutely convinced that if we could reduce that hospital error rate by half, and if we can solve the documentation problem through education and discussion with the hospital industry, then we can solve each and every one of the problems that we have identified for that payment error rate, and that will reduce a lot of hassle for everyone and save us all a lot of money.

We also raised in our report some severe problems with the accounting systems that are used by the contractors. Elementary accounting systems, such as double-entry accounting and use of integrated supporting documents, are missing for this very expensive program. That should be fixed. This controls perhaps $8 billion a year of expenditures, which are not under the control that they should be placed under.

If these accounting systems were fixed, there would be much better control, and that kind of control and that kind of professionalism would not create a single more moment of hassle for any Medicare provider, but it would greatly improve the Medicare program.

Another thing which I would like to call attention to that has come up in the testimony of several of our speakers has been problems with the appeals process, and in legislation now before the Committee, there are different provisions, and in recent legislation to put tighter time periods on the time that it would take to consider appeals at various levels of appeal, different processes for perhaps skipping a step in order to get things looked at.

We really believe that a major problem in the Medicare program right now is the appeals process, and in my testimony you will see that we lay forth some rather major reforms to that appeals process that go far beyond the changes that are advocated in the legislation that you have before you. And, in fact, they go in a somewhat different direction.

We believe that the major problem with the appeals process right now is that there are not adequate resources to consider the appeals, that the administrative law judges who are responsible for that do not even work for the Medicare program; they work for the Social Security Administration. The guidance that they follow is not as uniform as it should be. The way patients are treated in their appeals and the way providers are treated should not be the same, and currently it is. And there are other such reforms that need to be made.

We believe that what the appeal system needs right now is not more deadlines. The problem isn't lack of deadlines. The problem is its inability to meet the deadlines. And if we can meet the deadlines with understandable and more uniform provisions, then the hassle will go away, and then the payments will be made right, and everyone will be in much better shape.

We also believe that HCFA ought to have much more flexibility in how it chooses its contractors and how it manages them.

I would like to raise now a more fundamental issue which has to do with the infrastructure. I do believe that we should not skimp on the infrastructure as we look at reforms to be made, and I believe that there has been some skimping on that, particularly in the field of survey and certification. I believe that there has never been enough resources for the reviews of the nursing homes to be carried out as well as it should, or home health or other providers. In fact, nursing homes are reviewed every year, as they should be. But in order to make that happen, we had to reduce the reviews of home health agencies from every year to every 3 years, for example. And in the nursing home field, there are often delays in conducting follow-up visits to nursing homes after deficiencies have been found.

I believe that the best thing to do to reduce the hassle in the nursing home arena is not to provide more venues for appeals and more litigation but, rather, to establish better standards and training for the people who conduct the reviews so that there is not as much dispute about them to begin with, to find those deficiencies, to raise them quickly, to resolve them rapidly, and then to have the survey teams get back in there and find out if they have been corrected. It is like the payment error rate. The best way to reduce the hassle is to eliminate the deficiencies, to correct the ones that are there, and to resolve problems as they arise quickly.

There are other problems with the infrastructure as well which I will not have time to discuss in the 5 minutes that I have.

I would like to make one matter of clarification now with regard to the pending legislation. I had planned to spend more time in the time that I have right now to go over the pending bill, because we were asked to please give our comments on that bill, and our comments are there. But perhaps it would be better if I were to use this opportunity to introduce to you the notion of what we were trying to do in our comments.

With the Inspector General's Office, we do, in fact, have an obligation to look at fraud, waste, and abuse. But we have broader responsibilities in there, too. Our responsibilities include--and they are in the Inspector General Act--to evaluate the various processes which the Medicare program and other programs use to be managed and integrity processes that we ourselves don't run but that others do run. We are obligated to review them and evaluate them and make sure that they work very well.

A lot of the studies that we do then, and a lot of the comments that we have, don't go so much to our own authority as they do to our evaluation of what is happening in the Department. And some of the comments that you will see in there about our concerns about granting people immunity and not being able to get the return of money we have is not simply because of the investigations that we conduct, but we are worried that that immunity may be lost in the appeals process for the contractors as well.

Perhaps with more time or in another circumstance we can provide much more detail and explanation here to solve a problem which I think we all see as a common one.

Thank you so much.

[The prepared statement of Mr. Grob follows:]

Chairwoman JOHNSON. Thank you. Dr. Moffit?

STATEMENT OF ROBERT E. MOFFIT, PH.D., DIRECTOR, DOMESTIC POLICY STUDIES, HERITAGE FOUNDATION

Dr. MOFFIT. Madam Chair, my name is Robert Moffit. I am the director of Domestic Policy Studies at the Heritage Foundation. I want to express my sincere appreciation to you for the honor to testify before the House Ways and Means Subcommittee on Health. I want to stress that the views that I am expressing today are entirely my own and should not be construed as representing any official position of the Heritage Foundation.

My professional interest in Medicare and the delivery of health care services is more than academic, although I spend an awful lot of time studying health care policy. I served as Deputy Assistant Secretary for Legislation at the Department of Health and Human Services during the Reagan administration, and I also served as Congressional Relations Director at the Office of Personnel Management, the agency that runs the Federal Employee Health Benefits Program, which, as you know, is a prominent model for Medicare reform. So I have practical experience in dealing with both programs and responding to congressional inquiries on problems in both health care systems.

I want to make a few observations on this conversation we are having this morning. One of them is obvious. It is that Medicare's regulatory complexity is not the fault of the Health Care Financing Administration, the agency that administers Medicare. On this I agree with Congressman Stark. Parenthetically, it is a Historic occasion when the Heritage Foundation and Congressman Stark find themselves in agreement. Perhaps a solar eclipse will shortly follow. But the criticism of the Medicare regime should not be a criticism of the career staff of HCFA or HCFA as an agency of the Federal Government.

The reason why we are having these discussions is because of the structure of the Medicare program. Medicare is an entitlement program. More importantly, it is a defined benefits program. If you have a defined benefits program, Congress must determine what benefits Medicare patients will get, and subsequent to congressional authority, HCFA and its contractors determine what is or is not covered for purposes of reimbursement, and what specific medical services, treatments, and procedures Medicare patients will get and how and under what circumstances they will get them.

This is endemic to today's Medicare program. It means that HCFA must write increasingly detailed rules to the extent to which medical benefits modify or change. If Congress doesn't want to change this structure, there is no simple way around these regulatory problems.

A second observation: HCFA is overwhelmed by the size and scope of its current regulatory responsibilities and is in a state of managerial crisis. HCFA also has responsibilities beyond Medicare: for Medicaid, the State Children's Health Insurance Program, and enforcing provisions of the Health Insurance Portability and Accountability Act. HCFA oversaw a total estimate payment of about $370 billion for health services last year. As GAO and others have noted, it is becoming progressively harder for HCFA to fulfill all of these responsibilities.

This managerial crisis has been developing over time. Our colleague, Lynn Etheredge, at George Washington University, wrote in the October 2000 edition of Health Affairs that the management crisis at HCFA has arrived.

A third observation: Medicare's regulatory complexity is compromising the quality and delivery of medical services and insurance products. In my written testimony, I detail this. But this is becoming evident in at least two areas: the access to medical technology and the use of private plans in the Medicare Plus Choice program.

Fourth: Medicare's regulatory complexity is bound to get worse. With the rising demand for medical services by a rapidly aging population, a Medicare-eligible population that will double over the next three decades, the pressures to accommodate those increased demands and increased costs within the existing framework of administrative pricing and benefit setting will intensify. Congressional debates over physician and hospital payment or reimbursement for home health care or skilled nursing facilities or prescription drugs, or how to cover or whether to cover new medical devices or procedures, is going to require even more congressional time and attention and will require even greater administrative effort and even more detailed rule-making on the part of the Health Care Financing Administration.

Finally, the expansion of Medicare benefits, including the addition of a prescription drug benefit, without addressing the managerial and regulatory problems plaguing the program, I think, would be a profound mistake. We have managerial problems in Medicare Part A, B, and C right now. If you had a prescription drug benefit, without dealing with the current regulatory regime, you are asking for much more trouble.

My colleagues at the Heritage Foundation think that the best way to solve this problem is to change the program's structure, and the way to do that is to go to a tested model that has been proposed by the President and by the Bipartisan Commission, and that is the Federal Employee Health Benefits Program (FEHBP).

I just would like to make one observation before I close on the governance of the FEHBP. Students of the Federal employee program have found that among its most attractive features is the brevity and simplicity of its statutory authority. The program is characterized by a notable absence of heavy regulatory control, the relative ease with which the program adopts new health care benefits and absorbs new medical technologies, its relative flexibility in benefit setting. From the standpoint of governance, the Federal employees' system also enjoys a relative freedom from the bitter politics of administrative pricing, the medical income redistribution, and the attendant congressional micromanagement that afflicts the traditional Medicare program. And the major reason is, in stark contrast to the Medicare program, the Federal Employees Program is largely a market-driven system, which relies on private sector plans to structure their offerings each year to satisfy consumer demand and compete with each other directly in promoting patient satisfaction. This is in sharp contrast to Medicare. The crucial decision-making in the FEHB is not centralized; it is diffuse.

While there are negotiations between OPM staff and major plans, and hundreds of routine transactions between OPM and private plans in the several States, there are literally millions of decision points in the system governed by the diverse wants and needs of Federal employees and their families and the dynamic conditions of supply and demand.

I would close, Madam Chairman, by emphasizing that you are going to have a major political challenge with Medicare reform. But there are going to be technical difficulties no matter what you do. If you decide that you do not want to reform the Medicare system, that is your decision. But all of these regulatory and managerial problems that you heard about this morning are going to intensify and they are going to get worse. If you decide to go to a new system, you are going to have new problems. But you are also going to have a lot of new opportunities as well.

Thank you very much.

[The prepared statement of Dr. Moffit follows:]

Chairwoman JOHNSON. Thanks very much, Dr. Moffit. The Honorable Ms. Wilensky?

STATEMENT OF THE HON. GAIL R. WILENSKY, PH.D., JOHN M. OLIN SENIOR FELLOW, PROJECT HOPE, BETHESDA, MARYLAND; CHAIR, MEDICARE PAYMENT ADVISORY COMMISSION; AND FORMER ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

Ms. WILENSKY. Thank you, Madam Chair and members of the Subcommittee. I am here as a senior fellow from Project HOPE and a former HCFA Administrator. Listening to today's discussion makes me glad to emphasize the former.

I am not here, however, to bash HCFA. What I would like to do is to share with you ways in which I believe the regulatory environment might be changed so as to reduce some of the burdens that we have been hearing about on providers without abdicating the fiduciary responsibility of HCFA to be prudent stewards of the Medicare trust funds.

We need to recognize that there is a fundamental tension inherent in HCFA's roles. HCFA needs to establish a user-friendly environment, making sure that seniors get access to high-quality health care, but HCFA also needs to be financially prudent with the taxpayers' monies.

You have been hearing about the increased levels of frustration that have been reported by providers regarding billing complexities and fears of the billing complexities compounded by integrity activities.

Recently, there has been some empirical evidence that, after years of upcoding--that is, billing for more services than was provided--there is now some indication of downcoding--that is, billing for less intense services that were actually provided. This is not a good sign for the program or for the seniors that are served by Medicare.

What I would like to do is share with you a few strategies that I believe could help reduce provider frustration and also some steps that would help HCFA be able to deliver services, by restructuring the agency, and, finally, to discuss how to get from here to there.

In the first place, I think it is clear we need to have better education for providers; we need to have clearer billing procedures and protocols; and we need to have billing procedures and protocols changed less frequently and on a more regularized basis.

The second area that I want to mention relates to the presumption as to how bills are paid. We have heard this morning about some of the variations that are used by the carriers and the fiscal intermediaries. But, in general, there is a presumption or default that bills are not being submitted accurately. That is a presumption that could be changed in much the way that there was a change in the Peer Review Organization. The presumption would become that bills are properly submitted. Then there would be a search for patterns of abuse based on statistical analyses.

Prior to the early 1990s, the PROs used to perform a case-by-case, retrospective analysis, looking for bad outcomes. But once they found one, it was very difficult to figure out what it meant. As a result, and in an effort to focus more on quality improvement, there was a movement to looking to patterns of care and patterns of outcome that differed from what their peers experienced. It is precisely this, that kind of a change that I think would go a long way to reducing the kinds of frustration that we have heard described this morning.

Finally, I believe that HCFA needs to be more mindful of the time and burden imposed on providers from its various assessment and data collection efforts. We heard some mention made of the minimum data set, the MDS. There is a new data set now called the minimum data set post-acute care, MDS-PAC. The MDS has 350 items. The MDS-PAC has more than 400 items, with seven different time frames for patient assessment. The MedPAC report that was recently delivered to the Congress, indicated MedPAC's concern about the amount of time taken away from patient care that these assessments tools would require and has suggested that for inpatient rehabilitation that the primary assessment tool, the functional independence measure (FIM), continue to be used. The FIM is much shorter and has been used for a number of years.

Second, restructuring HCFA so that it can focus on Medicare. That would mean taking some of the current enforcement functions, the survey and certification, the clinical lab certification, and the conditions of participation and putting them either with the CDC or with the FDA. Secondly, moving either all of Medicaid, or at least that portion relating to moms and kids, and the Children's Health Insurance Program with the agency that runs welfare. These are all State-based, income-related programs. Whether or not to move the long-term care portion of Medicaid is a little more complicated.

Whether or not the section of HCFA that runs the Medical Plus Choice Program should be moved depends somewhat on the kind of Medicare reform the Congress chooses to do. As you know, I am also a supporter of a Federal Employees Health Care model as a reform for Medicare. This would require a number of administrative changes. If Medicare does not begin to move towards an FEHBP model, the Medicare Plus Choice might remain a direct part of HCFA. If the reform does not occur, the administration of the Medicare+Choice program should be moved to another agency that is within HHS or an expanded part of the Office of Personnel Management although there would clearly need to be some coordination with HCFA.

Third, if you choose to use PBMs, the pharmacy benefit management groups, to run a pharmacy program for seniors, there will have to be much greater clarity about how much independent power PBM's are to have, where their oversight should be lodged, and resolve many other administrative issues.

Fourth, a word about getting from here to there. Phase-ins for Medicare usually occur over some time when they relate to changes in payment and coverage. My advice is that any restructuring of Medicare should also be phased in. It is best to restructure at the beginning of a term or at the end of a term. Moving relatively separable parts of HCFA is less disruptive than reorganizing all the people within the agency. But even moving separable parts will be disruptive.

And, finally, Congress and the administration need to recognize that there has been a serious mismatch between HCFA responsibilities and HCFA resources. HCFA clearly needs to do better, but with all due respect, Congress needs to do better with HCFA as well.

Thank you.

[The prepared statement of Ms. Wilensky follows:]

Chairwoman JOHNSON. Thank you very much, everyone, for your testimony. It has been very helpful, and some of it will require, as some of you have noted, further discussion beyond this morning's endeavors.

I did want to ask you, Ms. Edelman, aren't there some home care services that our home health agencies provide that are clearly, absolutely not covered by Medicare?

Ms. EDELMAN. Yes, that certainly would be true. But there are so many instances where the home health care agencies are making incorrect assumptions or incorrect determinations that coverage is not there. More than 50 percent of the time, they are incorrect. That is very troubling. The only way that beneficiaries can get into the appeals process is through a demand bill. And so people do need an opportunity to do that.

Chairwoman JOHNSON. I appreciate that, but there are whole categories of services that Medicare doesn't cover at all: services to families with psychiatric problems, home health aides.

Now, there is a category, a group of patients, about which there is no possible controversy. I understand the gray-line area. But I don't know that you really understand what it means to an agency to now give out a form and the choices on the form are: you pay, you stop the services, or you ask for a demand bill.

Now, anybody in their right mind, any senior, is going to ask for a demand bill. So it means that agencies have to go through the demand bill process and submit the bill to Medicare--no, submit to Medicare knowing that they are not ever going to get paid by Medicare. And so it involves not only the paperwork going to Medicare, waiting for Medicare's decision. In Connecticut, it involves your agency then challenging that bill, and most all of them get challenged. This is a 2-month, 4-month, 6-month, 8-month, year, year-and-a-half process.

And all that time the agency gets paid partially by Medicare, then Medicare decides that they aren't going to pay, so they get their money back. And then the agency is bare and unable to bill any other payer, especially Medicaid, which is the primary payer for the dual eligibles, until the thing is resolved, which may be many, many months.

Now, for a small agency, this cash flow problem--never mind the volume of just xeroxing is extraordinary. And I think if you sat down and sat with our agencies--although, actually, in Connecticut, I hate to say that your organization seems more interested in money than patient care. It is just appalling what has gone on. But it is different than other States. I appreciate that.

But we really have to look at the patient getting service. And when our agencies--now, it is true, the intermediary gave us different direction than the rest of the country. But, truthfully, there are services, there are patients in which there is absolutely a clear-cut case that Medicare won't cover it. And yet to have no line at all, no way for the agency to move ahead, is in my estimation an example of Medicare not being able to be rational.

Now, truthfully, when we talked with them about this, we hoped to draw some of those lines, but I think you underestimate both the burdensomeness in terms of sheer cost of time and money and the irrationality of this process for small agencies that serve a lot of dual eligibles.

Unfortunately, I have to let you comment on that later because I need to just mention to Mr. Grob, I like very much what I hear you saying, and I think most of what you said I don't disagree with. I do think in your comments about the appeals process, you are not noticing that there is a whole level of dialogue that needs to go on between you and the people you are overseeing so that we don't have appeals for certain reasons.

There should be a way that a physician can say, wait a minute, you are coding it this way and I am coding it this way and this is why. There should be a level of collaborative discussion before you come to your final conclusions. And certainly when you look at the appeals process, it currently takes a year to have an appeal adjudicated under Part A, and 557 days to have it adjudicated under Part B.

Now, that is what we were trying to address in that bill, and I can't believe you would think that tighter time frames than that would be a problem for anyone.

Mr. GROB. First of all, I absolutely agree with what you are saying about the need for the discourse. And as far as the tighter time frames are concerned, I think that there certainly can be tighter time frames, with two things in mind. One, would there really be adequate resources for dedicated and professional people to meet those time lines? And, second, would the time lines be reasonable?

I think the ones that are in there now might be a little too tight, just given, you know, what the normal process is. But the concept of time lines is not at all bothersome. The question is: Are they reasonable? Are there resources to meet it? And then going back to your point about the discourse so that we don't have so many arguments, I really agree with that.

Chairwoman JOHNSON. Then we would like--probably you wouldn't want to comment right now, but if you would comment on Gail Wilensky's recommendations, it would be very helpful. I think this kind of view of the system could be far more fruitful to us than some of the activities we are involving ourselves in.

Mr. GROB. I would welcome the opportunity, and I really have to tell you that just in listening to all the testimony that I have heard today, I was impressed on how thoughtful it was, covering a wide range of issues. Many subjects that we have been studying in our office have come out on the table, and I am just delighted to see that they are out here on the table.

Chairwoman JOHNSON. Mr. Stark?

Mr. STARK. Thank you, Madam Chair.

Gail, I think we agree and the Committee agrees that there are changes that need to be made, and I am aware of changes that were made when you ran HCFA and changes before that, and I suppose subsequent to that. In many instances, what we do in HCFA leads to changes in the private insurance market. I believe that you were there, I think, when we did physician reimbursement. Right?

Ms. WILENSKY. Correct.

Mr. STARK. And I think most private insurance companies now take that and use it as a physician reimbursement structure--not the rates, obviously--in their fee-for-service payment, for better or for worse. And I don't know whether imitation is a form of flattery or not.

But, on the other hand, it seems to me that HCFA sometimes follows along. Arguably, the way the intermediaries pay is kind of left over from the way Blue Cross used to pay before Medicare came into existence. They tend in the different areas of the country to pay for the procedures in much the way they used to.

In your experience, either with Project HOPE or at MedPAC, could you say that there is any one major program-Medicare, Medicaid, private insurance? And I will mention the names, but I don't know as you have to. But Aetna, one of the--I can't think of the largest one now in California, Physician Care, or whatever the heck their name is, HCFA. Medicaid I think is generally considered to be more frustrating to the hospitals and physicians and doesn't pay enough.

But is there any one that stands out as being outstandingly better or worse than another in terms of reimbursing hospitals and physicians and clinical labs, in your opinion?

Ms. WILENSKY. I think it depends on what level. When it comes to payment, the payment level--

Mr. STARK. I am thinking of the procedure. I think mostly we are talking here about hassle factor--

Ms. WILENSKY. Because I think actually Medicare pays pretty well. I think Medicare is one of the better payers when it comes to the level of payment.

My sense is that in the hassle factor there is at least one clear difference with the private sector, and that is the local discretion that is granted to the carriers and intermediaries, which means how rules are interpreted differs significantly among carriers.

When it is for coverage of some new medical procedure or technology, there are both positives and negatives. When it comes to interpreting amount, duration, and scope, which goes to a lot of program integrity and billing activity, I don't see much value to discretion. This type of variation is quite different for private plans. Private plans may have good rules or bad rules, but they don't vary the interpretation. This is an example where Medicare causes a lot of uncertainty and frustration.

Another source of frustration is that HCFA makes amendments on a far more frequent basis, sometimes in response to congressional legislation, sometimes just as a way to roll out these changes, far more than private plans. Private plans tend to make changes in line with their benefit year, unless a major employer comes in midyear and negotiates a different package. Frequent billing changes are very disruptive and confusing. It is very hard on small physician's offices in rural areas. These practices don't have a lot of administrative support. And it is also disruptive in very large institutions.

On the other hand, I am not sure that Medicare pays slower.

Mr. STARK. Well, to follow along, you recognize the resources that we have at our disposal, and it would seem to me that we could not fulfill our responsibilities by letting the American Hospital Association or the AMA write the rules. They certainly should be able to help us. But if we follow along, as the chairman I think is doing correctly, to set up a program of reforms--I think you are advising us that maybe we ought to take a piece at a time.

Could you suggest, a format that we might follow? For example, could we give temporarily additional resources to MedPAC or to CRS or to GAO or a consortium who have the technicians. We don't have the capacity here--even the majority doesn't have that much staff, I don't think--to come back to us with suggestions? Can you suggest a procedure we might follow to get at taking the most critical reforms first and going down the line? Where do we turn to learn that?

Ms. WILENSKY. I think you need to have the individuals who are actively involved in actually running practices or institutions involved, which is unlikely to be the chairman/CEO of major institutions. It will be somebody within the organization. It may take a bit of searching to designate the right person to bring them together, working perhaps with a consortium of CRS, MedPAC, or GAO individuals.

Mr. STARK. Could MedPAC take the lead on that with additional resources?

Ms. WILENSKY. I should probably check whether our executive director thinks he has the talent, and the expertise.

There is some operational expertise in MedPAC, but I will certainly be glad to get back to you.

Mr. STARK. Okay, yes.

Ms. WILENSKY. I have found it difficult in the past to get specific recommendations from provider groups that complain about the regulatory burden. I will be eager to read the testimony from the previous panel to see if you have been able to get more specific ideas. It was why I tried working with some senior career employees at HCFA to see if they could come up with two or three very specific ideas. That is why you need to have people who are involved in the working operations working to try and attack various pieces of the problem.

I do think there is a lot of complexity inherent to traditional Medicare. The Federal Government needs to decide on the definition of the benefit, the appropriate price for the unit or the bundle, the quality and whether it should have occurred. The amount of change that resulted from BBA, BBRA, and then the Beneficiary Improvement and Protection Act has been extraordinary. I don't know whether it is correct, but I have heard that there were 700 specific directives to HCFA over those pieces of legislation.

Mr. STARK. From us.

Ms. WILENSKY. From you.

Mr. STARK. Yes. I have heard that it is a large amount, too.

May I extend for one question to Mr. Grob, Madam Chair?

Chairwoman JOHNSON. I thought maybe I would let the other two question, and then I am going to come back and you can come back.

Mr. STARK. Okay. Thank you.

Chairwoman JOHNSON. Mr. McCrery?

Mr. MCCRERY. Dr. Moffit, you have said that this burden or hassle factor is going to intensify if the basic structure of Medicare is not changed.

Dr. MOFFIT. Correct.

Mr. MCCRERY. I think you were here earlier, and you heard the testimony of the earlier panel, and you have heard Dr. Wilensky kind of give a middle road of, well, some things could be better, but, you know, private sector is not so hot, either.

Where do you get your conclusion that HCFA and Medicare is just really worse than the private sector in terms of the hassle factor?

Dr. MOFFIT. Well, in terms of the testimony this morning, you have heard testimony from private sector providers who have told you that Medicare is, in fact, more burdensome than private insurance. In my capacity as a policy analyst, I hear from doctors almost every week who complain about Medicare. Now, they complain about managed care, too, but they also complain about Medicare. And in having an opportunity to speak and debate about this subject across the country, I have opportunities to talk before forums sponsored by members of the medical profession or hospital staffs. My concern is, after talking to them, that there is a profound sense of demoralization among members of the medical profession. That is to say, they feel that they are losing control over major decisions that affect their professional lives. And they are also concerned about the requirements that they have to comply with just the sheer volume of Medicare rules and regulations.

I am not certain, however, that Medicare should be isolated from the general private health insurance system. Our colleague Professor Uwe Reinhardt, at Princeton University, has said it best: that we right now have perhaps the most bureaucratic health care system perhaps in the world. And the reason: you have large employer-based health insurance arrangements as well. But the real difficulty is that individual patients have less and less control in this system.

Of course, you can go to any doctor that you want in Medicare, assuming he takes Medicare. But that doctor is constrained by the rules and regulations of Medicare, and that is what the physicians have been complaining about this morning.

Medicine is undergoing a rapid change. We are seeing a dramatic change. Biomedical research is advancing rapidly. Medical technology is also advancing rapidly. And this is going to mean that the pressures on Medicare are going to increase to accommodate these changes; and at the same time, Congress is going to have to deal with the addition of new benefits reflecting scientific changes, but at the same time add such new benefits in a cost-effective manner. And the way Congress is going to do this is to establish a new administrative payment systems or adapt old payment systems to these new medical technologies or services. There will be a resulting political response by physicians or providers that these new payment applications are inequitable, and there will be a tendency either for Congress or the Health Care Financing Administration, to be under new pressures to make more exceptions. The more exceptions you make, the more complex the regulatory system becomes.

My view of the Medicare regulatory system is that it resembles the reproductive behavior of rabbits. The rules will continue to multiply.

Mr. MCCRERY. And is it your conclusion that, left unchanged and allowing the hassle factor to intensify, providers, particularly physicians, will find it less and less attractive to practice medicine and that that may discourage bright young people from even going to medical school? I mean, do you see it as precipitating that kind of reaction?

Dr. MOFFIT. Congressman Stark said this morning that there is no solid statistical evidence that doctors are dropping out of Medicare. The real concern that I have is that doctors will not give up Medicare patients, their current Medicare patients, but they are going to be loathe to take on new Medicare patients.

In the past, we have been able to stem that. We have been able to prevent that from happening by readjusting the payment systems. But we are in the midst of a demographic revolution unlike anything we have ever seen. Within the next 10 years, 77 million baby boomers are going to start to retire, and the demand for medical services is going to be unlike anything we have ever seen before.

Now, certainly physicians depend heavily on Medicare simply because of the size of the Medicare population. So I don't expect a mass exodus. What I do see, and what I am really concerned about, is the consequence of this demoralization that I talked about. I submit to you, at least from my personal experience, that it is very real. Frankly, I think it is one of the more serious problems facing the Medicare system, and I think it is one of the more serious problems facing the country. We have to take this very, very seriously.

What happens when, the medical profession is demoralized? I think you can tolerate some demoralization in many professions. Among health care economists or policy wonks, that is fine. Among college professors, it is a shame, but if they are demoralized, that is not catastrophic. I don't think you can afford demoralization on the police force or in the Marine Corps or in surgery. This is something that this Committee is going to have to address.

Mr. MCCRERY. Thank you.

Chairwoman JOHNSON. That was a very, very excellent answer, according to the demoralization, and it is frankly why we are having this hearing. I think the demoralization is profound. I think it is a very much bigger part of the nursing shortage than we are going to be able to document or that we are willing to acknowledge. You cannot treat people whose job it is to provide love and skilled care the way we are treating medical personnel from bottom to top. Mrs. Thurman?

Mrs. THURMAN. Madam Chairman, let me also say from somebody who is from the State of Florida, where we have a higher population of seniors, that, you know, part of the thing that we are seeing--and maybe it is not going into the practice, maybe it is because of Medicare choice. I mean, I think there are a lot of other issues going on out there besides Medicare. But, you know, we are seeing in many cases where we just don't have the physicians to take on new patients. It doesn't have anything to do with that they are stopping to see them. It is just there is no room in their practices left because of the overburden and the demographic shifts that are happening in this country. And I think that is part of the issue.

Ms. Wilensky, let me ask you a couple of questions, because I think it is important having you here, both in what you have done with health care but also as a former HCFA Administrator.

In your time, did we have hearings like this about overburdened regulations? And do you remember any time when you served that, in fact, we had as much change, the 700 ideas that were talked about, rules and regulations that had to be put in, or that policies were being driven because we were cutting budgets? I am just kind of curious to know. This is a framework that, you know, I don't believe has always not been there, but I do think we have added some burden on it in this last years.

Ms. WILENSKY. I think you have characterized it well. HCFA is and always has been a very difficult job. You are under intense pressure. Providers--the nature of the program is to have pressure to have more payment and less regulation and to make sure that seniors feel like they are getting good care. That tension is inherent in the program.

The amount of complaint, the frustration by hospitals and physicians, the fact that we were able to document some evidence of downcoding and billing by hospitals is really quite extraordinary, and I think it has to do with the pace of change that has occurred since 1997. I think it has to do with very grave concern by physicians and institutions over being charged with civil monetary penalties and with potential criminal penalties, very aggressive moves to try to go after undocumented billing. I think it is partly an attitude, it is partly a level of change, and it is the pace of changing regulations and the inconsistency.

When you put all of those together, what you are hearing now is a level of frustration that is quite extraordinary, and the fact that you have as much interest being expressed by various committees of the Congress is very different. There was always some level of interest in this issue by this Committee and by the Finance Committee in the Senate, but the level of interest among a wide variety of subcommittees in the Congress is extraordinary.

Mrs. THURMAN. Why do you think that is true today than it was before?

Ms. WILENSKY. I think it is--

Mrs. THURMAN. I mean, there has got to be a key reason.

Ms. WILENSKY. I think that it is the amount of change that has gone on in the last 3 years, and I believe it is very aggressive efforts by the inspector general, by HCFA itself in terms of program integrity, by the--

Mrs. THURMAN. Directed by--

Ms. WILENSKY. Department of Justice, by the State attorneys general in going after abusive practices, in some cases unclear practices. I think there is the belief on the provider community that they are being charged as being criminals in what is a very complex and unclear program, and it has raised levels of frustration. But the sheer enormity of the change and the regulations and the billing procedures that that has engendered is different from anything that existed.

Mr. Stark mentioned when I was at HCFA we were focusing on changing the way physicians were reimbursed, and we worked very hard to make sure that that occurred on time, January 1, 1992, reasonably accurately. But when BBA came through, HCFA had to worry about having prospective payment for skilled nursing facilities or home care or outpatient and doing all the other changes that went along at a time where what I have been told is the administrative budget increased approximately 5 percent during a period when the demands were just enormous.

Mrs. THURMAN. And if I remember correctly, there was very little time given to HCFA--

Ms. WILENSKY. Very little.

Mrs. THURMAN. To do those regulations before they were going to be brought back up here as to why aren't these things being done. And it is my understanding from past situations we have actually tried to give HCFA the amount of time to actually implement.

The reason I go along this line of questioning is because I don't want us to be misled that HCFA and Medicare are in trouble. I mean, I actually think they have done some pretty good jobs. I think Medicare, whether you all believe it or not, has done a good job, and I think people depend on it, and they like the program. And, in fact, HCFA has gotten great reviews through some surveys saying that beneficiaries have been happy with the explanations that they have been given, and they felt like they were courteous and got answers.

But, you know, I am worried that we are setting a stage here that is doing something for Medicare reform, maybe just in the name of Medicare reform to change the system, that while there may be some problems in it and, yes, we have to look at it, but we also need to be careful that we don't undo a system out there that people are comfortable with in the most part. Problems? Absolutely. I mean, we just got done voting on paperwork reduction on the floor for small businesses. So we know that that is a problem throughout the system. But I just want us to be careful that we are not totally throwing out something to put something else in and building the case here.

Ms. WILENSKY. I think there is a real--one of the things that I worry about is I think there is a major morale problem at HCFA, in part because HCFA bashing has been very popular.

Mrs. THURMAN. Absolutely.

Ms. WILENSKY. And I think as much as I have recommended restructuring, I hope very carefully, the fact that HCFA had just gone through an enormous restructuring before BBA occurred meant that the agency was in a very difficult position to respond to what was the biggest workload it had ever had placed on it.

But having said that, Medicare is a very important program. I believe it can be made better. I believe that it can better suit the 78 million baby boomers that are going to start to retire. We just have to make sure it is done in a way that doesn't put the existing seniors at risk.

Mrs. THURMAN. And the last comment is I know that in both BBA and the last one, we have also asked MedPAC to do some studies. And we probably ought to also give them the opportunity to respond to some of this.

Ms. WILENSKY. MedPAC has been impressed by the number of new assignments from BBRA and BIPA.

Chairwoman JOHNSON. Thank you, and I appreciate the gentlelady from Florida pointing out that this is not about HCFA. We have some very, very good people at HCFA. It is also, to some degree, about Congress responding to the problems the program faced in 1997 with a very, very big bill.

I think the other thing here--and I think it is important for us to acknowledge--we did not anticipate the unintended consequences of putting in place criminal penalties, and especially putting them in place at a time when loads of new regulations were going to come out, where judgments were going to be very difficult to make. So now you have people trying to make very difficult judgments. They are bound to commit errors, and the penalties are their license, their livelihood, and their reputation in the community.

So I think in the 1997 legislation, which we passed and I helped write--and I recognize the problems. I remember when Sam Gibbons proposed the $800 million more for fraud and abuse, and we were able with that money to set up a center in every State. We needed to do that. God knows we needed to do that. But I don't think we had a chance to really think through what was going to be the interaction.

Now, that leads me to a question I do want to ask, and we will do a second round now. In the area of workplace safety, some States have used a method where OSHA comes in and can do an inspection with you, tell you exactly what you need to do, and then they come back in a month or two, and if you have done it, fine, there are no penalties.

Given the enormous complexity of the laws at this time, do you think there is any role for an OSHA-type education process that would do an inspection, go around with a nursing home or work with a home health agency on their billing and so on, and then if they clean it up, then that is fine?

Now, clearly, if you came in successive years and found exactly the same problems, you know, that would be a problem. But this is a variant of what Dr. Wilensky has talked about. And it also picks up on the incredible lack of education that we do out there.

Do you think there is a role for this kind of an oversight process as a program integrity component?

Mr. GROB. I really appreciate your asking that question. I absolutely do think there is room--in fact, I actually think that for nursing homes, for example, the current rules that pertain to the discovery of deficiencies in treatment is very much along those lines. And I think where it has fallen short is that they simply have not had the resources to meet the kind of deadlines that you are talking about and get back out there right away--

Chairwoman JOHNSON. No, no. The spirit of what has gone on in nursing homes is not along the line that I am suggesting at all. That is not a problem.

Mr. GROB. Could I address the question then of spirit, since the question of demoralization and the question of criminalization has frequently arisen? I really do think it is vital, and could I take a minute on that?

Chairwoman JOHNSON. Sure.

Mr. GROB. I do think that there is concern--and I have heard it over and over--that physicians are afraid and other health care providers are very much afraid of criminalization. But I do wish to emphasize that the word can mean many things to many people.

Last year, 12 physicians were found guilty of a crime. One of them performed operations, cataract surgery, on people who didn't need it.

Chairwoman JOHNSON. I am not denying the important role of oversight in criminal prosecution.

Mr. GROB. Agreed. But a lot of what happens is that other things that are done get brushed with that brush of criminalization. And if I could, I would like to give you an example or two.

Mr. McDermott is not here, but he did ask a question, and he was wondering why the inspector general turned down a claim for a preventive health office visit. And it was explained, of course, that this is not covered by Medicare. But throughout that discussion, it never was said that the inspector general did not turn down that claim--this was an audit that we did to determine the error rate--nor did the inspector general's office ever classify any action like that as being criminal. But Mr. McDermott thought we did. People are finding that when we have our error rate study that we are saying that this is all criminal. No. Every time we issue it we say that it is not, that it could be a mistake, or it could be criminal.

The thing that I am afraid of is that we are seeing here a self-fulfilling--not prophecy but assessment.

Chairwoman JOHNSON. But that is true. I agree with you absolutely. There has never been any willingness, from the very first time you put out the $34 billion, to talk about what the $34 billion really--but that tells you, you must change your process so that the message that goes out will be more accurate.

Mr. GROB. Yes. We agree with that, and we have been trying very hard to find the words to do that. What I think we would like to do is ask for help. We would like everybody here to be saying that we are not talking about criminal behavior when we check the payment error rate. We would like others to join us in saying we are not trying to get you from a criminal point of view. We are trying to make the Medicare program work better.

And I think if everybody begins talking about it like that, that will diminish the feeling that somehow police are looking out to find a doctor making a mistake. I think all of us really need to help just tone that down. That is a plea that I would make in coming before the panel today.

Chairwoman JOHNSON. Just let me ask you briefly, why is it that HCFA has not used the dual-entry accounting system? In one word or less.

Mr. GROB. I am sorry. I could not hear.

Chairwoman JOHNSON. Why is it that HCFA has not adopted a dual-entry accounting system?

Mr. GROB. We are amazed at that. We have been raising this point since, I think, the early 1990s. We know that it is a very complex matter, but it is just one of these anomalies that is very strange. There is not a reputable business in the country that wouldn't have it.

Chairwoman JOHNSON. Thank you. Mr. Stark?

Mr. STARK. Well, I think Mr. Grob touched on the issue that I wanted to ask him to repeat. I am looking at a letter from a county medical society, which probably I should not identify, but they are complaining to me about methods used to go after fraud. Do your guys wear black leather coats when they go in?

Mr. GROB. Today, I wore my best--

Mr. STARK. This letter says they stormed in and arrested some physicians. It uses inflammatory language but, as a practical matter, it goes on to say that they were arrested and they were not aware they were committing a crime, as indicated by their attorneys.

Now, I understand, in checking on this, that there was a group of physicians here, and several of them have already been convicted of a crime. And I don't believe you could convict somebody of a crime if there isn't intent. I am not a lawyer, but I somehow remember that intent is required to these charges.

Mr. GROB. We cannot do that. The law will not allow it. The intent must be proven.

Mr. STARK. And I don't think that happens a lot, but we do have the Prudential Life Insurance Company who paid hundreds of millions of dollars of felony fines for copping a plea of stealing billions of dollars from their clients, or Columbia HCA who paid, I think, about $300 million in fines for stealing from the Government.

Crime is not something that we should be shocked about when it happens. But it does seem to me that--just like, I suppose, for those of us who have been audited by the IRS, rarely is there a criminal element, but often they want a lot of money out of us. And they may start out a little higher than what they expect to get. That seems to be aggressive but, I gather, successful in most cases.

I guess what I want to know, and you touched on it, are the facts on arrests. There are arrests from time to time. But has there has to be a criminal indictment, right?

Mr. GROB. Yes, a warrant.

Mr. STARK. You have got to go to either a Federal grand jury or--you have got to turn it over the Justice Department. Is that not correct?

Mr. GROB. That is right. We do the investigation and coordinate with the Justice Department as far as--

Mr. STARK. So, basically, you don't arrest anybody?

Mr. GROB. We do, with deputation.

Mr. STARK. So this is like the Attorney General.

Mr. GROB. The Attorney General, FBI.

Mr. STARK. Who has decided that based on the evidence--

Mr. GROB. Yes.

Mr. STARK. So if the doctors are upset, or the hospitals, about being, quote, arrested as it were, their beef is with the Attorney General--

Mr. GROB. Well, I think there are many law enforcement agencies involved. It could even include local law enforcement agencies.

Mr. STARK. Okay.

Mr. GROB. But I think the point you are trying to make is the very same point that I was making. I think that when our office, the inspector general's office, becomes involved, people think that what we are doing is a criminal kind of thing. We also have auditors, and they do auditing.

Also, if I could comment, a lot of times when the carriers take action, they think that the inspector general has shown up in their office. Compared to the carriers, the inspector general rarely shows up in the physician's office to examine a claim, for example. And they are rarely involved in determining how much the physician owes that should be paid back to the Medicare program. That is almost always done by the carriers.

But, yet, people will report that these happen, and they will say, well, the inspector general came--I am not trying to distinguish our office from all the others. That is not my intent. My intent is to show that in the telling of the stories, we are adding to the story, that the story-telling itself is part of the process of criminalizing things, and all I am wishing is--I think we can do it all. I think we can do the crime part. I think we can do the accounting mistakes. And I think we can do the education.

I really do think that all of us can do it, and we can all keep the crime issue separate. I am just hoping that we all talk like we all know that we can keep it separate.

Mr. STARK. I think that there is this misunderstanding, and I hope that we can, both from our side of the podium and your side and the providers' side, not decide that each anecdote is an indication that we are becoming heavy-handed. It is complex, and everybody has added to the complexity, in my opinion. The providers have added to the complexity, happily, because they have got all kinds of exciting new treatments, much of which is new to HCFA, and you have to figure out how to pay for it or whether to pay for it. Indeed, how many claims are processed each year?

Ms. WILENSKY. I think it is close to a billion. I think about a billion.

Mr. GROB. Eight hundred million.

Ms. WILENSKY. It is close to a billion.

Mr. STARK. Eight hundred million.

Ms. WILENSKY. More than 800 million.

Mr. STARK. I mean, that is a lot of claims to grind through, and we are probably talking about a million out of--if that, 500,000, maybe, where they go awry. So I look forward--and thank you, again, Madam Chairman. I think we can do something, and I think that if we just decide we are going to make the system--

Mr. GROB. Mr. Stark, could I quickly clarify a statement I made? We do participate in making the arrests, the IG's Office.

Mr. STARK. Do you carry a gun?

Mr. GROB. I do not carry a gun.

Mr. STARK. Okay.

Mr. GROB. But our agents do when the proper procedures have been followed.

Mr. STARK. Is that true? You really do? That is scary. You ought to get hazard pay, it seems to me, but okay. I stand corrected. Thank you.

Chairwoman JOHNSON. Mr. McCrery?

Mr. MCCRERY. Well, the physicians that I have talked with--and there are numerous physicians--don't just zero in on the criminality element. The hassle factor includes a lot more than just the criminal penalties that are in the law.

Much of it is just the paperwork that they have to do. They have to hire people to do the paperwork, or they have to assign nurses to do it, and that takes them away from the patient care. So it is a lot more than just the criminal element.

Mr. GROB. Yes. I completely agree.

Mr. MCCRERY. And I think Mr. Stark hit on part of the problem, and so did Dr. Moffit, which is just the sheer size of Medicare and the tremendous burden that HCFA has in administering that size program. Even though it is dispersed somewhat among a number of intermediaries, still, it is probably not as dispersed as the private sector, as Dr. Moffit pointed out. And that is why I want to get back to Dr. Moffit's idea that we can't solve this problem within the current structure, we need to change the structure.

I am sure, Dr. Moffit, you have given some thought as to how we transition from the current system to the new system that would be more private sector oriented and all these decisions would be much more greatly dispersed around the country.

Can you share with us some of your thoughts on how we transition to that?

Dr. MOFFIT. Yes, I can, Congressman. In my testimony, I have outlined certain steps that we ought to take if we pursue Medicare reform. The most important is to create a structure, as I said, that broadly resembles that of the Federal Employee Health Benefits Program, with which I am intimately familiar. That system works extremely well.

However, having said that, I think that because of the enormous technical and political challenges that are involved in moving toward a reform of the Medicare system, as envisioned by Senator Breaux and President Bush and many Members of Congress, this ought to be done in a phased-in fashion. If there is any lesson we have learned from the Medicare Choice experiment, it is that this cannot be rushed; it cannot be turned over to an agency whose whole institutional culture is to regulate; but, rather, we have to create a relationship where there is a culture of friendliness toward private firms as competing interests.

But to answer your specific question, there are two ways, to do this. One, is basically insulate the entire current Medicare population from Medicare reform; in other words, just basically confine Medicare reform to the next generation of retirees. Those people who are currently in the Medicare system should be treated entirely different than the future generation. We should then phase the new system in on a year-by-year basis, enabling people when they retire to make a decision about whether or not they want to go into a new competitive system that looks like the Federal Employee Health Benefits Program.

In that transition, they could make a decision about whether they want to pick and choose one of the competing plans in the new competitive system or whether, they would want to keep their current employment-based retirement coverage and bring it with them into retirement as their primary coverage and get a Government contribution to help offset the cost.

This approach is very non-threatening. It is the least disruptive. But by moving toward a phase-in like that, it would enable the new administrative agency - I don't think that HCFA should run a new competitive system--to make the mid-course corrections over time that are going to be necessary. There are going to be a lot of wrinkles in moving to a new competitive system. But at the same time, with a smaller and growing number of people in the system, it would give a new agency an opportunity to properly manage without a great deal of disruption. This way we can avoid the kinds of problems we have had in the past with the "Medicare+Choice" program.

You talked earlier about fraud and abuse. There is nothing in the Federal Employee Health Benefits Program in terms of those problems--the size of the problems in fraud and abuse - that you have had in Medicare. You do not have the same kinds of problems with claims disputes that you have in Medicare. You don't have the same kinds of grievance difficulties. And, as a former Congressional Relations Director for the Office of Personnel Management, I dealt with probably the most highly educated and sensitive constituency in the world, Federal retirees and Federal employees, who know how the system works and who write their Members of Congress. And I can tell you from my experience, I very rarely was summoned to a congressional office where a Congressman sat me down and said, "Moffit, you better do something about the Federal Employee Health Benefits Program because it is not delivering the kinds of services that my constituents want." Rarely did that conversation happen.

We had a lot of debates about retirement. We had a lot of debates about labor-management relations. We had a lot of questions in those areas. But the point is, if you want consumer satisfaction and you want good administration, move into the new system slowly; phase it in year by year, and give the new administrative agency the flexibility to make the mid-course corrections that will be necessary.

Mr. MCCRERY. Well, the fact is that under FEHBP, each individual insurance company providing those benefits is going to provide the fraud and abuse protection.

Dr. MOFFIT. That is right.

Mr. MCCRERY. It is in their own selfish interest to do that, and they do it.

Dr. MOFFIT. That is right.

Mr. MCCRERY. I can assure you they do.

Dr. MOFFIT. They police it very closely, Congressman.

Mr. MCCRERY. And whether they do a better job than HHS or HCFA, I don't know. We could have a hearing on that.

Dr. MOFFIT. I think that is an excellent idea. Let me just make the point, though, that one of the problems you have here is that the very structure of the Medicare system does not have the same incentives on the part of the carriers to root out fraud and abuse in the same way that private sector companies competing for consumers' dollars have.

Mr. MCCRERY. Right.

Dr. MOFFIT. I mean, that is the point. You have Medicare contractors, 55 of them around the country. If there is fraud and abuse, they don't actually lose the money on their bottom line.

Mr. MCCRERY. Right. I agree. And I also want to point out, Dr. Moffit, that there are certainly in the private insurance industry complaints and grievances. As a former practicing attorney, I can tell you that there are people who don't think they are being treated fairly by a private sector insurance company, and there are grievances. Fortunately, they do have procedures to go through, and often we can resolve those. But to say that there is not any of those I think is probably an overstatement. There are a lot--

Dr. MOFFIT. Let me offer a point, a response to that, though, Congressman. In most private insurance, the employer picks your insurance. The employer owns the policy, and if you don't like the employer's policy, you cannot do anything about it.

Mr. MCCRERY. Right.

Dr. MOFFIT. In the Federal employees' system, if you do not like the rates or the benefits or the premiums or the payments or the deductibles or the way in which a plan handles your claims, you can fire that insurance plan.

Mr. MCCRERY. That is right. Absolutely. Your points about the value of consumer choice are well taken, and if we had a better health care system in terms of delivering and paying for health care than we do--and you know my views on that--then I think we would solve a lot of the problem that physicians are concerned about and prompts them to push us to do more regulation on the Patient's Bill of Rights and things like that. Those problems would be solved by the consumer and by physicians working with consumers. But that is another hearing and another day I hope we will eventually have to restructure the entire health care system, but not today. Thanks.

Chairwoman JOHNSON. Thanks, Mr. McCrery.

I did read that recommendation in your testimony, Dr. Moffit, about phasing this in slowly. The question that occurred to me was that insurance plans depend on a certain volume of premium in order to stably offer coverage. If you open this as slowly as you are recommending, only to incoming seniors, will we have the same kinds of problems we had with Medicare Plus Choice? Because that was one of the problems, that the Choice programs had no ramp-up time, no consideration for the period when they would not have enough enrollees to cover their obligations.

So how do you ramp it up as slowly as you are recommending?

Dr. MOFFIT. Well, I agree that is a technical problem, and we have to address it.

Chairwoman JOHNSON. Well, we can talk about this later, I guess.

Dr. MOFFIT. Let me say this. I have talked to the Blue Cross/Blue Shield people. I have talked to insurance representatives from the American Association of Health Plans. And the one thing that they stressed to me in terms of the Medicare Plus Choice program and Medicare reform is that, if we are going to have a Medicare reform, what they need most is they need predictability. They need to know how many people are going to come on. They want to be able to absorb them. And at the same time, they want a sound business relationship with the Government which is stable, where they can make sound business planning decisions.

So the question is how you phase it in. I suggested perhaps on a year-by-year basis. That is also, of course, linked to a suggestion that I had made earlier in my testimony, which is give Americans who have employer-based health insurance that they like the opportunity to take that into a new competitive system with them as their primary coverage in retirement, if they wish to do so.

Chairwoman JOHNSON. Thank you. Well, we do look forward to working with all of you as we move ahead. As should be very clear by now, we are keenly aware that the explosion of changes in the law since 1997 and the remarkable changes in medicine in the last 5 or 6 years are all part of having created some new problems. But we do need to understand these new problems because they are very significant. They are going to put small providers out of business, without question in my mind. I don't think little can survive with this level of regulatory weight. And that would actually have a terrible impact for seniors.

So this is about senior access to care. It is about the quality of care the seniors have access to. And if we don't deal with the structural, bureaucratic problems of Medicare and don't begin to think about what kind of system can serve the retirees as the number doubles, then we will not have done our duty.

So this is not about blame. There is plenty of that to go around in life. This is about the prospects of strengthening Medicare for the future. And I thank you for your very good testimony and look forward to working with you all as we move through these issues.

Thank you.

[Whereupon, at 1:15 p.m., the hearing was adjourned.]
[Submissions for the record follow:]

American Association of Homes and Services For the Aging, statement

American College of Physicians-American Society of Internal Medicine, statement

American Occupational Therapy Association, Inc., Bethesda, MD, statement

American Physical Therapy Association, Alexandria, VA, statement

Mayo Foundation, Bruce M. Kelly, letter and attachment

National Association of Chain Drug Stores, Alexandria, VA, statement