Medicare Reform
Statement of
George F. Grob
Deputy Inspector General for Evaluation and Inspections
March 15, 2001
Office of Inspector General
Department of Health and Human Services
Good morning, Madam Chairman. I want to thank you for your invitation to address this panel on Medicare reform. You asked us to discuss how the government can do its job better, to ensure that beneficiaries are protected and that tax payer dollars are used wisely and responsibly without placing undue burdens on providers. I am very pleased to do so.
Medicare is a national treasure. But it would be even more valuable if it were operating more efficiently and effectively. Despite herculean efforts to modernize it and recent success in doing so, there is a sentiment, especially among health care providers, that it is not as efficient as it should be. In fact, discussions in policy circles and in the national and professional media emphasize its administrative burdens, inefficiencies, and aggravations. There is some talk of major reforms.
The Medicare program has been evolving since its creation. It has been "reformed" and modernized many times--including the gradual abandonment of cost and charge based reimbursement in favor of prospective payment systems and fee schedules, and the introduction of managed care. The Balanced Budget Act of 1997, with its new payment systems for nursing homes, home health agencies, and hospital outpatient departments and the new beneficiary options and protections in Medicare+Choice, is the most recent and substantial reflection of these movements. The program as it is, including the most recent reforms, which are not yet fully implemented, is our starting point for further reforms.
It is with this history in mind, and with insights drawn from more than twenty years of audits, program evaluations, and investigations conducted by the Office of Inspector General (OIG) that I would like to offer our own suggestions on where to go from here.
First, I will identify facets of Medicare program administration which require immediate and continuing attention; then I would like to address some concerns which have been raised about recent initiatives to address waste, fraud, and abuse.
PROGRAM ADMINISTRATION
Following are the recommendations of the Office of Inspector General (OIG) to promote the efficient and effective operations of the Medicare program. We believe that these proposals will also reduce administrative burdens and frustrations for providers. You asked us to be specific; I hope this is helpful.
Further Reduce and Control Improper Payments. Continue, even intensify, ongoing efforts to help further reduce improper Medicare fee-for-service payments. Billions of dollars are at stake, and years of Medicare solvency will be lost if oversight is reduced. As we announced last week in our most recent annual report on this subject, Medicare made $11.9 billion in improper payments in FY 2000, 6.8 percent of all Medicare fee-for-service payments. This is down substantially from the $23.2 billion, or 14 percent, first reported for 1996. But it is still too high. Then as now, most of the error is due to unsupported services and lack of medical necessity for services rendered.
The reasons for these improper payments could range from inadvertent mistakes to outright fraud and abuse. We cannot quantify what portion of the error rate is attributable to fraud. The vast majority of health care providers are honest, hard working professionals dedicated to the care of their patients. I will repeat this later in my testimony, since it deserves emphasis.
Reducing errors would be one of the best ways to turn down the frustration and sense of hassle felt by health care providers and the Medicare contractors who administer the program. For example, our annual reports show that hospital documentation errors have been completely eliminated for the last two years. This not only shows that such improvements can be made, but it also illustrates how one source of controversy and irritation can be minimized for all parties involved. To further achieve such improvements, we recommend more training for providers, further refinement of Medicare guidelines and regulations where needed, concerted efforts to reduce errors with respect to specific codes most frequently found in error, selected surveillance by peer review organizations (PROs) of high risk areas, and adoption by health care providers of compliance plans that promote adherence to Medicare program requirements.
Overhaul Medicare Contractor Structures and Authorities. Allow the Health Care Financing Administration (HCFA) greater flexibility in the methods it uses to select, organize, and supervise the contractors who handle the day-to-day operations of the Medicare program. This includes authorities to use entities other than insurance companies, select them competitively, pay them on other than a cost basis, organize them according to functions or benefits areas, and hold them accountable for performance.
The Medicare program is administered by the Health Care Financing Administration with the help of 50 contractors (Part A intermediaries and Part B carriers) that handle claims processing and administration.
Over the years we have detected serious problems with contractor operations, including fundamental problems with accounting, electronic data processing, and fraud control. We have even uncovered integrity problems with some of the contractors themselves--altering documents and falsifying statements that specific work was performed. In some cases, contractors prepared bogus documents to demonstrate superior performance, which Medicare then rewarded with bonuses and additional contracts. Our investigations have resulted in 15 civil settlements and criminal convictions since 1993, with total settlement amounts exceeding $350 million. Two contractors pled guilty to obstruction of Federal audits. A number of investigations are ongoing. HCFA has been working to correct problems with contractors. However, some serious concerns remain.
Under the Health Insurance Portability and Accountability Act of 1996 (HIPPA), HCFA was granted new authority and flexibility in contracting for program integrity functions. It may enter into contracts or work orders for specific program safeguard functions, such as medical review, fraud detection, cost report audits, and reviews to identify primary payers to whom Medicare is the secondary payer. We support this authority and look forward to the changes in Medicare contracting that are taking place under the new Medicare Integrity Program.
In contrast to these new and promising developments for integrity functions, the Medicare statute places substantial limits on how HCFA obtains contractor assistance to administer the Medicare program. For example, it limits HCFA to choosing only insurance companies to process Part B claims. As for intermediaries, most of them are selected by the National Blue Cross/Blue Shield Association from companies nominated by providers (e.g., hospitals). All contracts must be cost based; other reimbursement methods such as firm fixed price cannot be used. Furthermore, beyond the program integrity functions mentioned above, HCFA is not allowed to let contractors specialize according to function.
HCFA has proposed broader, more flexible contracting authority in the past, but these proposals were not approved. Intrinsically, more flexibility makes sense and we support it. So does the General Accounting Office.
Another promising development is the designation of specialty contractors such as the durable medical equipment regional carriers. They review and pay all claims for medical equipment and supplies. There are only four of them, which appropriately concentrates their expertise in this complex area. They are bolstered by a data analysis unit, staffed by one of these carriers but supporting them all. This enables them to analyze payment and usage patterns which may suggest possible improper or questionable conduct. They are also able to effectively collaborate on the formulation of national coverage policies and payment control systems. A recent OIG evaluation found that these entities are effective. This approach, however, has not been used elsewhere, except for home health and hospice care. However, even these specialized intermediaries are not supported by the kind of data analysis unit that the medical equipment carrier utilize. We believe that specialty contractors, with a supporting analytic unit, would make sense for problematic areas and recommend that they be more widely used.
More flexibility and specialization will, we believe, bring greater expertise and efficiency to contractor operations. This will, in turn, improve their relations with providers and facilitate provider education and understanding of Medicare rules and regulations.
Improve Accounting Systems. Speed up current efforts to establish a modern, integrated, dual entry accounting system for accounts receivable to accurately portray and control the billions of dollars in transactions in this category annually.
Medicare accounts receivable primarily represent overpayments owed by health care providers to the Health Care Financing Administration and funds due from other insurers when Medicare is the secondary payer. For FY 2000, HCFA reported a net accounts receivable balance of $3.8 billion, comprised of gross outstanding receivables of $8.1 billion and an aggregate allowance for uncollectible accounts of $4.3 billion.
In FY 1998, we had to qualify our audit opinion on the Department-wide financial statements, primarily because of serious problems in Medicare contractors' ability to report accounts receivable. For example, they could not support beginning accounts receivable balances; they reported incorrect activity and collections; and they could not reconcile reported ending balances with subsidiary records. We reported Medicare accounts receivable as a material internal control weakness because Medicare contractors used rudimentary, single-entry accounting systems that lacked general ledger capabilities for Medicare program activity and reported receivable activity to HCFA based on ad hoc spreadsheets.
In collaboration with the Office of Inspector General, HCFA initiated a major effort in FY 1999 to address these deficiencies. As a result of this effort, the receivables balance was fairly presented as of the end of FY 1999. However, internal controls are still not adequate to ensure that future receivables would be properly reflected in Medicare financial reports. The contractors still use ad hoc, single-entry accounting systems, do not accrue liabilities in accordance with generally accepted accounting principles, and do not use proper cutoff procedures.
A project team, formed under the guidance of HCFA's Chief Financial Officer and Chief Information Officer, expect to complete the development and implementation of an integrated system by the year 2007. Every effort should be made to advance this expected completion date.
Improving the accounting systems will reduce financial errors, thereby improving the soundness of the trust funds, with no additional burden on providers.
Adequately Support the Infrastructure. Do not skimp on resources needed to ensure efficient and effective claims processing, policy development and regulation, and quality assurance. Make a top-to-bottom review of the adequacy and use of currently available resources, seek realistic budgets for the Medicare infrastructure, and maintain reliable funding in the future. Establish reasonable time frames for implementing new reforms to balance the need for consultation with stakeholders and timely introduction of new systems and benefits. Some areas deserving special attention are:
Policy Development and Regulation. The Medicare program has always been subject to considerable legislative change as it has evolved over the years. But the legislative changes in the last several years, particularly those in the Balanced Budget Act of 1997 and the two subsequent years of amendments, have been especially extensive and complex. The HCFA staff scrambled to implement regulations timely, consulting with industry and beneficiary representatives in the process. Their achievements in meeting this work load is impressive. But their limited resources will always place them in an unenviable dilemma. To issue the regulations timely they may have to curtail consultation; to carefully consider industry and beneficiary concerns they may have to miss deadlines. The third alternative is to fall behind on other administrative responsibilities. No matter which path they choose, frustrations will abound among all parties. Ironically, HCFA's requests for staff increases are sometimes portrayed as wasteful bureaucratic layering. Clearly, adequate resources need to be provided and effectively utilized.
Quality Assurance Reviews. More troubling, perhaps, has been the unreliability of resources for quality assurance. There have never been adequate resources to meet the needs for State run but federally supplemented survey and certification reviews of nursing homes, home health agencies, end stage renal dialysis facilities, and the 20 percent of Medicare certified hospitals not accredited by the Joint Commission. Only nursing homes are generally reviewed yearly. But this has been at the expense of the other institutions whose reviews have been curtailed in order to shift survey and certification resources to address the severe problems that were becoming apparent there. For example, home health agencies which were once reviewed annually are now reviewed every three years. This change occurred at the same time that the payment system was being reformed. We have documented gaps in the reviews of psychiatric hospitals and dialysis facilities. Even for nursing homes, which get the annual reviews, follow-up visits when deficiencies are found are often delayed. And above and beyond periodic reviews, resources to investigate complaints in all types of facilities are inadequate.
Patient Care Data Sets. The introduction of prospective payment as the method that Medicare will use for paying skilled nursing homes adds incentives and complications to the medical care system. For example, the calculation of the prospective payment is derived from a patient assessment tool called the Minimum Data Set. This tool has been under development for many years, primarily as a patient care planning system. Now that it is being used to calculate Medicare payments, a financial incentive to control data entry is now present. We recently studied this system and found a significant number of coding problems which could adversely affect both care planning and reimbursement. Nevertheless, nursing homes seem to be trying to learn to use the system, which if properly implemented will be quite useful. A commitment to the refinement and implementation of this system and other systems like it is needed to improve patient care and ensure accurate billing and payment.
Claims Processing Systems. Additional improvements are needed for HCFA data systems used to process claims. For example, studies by our office have found excessive numbers of unused but un-retired provider identification numbers, which increase Medicare's vulnerabilities to false claims. Routine maintenance of data systems could remove such vulnerabilities, but such "household" chores are naturally accorded low priority and are not tended to.
Providing HCFA with the staff that is needed to operate the program will not result in more hassle for providers. It will enable HCFA to respond better to their needs. Improving the critical data systems will reduce payment errors, improve patient care, and make program operations more efficient.
Fully Implement Recently Enacted Payment Reforms. Do not let the growing interest in new reforms distract Departmental policy makers and program administrators from systematically completing the implementation of Medicare+Choice and other reforms, such as those related to nursing homes and home health care. Monitor, and take appropriate actions to correct, any deficiencies discovered along the way regarding payment integrity and beneficiary protections, including access to services.
While providers worry about being swamped by Medicare rules, beneficiaries and their advocates worry about barriers to service access and poor quality care. This concern stems partially from the growth of managed care (discussed later) and from the new prospective payment systems for nursing homes, home health agencies, and hospital outpatient departments. They also fear that the fixed rates discourage treatment of individuals with complex, expensive medical problems. Structural shifts in the health care industry, including the withdrawal of thousands of home health agencies from the program and announcement of actual or pending bankruptcies in the nursing home industry, have added to the concerns of all parties.
It is overly simplistic to put all the blame on the Medicare program. Prior to the reform of the home health payment system, OIG studies had found a steep rate of improper payments (40 percent) in Medicare home health payments, and investigations had turned up massive fraud involving millions of dollars among some home health agencies at that time. The industry, through its own actions, coupled with reforms of the Medicare payment method and actions taken by HCFA, has done much to address this problem, although the percent of services for which improper payments are made is still too high at 19 percent.
The nursing home industry's financial problems were due, in part, to imprudent, and excessive purchases of nursing homes by private chains. They were expecting continued high profits under predecessor Medicare payment systems. Thus, many of the industry problems resulted from actions taken prior to the reforms taking place. Furthermore, Medicare pays only about 10 percent of the cost of the nation's nursing home care. The remaining 90 percent is funded through Medicaid and private pay sources.
In response to concerns about availability of care under these circumstances, we undertook systematic studies in the last two years to measure access to care. These studies found that few Medicare patients being discharged from hospitals were unable to get home health care or nursing care when they needed it. There was no evidence of patients backing up in hospitals waiting for a home health or nursing home treatment slot. However, some patients with complex and expensive medical conditions did experience some delays. In the last two sessions of Congress, legislation was enacted to increase payment rates for these programs.
Overall, the nursing home and home health program reforms enacted by the Balanced Budget Act of 1997 seem well suited to the problems they attempted to address. For both programs, payments for patients with expensive, complex problems are higher than those for patients with less severe problems. Home care is paid on a 60 day cycle, so there is no limit to the care of individuals with longer term problems. For nursing homes, the payment is made on a daily rate basis, again providing adaptation for patients with longer term needs. The new payment systems reduce vulnerabilities inherent in the previous systems, which promoted unnecessary care in some cases. But these reforms are not yet fully implemented. The danger to avoid is that with new policy initiatives on the front burner, policy makers and administrators may get distracted from the management of previously legislated reforms.
HCFA needs to monitor these changes carefully, particularly to insure that payments are made timely and correctly. We will continue and even expand our own annual reviews, particularly those intended to ensure that beneficiaries have access to nursing home and home health care and receive quality services while the new payment systems take hold. We will report what we find, one way or the other, so that the Congress, HCFA, and the medical care industries involved can respond accordingly.
The most chaotic phase of program implementation--the initial one--is now nearly over. Methodical completion of implementation can be done smoothly if the health care industry and Medicare program administrators monitor developments and are open to adjustments when needed.
Follow Through on Quality of Care Initiatives. In particular, carefully monitor nursing home reforms to insure a safe environment and high quality of care for residents.
Not all quality of care problems are related to recent changes in payment systems. The Omnibus Budget Reconciliation Act of 1987 contained a major section on nursing home reforms intended to address longstanding patient care issues. Unfortunately, ten years later the Office of Inspector General as well as the General Accounting Office continue to expose serious quality of care problems. We found increases in the incidence of bed sores, nutrition problems, and conditions conducive to accidents. The survey and certification system was found to be fundamentally flawed, allowing nursing homes with serious deficiencies to continue operations despite repeated violations. The methods used to schedule visits eliminated the element of surprise, making it possible for nursing homes to prevent discovery of deficiencies.
Quality of care problems are not limited to nursing homes. Recent national studies identified troubling levels of medical errors in hospitals. Our own program evaluation studies revealed weaknesses in the review system used by the Joint Commission on Accreditation of HealthCare Organizations (JAHCO), which Medicare relies on for quality oversight of 80 percent of participating hospitals. We found that their surveys are unlikely to detect substandard patterns of care or individual practitioners with questionable skills. There were few random, unannounced reviews and little opportunity for surveyors on site to probe hospital conditions or practices. The whole review process was more collegial than independent and objective. For the 20 percent of Medicare certified hospitals which are not accredited by JAHCO, we found that half had gone without a State survey for more than 3 years (the industry standard) and some for as long as 8 years. Troubling shortcomings have also been discovered in quality oversight systems for psychiatric hospitals, again highlighted in OIG reports.
The Department and the Joint Commission have prepared responsive initiatives to correct the problems identified. However, the corrective actions are complex and have not yet been fully implemented. Furthermore, these problems are the kind that require constant vigilance.
For nursing homes, this means more unannounced onsite reviews, more frequent and intensive reviews of repeat offenders, more follow-up on serious deficiencies, imposition of fines and penalties for serious offenders, with fewer "second chances" to correct their problems, special initiatives to focus on selected serious problems like bedsores, and general improvements in training of State reviewers. For hospitals this means public accountability for JAHCO and State agencies for their performance and determining the minimum appropriate cycle for conducting surveys of nonaccredited hospitals and special reviews by contracted psychiatric review teams for psychiatric hospitals.
Continuous quality oversight does not burden providers the way inconsistent, sporadic, infrequent, and unfamiliar oversight does. Patient care is enhanced, reducing disputes between providers, advocacy groups, and Medicare administrators on the most fundamental aspects of the program.
Restructure Appeals and Grievance Systems. Overhaul Medicare appeals and grievance systems by establishing a dedicated corps of Medicare Administrative Law Judges (ALJs); providing adequate resources to handle current and projected caseload; making guidelines more uniform; adopting separate procedures for beneficiaries and providers; making Departmental Appeals Boards decisions precedential; and improving timeliness of reviews.
Current Medicare appeals and grievances systems are not sufficiently responsive to the needs of beneficiaries, health care providers, or the Medicare program itself. Originally designed with beneficiaries in mind, most appeals are now generated by providers. The non-adversarial nature of the procedures, which were originally intended to simplify matters for beneficiaries, leaves the Medicare program with no representative once the appeal process starts.
The current system was started when the program first began. At that time, Medicare was in the same Department as the Social Security Administration (SSA) and was relatively small in comparison to the Social Security program. It made perfect sense to use the appeals and grievance system of SSA to handle Medicare's needs. Since then, the SSA became an independent agency, and Medicare has grown in size and complexity. But the ALJs who handle Medicare are still attached to SSA with only a small corps dedicated to Medicare. Many ALJs who handle Medicare cases do so in addition to their duties as SSA judges.
These two features of the original appeals and grievance system--its focus on beneficiary complaints, and its status as an adjunct to SSA--have left it ill prepared to deal with the growth and complexity of Medicare and the prominent role, needs, and expectations of providers. As a result, providers experience delays and inconsistent rulings. Medicare has a very limited role in representing the interests of the program.
Compounding the intrinsic weakness of the system is a recent significant growth in workload. For example, the number of ALJ hearings increased from 28,515 in 1996 to 49,253 in 1998. The Departmental Appeals Board reports that appeals to it rose from 46 in 1994 to 670 in 200. Yet, minimal resources have been allocated to this hearing function.
Overall, the system has few champions and needs a top to bottom overhaul.
The recently enacted Benefits Improvement and Protection Act of 200 (BIPA) modified the appeals process by establishing time limits on earlier stages of the appeals process which, if breached, provided for automatic referral to the next higher level. These new provisions, which will go into effect on October 1, 2002, could lead to inappropriate decisions due to unrealistic time spans to address complex questions, a clogging of the appeals channels, and an inability to prioritize decision making.
The BIPA provisions were intended to address legitimate concerns of providers to get prompt answers to their appeals and coverage questions. However, these new procedures are likely to cause additional rather than fewer burdens and aggravations by overwhelming the appeals and review channels. While well intended, they do not address the weaknesses in the fundamentals of the appeals and grievance systems--resources, guidance and standards, organizational locus of ALJs, rules of precedence, appropriate adaptation of procedures to beneficiaries and providers, and timeliness of reviews. A better approach, we believe, would be to conduct a more comprehensive study of the entire process with input from all the affected parties. New recommendations can be considered and implement before the BIPA provisions take effect. The latter can be modified through legislation based on the results of the study.
Build the Monitoring and Assessment Tools Into Future Reforms. Specify the cost and encounter data that the Department, the Congress, and health care industry and Medicare beneficiary stakeholders will need to annually assess the cost, effectiveness, and efficiency of any new reforms enacted. Establish a new independent body, or use an existing one, to analyze and periodically make public reports and recommendations regarding adjustments needed for new programs.
Managed care options have been available to Medicare beneficiaries in some areas since 1982.
The original ideas behind this concept were that a single organization being responsible for a patient's care, with financing in the form of capitation payments, would create incentives for preventive care, elimination of unnecessary services, and more efficient administration. Managed care providers would compete for Medicare business by offering Medicare beneficiaries additional benefits beyond those available under the regular fee-for-service Medicare program. The result would be better health care and improved health status, at lower costs.
At the end of each of the last three years, a significant number of health maintenance organizations (HMOs) have withdrawn from the program or reduced their coverage areas. Many have also restructured their benefit and coinsurance provisions. For example, at the end of the year 2000, 65 HMOs chose not to renew their contracts and 53 reduced service areas, affecting more than 934,000 beneficiaries. Approximately 83 percent of affected beneficiaries were able to enroll in another HMO; the remainder had no choice but to return to Medicare-fee-for-service coverage.
There are other issues connected with managed care options, including shortcomings in the understandability of marketing materials and handbooks of information provided to beneficiaries, and issues surrounding appeals and grievance processes.
The Medicare+Choice legislation improved data and information collection aimed at assessing the costs of managed care. Managed care plans are now reporting actual costs in a way that for the first time makes it possible to assess the reasonableness of their cost rates and benefit packages.
Some of the key lessons learned from the current Medicare managed care program are that: market forces alone cannot be depended upon to ensure reliable benefits at reasonable cost; accurate cost is essential for the analysis of proposed new contracts; and reliable, easy to understand member materials are essential to ensure intelligent choice by beneficiaries. Any future Medicare reforms designed to offer additional flexibility to Medicare beneficiaries will need to provide similar transparency about costs and benefits to both beneficiaries and Medicare administrators.
This will enable Medicare to avoid the kind of turmoil recently experienced in managed care, thereby preventing administrative burdens and aggravations for both providers and beneficiaries.
PAYMENT CONTROLS: PROVIDERS' CONCERNS
As previously noted, the OIG annual Medicare payment error rate audit does not determine whether an inappropriate provider payment request is the result of an innocent error, a misunderstanding of Medicare coverage, pricing, or payment rules, carelessness, mismanagement, or outright fraud. It is not a "fraud error" rate and should not be construed as such.
Despite our best and continued efforts to emphasize the nature of the payment error rate and our respect for the integrity of health care providers, some of them have become more vocal in their objections to what they regard as overzealous scrutiny. Particularly in the physician community, some providers express fear that they will be prosecuted as criminals for making honest billing errors while trying to interpret regulations of an increasingly complex Medicare program.
Let me repeat what I said earlier. The vast majority of physicians and other health care providers are honest, dedicated individuals who work hard for their patients. Their concerns deserve our attention. I would like to take advantage of this opportunity to respond to them To do so, I must first explain the nature of the Federal fraud and abuse control program, and I need to put it into the context of broader reforms that have been occurring in the Medicare program.
Fraud and Abuse Control Program. To address fraud and abuse, a Health Care Fraud and Abuse Control Program (HCFAC), jointly administered by the Secretary of the Health and Human Services (HHS) through the Office of Inspector General and the Justice Department, was enacted into law as part of the Health Insurance Portability and Accountability Act of 1996. That same law provided HCFA with increased funding for a Medicare Integrity Program (MIP).
The Act provided both new authorities and critical resources to enable HHS, the Justice Department, and the many Federal, State, and local programs and agencies engaged in health care fraud enforcement to better detect, investigate, prosecute, and prevent fraud and abuse. In Fiscal Year 2000 alone, the Federal Government won or negotiated more than $1.2 billion in judgements, settlements, and administrative impositions in health care fraud cases. Actual collections for the year in health care cases exceeded $715 million, with more than $577 million returned to the Medicare Trust Fund. Since inception of the program in October 1997, over $2.1 billion has been returned to the Trust Fund.
The program has also enabled this Department to step up its efforts to exclude from Medicare, Medicaid, and other Federal health care programs providers and suppliers that engage in certain prohibited conduct. During Fiscal Year 2000, over 3,300 individuals and entities were excluded from program participation. Exclusions were based on criminal convictions for crimes related to Medicare or other health care programs, patient abuse or neglect, license revocation, and other misconduct.
Program Structure and Controls. Perhaps more important than fraudulent billings are large but unnecessary payments stemming from perverse incentives and weak controls. For example, much of the historical double digit growth rates of hospital payments in the late 1970's was the product of government policy to pay on the basis of costs and charges, not the result of provider misconduct. Those excessive growth rates were curbed not so much by audits and payment controls but by changing to a new reimbursement model, the prospective payment system. More recently, the Balanced Budget Act of 1997 mandated prospective payment systems for home health care, nursing home services, and hospital outpatient services. These program reforms, along with tougher scrutiny of providers seeking to enroll in the program, increased audit and medical necessity reviews, and provider education reduced Medicare payments by tens of billions of dollars. For example, home health expenditures dropped from $18 billion in 1996 to $9.5 billion in FY 1999.
Provider Concerns. Continued participation of health care providers of all kinds--physicians and other health care professionals, hospitals, nursing homes, home health agencies, laboratories, equipment manufacturers and suppliers--is crucial to the success of the Medicare program. All of them have been profoundly affected by recent Medicare reforms. They are also affected by current regulations and administrative procedures.
However, provider concerns relating to inappropriate investigations are unfounded and both HCFA and the Office of Inspector General are reaching out to physician groups to reassure them. First, under the law, physicians and other health care providers are not subject to civil or criminal penalties for honest mistakes, errors, or even negligence. The government's primary enforcement tool, the civil False Claims Act, covers only offenses which are committed with actual knowledge, reckless disregard, or deliberate ignorance of the falsity of the claim.
The False Claims Act simply does not cover mistakes, errors, or negligence. The other major civil remedy available to the Office of Inspector General, the Civil Monetary Penalties law, has exactly the same standard of proof. For a criminal case, the standard is higher. The Office of Inspector General is very mindful of the difference between negligent errors and mistakes on one hand, and reckless or intentional misconduct on the other. As a result of the relatively high standards of proof needed to establish liability, the number of civil and criminal penalty actions initiated against physicians is fairly small, averaging less than 50 penalty actions per year. Last year, as a result of OIG efforts, only 12 of the more than 600,000 physicians who participate in the Medicare program were convicted of health care related crimes.
Both HCFA and the Office of Inspector General have also been engaging health care providers to join in a national effort to eliminate fraud and abuse and have undertaken numerous outreach efforts to help the medical care industry avoid getting into trouble. The cornerstone of OIG efforts has been the publication of voluntary compliance program guidances (developed with industry input) to assist and encourage the various sectors of the private health care industry to voluntarily fight fraud and abuse. In addition, we issue special fraud alerts and advisory bulletins advising medical care providers on topics that warrant their attention. All this information, as well as the results of our audits, investigations, and evaluations, are routinely made available through public presentations and on our web site.
HCFA too has enhanced its provider education efforts and has expedited its process for issuing new regulations, such as those required by numerous program changes mandated by the Balanced Budget Act and subsequent legislation. Their web site has been upgraded to make program information more widely and quickly available than ever before. And they use numerous technical advisory boards made up of health care professionals to advise on policy. In addition, HCFA has organized a "Physician Regulatory Issues Team" to assess the weight of Medicare regulatory burden on physicians. Its goal is to recommend changes to reduce administrative burden.
Program Complexity. Providers are concerned about the complexity of Medicare, even without reference to their potential liability for fraudulent or abusive behavior. Since the inception of Medicare, numerous legislative changes have been made and amendments added to the Social Security Act which have led to substantial changes to the Medicare program. With each addition, HCFA is required to develop new regulations as well as update its contractor and provider rules and guidelines. For example, the Balanced Budget Act of 1997 contained 335 provisions related to Medicare programs, which required the development of a substantial number of new regulations.
Much of the complexity in the Medicare program is not inherent in the program itself, but rather it parallels the ever increasing complexity of our health care system. For example, the development of various forms of managed care and new kinds of vertical and horizontal integration have led to the need for Medicare rules and regulations to evolve along with them.
As noted earlier, the way Medicare pays for health care has changed, through time, from primarily cost/charge based payment systems to new fee-schedule and prospective based arrangements. For example, hospital inpatient, physician, then lab and durable medical equipment services were the first areas of the program to switch to prospective payment or fee-schedule based payment systems. More recently, skilled nursing facility, home health, and hospital outpatient services have moved or are moving to prospective payment systems as well. This transitioning from one payment system to another inevitably involves an intensive and somewhat uncomfortable learning period. In the long run, it is hoped that these new payment systems will simplify and reduce the administrative burdens of providers.
Is the Medicare payment system too difficult to understand? In some cases, our audits and evaluations do indicate that some rules are unnecessarily complex and burdensome. In such cases, we make recommendations for simplification. However, our recent error rate review indicates that providers are doing a very good job of negotiating their way through Medicare payment systems, and we estimated 93 percent of all Medicare payments to health care providers were free of error. In the substantial majority of cases, legitimate providers are billing for legitimate services.
Nevertheless, providers remain concerned. Their legitimate concerns about program complexity, inconsistency, burdens, and hassles need to be considered. Providers need high level reassurances that they will not be assessed penalties for honest errors. At the same time, regulations to implement new programs need to be issued in a timely manner, and program integrity concerns need to be addressed.
PROPOSED LEGISLATION
The Medicare Education and Regulatory Fairness Act of 2001 (HR 868) has just been introduced to address some of the concerns of providers which were discussed in the previous section. I was asked to comment on this bill in my testimony, and appreciate the opportunity to do so.
Given what I just said about our appreciation of providers' concerns, we would support some action by HCFA and possibly the Congress to address valid problem areas. However, the Office of Inspector General cannot support this bill as written. While its objectives are worthy, we are concerned that many of the provisions will subject the Medicare Trust Funds to a high level of risk and possibly result in harm to beneficiaries. I will provide summary comments here, but hope that our staffs can meet to discuss these provisions in greater detail. Hopefully, we can find ways to address the concerns that this bill was meant to address without endangering the integrity of the Medicare program, as this bill would.
First, I will identify the provisions which we believe are most problematic. Then I will identify some provisions which appear to us to be more promising and which merit additional consideration. Our primary concerns are related to:
Judicial and Regulatory Challenges
The bill would nullify longstanding legal doctrines requiring "exhaustion of administrative remedies" and a "case or controversy" in order to appeal matters to Federal court. It would eliminate these requirements for cases challenging the constitutionality and statutory authority of HCFA regulations. This would clutter the Federal courts with hypothetical, possibly trivial cases and deny the courts the advice, insight, and judgement of Federal agencies and administrative appeals bodies in making decisions.
The bill would establish of unreasonable timeframes for hearings by ALJs and the Departmental Appeals Board. While the goal of this proposal may be to expedite the review process, it is highly unlikely that this result will be achieved. In all likelihood, the result will be the premature elevation of appeals to the Departmental Appeals Board and Federal courts, which are not in a position to conduct "de novo" fact finding hearings on an expedited basis.
The bill also requires an additional layer of review or reconsideration if a provider is dissatisfied with a finding that the provider is out of compliance with a particular standard or condition of participation. This would delay the imposition of sanctions and would increase the risk of jeopardizing the health and safety of Medicare beneficiaries.
Repayment Period
The bill would entitle providers to a three year repayment period for overpayments. While repayment plans make sense in some cases (and are already allowed under current law), they could greatly reduce the ability of Medicare to recover overpayments in others. An exception for cases where the Secretary finds clear and convincing evidence of fraud would be difficult to administer and could allow offenders to flee, declare bankruptcy, or otherwise place funds out of reach until such a determination can be made.
Repayments During Appeal
The bill would prohibit recovering past overpayments if appeal is pending. This has the same risks as the previous provision.
Document Requests
The bill would prohibit the carriers from requesting the production of records or documents prior to payment absent cause. This would prevent review of documents supporting the claim prior to payment, even in programmatic areas where past histories of abuse are present. Without this well established and recognized tool the integrity of the Medicare program would be seriously jeopardized.
Voluntary Repayment
The bill would establish and unprecedented new form of immunity from investigations to a provider who voluntarily returns overpayments. The intent of this provision is understandable. Providers who make unintentional errors or discover overpayments which they had not sought should be encouraged, not penalized, for voluntarily returning them without fear of penalty or prosecution. However, there is no need for new legislation in this regard. As I mentioned earlier, physicians and other health care providers are not subject to civil or criminal penalties for honest mistakes, errors, or even negligence. However, those relatively few providers who would deliberately and fraudulently steal from the Medicare program would not hesitate to use this provision to immunize themselves from investigation and prosecution, and, in essence, obtain interest free loans from Medicare.
Extrapolation
Extrapolation is the scientifically valid method of statistical sampling, and has been fully accepted by the Federal courts as a method of estimating liability for overpayments. The bill would prohibit recoupments or offset payment amounts based on extrapolation for the first time that a provider is alleged to have received overpayments or when a provider submits a claim for advice of suitability (as provided for later in the bill in the section on education components). These provisions would eliminate an important tool in evaluating overpayments and deprive the trust fund of the full amount owed to it. Ironically, the bill would greatly increase the burden on providers if, instead of using scientifically drawn samples of claims to determine the amount of overpayment, carriers and intermediaries would be required to review the entire universe of suspect claims of a provider. This would also increase Medicare's administrative costs. The provisions would also increase the amount the provider would have to repay, since when scientific samples are used instead of universe reviews, the amount of the overpayment to be collected is often based on the lower end of the sample's confidence level rather than the midpoint, the most likely estimate of the overpayment amount. Most importantly, it provides an inappropriate "safe harbor" immunizing a provider from full liability. Finally, the few fraudulent providers that there are would not hesitate to use these provisions to protect their ill gotten gains from recovery and themselves from surveillance or prosecution.
Claims Processing Screens
The bill would require HCFA to reveal claims processing screens to providers. Honest providers do not need to know the screens. Explaining them to dishonest providers is the equivalent of instructing them how to avoid detection and successfully exploit the program. Fraud detection through prepayment review would be nullified.
Advisory Services
The bill would give providers immunization from investigation as a result of seeking advice on billing and cost reporting provisions of the Medicare program. It is reasonable for honest providers to be able to seek advice about their claims without fear of investigation or prosecution. However, this provision would provide a dishonest provider immunization from investigation, a result which is not at all desirable.
Long Term Care
The various provisions relating to appeals in connection with long term quality improvements cause us to have many of the same kinds of concerns raised in the sections above--unnecessary, additional levels of review, unrealistic timeframes for moving to the next higher level of review, and suspension of remedies. All of these could seriously jeopardize patient safety and quality of care.
Promising Proposals
It is obvious that parts of the proposed bill are intended to assure honest providers that they will not be subject to investigation, prosecution, or harassment as a result of good faith efforts to comply with Medicare requirements. Unfortunately, many of these same provisions would play into the hands of the small number of unscrupulous individuals who use sophisticated means to exploit weaknesses in the Medicare program. Honest providers do not need the additional protections provided here. However, they certainly deserve practical assurances that their good efforts will not result in their being punished.
While I believe that most providers concerns can be addressed through administrative rather than legislative means, those sections of the bill relating to educational programs, advisory services, deferral of penalties until exhaustion of appeals, repayment periods, and appeals and grievances are worthy of additional review.
More provider education would be especially valuable. We have already seen the beneficial effects of HCFA educational initiatives. They have a lot to do with the substantial drop in the payment error rate and clarification of documentation standards. Our own efforts in working with the provider community in developing compliance guidelines have convinced us of the usefulness of outreach and education.
Similarly, providers ought to be able to get answers when they have questions about submitting their bills. A program through which HCFA can provide them advisory services would be very useful. Our own experience in administering such a program has convinced us of the benefits. We urge that any such initiative be fully funded. As noted earlier, however, we would not support the granting of immunity in connection with requests for advice.
Other provisions of the bill could be helpful if substantial changes were made to them For example, extended payback periods would make sense if they were necessary to prevent bankruptcy or severe hardship to a provider who received overpayments innocently. However, an automatic three year privilege would not be appropriate in all cases. Similarly, while deferral of penalties until final determinations are made could be reasonable in many cases, this would not be desirable if patient care were placed at risk. For both of these provisions, consideration should be given to the payment of interest to the Medicare Trust Funds--for example, for overpayment amounts sustained after appeal and during a repayment period.
As noted earlier, the Office of Inspector General fully understands the need to improve the appeals and grievance system. However, we propose a thorough overhaul of this system. Simply specifying time limits for review, especially unrealistic ones, will not correct the underlying problems, as described earlier.
Finally, I would also point to the various recommendations which are included in the first part of my testimony. Their implementation would reduce frustrations and improve Medicare payment systems.
I hope that we can find ways, primarily through education and communication, to provide the honest providers with the understanding and assurance they deserve in their medical practice. We look forward to working with the medical care community in finding ways to do this.
CONCLUSION
Medicare is important to all of us. I hope that the suggestions provided here from the Office of Inspector General will be useful in streamlining the program, reducing frustrations of providers and administrators alike, and making the program better for Medicare beneficiaries. We are ready to help this committee and all parties involved to find a better way to manage this program. Thank you for the opportunity to present these ideas to you.
Visit the OIG web site at http://oig.hhs.gov