Statement of the Blue Cross and Blue Shield Association
The Blue Cross and Blue Shield Association (BCBSA), which represents 44 independent, locally operated Blue Cross and Blue Shield Plans throughout the nation, is pleased to submit written testimony to the subcommittee on H.R. 2678, the Medicare Regulatory and Contracting Reform Act of 2001.
Blue Cross and Blue Shield Plans play a leading role in administering the Medicare program. Many Plans contract with the federal government to handle much of the day-to-day work of paying Medicare claims accurately and in a timely manner. Blue Cross and Blue Shield Plans serve as Part A Fiscal Intermediaries (FIs) and/or Part B carriers and collectively process most Medicare claims.
Blue Cross and Blue Shield Medicare contractors are proud of their role as Medicare administrators. While workloads have soared, operating costs -- on a unit cost basis -- have declined about two-thirds from 1975 to 2001. In fact, contractors’ administrative costs represent less than 1 percent of total Medicare benefits. Few government expenditures produce the documented, tangible savings of taxpayers’ dollars generated by Medicare anti-fraud and abuse activities. For every $1 spent fighting fraud and abuse, Medicare contractors save the government $16.
Blue Cross and Blue Shield Medicare contractors are committed to achieving outstanding performance. We support efforts to improve the ability of both contractors and the Centers for Medicare and Medicaid Services (CMS), formerly known as the Health Care Financing Administration, to cost-effectively provide the highest service levels to Medicare beneficiaries and providers.
This testimony focuses on three areas:
I. Background, including a description of Medicare contractor functions;II. Current challenges facing Medicare contractors; and
III. BCBSA recommendations for improving contractor operations and comments on contractor reform provisions included in H.R. 2678
I. Background
Medicare contractors have four major areas of responsibility:
1. Paying Claims: Medicare contractors process all the bills for the traditional Medicare fee-for-service program. In FY 2001, it is estimated that contractors will process over 900 million claims, more than 3.5 million every working day.
2. Providing Beneficiary and Provider Customer Services: Contractors are the main points of routine contact with Medicare for both beneficiaries and providers. Contractors educate beneficiaries and providers about Medicare and respond to approximately 40 million inquiries annually.
3. Handling Hearings and Appeals: Beneficiaries and providers are entitled by law to appeal the initial payment determination made by carriers and FIs. These contractors handle over 7.4 million annual hearings and appeals.
4. Special Initiatives to Fight Medicare Fraud, Waste, and Abuse: All contractors have separate fraud and abuse departments dedicated to assuring that Medicare payments are made properly. According to the Department of Health and Human Services (HHS), these activities saved the government $9 billion in 1998.
Medicare contractors operate under detailed instructions from CMS. As government contractors, Medicare contractors must comply with numerous federal statutes, regulations, and Executive Orders. In addition, contractors must follow extensive CMS-issued program guidelines and manual instructions. To monitor compliance with these guidelines, contractors are visited several times each year by their local CMS regional office staff for an assessment of their performance against CMS’ requirements. These reviews, termed Contractor Performance Evaluations, are conducted across all aspects of contractor operations -- claims processing timeliness and accuracy, customer service, fraud and abuse detection efforts -- and culminate in a formal annual report called the Report of Contractor Performance. Also, CMS routinely contracts with private companies to review various critical aspects of contractors operations.
II. Challenges Facing Contractors
There are four key challenges currently facing Medicare contractors:
1. Inadequate funding levels with rising workloads;
2. Increased complexity of Medicare rules;
3. Frequent changes in program direction; and
4. Legislative mandates not accompanied by additional funding.
Inadequate funding levels: Of utmost importance to attaining outstanding performance is an adequate budget.
However, Medicare contractors have been severely underfunded since the early 1990’s and are facing poor prospects of receiving adequate funding next year. During the early to mid-1990’s, reductions in funding concurrent with increases in workload seriously eroded contractors’ ability to fight fraud and abuse. Between 1989 and 2000, the number of Medicare claims climbed almost 70 percent to over 800 million, while payment review resources grew less than 11 percent. As a result, the amount allocated to contractors to review claims shrank from 74 cents to 48 cents per claim. Because of the significant cost of reviewing claims, this decline in funding resulted in CMS directing contractors to reduce the percentage of claims that were scrutinized and investigated. Similarly, the percentage of cost reports audited declined -- between 1991 and 1996, the chances that any institutional provider’s cost report would be reviewed in detail fell from about 1 in 6 to about 1 in 13.
Throughout this period, contractors identified to CMS additional anti-fraud efforts they could undertake if awarded additional resources. BCBSA and Blue Plans urged both Congress and the Administration to allocate significantly more funds for critical anti-fraud and abuse efforts. Finally, in 1996, Congress created the Medicare Integrity Program (MIP) in the Health Insurance Portability and Accountability Act (HIPAA). MIP provided a permanent, stable funding authority for the portion of the Medicare contractor budget that is explicitly designated as fraud and abuse detection activities. MIP funding was set at $500 million in 1998 and is authorized to rise to $720 million in 2002. After 2002, the permanent authorization is capped at $720 million despite continuing projected increases in claims volume.
Thanks to this new funding mechanism, Medicare contractors have been able to improve their efforts to reduce the amount of fraud, waste, and abuse in the Medicare program. Contractors’ enhanced anti-fraud and abuse efforts due to MIP funding contributed to the significant decline in improper claims and documentation submission by providers. The OIG audit of FY 2000 claims estimated that improper Medicare payments had dropped to $11.9 billion, or about 6.8 percent of the $173.6 billion in Medicare payments. The improper payment rate declined by over 50 percent or $11 billion in five years.
But, the creation of MIP did not solve the budget problems for the remainder of the contractor budget. The largest portion of the contractor budget -- program management -- is subject to the annual appropriations process and continues to face severe funding pressures. Program management activities include claims processing, beneficiary and provider communications, and hearings and appeals of claims initially denied. Under the appropriations process, contractors must compete for funding with high priority programs such as the National Institutes of Health and education.
For example, between 1989 and 1998, funding for program management activities (adjusted for inflation) declined by 18 percent. During this period, the volume of Medicare claims increased by 84 percent; Medicare outlays (in real dollars), by 65 percent. Whenever possible, contractors responded to reduced funding by achieving significant efficiencies in claims processing, lowering program management costs per claim by 56 percent in real dollars over this period. But even these efficiencies have not been enough to keep pace with rising Medicare claims volume and diminishing funding levels. For example, this year, contractors have been instructed to cut back on customer service plans, responding to inquiries, provider training and other provider services in order to live within the 2001 budget. It should be noted that Medicare contractors have had to cut back on these important provider and beneficiary services in past years as well due to funding shortfalls, even though these services were critically important and contractors had wanted to enhance these programs.
Inadequate budgets for program management also impact Medicare’s fight against fraud and abuse. While many think of program management activities as simply paying claims, these activities are Medicare’s first line of defense against fraud and abuse and are critically linked to MIP activities. As an example, many of the front-end computer edits (e.g., preventing duplicate payments and detecting suspicious claims) are funded through program management. Inadequate funding impacts different functions at different times, but always disrupts the integration of all the functional components needed to “get things right the first time.” It thus results in inefficiency and higher costs.
We are pleased that Secretary Thompson and many Members of this subcommittee have recognized the need for additional administrative resources at CMS. We are concerned the Administration’s FY 2002 budget relies on a proposal for $115 million in new user fees from providers. Congress has consistently rejected user fees and BCBSA recommends they be rejected again. We also strongly recommend Medicare contractor funding be increased to $1.567 billion in FY 2002 to ensure adequate resources are available to provide the high quality services beneficiaries and providers deserve. If funding for the Departments of Labor, Health and Human Services (HHS) and Education are subject to a Continuing Resolution (CR) at the start of FY 2002, BCBSA would recommend the CR include an increase in appropriations for Medicare contractor program management based upon the expected increase in claims volume. This will prevent any disruptions in paying claims and providing beneficiary and provider services while the final budget is being negotiated.
Increased Complexity of Medicare Rules: The Medicare program continues to grow more and more complex. It takes a great deal of time and resources to educate providers and beneficiaries about new laws and rules as well as answer questions and without appropriate time and resources, it is difficult for the contractors to do an adequate job. Contractors have been challenged over the years with enormous program changes such as:
Just as Members of Congress are hearing from providers about the program’s complexities, so too are contractors who must answer their questions and concerns.
Frequent Changes in Direction: Medicare contractors are challenged by the very nature of the business. At last count, Medicare contractors, received on average a new instruction from CMS every five hours of every day of the year. This constant state of change requires contractors to be extremely flexible -- both in terms of operations and budget. It has not been uncommon in the past for contractors to be forced to abandon projects or reallocate staff mid-year in order to adapt to CMS’ suddenly revised priorities or modified funding levels.
Medicare contractors operate under cost contracts, and CMS places budget caps, or limits, on the unit costs paid to contractors to process claims. By law, Medicare contractors are not allowed any profit. Under these contracts, Medicare contractors essentially do whatever work CMS requests, without “change orders.” There is not a clear statement of work at the beginning of the year, and contractors generally must comply with constant change orders from CMS without additional reimbursement. These demands make the Medicare contractor business extremely challenging.
Legislative Mandates Without Funding: Legislative changes to Medicare are rarely accompanied by administrative funding or appropriate transition time for proper implementation. For example, Medicare contractors had to implement the new prospective payment systems and the many changes stemming from the BBA, BBRA and BIPA without new funding. This is extremely cumbersome for contractors that are already strapped for resources.
III. BCBSA Recommendations to Improve Medicare Contractors and Comments on Contractor Reforms included in H.R. 2678
BCBSA agrees that revisions to the Medicare contractor program would strengthen contractors’ ability to effectively and efficiently handle day-to-day administration of the Medicare program. Blue Cross and Blue Shield Medicare contractors are committed to achieving outstanding performance levels and providing superior service to Medicare beneficiaries and providers. We want to work with this subcommittee, the Congress and CMS to attain this objective.
BCBSA supports many of the reforms proposed in H.R. 2678, including contracting with any entity, not just health insurers; modernizing the way contractors are paid; adopting a more business-like environment; enhancing competition; and restoring critical provider education activities. We do, however, have two key concerns. First, while BCBSA supports increased competition in the program, requiring CMS to competitively bid all contractors every four years would likely be extremely problematic for beneficiaries, providers and CMS -- as well as both potential new and existing contractors. Second, while we applaud the committee for mandating enhanced provider education, which has been severely cut back in recent years because of funding shortfalls, the ability to conduct these activities must depend on the appropriation of additional funding. Our specific comments follow.
Competitive Contracting: BCBSA supports introducing more competitive bidding into the program in an orderly manner to minimize the risk of disruptions to beneficiaries and providers. To ensure stability of the Medicare program, BCBSA recommends that -- rather than requiring bidding every four years for all contracts -- CMS only put to competitive bid poor performing contractors and contracts from entities voluntarily exiting the program. This would allow the government to maintain those contractors that are providing quality services and meeting CMS’ performance expectations, while encouraging new entities to compete for a stable program.
BCBSA also supports provisions of H.R. 2678 that would enhance competition by giving HHS the authority to contract with any entity, not just health insurers, that are able to provide the full range of Medicare administrative services
BCBSA believes the provision in H.R. 2678 to require CMS to competitively bid all Medicare contracts every four years would:
1. Reduce Flexibility for CMS: CMS would have less flexibility in managing competitive bids than other government agencies. Other agencies generally bid contracts on a five to seven year basis, and are able to provide longer terms. It is important to note that there is a trend to provide longer-term government contracts because of the cost and complexity of frequent competitions.
2. Divert Already Scarce CMS Resources: Given the consensus that CMS is already underfunded, mandated competition every four years would divert resources away from other important CMS responsibilities.
A four-year competitive bid process would place an enormous financial burden on CMS and require additional resources, including a new cadre of staff to manage what is likely to be a continuous process. Procurement for each contract could take up to three years; it can take up to a year to prepare the request for proposals, a year to run the competition, and another year to resolve any protests regarding the award of a contract (which are common in contracts of this size). Staff needs would be considerable as CMS would be taking on significant new duties:
With respect to bidding, assuring all contractors are qualified and have the capacity to perform all assigned functions, assure all bidders address all functions with realistic and adequate resources, overseeing the competition and protests.
With respect to the transition, managing change orders, assuring implementation matches what was provided in the bid, assuring problems -- for beneficiaries and providers -- are averted, responding to and addressing the inevitable problems that will arise.
In addition, CMS administrative budgets will also have to take into account the increased contractor funds necessary to cover the very considerable costs of bidding for these contracts.
3. Likely to Result in Beneficiary and Provider Service Disruptions: Providers would be faced with potential upheaval every four years. Past experience shows that transitions to new contractors are very challenging. They must be carefully managed to prevent service problems which has plagued previous transitions: incorrect payments, a backlog in claims processing, and lack of responsiveness to beneficiary and provider inquiries. Mandating CMS to competitively bid all contracts every four years -- a massive undertaking -- would be extremely high risk for providers and beneficiaries.
4. Deter the Most Qualified Medicare Contractors: Current contractors, as well as potential new entities, would face significant disincentives to bid, knowing their investment is at risk every four years. Both current and new contractors are likely to be concerned about the huge business risk of losing the contract after four years and the subsequent loss of hundreds and even thousands of local jobs. In particular, potential new Medicare contractors must make significant investments in buildings, sophisticated computer systems and large numbers of trained staff. Many of the best contractors may decide that a 4-year contract is too high risk and not bid.
5. Require an Increase in Overall Medicare Contractor Funds: Medicare contractor funds would have to be increased to cover the additional costs of competitive bidding. Currently, contractors live with CMS-set caps on costs per claim basis. When funding is inadequate -- because of lower than requested appropriations or increased workloads (such as when new Medicare legislation is passed or unexpected increase in claims volumes) -- contractors must still perform their functions, often without corresponding decreases in performance expectations.
Under a mandated competitive bidding process, there is a significant potential for a mismatch between competitive bids and available funding. If the competitive bids exceed the total funding available, CMS would be required to scale back the proposed scope of work and recompete the contracts. This would be extremely time consuming and even more costly and could result in an inadequate coverage of important functions.
Unlike most other government contracting, Medicare is an entitlement program and the function of paying claims must continue. An entire contract just cannot be cancelled or postponed, like most other government contracts in the event of funding cutbacks.
For these reasons, BCBSA believes that competitive contracting should be expanded in the Medicare contractor program carefully, with considerable planning. In our view, the best way to accomplish this is by focusing competitive contracting on poor performers and exiting contractors.
Additional Funding is Necessary to Restore and Enhance Provider Education: Blue Cross and Blue Shield Medicare contractors agree that provider education services should be restored and expanded. One of our primary messages to appropriators in recent years is that adequate funding is critical to support provider and beneficiary services. Since paying claims is the program’s highest priority, provider and beneficiary services often fall victim to insufficient funding levels.
BCBSA supports the provider education and technical assistance provisions included in H.R. 2678; however, implementation of these provisions should be dependent upon adequate funding.
In the past, Medicare contractors provided many more services to beneficiaries and providers than are offered today, as budget pressures forced CMS to curtail these activities. Blue Cross and Blue Shield Medicare contractors are committed to providing the highest level of services to beneficiaries and providers. However, the services cannot be provided unless adequate funding is available. Therefore, we would ask that the provider education and technical assistance provisions be made contingent upon funding.
CMS authority to award other than cost reimbursement contracts: BCBSA agrees with the provisions in H.R. 2678 to modernize the current cost-based contracting system. Currently, most contractors are paid costs up to a cap set by CMS; there is virtually no opportunity for profit. We believe CMS should be allowed to use other payment options, such as cost plus contracts.
Funding recommendations: We have two specific recommendations that are not included in HR 2678:
BCBSA would like to work with this subcommittee to assure adequate funding is available each year for paying claims promptly and providing high quality provider and beneficiary services.
CONCLUSION
Blue Cross and Blue Shield Medicare contractors are committed to achieving outstanding performance. We believe more can and should be done to improve Medicare contractor operations. Success in Medicare claims administration requires that CMS and the contractors work together toward their mutual goal of providing high quality services to beneficiaries and providers, including accurate and timely claims payment.
BCBSA look forward to working with this subcommittee and CMS to make these needed improvements.