Opening Statement of the Hon. Fortney Pete Stark, a Representative in Congress from the State of California

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

March 15, 2001

As we begin deliberations on possible reforms to the Health Care Financing Administration (HCFA) and its regulatory process, it's important to provide HCFA with the resources and flexibility needed to fulfill its responsibilities. There seems to be broad agreement among experts and stakeholders that HCFA's resources need to be dramatically increased. I hope we will hear from Gail Wilensky with respect to that concern later this morning.

I am also pleased that Secretary Thompson agrees with this notion and has said so in numerous public settings. We should not wait to increase HCFA's administrative budget and staffing opportunities until there is consensus on whether or how to restructure HCFA or reform Medicare. With the budget season upon us, there should be a coordinated effort for a significant increase this year.

During the last five years, Congress has significantly increased HCFA's responsibilities, without adding the commensurate, necessary resources to accomplish the work.

In 1996, the Congress enacted the Health Insurance Portability and Accountability Act (HIPAA), the Mothers and Newborns Protection Act and mental health parity legislation; in 1997, the Congress enacted the BBA of 1997; in 1999, the Congress enacted BBRA; and in 2000, the Congress enacted BIPA. These laws added hundreds of new provisions for HCFA to implement. Yet Congress increased HCFA's administrative budget by only 2.6 percent since 1997; if you subtract out the earmarks for research projects, the increase was only 1.6 percent.

That leads directly into the point that it is also important to remember that the Medicare regulations and policy guidance issued by HCFA implement the laws that the Congress enacts, and the relative complexity and A burden of Medicare regulations reflect those laws.

In promulgating regulations, HCFA has only the regulatory authority that it is given by the Congress; it has no other independent regulatory authority. As we examine these issues today, we should also examine the complexity and burden of the Medicare statute.

There are steps we can take to improve HCFA's ability to fulfill its responsibilities under the law, while easing legitimate concerns about regulatory burden. But it is critically important that we do not do so in a vacuum. Regulations and other guidance materials are needed to protect beneficiaries from abuse and to assure the financial integrity of the Medicare and Medicaid programs.

The Department of Health and Human Services (HHS) has very recently reported that improper Medicare payments to doctors, hospitals and other health care providers declined in fiscal year (FY) 2000 to an estimated level of 6.8 percent. This level compares favorably with an error rate of approximately 8 percent in FY 1999, and is roughly half of the original FY 1996 rate of approximately 14 percent.

This continued decline in the Medicare payment error rate demonstrates the success of HCFA's efforts to reduce billing errors in Medicare over the past five years. According to the Inspector General, the significant, sustained improvement reflects HCFA's improved oversight, its efforts to clarify Medicare payment policies, and its insistence that doctors and health care providers fully document the services that they provide. Other factors have been new initiatives and resources to prevent, detect and eliminate errors and fraud in Medicare.

Many criticized HCFA when the payment error rate was 14 percent and demanded that HCFA reduce it. Now many criticize HCFA for the actions it has taken to reduce payment errors and for insisting that providers file claims accurately. It is my understanding that fewer than 100 physicians were arrested for Medicare fraud last year B and only 12 were convicted. That is out of more than 600,000 physicians across the country. I say that we should praise HCFA for its efforts to reduce Medicare payment errors, and we should ensure that HCFA does not diminish its efforts to reduce those errors still further.

Finally, while I know today's hearing is not specifically focused on HR 868, The Medicare Education and Regulatory Fairness Act, many of the providers testifying before us have endorsed that legislation. While I agree that there are some legitimate issues relating to provider regulation that need to be addressed, the over-reach of MERFA as introduced undermines the credibility of its champions. And could easily return us to the days of 14% overpayment rates.

Attached is a much more detailed list of broad ideas and principles for consideration in the debate on HCFA reform. I look forward to hearing from our panelists this morning.

1. First, do no harm

Along with Social Security, Medicare is the most effective and popular government program in existence today. It provides health and financial security for nearly 40 million persons with disabilities and senior citizens that was not available prior to its enactment.

Every major poll reaffirms the popularity of Medicare among seniors and their families. HCFA announced December 22^nd that for the second year in a row, Medicare beneficiaries had rated the agency A excellent in the way it provides information, the usefulness of that information, and the courtesy and professionalism of its staff.

In 2000, HCFA went up three points from last year=s score of 74 out of 100 on the American Customer Satisfaction Index (above the average Federal score of 68.6).

In addition, surveys show that Medicare is more popular among providers, including physicians, than private insurance or Medicaid.

While improvements are needed in HCFA's management of Medicare, Congress should proceed with caution and with the acknowledgment that we are examining ways to improve a program that already does well according to many objective measures and has strong public support.

2. Increase HCFA resources B and give priority to information technology (IT) modernization

We cannot discuss the problems associated with Medicare regulations and guidance without discussing the lack of resources given to HCFA to carry out its regulatory responsibilities, and to educate affected parties about the rules of the game.

In the January/February, 1999 issue of Health Affairs, 14 of our nation's leading Medicare policy analysts - ranging from conservative to liberal - published an open letter titled, A Crisis Facing HCFA & Millions of Americans, regarding the lack of resources allocated to administer Medicare. The Medicare Payment Advisory Commission (MedPAC) agreed with that letter, and published it in their March 1999 Report to Congress.

In MedPAC's March 2001 Report to Congress, MedPAC makes the following points that are particularly relevent to this discussion:

A HCFA cannot do everything at once. The BBA required many changes in Medicare's payment policies within a very short period....HCFA lacked the staff resources and time to fully prepare new payment systems and make necessary changes in its administrative systems.

As a result of Congressional time deadlines, some tasks, such as delivery of critical coding, patient assessment, and billing software to HCFA's billing agents and providers for pre-testing, and the development and dissemination of edit standards - were often delayed until new payment systems were about to go into effect....leaving providers little time to prepare.

A second lesson is that you get what you pay for. Many of the data limitations that cause problems in establishing accurate payments for some settings are due, at least in part, to chronic under funding of HCFA's administrative budget. Activities that help to improve the accuracy and reliability of providers' reported data - such as auditing cost reports or developing and disseminating coding instructions - have received inadequate support for many years. HCFA's administrative expenses generally have accounted for less than 2 percent of total outlays in recent years, well below the comparable proportion of private insurers' expenses for similar activities. The lack of adequate monitoring tools and data is a major problem. This problem will be difficult and costly to remedy. Consequently, additional resources will be needed.

While critics of HCFA may complain about HCFA's performance, MedPAC and other independent experts have pointed out that they have been tasked with the impossible under the circumstances.

Information technology (IT) systems

We need to undertake a "Manhattan Project" in Medicare information technology (IT) to improve quality, fight fraud, and slash paperwork costs.

As we all know, HCFA's IT systems are obsolete. HCFA has tried for more than a decade to develop new IT systems, and we still haven=t achieved that goal.

Without modern information systems, HCFA cannot effectively and efficiently administer the Medicare program -- regardless of administrative structure or process. We cannot pay bills efficiently, we cannot limit paperwork hassles, we cannot monitor and assure coordination of services and quality, and we cannot identify fraud and abuse.

Equipment alone won't solve the problem. Information technology experts are needed, too. Problems attracting and retaining good personnel to work on IT issues are not limited to HCFA. Agencies and departments throughout the entire Federal government are having difficulty hiring and keeping IT staff. Good computer personnel can make many times more in the private sector than we can pay in the Federal government. While we may never be able to pay enough to attract and retain good computer professionals, we clearly need to do better than we are doing now.

Medicare is not alone in facing these challenges. The entire health sector needs to make major advances in this area. In general, American business spends about 7.1% of its gross company revenue per year on IT improvement.⁽¹⁾ The health care sector spends about 3.2%, yet IT improvements are the key to error reduction, quality improvement, and paperwork savings.

HCFA provides FREE software to physicians via the Internet to enable electronic claims filing. In addition, Medicare carriers help teach physicians how to file their claims electronically. It costs Medicare an extra dollar to process each paper claim that is filed. It's not too much to make electronic filing he default for all providers, while allowing those who may to file paper claims to do so for a fee consisting of the extra dollar that it costs to process that claim.

I have asked GAO to review current HCFA activities to develop new IT systems for Medicare, and to make recommendations on how to proceed in terms of hardware, software, and staffing. I expect the report later this Spring.

Direct Appropriations

We should consider funding HCFA's administrative budget through a direct appropriation. Currently, HCFA staffing and administration must be approved through the appropriations process, where HCFA resources must compete for scarce resources with NIH, education, and other Congressional and Administration priorities.

However, for many years, Peer Review Organizations (PROs) have been funded through a Adirect appropriations@ process, in which the Secretary of HHS (with OMB approval) simply transfers funds from the Medicare Trust Funds to fund the activities of the PROs.

We should consider this approach for all Medicare management functions and needs, and not just the PROs. All funds for Medicare management already are appropriated from the Trust Funds, so the only change would be to shift the oversight of funding from the Appropriations Committees to the authorizing committees.

3. Regulations Process

When Medicare began in 1965, Congress wrote:

A No rule, requirement, or other statement of policy (other than a national coverage determination) that establishes or changes a substantive legal standard governing the scope of benefits, the payment for services, or the eligibility of individuals, entities, or organizations to furnish or receive services or benefits under this title shall take effect unless it is promulgated by the Secretary by regulation under paragraph (1).@ (Section 1871(a)(2))

The statute requires HCFA to make policy changes through the regulatory process, which provides for public involvement. However, HCFA for years has made policy changes and issued guidance through Amanual instructions@. Manual instructions are not subject to a public comment process, which has frustrated some providers. In addition, because manual instructions can be issued more easily than regulations, providers feel that HCFA is overwhelming them with new policies.

Too many directives have been issued that have had to be corrected and re-issued, and I am sympathetic to rational efforts to improve coordination of the various components of policy guidance.

4. National v. Regional Policies

Throughout the history of Medicare, we have relied on contractors to establish many Medicare policies B including Medicare coverage policies.

In addition, the 10 HCFA regional offices establish separate policies on many issues, and often offer differing interpretation of national policies.

Although that approach worked well for many years, we should consider a move toward more national policies in Medicare, and minimize B as appropriate -- regional variations in policies.

Clearly, we need fewer contractors processing claims, and we need to separate contractor activities along functional lines (e.g., bill paying, anti-fraud, quality, appeals, and beneficiary services) rather than geographic lines. In addition, we should continue to move toward specialized contractors for specific services, such as the four DME carriers and the five home health intermediaries.

The Congress needs to reform Medicare contracting rules, as supported by many experts and repeatedly proposed by previous Administrations, including the previous Bush Administration. This Committee should pass that legislation.

5. Information and Education

We need to do more to help beneficiaries and providers understand the rules and options under Medicare.

We must find a way to simplify and consolidate the information being provided to physicians and other providers, and to provide adequate funding for these activities.

Funding and operating the recently reinstated toll-free telephone service for providers and physicians is but one step that we can take to help increase HCFA's communication efforts.

6. Reduce Complexity of Medicare Laws

In large measure, regulatory burden is a direct result of legislative complexity. Frequently when Members of Congress criticize HCFA, they are really criticizing laws that Congress has passed and, in some case, that they have voted for.

As MedPAC has pointed out, the Congress should give HCFA more lead time to implement changes, and should listen to technical experts about the feasibility of legislated changes. For example, in the BBRA 1999, the Congress added legislation creating the hospital outpatient department pass through provision for medical technology, which greatly added to the complexity of the Medicare payment system. In BIPA 2000, the Congress added a new-technology DRG, making the inpatient hospital PPS more complex.

Too often, Congress legislates failure; yet, when the agency is unable to fulfill an impossible demand on deadline, Members accuse the agency of incompetence.

7. Payment Errors/CFO Audit

Just last week Department of Health and Human Services (HHS) reported that improper Medicare payments to doctors, hospitals and other health care providers declined in fiscal year (FY) 2000 to an estimated level of 6.8 percent. This level compares favorably with an error rate of approximately 8 percent in FY 1999, and is roughly half of the original FY 1996 rate of approximately 14 percent.

The FY 2000 payment error rate represents improper payments of $11.9 billion out of total payments of $173.6 billion in the traditional fee-for-service Medicare program.

This continued decline in the Medicare payment error rate demonstrates the success of HCFA's efforts to reduce billing errors in Medicare over the past five years. According to the Inspector General, the significant, sustained improvement reflects HCFA's improved oversight, its efforts to clarify Medicare payment policies, and its insistence that doctors and health care providers fully document the services that they provide. Other factors have been new initiatives and resources to prevent, detect and eliminate errors and fraud in Medicare.

Many criticized HCFA when the payment error rate was 14 percent and demanded that HCFA reduce it. Now many criticize HCFA for the actions it has taken to reduce payment errors and for insisting that providers file claims accurately. I say that we should praise HCFA for its efforts to reduce Medicare payment errors, and we should ensure that HCFA does not diminish its efforts to reduce those errors still further.

To achieve further reductions in Medicare payment errors, we must reduce the complexity of Medicare payment rules and improve provider education, but we must also continue to insist on the filing of accurate claims. HCFA should have additional resources to help providers file their claims properly and to monitor claims for accuracy.

8. Simplifications for Beneficiaries

We need to look for simplifications not only for providers, but also for beneficiaries. As a result of the BBA, HCFA recently established the toll-free number, 1-800-MEDICARE, that has been a great success by all accounts. HCFA should consider expanding it to become a single entry point to Medicare for beneficiaries. For example, the latest national Medicare handbook includes 14 pages of telephone numbers for beneficiaries to call with specific questions. It seems reasonable to allow beneficiaries to call one number for triage to the appropriate person or department.

In addition, HCFA should establish or support caseworkers to help beneficiaries with their Medicare problems. In the past, HCFA has relied on the contractors, but many of the problems are with the contractors themselves. HCFA now relies on State Health Insurance Counseling and Assistance Programs (HICAP) organizations to help beneficiaries. While I am a strong supporter of these organizations, they are underfunded, staffed by volunteers and cannot accommodate the demand for assistance. It is absurd for a huge public program the size of Medicare to rely on volunteers to be the main source of assistance for its beneficiaries.

We need only to look to Social Security to learn other ways to help beneficiaries - for example, Social Security has regional teleservice centers to staff their national toll-free line and help beneficiaries with their questions. SSA also has Program Service Centers to perform casework for Social Security beneficiaries with specific problems. We need a similar effort for Medicare beneficiaries.

Currently, Medicare casework is handled by Congressional offices, since no casework office exists in Medicare. We should consider whether to station Medicare staff in Social Security field offices to help answer Medicare questions.

1. From Dr. Howard A. Rubin's A Industry Watch, 1998.@