Statement of Gary Mecklenburg, President and Chief Executive Officer,
Northwestern Memorial Healthcare, Chicago, Illinois,
on behalf of American Hospital Association

Testimony Before the Subcommittee on Health
of the House Committee on Ways and Means

Hearing on Medicare Reform: Bringing Regulatory Relief to Beneficiaries and Providers

March 15, 2001

Madam Chairman, I am Gary Mecklenburg, president and CEO of Northwestern Memorial Healthcare in Chicago. I am here today on behalf of the American Hospital Association's (AHA) nearly 5,000 hospital, health system, network, and other health care provider members. We are pleased to have the opportunity to testify on the complexity and burden of Medicare's regulations on providers.

Though Northwestern Memorial Hospital's history dates back to the mid-1860s, the Northwestern of today was created in 1972 when two leading Chicago hospitals, Wesley Memorial and Passavant Hospital, consolidated their services. Today, Northwestern Memorial is the primary teaching hospital for the Northwestern University Medical School and enjoys a national reputation as a strong, well-managed organization. The hospital is staffed by more than 5,000 caregivers, in addition to 1,200 physicians in 30 medical and surgical specialties, all dedicated to the organization's mission of putting "Patients First." In 2000, Northwestern Memorial provided care for more than 304,000 outpatients and admitted more than 35,000 patients. The hospital has a diverse patient population in its urban locale, serving patients with many ethnic and socioeconomic backgrounds.

MAZE OF REGULATIONS

As a large urban hospital, Northwestern Memorial is well acquainted with the maze of regulations Medicare and Medicaid requires us to comply with on a daily basis. Government regulations should improve the delivery of health care services to patients, enhance safety, and facilitate the timely disbursement of federal funds in the health care system. However, regulations can also have the opposite effect. Regulations that miss the mark can force a wedge between patients and their caregivers. They divert limited resources to administrative paperwork and create a morass of complicated and duplicative requirements that confuse those they are supposed to guide.

Allow me to share with you the regulatory maze that hospitals, health systems and other providers must navigate every day. In addition to Medicare and Medicaid, hospitals and health systems face laws, regulations and guidance from the Occupational Safety and Health Administration (OSHA), the Environmental Protection Agency (EPA), the Food and Drug Administration (FDA), the Federal Aviation Administration, Federal Communications Commission, the Internal Revenue Service (IRS), and other regulatory agencies. The attached chart depicts the web of regulators to whom hospitals must answer. There are at least 30 entities issuing some type of rules, regulations or instructions to hospitals.

The Mayo Foundation estimates that we are subject to 132,720 pages of rules that govern the Medicare and Medicaid programs - that's three times the size of the IRS Code and its federal tax regulations. Besides federal regulations, hospitals must comply with state and local regulations, which can be equally complex and costly. For example, hospitals in California are required to meet sweeping seismic safety regulations that require hospitals at risk for collapse during an earthquake to be retrofitted, rebuilt or closed by 2008. These requirements are estimated to cost $24 billion.

Complying with this many pages of regulation is clearly no small task. In fact, some rural hospitals have almost as many billing clerks as they do beds. In Gonzales, Texas, Memorial Hospital has 33 beds and a billing staff of 20 employees. At Northwestern Memorial, our patient financial services department spends more than 3,200 staff hours per month, or 38,400 staff hours per year sorting through Medicare billing requirements alone. This year, Northwestern Memorial Hospital is adding 26 new FTEs solely to ensure compliance with regulations. This includes new staff hired to work exclusively on the Health Insurance Portability and Accountability Act (HIPAA) and our staff devoted to Quality Strategies and Management. Our estimated costs for these activities thus far, excluding space and support expenses, is nearly $5 million annually.

Hospitals are drowning in this sea of government rules and regulations. Lost is a sense of fairness, due process and common sense. And the real victims are patients, because regulatory burdens are impeding the efficient delivery of health care. Hospitals are forced to direct more and more resources to paperwork - resources that could be better used on direct patient care. It is time to make the regulatory process make sense.

We are not the only ones who feel this way. Health and Human Services (HHS) Secretary Thompson echoes our concerns. In his confirmation hearings, he expressed strong views about Medicare's regulatory overload. "Patients and providers alike are fed up with excessive and complex paperwork… Complexity is overloading the system, criminalizing honest mistakes and driving doctors, nurses and other health professionals out of the program," he said. It is important to note that the regulatory burden is a contributing factor to the health care staff shortage the United States is experiencing - nurses, doctors and technicians are leaving health care professions in pursuit of other opportunities.

Earlier this year, the AHA Board of Trustees formed a 30-member Advisory Committee on Regulatory Reform and Relief to address the problems that hospitals face in trying to comply with federal rules and regulations. To date, the AHA has identified five areas for process reform, and four instances for refinement of current regulations. Allow me to share these suggestions with you now.

PROCESS REFORMS

Improve coordination in the release of federal regulations. First, we urge the government to better coordinate the release of regulations. In 2000, hospitals received numerous complex regulations from the Health Care Financing Administration (HCFA), OSHA, HHS, EPA and FDA, several of which required sweeping changes to our information systems. For example, to implement prospective payment systems for Medicare skilled nursing care, home health care, outpatient care, and transfers of inpatients, hospitals have had to make significant changes to their patient data collection, coding and billing systems. This is in addition to other regulations hospitals are currently in the midst of implementing, such as uniform electronic transactions standards, privacy standards and prospective payment for rehabilitation services. Such extensive and frequent systems updates are especially troublesome for small and rural hospitals that have limited information systems staff.

We believe that the implementation of regulations should be better coordinated in and amongst the various federal agencies. To that end, we recommend enhancement of the duties of the Office of Information and Regulatory Management at the Office of Management and Budget to allow for the orderly release of regulations so that providers' administrative and information systems are not overwhelmed.

Allow providers their day in court. Hospitals must also be able to challenge in federal court any attempt by HHS to overstep its authority or to enforce questionable policy in the Medicare program without following established rulemaking procedures. Today, if hospitals wish to seek judicial review of a regulation, they must knowingly violate Medicare law and risk exclusion from the program. That's too high a price to pay for the opportunity to question rules that so fundamentally affect our operations. It's interesting to note that regulations promulgated by any other agency permit a challenge under the Administrative Procedures Act. Hospitals are not looking to bring every disagreement to court. However, the law requires that HHS issue a regulation and act within certain parameters. When these procedures are not followed, hospitals deserve due process in court. Therefore, Congress should enact legislation to provide hospitals and other providers with a specific opportunity to appeal decisions made by HHS with respect to questionable Medicare policy.

Require MedPAC to include hospitals' compliance costs when recommending payment rates. The cost of caring for patients continues to increase as a result of complex regulations such as HIPAA and greater technological advances in such areas as pharmaceuticals and blood products. An AHA-commissioned study, looking at hospital costs alone, found that the cost of implementing HIPAA could be as much as $22.5 billion over five years, for three of the rule's proposed provisions. In addition, new advances in blood filtration are expected to increase the price of blood by 50 percent.

The costs incurred by hospitals to comply with federal regulations and standards are simply part of our costs to provide care to patients. Therefore, MedPAC should be required to annually aggregate the estimated impact of a regulation on providers' payments and costs, and to incorporate this aggregated impact into the Medicare inflationary market basket update.

Consult health care professionals on rule development. Early in the development process, regulatory agencies should consult those affected by a regulation - the caregivers - so practical implementation issues and problems can be identified and resolved before a particular regulatory approach is locked in. An example of this problem is last year's ambitious implementation schedule of the outpatient prospective payment system. Despite providers' warnings, late changes to the implementation caused updated software to be unavailable in time. Fiscal intermediaries (FIs) were then unable to process outpatient claims for more than six months. For Northwestern, this meant $2.3 million in late reimbursement.

To facilitate improved rule development, agencies should be required to publicly release databases, cost estimates, assumptions and methodologies at the time notice is given of a proposed rule. Regulated entities could then conduct their own studies and analyses, and possibly suggest alternate regulatory models that would be more appropriate. We fully support Secretary Thompson's recent recommendation that HCFA pilot test new regulatory measures for feasibility and workability before requiring them of providers nationwide.

Enact the Regulatory Fair Warning Act. Today's highly regulated health care environment demands that federal rules and regulations are issued in a timely manner, and made available and understood not just by those who are regulated by them, but also by those who enforce them. Passage of bipartisan legislation similar to the Regulatory Fair Warning Act, introduced by Rep. George Gekas (R-PA) in the 106^th Congress and reported favorably by the House Judiciary Subcommittee on Commercial and Administrative Law, would help stop ambiguous and conflicting regulatory pronouncements. Specifically, the Regulatory Fair Warning Act would prevent federal agencies from penalizing businesses or entities for alleged violations if:

• the rule was not published in a public document;
• the agency did not give fair warning that a type of conduct is prohibited or required; or,
• the agency had already given specific guidance that contradicts an inspector's claim that the regulation had been violated.

CURRENT REGULATIONS IN NEED OF REFINEMENT

Streamline paperwork. Much time, effort and expense could be saved if paperwork requirements were streamlined. For example, patients must fill out the 25-question Medicare Secondary Payor (MSP) questionnaire every time they come to the hospital for recurring services, such as chemotherapy or blood work. Altering this requirement to require completion of the MSP every 90 days for recurring services would be a substantial improvement. We commend Rep. Saxby Chambliss (R-GA) for his efforts in convincing HCFA to no longer require a MSP questionnaire be completed for every outpatient rehabilitation therapy encounter. However, the agency has yet to implement this improvement and some FIs still require completion of the MSP.

In addition, hospitals to which doctors' offices forward specimens for laboratory analysis are required to contact a beneficiary whose specimen was submitted, and collect information about possible secondary insurance coverage. Beneficiaries often react with suspicion when contacted by a hospital lab asking them personal questions. They naturally assume that their physician is handling the lab tests. Independent labs are not required to collect this information. Hospital labs should be treated no different than independent laboratories providing the same service.

Fix the costly and needlessly burdensome HIPAA medical privacy regulation. Hospitals are encouraged by Secretary Thompson's decision to re-open the privacy rule for comments and urge him to suspend the effective date and fix the rule. We believe a better privacy rule would benefit patients and providers alike. Many provisions in the final rule and the aggressive implementation schedule were written without consideration of the impact on patient care and the high costs of compliance. As I mentioned earlier, an AHA-study looking at hospital costs alone, found that the cost of only three key provisions of the proposed rule could be as much as $22.5 billion over five years.

The AHA has long supported the development of uniform national privacy rules. However, HIPAA's privacy rule, as currently written, is overly burdensome and its implementation schedule too aggressive. We believe concerns about the rule's complexity, costs and implementation timetable must be addressed prior to the rule's effective date.

Emergency services needed to stabilize patients should not be denied payment. As a participating provider in the Medicare program, Northwestern is required to screen any individual who comes to the emergency department to determine whether that person has an emergency medical condition or is a woman in active labor and, if so, to stabilize him or her. To adequately screen and stabilize the patient, we often employ ancillary services that are routinely available to the emergency department. Medicare sometimes denies payment for the services furnished in the emergency department because they exceed the local medical review policies (LMRPs) or utilization guidelines for coverage and frequency established by the Medicare fiscal intermediaries. However, we are prohibited from billing beneficiaries for such services unless we notify patients in advance that the service may not be covered (advanced beneficiary notice). Conversely, we cannot notify patients in advance because the Inspector General interprets this advance notification of possible non-coverage as a delay in screening and stabilization. Hospitals, caught in a Catch-22, are often left with an unpaid bill for emergency care.

To reconcile these conflicting requirements, services furnished in the emergency department should be exempt from denials based on LMRPs, and Medicare should pay for all services necessary to screen and stabilize patients.

Limit data collection to what is necessary for payment and quality. Prospective payment systems should be simple, predictable and fair. Unfortunately, the patient assessment tools for skilled nursing, rehabilitation and home health are far from ideal. In fact, HCFA has devised three separate instruments, the Outcome and Assessment Information Set (OASIS), Minimum Data Set (MDS), and MDS-PAC, which collect much extraneous information, lack statistical reliability, and are extremely burdensome on hospitals. We concur with MedPAC's recommendation in its annual report to Congress (March 2000) that "the secretary should review all post-acute data collection requirements. Each item should have an explicit rationale, and only information needed for accurate billing, risk adjustment, or quality measurement should be required."

COMPLIANCE COSTS ARE HIGH

Complying with this growing mountain of rules and regulations comes with a high administrative price tag.

At Northwestern Memorial, we take corporate compliance seriously. We have committed a great deal of time and resources to ensure that we follow state and federal regulations. We have a corporate compliance department headed by a corporate compliance officer, who is also an experienced health care attorney. The hospital's corporate compliance committee includes 10 senior officers who meet monthly to discuss regulatory changes and compliance initiatives. We have an internal audit department with a staff of six, who actively focus an increasing amount of time on Medicare-related compliance issues. Northwestern employs several outside consultants to help us prepare for review by HCFA and other agencies. In addition, we have numerous internal cross-functional task forces dedicated to ensuring compliance with regulations covering the Emergency Medical Treatment and Active Labor Act (EMTALA), coding, laboratory tests, patient observation and employee education, among others.

Besides the known expense of time and resources, burdensome regulations incur hidden costs - a prime example being the toll they take on employee morale. People choose to work at hospitals because they want to help others. The current regulatory environment buries dedicated employees in bureaucratic paperwork. In today's tight job market and shrinking caregiver workforce, we face employee exodus to jobs that involve less red tape and hold the potential for greater job satisfaction. Constantly training and educating new staff in the intricacies of these burdensome regulations is another hidden cost that hospitals must bear.

CONCLUSION

Hospitals' first priority is to provide high-quality care to our patients. Many regulations contribute to our efforts to provide quality patient care, but others simply drain resources away from that goal, placing a financial strain on providers.

Madam Chairman, we all agree the health care industry should be regulated. There are valid reasons why HCFA, the Joint Commission on Accreditation of Healthcare Organizations, the IRS and OSHA should monitor hospitals' activities. However, the strain of 30 or more organizations issuing thousands and thousands of pages of often conflicting and complex rules, instructions and laws is hurting the health of our nation's hospitals. There is no coordination among agencies that regulate providers, and rules appear to be issued in a vacuum with no regard to the fiscal consequences of compliance and the impact on our daily operations.

Though most of the examples I have given today come from Northwestern Memorial's experience, I speak for hospitals across the country, large or small. The AHA is ready and willing to continue our work with HHS, HCFA and other agencies to improve the way rules and regulations are promulgated and implemented. We pledge to do all we can to help make the regulatory system work better not just for hospitals and health systems, but also for the patients and communities we serve. But we need the assistance of the regulatory agencies and Congress to achieve this goal.

I thank the Committee again for the opportunity to describe the regulatory difficulties hospitals face. I welcome any questions you may have.