July 19, 2002

July 19, 2002 | WebMemo on Health Care

A Bunch of Better Ideas For Senate Medicare Legislation

INTRODUCTION

Senate leaders are engaged in an intense debate on major Medicare legislation.

These leaders are concentrating on the provision of a prescription drug benefit of unknown cost in the Medicare program. Taxpayers can rest assured that the actual costs of these various drug benefit proposals will far exceed the standard Congressional Budget Office (CBO) projections.

While leading Senate legislation would also make technical changes in the administration of the current program, none of these Senate Medicare proposals would undertake any meaningful reform of the Medicare program itself. Meanwhile, Medicare faces a deadly combination of growing financial and managerial problems and will have to absorb the first wave of the massive retirement of 77 million baby boomers beginning in just nine years.

Official Washington's curious political paralysis, plus the cavalier congressional willingness to add an expensive new drug benefit to an already financially troubled program without any serious structural changes, is directly contrary to independent advice and analysis routinely offered by responsible officials from the General Accounting Office (GAO) and the Congressional Budget Office (CBO).

But it does not have to be this way. Senate leaders are very well aware that a solid model for reform of Medicare, at least for the next generation of retirees, is readily at hand. The majority of the National Bipartisan Commission on the Future of Medicare in 1999, and President George W. Bush in July 2001, proposed major changes to transform Medicare into a program that resembles the popular and successful Federal Employees Health Benefits Program (FEHBP) that covers Members of Congress, the White House staff, and millions of federal workers and retirees and their families. Senior citizens can rest assured that Washington's political class, over a period of 42 years, did not create an inferior system for themselves or their families. Yet the leading Senate bills fall far short of this model for Medicare reform.

Members of the Senate must address serious policy questions this year: Will Senate consideration of Medicare legislation advance the progress of genuine reform and enable millions of current and future Medicare patients to exercise greater personal control over their health plans and benefits? Will Senate legislation strengthen or weaken the doctor-patient relationship in the Medicare program? Will Senate legislation enhance the access of seniors to the medical treatments and procedures that they need, including advanced medical technology?

Will Senate legislation strengthen or weaken Medicare's financial condition? Leading Senate legislation would add a drug benefit; but, based on all of the proposals that have surfaced thus far, the Medicare program itself would be left unimproved. Building on a structurally flawed program will hasten the day when taxpayers will face huge tax increases to sustain it or seniors will face savage cuts in Medicare benefits.

There are structural changes and programmatic changes that can significantly improve Senate legislation. These changes could set in motion the dynamics for comprehensive, programmatic reform. Current and future generations of American retirees could benefit enormously.

GIVING NEW RETIREES NEW MEDICARE OPTIONS

  • Marry a prescription drug security card to a generous prescription drug security account.

In the absence of comprehensive Medicare reform, Congress could efficiently target generous assistance to those low-income seniors who do not have access to drug coverage through retirement or supplemental coverage. This could be done by giving these seniors a prescription drug card-a debit card-plugged into a federally subsidized prescription drug account, as recently proposed by Grace-Marie Turner of the Galen Institute and Dr. Joseph Antos, a former Assistant Director of the Congressional Budget Office, now with the American Enterprise Institute. With an initial deposit of funds between $600 and $800 per year, the account could be rolled over from year to year with a catastrophic provision for high drug costs. Such a structure would recognize the great diversity in drug utilization among the senior population, guarantee needy seniors quick access to coverage for chronic conditions, facilitate the growth of a competitive market, and maximize personal freedom.

Representative Joe Barton (R-TX) has developed a similar proposal. Barton's proposal would create a prescription drug account (PDA) with an annual contribution of $780 per year, indexed to inflation. The funds in the account could be used to pay directly for prescription drugs, supplemental drug coverage, or enrollment in a prescription drug discount card program. Unused funds could be rolled over from year to year, and Medicare patients and their spouses could contribute funds into the new account tax-free. The Barton proposal would be voluntary and would include provisions to minimize adverse selection.

  • Allow new retirees to take their health plans into retirement.

At a certain date, Congress could allow new retirees, when they turn 65, to make a choice as to whether they wish to enroll in the old Medicare program or take their private health plan with them into retirement and get a government contribution to offset its cost. This would not only create a seamless continuity of coverage and care for retirees, but also change the dynamics of the program itself. New private plans would be under the jurisdiction of a new market-friendly agency administering the program, which would function like the Office of Personnel Management does today in the administration of the FEHBP. With a gradual phase-in of reform, Congress would have the opportunity to monitor its progress and allow for adjustments in its financing and administration.

  • Allow new Medicare beneficiaries to take their employer's Section 125 plans with them into retirement, maintain them as tax-free accounts with employer or employee contributions, and pay Medicare physicians directly from these accounts.

Millions of employees today have cafeteria plans. Once again, if patients can spend their own money, including their former employer's contribution, directly on medical services without the intrusion of the Medicare bureaucracy or its contractors, this eliminates the need to create federal grievance procedures or new avenues for litigation. Under current law, employees can deposit a certain amount of money in a tax-free account, called a Section 125 account; however, any money not used by the employee is forfeited to the employer.

Congress should allow both employees and employers to contribute to such plans for retirees and allow them to roll over their existing Section 125 accounts. If a Medicare retiree could continue to roll over hundreds of dollars a year tax-free, this would mean that they could use those funds for routine medical services or the services of specialists, alternative care, benefits not covered by Medicare, or prescription drug coverage. In the face of Medicare physician payment cuts or Medicare regulatory impediments to physician practice, Medicare patients could establish a sure and direct relationship with doctors they depended upon during their working life and could pay them directly without going through the complicated rules of the Medicare bureaucracy. This would increase Medicare's economic efficiency, reduce its cost, and promote direct patient payment for routine medical services. It would also give doctors the freedom to practice medicine without the paperwork and regulatory restrictions imposed by Medicare's bureaucracy or contractors.

  • Allow retirees to use the new health reimbursement accounts without any interference from the Medicare bureaucracy.

The Internal Revenue Service has recently ruled that employers may deposit funds tax-free into a health reimbursement account (HRA) for an employee. Under the Treasury and IRS rules, HRAs are to be funded solely by the employer, may not be funded by any salary reduction, and may be used only for medical expenses. Moreover, these funds may be rolled over year to year, and, unlike the FSA, there is no use-it-or-lose-it rule. This means that there is an ample opportunity for workers to accumulate significant funds. According to the Treasury Department, HRAs may also be used by former employees; thus, retirees can have access to unused reimbursements tax-free. Congress should clarify that any future retiree enrolled in Medicare who wants to use funds in the HRA for a legal medical service, even if it is covered under Medicare, may do so without restriction or penalty to the physician who provides the service.

IMPROVING THE TRADITIONAL MEDICARE FEE FOR SERVICE PROGRAM: PROTECTING PERSONAL LIBERTY AND PRIVACY

  • Protect patient privacy.

Senators should tell patients enrolled in the Medicare fee-for-service program who are concerned about the privacy of their Medicare medical records that the GAO has found vulnerabilities in the confidentiality of those records. Then Senators should give them the right to join a private plan that guarantees both that right as a matter of contract and premium support to offset its cost.

The Medicare bureaucracy collects and maintains personally identifiable health information on all of the 40 million Medicare beneficiaries. This information is gathered through the payment of claims and used for purposes of determining eligibility for Medicare coverage, the review of care, and various Medicare-related research objectives. Under the 1974 Privacy Act, the Medicare bureaucracy is permitted by law to disclose this information to other agencies. Many Medicare patients are unaware of this power to disclose their personally identifiable information. Moreover, there is a real danger that Medicare patients' confidential information may disclosed without proper authorization.

In 1999, the General Accounting Office, the investigating agency of the Congress, conducted a study of the problem. In its report, the GAO noted:

When a person signs up for Medicare, he or she might not realize the variety of uses HCFA [Health Care Financing Administration] makes of his or her personally identifiable information or that this personal information may legitimately be disclosed by HCFA outside the agency.1

The GAO further found that HCFA had serious weaknesses in its procedures for protecting the confidentiality of personal information of Medicare patients:

These weaknesses include HCFA's inability to easily provide beneficiaries with an accounting of disclosures made of their personal information and failure to always give them clear notification of the purposes for which their personal information may be disclosed outside of HCFA as required by the Privacy Act. Although few complaints of violations have been reported to date, the OIG [Office of the Inspector General]also continues to report vulnerabilities in HCFA's safeguards for confidentiality of electronic information. These vulnerabilities could lead to unauthorized individuals reading, disclosing or altering confidential information.2

The Senate could alleviate any seniors' concerns over their medical privacy by allowing them to enroll instead in a private plan of their choice if, as a matter of contract, that private plan agrees to maintain the confidentiality of their information and will not disclose that information without their full, voluntary, and informed consent. Seniors choosing this option, of course, would get a contribution from the government to offset the cost of that private health plan. Any private plan violating that patient confidentiality would be liable to a breach of contract and any other state or federal laws protecting the privacy of medical records.

  • Stop Medicare officials' violations of Medicare patients' privacy in home health care agencies.

In 1999, the Health Care Financing Administration (HCFA), now called CMS, initiated a remarkable program called the Outcome and Assessment Information Set (OASIS). The Medicare bureaucracy directed home health agencies to collect detailed and sensitive personal information on Medicare patients using home health services without their full, voluntary, and informed consent. The information would be based on a broad range of intrusive inquiries including the Medicare patients' medical history, personal characteristics, living arrangements, and financial, behavioral, and psychological profiles. The original inquiries focused on strange questions such as whether the Medicare patient had expressed "depressive feelings" or a "sense of failure," or had used profanity or made "sexual references."3

In response to popular outrage, the Medicare bureaucracy, under the Clinton Administration, merely modified the OASIS rule. The Bush Administration, while committed to rolling back unnecessary Medicare red tape, has yet to stop this process. And congressional action has been minimal. Section 604 of the House Ways and Means version of the Medicare legislation only sets up a task force to review the reporting requirements for OASIS, which would make recommendations to the Secretary, and would prohibit the Medicare bureaucracy from requiring home health agencies to collect or submit information on persons not eligible for Medicare or Medicaid benefits beginning in January 1, 2003.4 In other words, the House bill ratifies the practice of the Medicare bureaucracy in collecting personal information on private citizens.

The OASIS rule is one of a number of examples where the Medicare bureaucracy veers out of control and Congress fails to stop it. A sound Medicare privacy policy would stop the collection of personal and sensitive patient information without full, voluntary, and informed patient consent. Congress should not tolerate such a profound breach of Americans' personal liberty and privacy.

  • Repeal the Section 4507 restriction on Medicare private contracting.

In the Balanced Budget Act (BBA) of 1997, Congress, under a veto threat from President Clinton, enacted an unprecedented restriction on the right of Medicare patients to enter into private agreements with their doctors for medical services. Under the terms of Section 4507 of the BBA, a Medicare patient could henceforth contract privately with a doctor, and the doctor could honor that contract, provided that (a) they sign an affidavit to the effect that he is privately contracting with that patient; (b) the doctor submits that affidavit to the Secretary of HHS within 10 days; and (c) the doctor agrees to remove himself from the Medicare program and refrain from treating all other Medicare patients for a period of two years.5 Remarkably, Clinton Administration officials and their allies in Congress insisted that this provision was a "liberalization" of the right of Medicare patients to enter into private agreements with their physicians for medical services. No similar statutory restriction is found in any other government health care program.

The restrictive Medicare policy embodied in Section 4507 of the Balanced Budget Act resurrected a very similar policy that the Clinton Administration had tried to advance in its failed Health Security Act of 1993. As Senator Jon Kyl (R-AZ) observed, under Section 1406of that huge bill, the Clinton Administration policy would have restricted the rights not only of senior citizens, but of all patients to enter into a private agreement with their physicians.6

Shortly after enactment, the provision became the target of a lawsuit filed by a variety of organizations, but most prominently the United Seniors Association and the National Capital Chapter of the American Civil Liberties Union (ACLU). The plaintiffs charged that the Medicare policy banning a person from spending his own money on legal medical services was a violation of personal liberty under the Constitution. In a series of decisions, the District Court and the Federal District Court of Appeals for the District of Columbia refrained from striking down the provision as unconstitutional and offered limited administrative remedies for the plaintiffs.

Thus, Medicare remains the only government program in which American citizens are barred from spending their own money without restriction on legal medical services. With fewer doctors taking new Medicare patients, the law will have a progressively broader negative impact. Under the terms of the statute, a newly retired senior citizen will be able to engage the services of a favored physician who is no longer taking new Medicare patients if, and only if, that favored physician is willing to give up all of his previous Medicare patients in order to enter into a private agreement with the patient.

  • Guarantee the right of any Medicare patient to refrain from authorizing a doctor to submit a medical claim for reasons of personal privacy.

Many patients fear that submission of a medical claim would reveal sensitive information to the federal agency. Patients using prescription medications for sexually transmitted diseases, for example, may prefer that Medicare contractors and Medicare officials not learn of their sensitive conditions.

The issue came to a head during the legal and legislative debates on Section 4507 of the BBA. The provision for the first time statutorily restricted the right of doctors and patients to contract privately in Medicare. A range of organizations, including the National Capital Chapter of the ACLU and the United Seniors Association, filed suit in federal courts to overturn the congressional restriction on private payment for medical services by Medicare patients. In preparing their defense in Federal District Court in Washington, the Clinton Administration lawyers said, in their original brief, that a doctor must submit all claims for all patients all the time, unless of course that doctor is prepared to drop out of the Medicare program for two years.

In later submissions, the Clinton Administration lawyers retreated from this position and said-for the first time-that there was an exception: privacy or confidentiality. The Clinton Administration's legal team did this shortly before oral argument in the case of United Seniors Association v. Shalala on March 6, 1999, following HCFA communications to Congress on the subject, both in letters to Congressmen and in HCFA testimony before the Senate Finance Committee. The Clinton Administration conceded that a Medicare patient might, for reasons of confidentiality, refuse to authorize the submission of a claim by the doctor.

Even though the Clinton Administration conceded the reasonableness of such a policy, there is still no statutory protection for reasons of patient privacy as the ground for a Medicare patient's refusing to authorize a doctor to submit a claim. Congress should, therefore, clarify in statute that Medicare patients should be able to stop sensitive claims submissions and pay directly for the medical service if they choose to do so.

EXPANDING MEDICARE PATIENT ACCESS TO QUALITY CARE

  • Allow Medicare patients, with their doctor's written permission, to get premium support to enroll in private plans with medical procedures, treatments, technologies, therapies, or a coordination of care that best meet their medical condition.

When Medicare was created in 1965, Congress intended the program to mirror the benefits package of private, employer-based health insurance. Today, of course, Medicare does no such thing. There are huge gaps in coverage, particularly for prescription drugs and catastrophic illness, as well as preventive services and medical technology. As a result, senior citizens who need these benefits often have to buy supplemental coverage, or pay extra insurance premiums, or simply pay out of pocket for many medical services that would otherwise be available in private health plans.

Unlike the fast and flexible adaptations that routinely take place in benefit packages in private insurance, as well as the integration of benefits and provisions for coordination of care, the changes in the Medicare benefits packages take an act of Congress or can be effected only through administrative decisions that can take many months and even years.

Consider the case of medical technology. A major study for the Advanced Medical Technology Association (AdvaMed) conducted by the Lewin Group, a prominent econometrics firm that models health policy changes, found that it can take anywhere from 15 months to 5 years for a medical technology to be adapted in the Medicare program.8 In some cases, medical technology may be available in Medicare on paper, but Medicare's inefficient system of administrative pricing guarantees that that medical technology will not be available in reality. The reason: Medicare administrative pricing. For example, according to the AdvaMed study, Medicare payments for cochlear implants to restore hearing in severely deaf patients have not reflected market costs, and the costs of cochlear implants have invariably exceeded Medicare's official payment.

Thus, according to the AdvaMed study, hospitals lose $9,000 for every cochlear implant they provide for a Medicare patient, or $5,500 for every patient in an outpatient setting. While 54 percent of all eligible cochlear implant patients are of Medicare age, only 12 to 15 percent of them have received these implants. In 2000, Congress enacted the Benefits Improvement and Protection Act to cope with these delays, but it still takes Medicare two years before it assigns codes or payment, and the payment is often inadequate.9 The results are the same: Medicare patients are often denied medical services, treatments, or technologies that are routinely available to millions of their fellow citizens in private-sector health insurance arrangements.

Consider also the Medicare patients' need for disease management or coordinated care. As Representative Nancy Johnson (R-CN), chair of the House Ways and Means Subcommittee on Health, has noted, traditional Medicare does not provide for sound coordination of care or disease management programs. These kinds of specialized programs are often found in private-sector health plans. Those who need such programs should be able to enroll in them without penalty and with government premium support, particularly if their personal physician feels that this enrollment would be better for their health.

The best way to cope with practical denials of access is not to pass more remedial legislation, but rather to give Medicare patients a direct and immediate premium support for health plans that provide medical technologies, treatments, procedures, or coordinated care programs that they need. Liberals in Congress may harbor a general reluctance in allowing senior citizens to exercise such an option. Conservatives may wish to compromise. If there is a question about the validity of this need in any given instance, Congress could specify that Medicare patients could secure this premium support only based on a written recommendation from their doctor that access to a health plan with a medical treatment, procedure, technology, therapy, or the desired coordination of care is in the best interest of the patient.

  • Allow Medicare patients to get premium support to enroll in a private plan in areas of the country where HHS determines that seniors are "medically under-served" because of a shortage of physicians participating in Medicare.

The American Academy of Family Physicians has recently reported that a stunning 17 percent of family doctors will not take new Medicare patients.10 Any decline in the number of physicians who take Medicare patients at the very time that the growth in the Medicare patient population is ready to explode could constitute a serious problem of access in various parts of the country.

Areas of the country where there is a gap between the demand for Medicare services and the supply of doctors practicing in Medicare are similar to a "medically under-served" area. Already, the National Health Service Corps, an agency of the U.S. Department of Health and Human Services, provides assistance to persons in areas designated as medically under-served throughout the United States. In dealing with the problem of rural shortages of practitioners, for example, HHS has designated as medically under-served an area where there is less than one primary care physician for every 3,500 persons. In 1999, for example, HHS designated 2,862 areas of the nation as "Health Professional Shortage Areas."

Congress could authorize the Secretary of HHS to establish a similar program for Medicare with special provisions to give Medicare patients relief. The Secretary of HHS should have the authority to designate an area as medically under-served for Medicare whenever the Secretary determines that there are insufficient primary care physicians or medical specialists serving Medicare patients, say 1 physician or 1 specialist per 1,000 patients, in that area. In those designated areas, Medicare patients could secure premium support to enroll in the private plans serving those areas or interstate plans that also serve patients in those areas.

REDUCING THE LEGAL HARRASMENT OF INNOCENT MEDICARE DOCTORS

  • Congress and only Congress should define the meaning of Medicare fraud for purposes of investigation and prosecution.

Congress is delegating the definition of Medicare fraud and abuse to executive branch and administrative agencies, and these agencies in turn are pursuing civil and, in some cases, criminal actions against doctors and other medical providers without clarity.

The data on fraud and abuse are vague. In February 1999, HHS Secretary Donna Shalala said that government efforts have led to a dramatic decrease in health care fraud and abuse. Medicare's $12.6 billion in erroneous claims in 1998 was down from $20.3 billion in 1997. Yet the audit conducted by the Office of Inspector General at HHS showed that the declining numbers resulted primarily from a big drop in "documentation errors"-from 44 percent of Medicare overpayments in 1996 to 16.8 percent in 1997. The "documentation error" decline made up $8.7 billion of the $10.6 billion reduction in "improper" Part A and B payments. As former American Medical Association (AMA) President Nancy Dickey observed at the time, the government estimate of "improper payments" of $12.6 billion was based on a review of claims that were filed for 600 Medicare patients, or 0.0015 percent of Medicare's 39 million beneficiaries.

Many of these errors by doctors consist of mistakenly putting the wrong number among thousands of billing codes in a box on a form. Nonetheless, doctors are subject to stiff penalties, embodied in the Health Insurance Portability and Accountability Act of 1996, for such clerical errors. Medicare officials, however, conceded that they did not know how many of the "inadequate documentation" errors were actually fraudulent.

  • Compensate doctors, providers, or medical suppliers for wrongful investigations.

If doctors, medical suppliers or medical facilities, including hospitals, following an investigation or prosecution have been found not guilty, the government should reimburse them for all costs associated with the legal investigation and any administrative or judicial actions that follow. Paul Rosenzweig, Senior Legal Research Fellow at The Heritage Foundation, told a Senate panel that an audit or investigation, let alone a prosecution, can ruin a physician's practice. Citing one example, Rosenzweig recalled:

Dr. Carol Vargo, a family physician in rural Montana, fought federal Medicare charges for over five years. The expert called in to review the criminal case for the government was instead willing to testify on behalf of Dr. Vargo, claiming that the prosecutors did not have a good grasp of coding and didn't understand what standard physicians were being held to at the time that the billings occurred. The prosecutors soon dismissed the case. The government then pursued a civil suit for the sum of $37 million-a figure calculated using a provision of the False Claims Act that allows the government to recover $10,000 per false claim, plus triple damages. The entire ordeal cost Dr. Vargo more than $300,000 in legal bills and a pulmonary embolism that doctors attributed to stress.11

An appropriate remedy for such wrongful targeting could be modeled on, and go beyond, the recently enacted Hyde Amendment. The Hyde Amendment provides that a criminal defendant may recover fees and costs he incurs when a prosecution is deemed "vexatious, frivolous, or in bad faith." For the technical violations of Medicare, when a doctor is acquitted, or when an audit reveals no errors, Congress should enact a fee-shifting provision that awards fees to prevailing parties when the government's position is not "substantially justified."

  • Declare that a physician following Medicare guidelines is to be insulated against official accusations of wrongdoing.

While Medicare has become an engine of massive regulatory control, it is also a managerial mess. The Medicare bureaucracy cannot do all that it has been tasked with doing, and it shows. The regulatory system is so complex that the very agents who make and enforce the rules can't even tell you what they are with any certainty. In a recent report for the House Budget Committee, the GAO found that Medicare bulletins are "poorly organized," contain "dense legal language," are "incomplete, and fail to provide timely information." The GAO conducted an experiment and called the "customer service representatives" of Medicare carriers asking them three commonly posed questions by doctors and others. It found that these representatives answered only 15 percent of the inquiries correctly.

While doctors are often given erroneous information, they can be audited and investigated, and even prosecuted, for following it. The Medicare Payment Advisory Commission (MEDPAC) has recently reported that

Fear of unfounded prosecution and the formidable array of enforcement tools available has reportedly created a pall over the program among providers. It is clear from the explosive growth in the compliance industry that this fear is palpable and real.12

There is no good, commonsense reason for those who rely on advice from the government, or its agents, to be prosecuted. Congress should make it explicit that the government is to stop prosecution against any doctor who relies in good faith on advice from Medicare or a Medicare carrier.

MEDPAC has made the commonsense recommendation that Medicare should provide timely written guidance to physicians and other Medicare providers, and that doctors and other Medicare providers who follow this guidance should not be subject to civil or criminal penalties if they follow this guidance and it is later found to be erroneous.13 Congress should adopt this policy.

  • Abolish the Medicare physician evaluation and management guidelines.

The Medicare bureaucracy wants to force doctors to abide by its "evaluation and management" (E&M) guidelines governing office visits by Medicare patients. Doctors would be required to fill out a lengthy checklist ranging from examination of various body parts to a review of biological systems and past medical, family, and social history. This E&M form would be required as a condition of treating Medicare patients and coding the treatment for the purpose of Medicare billing.

Professional guidance for the practice of medicine is, and should be, the exclusive domain of the medical profession through its professional and specialty societies. The delivery of medical services is a personal matter; it is not something that can be, or should be, subordinated to broad regulatory guidelines or some narrow ideological obsession with control over the nation's doctors. Any attempt to force the delivery of patient care into a regulatory straightjacket would guarantee conflict between conscientious doctors and government officials. The conflict would be inevitable.14

Moreover, the attempt to impose such guidelines is a break with the spirit and the letter of the Medicare law as originally enacted in 1965, which specified that the federal government was not to interfere in any way with the practice of medicine. The E&M guidelines would increase Medicare costs while doing nothing to add value or improve the value and quality of patient care. It would divert time and effort from efficient patient care to even more Medicare paperwork. Worse, the detailed guidelines provide yet another source of sensitive personal information on Medicare patients that can be stored in a government data base.

The E&M guidelines have been under development for several years, including consultations with the AMA. In its review of the regulatory burdens on Medicare, the Secretary's Advisory Committee on Regulatory Relief has recommended that CMS should eliminate the E&M documentation guidelines.15 Congress can bring this entire process to a screeching halt. Mandatory government guidelines on physician E&M establishes a dangerous precedent of federal intrusion into a domain-the treatment of patients and the practice of medicine-in which government has no competence at all.

  • Require CMS to base Medicare payment for doctors and medical specialists on accurate and updated data, or else use an alternative current market survey for hospital and physician payment.

One of the continuing problems in Medicare is the imposition of obsolete rules and regulations. As the Medicare Payment Advisory Commission has pointed out, when new payment methodologies for medical services are implemented, the CMS does not always eliminate regulations that "supported a previous payment mechanisms."16 MEDPAC also points out that payment systems for the same procedure differ when that procedure is done in different settings, say the difference between an outpatient setting in a hospital and a doctor's office, or differing geographic boundaries. These distinctions and differences add to Medicare's complexity, but they also mean that the Medicare payment system is often irrational. Another related problem is that Medicare's payment formulas may be using data that are dated or obsolete-in some cases, several years obsolete. Part of the current difficulty with the physician payment update is that the government has been relying on obsolete data for the payment of Medicare doctors.

If the Medicare bureaucracy does not have accurate or updated data, say no more than a year old, in making a payments for a particular service, then Congress should allow the CMS to do a market survey of private-sector practices and determine, on the basis of that survey, what the Medicare payment for a particular benefit, treatment, or procedure should be.

ESTABLISHING MEDICARE PATIENT PROTECTIONS

  • Require professional competence in the determination of "medical necessity" for services delivered to senior citizens.

During the congressional debates on the "patient's bill of rights" legislation, critics of the managed care industry have often made compelling arguments that corporate representatives should not make decisions about what treatments or procedures are medically necessary or appropriate for patients, and that these decisions should properly rest with physicians.

The same principles should apply with equal force to the Medicare program, where the General Accounting Office found in 1993 that more than one third of Medicare Part B claims were denied for reasons of Medical necessity.17 The issue is not the professional competence of doctors, but rather the professional competence of Medicare officials and contractors. Very often, more so than in private health insurance arrangements, Medicare beneficiaries will get a notice from Medicare or the Medicare contractor saying that the reimbursement for the medical service was denied for lack of "medical necessity"; for Medicare patients, this can be misinterpreted to mean that the physician rendering the service was providing a less valuable, or "unnecessary" service. What Medicare patients do not know is that these decisions are being made by persons with little or no medical training. The GAO in 1993 reported that only one out of every 100 Medicare claims was reviewed by a doctor or a nurse.18  Worse, as then Representative Ron Wyden (D-Ore.) observed, the typical claims examiner was a high school graduate.19

During the debate on the "patients bill of rights" legislation, congressional leaders addressed the need to give the medical profession responsibility in making decisions about medical necessity in private health insurance. They have thus far failed to address this issue within the context of Medicare, the very program for which they are directly responsible.

Specifically, Congress should require that any Medicare decision made by an official of CMS or a Medicare contractor to deny Medicare reimbursement on the grounds of "medical necessity" be made by an official who holds a Doctorate in Medicine, is licensed in the Medicare patient's state to provide comparable services, or by a person with at least a baccalaureate degree from an accredited college or university who has majored in pre-medical education. Furthermore, Congress should specify that any notification of denials on the grounds of medical necessity should not be construed to imply "malfeasance" on the part of a doctor, or "lack of value" in the medical service provided, but only that the medical procedure does not fall within the Medicare criteria for coverage.20

  • Protect Medicare patients' right to file unassigned paper claims to Medicare for full reimbursement.

Federal officials have been promoting the filing of electronic claims. During consideration of the Administrative Simplification Compliance Act (H.R. 3323), Representative William Thomas (R-CA), Chairman of the House Ways and Means Committee, stated:

This legislation requires the electronic filing of claims with Medicare, with exceptions. It is not the intent of the Committee to preclude a Medicare beneficiary from submitting a paper claim for covered services. Although virtually all Medicare claims are filed on behalf of a beneficiary by the provider rendering services, there are situations when a beneficiary receives a covered service by a non-Medicare enrolled provider and would, therefore, be eligible for reimbursement. Such claims are likely to be filed on paper, and nothing in this legislation should be construed as preventing the filing of a paper claim directly by a beneficiary. 21

Congress should clarify this right in explicit statutory language.

  • Establish an open season each year, or every two years, for those seniors who wish to enroll in better health plans with premium support.

Specifically, Congress should allow any senior citizen enrolled in the Medicare fee-for-service system who feels that he or she can get better benefits, quality, or service in a private plan to get premium support to enroll in that private plan.

In the Federal Employees Health Benefits Program, Congress has authorized OPM to conduct an annual open season during which federal workers and retirees and their families can change their health plans. Each year there are individuals and families, including retired federal workers and their spouses, who change plans because they can get a better health plan based on the superiority of benefit packages, quality of services, or price. In the FEHBP, private organizations and consumer groups do annual ratings of plans on quality, price, and service. Because most federal workers and retirees are overwhelmingly satisfied with their health plans and stay with them for many years, there is indeed little turnover: between 5 and 10 percent each year. Inasmuch as Medicare beneficiaries enrolled in the Medicare fee-for-service system are said to be highly satisfied with the traditional program, an open season should not threaten traditional Medicare.

  • Apply the provisions of the congressionally enacted Patients' Bill of Rights to the Medicare fee-for-service program.

The day-to-day operations of the huge Medicare program are largely controlled by the Centers for Medicare and Medicaid Services, particularly the Center for Medicare Management, formerly known as the Health Care Financing Administration (HCFA). Those operations are undertaken through a massive regulatory regime, estimated by the officers of the prestigious Mayo Foundation in 1999 to number in excess of 111,000 pages of rules, regulations, guidelines, and other paperwork. Therefore, traditional Medicare is, in effect, the most managed of all managed health care programs in the United States.

The key issue is medical decision-making. For the private sector, now dominated by managed care organizations, many Members of Congress have already voted to shift more responsibility away from corporate benefit managers and managed care officials into the hands of doctors and the medical profession so that the needs of patients can be met more effectively. In employment-based health insurance, employers rather than consumers make most of the decisions in these plans. In the House-passed bill, there is no application of the "patient's bill of rights" provisions to Medicare or any other government health program. In the Senate-passed bill, the Senate adopted, without debate, the Nickles Amendment that would apply the provisions to Medicare and other government health programs. In any case, if the principles of the House and Senate legislation were applied to Medicare, one could expect at least four major changes from current practice:

With the Patients' Bill of Rights legislation applied to Medicare, patients would have the right to sue the Medicare bureaucracy and its contractors for personal injury and damages incurred because of plan or coverage decisions. Under current law and regulation, patients can only be compensated for benefits not rendered. Patients are not reimbursed for damages. The right to sue the CMS and its contractors gives patients an opportunity to seek remuneration for loss and will spread the responsibility for effective care.

It would make the Medicare bureaucracy directly accountable for attorneys' fees and damages, just as private companies are held legally accountable. Today, there is no direct accountability for Medicare officials' actions that incur legal damages or attorneys' fees. The Department of Justice pays for designated damages and attorneys' fees out of a DOJ special fund known as the Judgement Fund, and adverse decisions on coverage are paid out of the Medicare trust funds. A much better idea is to make the Medicare bureaucracy directly accountable for its decisions. If Congress changes the law and allows for recovery of damages and attorneys' fees for the acts of Medicare officials that injure patients, then Congress should likewise clarify official accountability. This could be done simply by specifying that any damages and attorneys' fees arising from the decisions of Medicare officials from litigation should be taken out of the personnel budget of the Center for Medicare Management, its salaries, and expenses account.

As former HHS Deputy General Counsel Robert Charrow argues, no private firm is immune from the damages it inflicts on others in the course of its operations. The cost of these mistakes, including attorneys' fees, hits the firm's bottom line, and thus its salaries, expenses, and profits. The same should apply to the Center for Medicare Management. Each year, then, Congress would have the opportunity to review the court decisions awarding patients damages. This would enable Congress to make the appropriate policy adjustments, improve the Medicare bureaucracy's performance, and replenish the requisite funds for the Medicare bureaucracy's account through the annual appropriations process. Such a process would have the added benefit of strengthening congressional oversight and enhancing the accountability of the Center for Medicare Management as a customer-friendly agency.

Doctors of Medicare beneficiaries, rather than the Medicare bureaucracy or Medicare contractors, would decide what is deemed "medically necessary" for a patient's health. If Members of Congress take seriously the rhetoric of the advocates of the patients' bill of rights, then, clearly, doctors are more qualified to assess the needs of a patient than the bureaucrats within the Medicare bureaucracy or its contractors. The problem of insurance executives superceding the best judgment of physicians, either in reimbursement decisions or claims reviews, is not confined to the private sector. The Medicare process for determining "medical necessity" is left to the Medicare bureaucracy and Medicare contractors. Physicians are frustrated by the arbitrary, and often silly and dangerous, character of these decisions. Giving doctors the presumption, over the Medicare bureaucracy or its contractors, to decide what is best for patients is unquestionably more compatible with the congressionally stated objective of assuring a high quality of care. It is also compatible with what many Members of Congress say they want to accomplish in the private sector.

With the patients' bill of rights applied to Medicare, Medicare beneficiaries would be entitled to the same speedy review process of denials of coverage and appeals as those promised private-sector patients. In the Senate and House bills on patients' rights, health plans are required to meet specified deadlines on responding to claims for benefits and the processing of appeals, both internally and externally.

In the Senate-passed bill, for example, when claims are denied, a health plan is to make a determination on the appeal of a denial for benefits as soon as possible, but no later than 14 days from the time it receives necessary information and no morethan 28 days after the request for the appeal is received. If there is a need for an expedited determination of a claim for benefits during the appeals process, when a person's life or health is threatened, the plan is to make a determination no later than 72 hours after it has received a request for an appeal. In the conduct of the review of any denial of these claims, if the denial is based on lack of medical necessity or appropriateness, the review is to be made by a physician. The Medicare process falls short of the strict requirements being proposed for private plans in the House-passed version of the patients' bill of rights legislation. Congress, intent on imposing strict standards for review and appeals on private health plans, at the very least ought to guarantee senior citizens receiving Medicare entitlements the exact same timely review of denials required by provisions of the pending patients' bill of rights legislation.

CONCLUSION

In debating Medicare, the United States Senate is arguably tackling the most difficult program area in domestic policy. There are tremendous opportunities to improve Medicare. The next generation of retires will be thankful if they are given the opportunity to enroll in a system that is characterized by personal freedom, a respect for their privacy, and a stronger doctor-patient relationship. American retirees deserve a system that is flexible and open to innovation, particularly in the delivery of care. Most important, members of the Senate can create a system that would enable American retirees to get the kind of personalized quality of care they need when they need it.

Robert E. Moffit, Ph.D. is the Director of Domestic Policy Studies at the Heritage Foundation.

ENDNOTES

1. Leslie Aronovitz, Associate Director, Health Financing and Public health Issues, U.S. General Accounting Office, Medicare: HCFA Needs to better Protect Beneficiaries Confidential Health Information, testimony before the Subcommittee on Health, Committee on Ways and Means, U.S. House of Representatives, GAO/T-HEHS-99-172, July 20, 1999, p. 1.

2. Ibid., p. 2.

3. For an account of the original Medicare rule on OASIS, see Robert E. Moffit, "HCFA's Latest Assault on Patient Privacy," Heritage Foundation Executive Memorandum No. 580, March 22, 1999; see also Robert E. Moffit et al., "How the Medicare Bureaucracy Threatens Patient Privacy," Heritage Foundation Lecture No. 646, October 15, 1999.

4. Section 604, House Ways and Means Committee draft Medicare bill, as reported June 18, 2002, at 12.28 PM.

5. For a discussion of the meaning and the impact of Section 4507 of the Balanced Budget Act, see Senator Jon Kyl (R-AZ) et al., "Private Doctor-Patient Agreements: How the Medicare Law Forbids Free Choice," Heritage Foundation Lecture No. 620, June 30, 1998.

6. Ibid., p. 2.

7. For a discussion of the current status of Section 4507, including the judicial proceedings, see Robert E. Moffit, "Congress Should End the Confusion Over Medicare Private Contracting," Heritage Foundation Backgrounder No. 1347, February 18, 2000.

8. Outlook for Medical Technology Innovation: Will Patients Get the Care They Need, an analysis prepared by the Lewin Group for AdvaMed, Washington, D.C., July 21, 2000, p. 3.

9. "Medicare Barriers to Inpatient Advances Remain in Place Under CMS's Proposed Rule," Medical Technology and Innovation, Vol. 3, Issue 12 (May 13, 2002), p. 1.

10. For a discussion of the recent problems facing doctors who practice in the Medicare program, see Robert E. Moffit, "Why Doctors Are Abandoning Medicare and What Should Be Done About It," Heritage Foundation Backgrounder No. 1539, April 22, 2002.

11. Paul Rosenzweig, Senior Legal Research Fellow, The Heritage Foundation, testimony on "Sentencing and Enforcement of White Collar Crimes," Subcommittee on Crime and Drugs, Committee on the Judiciary, U.S. Senate, June 19, 2002, p. 9.

12. Medicare payment Advisory Commission, Report to the Congress: Reducing Medicare Complexity and Regulatory Burden, December 2001, p. 30.

13. Ibid., pp. 29-30.

14. Robert Nirschl, M.D., "The Rise and Fall of HMO's," The Medical Sentinel, Vol. 2, No. 4 (Fall 1997). p. 137.

15. Agenda Materials, Secretary's Advisory Committee on Regulatory Relief, Marriott Denver City Center, Denver, Colorado, Department of Health and Human Services Regulatory Reform Initiative, available at http://www.regreform.hhs.gov/recommendations.htm.

16. Medicare Payment Advisory Commission, Reducing Medicare Complexity and Regulatory Burden, p. 34.

17. Mike Mitka, "High School Grads Say What's Medically Necessary," American Medical News, September 20, 1993, p. 7.

18. Ibid.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies