Federal and state legislators often chide
private insurance plans for payment or reimbursement schemes that
appear to reward doctors for withholding expensive tests or
treatments. For example, in some managed care plans, a portion of
"capitation" allotments are "withheld" until the end of the
provider's contract year. Payment of these withholdings is
contingent on the managed care plan's achieving certain medical
spending targets. Curiously, Congress has allowed HCFA to utilize
financial and punitive disincentives for expensive care and
treatments for more years than most managed care plans have been in
HCFA's Prospective Payment System is a
case in point. Hospitals are paid a set amount on the basis of a
patient's final diagnosis at the time of discharge instead of the
actual number of services, tests, and treatments the patient may
require. For example, HCFA reimburses a hospital more generously
for the inpatient costs to treat one type of pneumonia over
another, even when the patient with the lower-cost pneumonia may
require more care and services and longer hospitalization.
prospective payment methodology for hospitals encourages strict,
sometimes draconian, utilization reviews for sick, hospitalized
patients. It is not uncommon for admitting physicians to order
unnecessary intravenous lines or urinary catheterizations--placing
the patient at unnecessary risk for such problems as phlebitis or
urinary tract infections--to prevent the patient from being
discharged when they believe it is not in the patient's best
medical interest. The reason: Hospitals have an economic incentive
to "evict" patients as quickly as possible to avoid financial loss
or to maximize monetary gain.
is notorious for developing elaborate payment schemes to influence
the care-giving behavior of physicians and other providers by using
a series of rewards, punishments, and even threats of punishment.
It is doubtful that private-sector managed care plans, faced with
even minimal free-market competition, could have imposed most of
HCFA's highly aggressive cost-containment measures without hearing
a resounding public and political outcry. Medicare's large and
growing captive membership provides effective immunity from the
consumer pressures regularly experienced by private-sector plans.
There is no existing private insurance market for seniors outside
Medicare, a fact admitted by the Clinton Administration's counsel
in recent litigation over the rights of Medicare patients. Today, American
seniors have no real alternative to Medicare for private coverage.
The lack of real choice for Medicare beneficiaries makes
congressional attentiveness to a patient's right to quality care in
Medicare even more important.
Managing "Medical Necessity"
and its contractors routinely deny payment for covered care and
services that doctors say are "medically necessary." Despite its
lengthy list of "covered" services, giving the impression that
Medicare has a generous benefits package, Medicare's rate of
payment denial is high.
Although the Medicare statute provides for
payment for services that are "medically necessary," in practice
just because Medicare formally "covers" a medical treatment does
not mean it must cover it or will pay for it. Under certain
circumstances, HCFA and Medicare contractors may determine that the
medical treatment or procedure is not to be covered for purposes of
payment. Consequently, doctors and patients never really can know
whether a treatment will be covered. In typical bureaucratic
doublespeak, the Medicare patient/provider "helpline" gives this
definition of "medical necessity" to callers: "Medically necessary
treatment is medical treatment thought to be needed before the
carrier or insurer will pay claims."
Congress largely ignores this problem. In
perhaps the most exhaustive examination ever published, Timothy
Blanchard, a California-based specialist in Medicare law,
process of Medicare decision-making about coverage, and in
particular medical necessity determinations, has been shrouded in
mystery since the inception of the Medicare program.
Blanchard reports that HCFA's notices on
the topic reveal a profoundly disturbing pattern:
[T]hese notices reflect HCFA's tenacious
effort to maintain to the greatest extent possible what is one of
the most expansive bodies of secret law ever developed for
application against a broad segment of the American population.
January 1989, Medicare proposed a rule to define "medical
necessity" for patient care, but this rule
never has been finalized. Despite this fact, lack of "medical
necessity" is a common reason for payment denials. According to
HCFA's 1997 statistics, over 19 percent of all denied physician and
supplier claims were for services deemed "medically unnecessary." And subtracting
1997 claims denied for "reason of statutory exclusion" causes the
percent denied for lack of medical necessity to increase to 45
percent. Auditors for the
U.S. Department of Health and Human Services' (HHS) Office of
Inspector General (OIG) reported in February 1999 that, if HCFA
rules and regulations were followed in all cases, even more claims
would be denied for lack of "medical necessity." In fact, OIG
auditors claim carriers should have denied almost $7.5 billion of
additional claims in 1997 for "lack of medical necessity."
HCFA's definition of "medical necessity,"
and the definition of its Medicare carriers, is a rolling one, both
vigorous and arbitrary in its application and often contrary to
"accepted principles of professional medical practice," a standard
proposed in the Daschle-Dingell Patient's Bill of Rights. Moreover, Medicare
coverage, based on definitions of "medical necessity," varies from
state to state. Such major medical groups as the Mayo Clinic that
operate in more than one state often are faced with conflicting
coverage policies about what is, and what is not, "medically
Numerous examples abound:
Treatment of precancerous lesions. Removal of
precancerous skin lesions is considered the
standard of care among dermatologists trying to protect patients
against skin cancer.
Medicare's insurance carrier in Florida, as an agent of HCFA,
refuses to cover the removal of these lesions in some instances.
The very same insurer, however, administers a Medicare health
maintenance organization (HMO) that does pay to remove these same
precancerous dermatoses. And most other state Medicare carriers,
even those outside the Florida Sunbelt, pay for the same procedures
not covered in Florida.
Some Texas physicians complain that Medicare no longer covers
certain routine preoperative tests, such as an electrocardiogram
(EKG), which surgeons order when they believe it is medically
necessary and consistent with generally accepted principles of
Preventive medical services.
In Florida, the Medicare carrier published a coverage policy for
blood lipid tests, which states that diabetes is not among the
approved covered diagnoses for the test. As Dr. William G.
Plested III, a member of the Board of Trustees of the American
Medical Association, testified before Congress,
This policy is in direct conflict with
published guidelines from the American Diabetes Association, and,
in 1999, physician claims for lipid tests are still being routinely
denied for diabetic patients in Florida.
- Prostate cancer.
Dr. Plested also testified that it is "standard clinical practice"
to give a man suffering from lower urinary tract symptoms a
prostate-specific antigen test.
in many localities, patients have no idea whether the test will be
covered because Medicare's coverage policy depends on the test
result. Moreover, nearly half the carriers will not pay for the
test if the diagnosis turns out to be an enlarged prostate.
- The use of anesthesia.
Anesthesiologists favor use of "monitored anesthesia care" for
certain of cases in which sedated patients may have to be revived.
Says Dr. Plested,
Coverage was denied for a number of
important services for which anesthesia is clearly a requirement,
such as breast biopsies and pacemaker insertions. Although some
carriers have subsequently abandoned the policy due to concerted
informational campaigns by anesthesiologists, uneven coverage
across localities is likely to persist.
- Psychiatric care.
As Dr. Plested observed in his testimony,
many localities, carriers establish arbitrary limits on
psychotherapy services, even though the Congress has not limited
the number of Medicare covered psychotherapy services for
Curiously, Members of Congress are
considering legislation for private-sector, employer-based
insurance plans that would ensure that doctors, not bureaucrats,
determine medical necessity. The legislation
would define "medically necessary or appropriate services" as
treatments "consistent with the generally accepted principles of
medical practice." And the proposed legislation would prohibit a
private plan from interfering with
decision of the treating physician regarding the manner or setting
in which particular services are delivered if the services are
medically necessary or appropriate for treatment and diagnosis.
Although politicians in Congress and state
legislatures routinely chastise private-sector health plans for
arbitrary payment denials, the evidence in fact suggests that such
denials are not excessive. For example, data gathered under a state
reporting law indicate that denials of care among the six largest
New York health plans are "strikingly low"--only 2.5 appeals for
every 1,000 patients. And reports from other states suggest similar
coverage denial rates. A survey of over
2,000 physicians, published in the fall 1997 issue of
Inquiry, reports denial rates of 3 percent or less, with
lower rates for many individual procedures. Even such expensive
tests as magnetic resonance imaging are denied in only 2 out of 100
Consider also the experience of the FEHBP,
the consumer-driven system that serves Members of Congress,
congressional staff, and federal employees. Out of a dozen plans
surveyed in the 1999 Checkbook's Guide to Health Insurance Plans
for Federal Employees, the number of disputed claims filed with
the Office of Personnel Management (OPM) ranges from 0.58 per 1,000
beneficiaries for the Mailhandlers' plan (a large union plan), to
2.99 per 1,000 beneficiaries for the Foreign Service plan (an
option restricted to foreign service employees). The FEHBP,
administered by the OPM, offers a choice of private health plans
that are rated by consumers and consumer groups annually on
quality, price, and benefits. Medicare reformers would do well to
consider the merits of such a consumer-driven system as the FEHBP,
in which patient satisfaction with quality and service are crucial
to the plan's competitive position. The FEHBP is also the model for
reform chosen by Senator Breaux and Representative Thomas, the
chairmen of the National Bipartisan Commission on the Future of
Medicare, and the majority of the commission's members.
effective Medicare definition of "medical necessity," as applied by
HCFA and HCFA carriers, is decidedly more restrictive than, say,
that proposed in the Daschle-Dingell Patient's Bill of Rights. In
sharp contrast to reports indicating extremely low HMO denial
rates, HCFA carriers report that they denied almost 24 percent of
all claims from physicians and suppliers in 1997. As noted, over 19
percent of those denied claims were for a supposed lack of "medical
necessity." If OIG auditors
had their way, even more claims would have been denied--another $20
billion in 1997 and $12.5 billion in 1998. Moreover, if
Medicare carriers followed HCFA rules and regulations, more than 16
percent of all the claims paid in 1998 would not have been paid. The OIG says that
lack of "medical necessity" was the most common reason for payment
"errors" in 1998 (over 55 percent) and the second most common
reason in 1997 (over 36 percent).
Doctors on the front lines of medical care
often become demoralized by pressures to practice medicine
backward--that is, compliance with reimbursement-based guidelines
becomes more important than care for patients. They must devise
ways to fit the patient to the care plan rather than fitting the
care plan to the patient. For example, one Wisconsin physician
advised an elderly patient to continue to take aspirin, which can
cause gastrointestinal bleeding, prior to administering a test to
check for blood in the stool. This would ensure the doctor could
document the blood in the patient's gastrointestinal tract. Without
that crucial finding, the patient would not fit HCFA's criteria for
a colonoscopy even though, in the physician's best clinical
judgement, it was the medically necessary and appropriate course of
absurd developments are, of course, a direct result of bureaucratic
benefit setting. Medicare law, as noted above, ensures patients
access to what are called "reasonable and necessary" medical
services. Beyond the broad categories set forth in Medicare law,
such as hospital, nursing home, and physician services, the
Secretary of Health and Human Services is legally entitled to
specify the allowed medical treatments and procedures. In practice,
this means HCFA determines treatments and procedures.
Unfortunately, HCFA standards are not necessarily the standards of
medical practice, and so HCFA's decisions periodically set the
stage for inappropriate medical micromanagement by Congress.
Because HCFA was considered so
out-of-touch with standards of practice for the treatment of
cancer, Congress in 1997 stepped in to mandate Medicare coverage
for certain cancer screening. Since 1998, Congress has mandated
coverage for many screening procedures for such common cancers as
breast, colon, and prostate. More recently, for example,
Representative Pete Stark (D-CA) introduced a bill to mandate
coverage of retinal eye examinations for Medicare patients who
suffer from diabetes and thus are threatened with blindness. An unfortunate
feature of the existing Medicare system is that crucial medical
treatments often are held hostage to such political and
Hindering the flow of information in
Medicare has a chilling effect on the free-flow of information
between patients and doctors. Politicians harangue private health
plans for interfering with the patient-doctor relationship by
restricting a physician's communication with a patient about the
diagnosis and test and treatment options. Fears of such "gag rules"
persist, despite a GAO review of 1,500 health plan contracts that
failed to find even one example of such a provision. Senior citizens do
not know that inherent in the carrot and stick-laden maze of
Medicare is an insidious gag rule. Open communication between
physicians and patients about the right course of action is
inhibited by the doctor's fears of payment denial and prosecution
for fraud and abuse. As Dr. William Plested recently reminded the
Health Subcommittee of the House Ways and Means Committee,
its management of the Medicare program, HCFA seems to approach
virtually every issue, whether it involves national or local
coverage policy, payment, coding, or quality, as an issue of waste,
fraud and abuse. This singular focus on fraud has become even more
pervasive among Medicare part B carriers than it is within the HCFA
obsession with fraud affects patient care. Doctors who recommend
tests or treatments considered by HCFA carriers to be "medically
unnecessary" now must worry about not getting paid for services
provided and avoiding charges of fraud and abuse when they talk to
a Medicare patient. A July 1998 GAO report indicates that provider
concerns about overzealous enforcement are justified. Such "hot-button"
issues as home health care have had an especially chilling effect
on patient-provider communications. For a doctor, certifying the
need for home health care is akin to an IRS red flag on a 1040 tax
return. But this may change in light of reports of high percentages
of emergency room visits and hospitalizations among home health
patients in Tennessee and an October 30,
1998, HHS-proposed rule that expands the definition of fraud and
abuse to include providing "medically unnecessary" services.
Consider this dilemma: A doctor believes a
simple blood test is important for ruling out a diagnosis of
temporal arteritis in an elderly patient who has a headache.
Failure to diagnose temporal arteritis, an inflammatory condition
of the temporal artery, could have serious consequences, including
blindness. Testing a patient's blood sedimentation rate determines
if the patient suffers from temporal arteritis. The doctor must
recommend the blood test to the patient, but at the same time
explain that Medicare believes the test is not "medically
necessary" and will not pay for it. When the patient gets the bill
for the procedure, HCFA sends a note about the Medicare "HOT-TIPS"
line, from which the patient may get a monetary reward for
reporting fraud and abuse.
Fortunately, most doctors will place the
patient's well-being first and compliance with potentially harmful
bureaucratic mandates second. But an increasingly "big stick"
approach to physicians threatens to compromise health care by
making doctors fearful of recommending the appropriate care because
HCFA or its carriers claim it is not medically necessary. Congress
should reverse this practice and require HCFA to develop a more
reasonable definition of fraud and abuse.