Medicare
Divided Authority for Policies on Coverage of Procedures and Devices Results in Inequities Gao ID: GAO-03-175 April 11, 2003Critical choices on whether new technology will be covered for Medicare's 40 million beneficiaries are made nationally by the Centers for Medicare & Medicaid Services (CMS)--the agency that administers Medicare--or locally by contractors that process and pay claims. GAO was asked to review the degree to which new procedures and devices are incorporated into Medicare, the effect of Medicare coverage policy-making processes on beneficiaries, and to what extent CMS has addressed concerns about its national coverage process.
Medicare Covered Most New Procedures and Devices: Medicare covered about 99 percent of the procedures and devices that were assigned codes by an American Medical Association panel or a committee of insurers in 2001. About a quarter were introduced into the program without coverage policies that describe the circumstances for Medicare coverage or place restrictions on their use. Another quarter were affected by national coverage policies and the rest were affected only by local coverage policies. Variations in Local Coverage Led to Inequities: Because contractors can determine coverage for beneficiaries being treated in their jurisdictions, coverage inequities for beneficiaries with similar medical conditions have resulted. For example, until recently, coverage for a new treatment for debilitating tremors, called bilateral deep brain stimulation (DBS), had been allowed only for beneficiaries treated in some states. On April 1, 2003, CMS implemented a consistent national coverage policy on DBS, but coverage variation continues for other procedures. National Coverage Development Process Raises Concerns: While CMS creates national coverage policies that apply equally to all Medicare beneficiaries, criticisms of its slow pace and its closed policy development process prompted CMS to take steps to make its process more understandable, open, and timely. Nevertheless, the national process remains flawed because it lacks clear coverage criteria, remains closed in fundamental ways to physician and beneficiary input, and has not consistently met timeliness goals.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-175, Medicare: Divided Authority for Policies on Coverage of Procedures and Devices Results in Inequities
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Report to the Chairman, Subcommittee on Health, Committee on Ways and
Means, House of Representatives:
United States General Accounting Office:
GAO:
April 2003:
MEDICARE:
Divided Authority for Policies on Coverage of Procedures and Devices
Results in Inequities:
GAO-03-175:
GAO Highlights:
Highlights of GAO-03-175, a report to the Chairman, Subcommittee on
Health, Committee on Ways and Means, House of Representatives
Why GAO Did This Study:
Critical choices on whether new technology will be covered for
Medicare‘s 40 million beneficiaries are made nationally by the Centers
for Medicare & Medicaid Services (CMS)”the agency that administers
Medicare”or locally by contractors that process and pay claims.
GAO was asked to review the degree to which new procedures and devices
are incorporated into Medicare, the effect of Medicare coverage
policy-making processes on beneficiaries, and to what extent CMS has
addressed concerns about its national coverage process.
What GAO Found:
Medicare Covered Most New Procedures and Devices:
Medicare covered about 99 percent of the procedures and devices that
were assigned codes by an American Medical Association panel or a
committee of insurers in 2001. About a quarter were introduced into
the program without coverage policies that describe the circumstances
for Medicare coverage or place restrictions on their use. Another
quarter were affected by national coverage policies and the rest were
affected only by local coverage policies.
Variations in Local Coverage Led to Inequities:
Because contractors can determine coverage for beneficiaries being
treated in their jurisdictions, coverage inequities for beneficiaries
with similar medical conditions have resulted. For example, until
recently, coverage for a new treatment for debilitating tremors,
called bilateral deep brain stimulation (DBS), had been allowed only
for beneficiaries treated in some states. On April 1, 2003, CMS
implemented a consistent national coverage policy on DBS, but coverage
variation continues for other procedures.
National Coverage Development Process Raises Concerns:
While CMS creates national coverage policies that apply equally to all
Medicare beneficiaries, criticisms of its slow pace and its closed
policy development process prompted CMS to take steps to make its
process more understandable, open, and timely. Nevertheless, the
national process remains flawed because it lacks clear coverage
criteria, remains closed in fundamental ways to physician and
beneficiary input, and has not consistently met timeliness goals.
What GAO Recommends:
GAO recommends that CMS eliminate development of new local Medicare
coverage policies for procedures and devices that have been assigned
codes; evaluate all current local policies on procedures and devices
with established codes to determine if the policies should be
incorporated into national policies or be rescinded; and establish a
new, centrally managed process that is more open, understandable, and
timely to develop national coverage policies, using expertise from
other sources. HHS disagreed with our recommendations to eliminate
local coverage policy development for certain procedures and devices
and to develop a new national process. It also disagreed with the
intent of our recommendation to evaluate its existing local policies.
www.gao.gov/cgi-bin/getrpt?GAO-03-175.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Leslie G. Aronovitz at (312) 220-7600.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Medicare Covered Most Procedures and Devices Assigned Codes in 2001,
Often Without National or Local Coverage Policy:
Variations in Local Coverage Policies Lead to Program Inequities and
Inefficiencies:
National Coverage Policy Adds Consistency, But Current Policy
Development Process Could Be Strengthened:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Coding Assignment Process:
Appendix III: Process That CMS Follows to Develop National Coverage
Policies:
Appendix IV: Process That Carriers and Fiscal Intermediaries
Follow to Develop Local Coverage Policies:
Appendix V: Coverage Criteria for Medicare Claims
Administration Contractors:
Appendix VI: Comments from the Department of Health and
Human Services:
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Acknowledgments:
Tables:
Table 1: Number and Percent of the New Coverable Procedure and Device
Codes for 2001 That Were Affected by National or Local Coverage Policy:
Table 2: Variations in Local Coverage Policies in Northern and Southern
California:
Table 3: Local Coverage Policies for Procedures with New Codes
Developed or Revised by Four Carriers in Four States:
Figures:
Figure 1: Carrier Coverage for Bilateral DBS by State, as of July 31,
2002:
Figure 2: Process for Adding, Deleting, and Revising CPT and HCPCS
Level II Codes for Use in the Medicare Program:
Figure 3: Criteria for Claims Administration Contactors to Use to
Determine Whether a Procedure or Device Is Reasonable and Necessary:
Abbreviations:
AMA: American Medical Association:
BIPA: Medicare, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000:
CAG: Coverage and Analysis Group:
CMM: Center for Medicare Management:
CMS: Centers for Medicare & Medicaid Services:
CPT: Current Procedural Terminology:
DBS: deep brain stimulation:
DME: durable medical equipment:
FDA: Food and Drug Administration:
HCFA: Health Care Financing Administration:
HCPCS: Healthcare Common Procedure Coding System:
HHS: Department of Health and Human Services:
MCAC: Medicare Coverage Advisory Committee:
NHIC: National Heritage Insurance Company:
OIG: Office of Inspector General:
SCHIP: State Children's Health Insurance Program:
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copyrighted materials separately from GAO's product.
United States General Accounting Office:
Washington, DC 20548:
April 11, 2003:
The Honorable Nancy L. Johnson
Chairman
Subcommittee on Health
Committee on Ways and Means
House of Representatives:
Dear Madam Chairman:
As health care technology evolves, beneficiaries, their families,
physicians, and medical device manufacturers are interested in having
the Medicare program cover new procedures[Footnote 1] and devices that
could improve individuals' clinical outcomes. Such new procedures and
devices are most commonly incremental improvements upon those currently
available, but can also represent significant medical breakthroughs.
Policies explaining whether, and under what circumstances, new
procedures or devices will be covered can be made nationally by the
Centers for Medicare & Medicaid Services (CMS)--the agency that
administers Medicare--or locally by Medicare claims administration
contractors in their service areas. These include 19 carriers, which
pay part B claims for most physician, laboratory, and certain other
services and items,[Footnote 2] and 27 fiscal:
intermediaries, which pay part A claims for inpatient hospital and
related post-hospital services and part B claims submitted by part A
providers.[Footnote 3],[Footnote 4]
Procedures and devices are identified by codes that are assigned to
them by two committees outside of the Medicare program. When new
procedures and devices are assigned codes, CMS decides whether they are
among the types of health care benefits described in the Medicare
statute and are reasonable and necessary for a beneficiary's treatment,
and, therefore, eligible for Medicare payment. CMS notifies contractors
whether each new code can be covered, and, based on this information,
Medicare's automated claims processing systems pay or deny claims
submitted with one of these codes.
CMS or its claims administration contractors sometimes create coverage
policies to specify or limit when payment for a particular procedure or
device will be made, such as by allowing coverage of a procedure only
for certain specified diagnoses. CMS develops national coverage
policies that apply to all beneficiaries across the country. Claims
administration contractors issue local coverage policies that apply
only to beneficiaries treated in their service areas or to providers
they service.
Physicians and beneficiary advocates have raised concerns about whether
local coverage policies that apply only in a contractor's service area
lead to variations that result in inequitable coverage for
beneficiaries. In addition, CMS has been criticized for the slow pace
by which new procedures and devices are introduced into the program and
for the lack of openness and understandability in the process it uses
to make national coverage policies.
In light of these concerns, you asked us to examine:
1. To what extent are new procedures and devices incorporated into the
Medicare program?
2. What has been the effect of the local coverage process on
beneficiaries, carrier and fiscal intermediary efficiency, and
stakeholders, including device manufacturers and physicians?
3. What has been the effect of the national coverage process on
beneficiaries, physicians, and other providers, and to what degree has
CMS addressed concerns about the process?
In preparing this report, we focused on new procedures and devices that
are provided by physicians (and allied professionals under their
supervision) or other providers and that could be billed under part B,
including anesthesia and laboratory tests. We also included devices
that could be used by beneficiaries in their homes. Claims for covered
procedures and devices in our study are generally processed by
carriers. We included some procedures that physicians would perform in
an inpatient hospital setting--such as surgeries--that could also have
related claims by hospitals under part A that would be processed by
fiscal intermediaries. To determine the extent to which new procedures
and devices are incorporated into Medicare, we selected 320 codes for
procedures and devices that were new in 2001, analyzed information
about these codes, and reviewed national and local policies that
affected them. To evaluate the effects of the local and national
coverage processes and concerns about the national coverage process, we
(1) reviewed CMS, carrier, and fiscal intermediary coverage policies,
including analyzing national coverage policies that CMS made from
February 1999 through July 2002, and (2) interviewed CMS regional and
headquarters officials; Food and Drug Administration (FDA) officials;
Medicare staff at four carriers,[Footnote 5] which included one DME
regional carrier[Footnote 6] and one that also served as a fiscal
intermediary;[Footnote 7] and advocates representing physicians,
suppliers, and beneficiaries. Appendix I contains more detail on our
scope and methodology. Our work was conducted from October 2001 through
March 2003 in accordance with generally accepted government auditing
standards.
Results in Brief:
Medicare covered most--about 99 percent--of procedures and devices
assigned codes in 2001. For procedures and devices with established
codes, Medicare contractors' automated claims processing systems
generally accept--and pay--claims, unless coverage policies define or
restrict when Medicare will pay for their provision. About one quarter
of the new codes for procedures and devices were introduced into
Medicare without any coverage policies that affected their use. About
one quarter of the new codes had associated national coverage policies,
while the rest were affected only by local coverage policies developed
by at least one claims administration contractor. More than half of the
codes affected by national coverage policy were also affected by one or
more local coverage policies.
Dividing authority to develop coverage policies has led to coverage
inequities for Medicare beneficiaries with similar medical conditions
based on the location where they receive treatment and to
inefficiencies in program administration. For example, in July 2002,
carriers provided coverage for a new treatment for Parkinson's disease
for certain beneficiaries with debilitating tremors treated in Kansas,
but not in Florida. On April 1, 2003, CMS implemented a national
coverage policy for this treatment. Coverage varies by state for
certain tests to diagnose or monitor an individual's response to
treatment for cancer. One test is covered by carriers in Rhode Island
and Pennsylvania, but is not covered in Florida and New Jersey. In
addition to coverage inequities, having each carrier and fiscal
intermediary separately develop policies for the same procedure or
device results in duplication of efforts and program inefficiencies.
For example, eight carriers have separately followed the extensive,
required steps to develop local policies for a method of identifying a
possible risk of sudden cardiac death. Despite these problems, some
groups, including device manufacturers' representatives and physician
groups, argue that local coverage policies have benefits. For example,
they state that local policies can be developed more rapidly than
national coverage policies and that the local coverage process is open
to physician and public input.
Because CMS's national policies apply to all Medicare beneficiaries
regardless of their treatment location, these policies promote coverage
consistency for beneficiaries, physicians, and other providers.
However, CMS's national coverage process had been criticized for being
slow, not clear, and not open to public input. To address these
concerns, CMS recently took steps to strengthen its national coverage
process. In 1999, for example, the agency made the process more
understandable by publishing the steps it takes to develop national
coverage policies. Nevertheless, some problems persist. For example,
CMS does not publish its draft national coverage policies for public
comment. In addition, CMS does not always consult with experts outside
the agency when it develops coverage policies.
Because of inequities and inefficiencies resulting from divided
authority to develop coverage policy among CMS, carriers, and fiscal
intermediaries, we are recommending that CMS eliminate claims
administration contractors' development of new local coverage policies
for procedures and devices that have established codes. We are also
recommending that CMS establish a new process for making national
coverage policy.
In commenting on a draft of this report, the Department of Health and
Human Services (HHS) generally disagreed with our recommendations and
expressed concerns about the effects of these proposed changes on the
Medicare program and the resources that would be required to implement
them. We believe our recommendations would lead to more consistent
coverage policies for Medicare beneficiaries and would increase program
efficiency through redirecting the resources that are currently devoted
to duplicative policy making.
Background:
Medicare is the federal health insurance program that serves 40 million
beneficiaries who are aged 65 years and older, certain disabled people
under 65 years of age, and individuals with end-stage renal disease.
The program is administered by CMS--formerly the Health Care Financing
Administration (HCFA)[Footnote 8]--an agency within HHS. Most
beneficiaries receive their care on a fee-for-service basis, with
providers submitting claims for payment for each service provided. CMS
contracts with claims administrators--health insurers--to process
claims from nearly 1 million hospitals, physicians, and other health
care providers. In fiscal year 2000, carriers processed about 740
million claims and fiscal intermediaries processed about 151 million
claims.
Medicare Payment for Claims Relies on Codes for Billing:
Medicare's payment systems for claims are highly automated and rely on
codes to identify medical procedures and devices used in beneficiaries'
diagnoses and treatments. Contractors identify specific procedures and
devices billed on behalf of a beneficiary by Healthcare Common
Procedure Coding System (HCPCS) codes, a series of five digits used by
Medicare and other health insurance programs. The HCPCS also contains
miscellaneous codes that can be used to bill for procedures and devices
for which there are no established codes.[Footnote 9] The HCPCS
contains three sets of codes--Levels I, II, and III. Level I consists
of Current Procedural Terminology (CPT) codes used primarily to
identify medical services and procedures furnished by physicians and
other health care professionals. Level II codes represent products,
supplies, and services not included in CPT codes, such as ambulance
services and DME used in a beneficiary's home. Level III codes are
"local" codes that have been developed by Medicare carriers and fiscal
intermediaries, Medicaid state agencies, and private insurers for use
only in their specific jurisdictions. Local codes are scheduled to be
eliminated in December 2003.[Footnote 10]
A request for a new HCPCS code may be made by physicians or medical
device manufacturers for procedures and devices that may be clinically
different from existing treatment options--generally to better
delineate a new procedure from a similar one or when the cost of a new
procedure or device necessitates a different payment amount.
Two different entities are responsible for assigning new codes. The
American Medical Association's (AMA) CPT Editorial Panel[Footnote 11]
annually updates codes for procedures and other physician services--CPT
codes. The HCPCS National Panel, which is composed of CMS and insurer
representatives,[Footnote 12] annually updates codes for medical
devices and other products--HCPCS Level II codes. Because the code sets
maintained by the AMA CPT Editorial Panel and HCPCS National Panel are
designed to serve multiple health insurers, not all of the codes are
for services or items covered by Medicare.[Footnote 13] It usually
takes at least 15 months from the date a new code is requested for a
new code to be assigned and put into use.
Medicare's Statute Sets Out Broad Categories of Covered Services and
Items:
To be eligible for coverage under Medicare, specific health care
services must fit into 1 of about 55 categories of benefits described
in statute. The Secretary of HHS has been delegated legal authority to
specify which procedures, devices, and services are covered in the
broad benefit categories and under what conditions. The Secretary
delegates this responsibility to CMS, which, in turn, delegates some of
this responsibility to its claims administration contractors.
The law states that Medicare cannot pay for any items or services that
are not "reasonable and necessary" for the diagnosis and treatment of
an illness or injury or to improve functioning of a malformed body
part.[Footnote 14] The law excludes some services and items from
coverage, such as routine physical checkups, most immunizations,
cosmetic surgeries, hearing aids, eyeglasses, routine foot care, and
routine dental care.[Footnote 15] Medicare law has been amended several
times to add new coverage--including certain preventative health care
services such as immunizations for pneumonia and influenza; mammogram,
pap smear, and pelvic exam screenings; and tests for prostate and
colorectal cancer.[Footnote 16]
Each year, CMS reviews new CPT codes and HCPCS Level II codes for
procedures and devices to determine if these codes fit into a Medicare
benefit category and can be covered because they are deemed reasonable
and necessary for a beneficiary's diagnosis or treatment. Following its
review, CMS provides information on new codes to claims administration
contractors, including coverage, billing, and payment instructions.
(See app. II for more detail on the coding assignment process.):
CMS and Claims Administration Contractors May Develop Policies Defining
When New Procedures and Devices Are Covered:
Even when CMS determines that Medicare may cover a procedure or device,
CMS or its claims administration contractors may develop policies that
delineate the circumstances under which its use is considered
reasonable and necessary, and thus covered. Using a process that began
in 1999, CMSísCoverage and Analysis Group (CAG), which is located in
the Office of Clinical Standards and Quality, develops national
coverage policies, which are binding on Medicare contractors and apply
to all beneficiaries. The agency has also compiled a body of national
policy on Medicare coverage that is included in manuals and other
written materials for claims administration contractors. In addition,
claims administration contractors develop local coverage policies,
which apply to beneficiaries being treated in their jurisdictions.
CAG begins the national coverage process when it receives a formal
request from an outside partyóa device manufacturer, for instanceóor
when CAG internally identifies the need to consider coverag [Footnote
17]CAG internally identifies the need for national coverage policies
under several circumstancesófor example, when a procedure or device is
seemingly being used inappropriately, controversy exists about its
clinical benefit, or new evidence of clinical effectiveness is
available. Once CAG accepts a request to consider a national coverage
policy, it may complete an analysis in-house or seek outside scientific
help by requesting a technical assessment, referring the issue to an
advisory committee, or both. After conducting its own analysis and
reviewing any external input, CAG may arrive at several possible
courses of action.(See app. III for more information on the process CMS
uses to develop national coverage policies.) These include a national
noncoverage policy, which precludes claims administration contractors
from making Medicare payment; a coverage policy with specific
restrictions; a policy that allows claims administration contractors to
use their discretion when deciding whether to cover the procedure or
device in their service areas; [Footnote 18]or a coverage policy with
no national restrictions. By statute, CMS can issue policies on
national coverage without using the notice and comment rulemaking
procedures required for substantive changes.[Footnote 19] e.
In addition to CMS's national policies, carriers and fiscal
intermediaries may develop coverage policies that apply to the claims
they process, as long as their policies do not conflict with national
coverage policy. Each contractor has at least one physician who serves
as a medical director to help develop local coverage policies. Medicare
claims administration contractors' role in determining coverage dates
back to 1965, when the Medicare program was first authorized. At that
time, the Congress arranged for many Medicare operations to be placed
in the hands of private insurers to allow the program to be implemented
rapidly by organizations already processing claims for hospitals and
physicians. Nevertheless, claims administration contractors did not
begin to develop written policies until the late 1970s.
Claims administration contractors develop local coverage policies for a
number of reasons. Local policies specify conditions to automatically
deny inappropriate claims through Medicare's automated claims
processing systems.[Footnote 20] In addition, contractors may develop
local policies to address their concerns about inappropriate
utilization and improper billing for a particular procedure or
device.[Footnote 21] Local coverage policies may specify acceptable
diagnoses, guidelines on use, and documentation requirements. (See app.
IV for more information on the process carriers and fiscal
intermediaries use to develop local policies.):
Unlike other carriers and fiscal intermediaries that are allowed to
develop their own local coverage policies, the four DME regional
carriers are required to jointly develop and utilize one set of
policies. Therefore, DME regional carriers' policies outlining
beneficiaries' coverage for DME, prosthetics, orthotics, and supplies
are identical across the nation. While DME regional carriers develop
coverage policy that has national applicability, they follow a policy
development process that is similar to that employed by carriers and
fiscal intermediaries, as outlined in appendix IV.
Medicare Covered Most Procedures and Devices Assigned Codes in 2001,
Often Without National or Local Coverage Policy:
Overall, Medicare covered most procedures and devices that had been
assigned a code for 2001. Medicare's automated payment systems
generally accept, and pay claims for, procedures and devices that have
established codes, unless coverage policies have been developed to
define or restrict when Medicare will pay for their provision. There
were no coverage policies for about one quarter of procedures and
devices we studied that were assigned codes in 2001. The remaining
codes were affected by national or local coverage policies or both.
We selected for our study 320 codes for procedures and devices issued
in 2001.[Footnote 22] Of these 320 codes, CMS identified 316 as
coverable, and identified only 4--or about 1 percent--as
noncoverable.[Footnote 23] The four noncoverable services and devices
were a vision screening test, a type of rehabilitative physical
exercise for arterial disease that is supervised by a nurse or an
exercise physiologist, smoking cessation counseling, and a supportive
garment. CMS determined that these services and devices were not
allowable according to Medicare statute.
We found that, as of May 2002, there were no coverage policies for 25
percent of the 316 coverable new codes for procedures and devices, and
26 percent were affected by a national coverage policy. For example,
national policy permitted a new battery-powered piece of inhalation
therapy equipment to be covered only for patients with severely
impaired breathing ability. To implement national coverage policies,
contractors sometimes develop local coverage policies to provide more
detailed billing requirements.[Footnote 24] As table 1 shows, 16
percent of the 2001 codes for procedures and devices that were affected
by national policy also had local policy developed by claims
administration contractors.
Table 1: Number and Percent of the New Coverable Procedure and Device
Codes for 2001 That Were Affected by National or Local Coverage Policy:
Type of coverage policy: National only; Number of codes affected: 33;
Percent of codes affected: 10.
Type of coverage policy: Both national and local; Number of codes
affected: 50; Percent of codes affected: 16.
Type of coverage policy: Local only; Number of codes affected: 154;
Percent of codes affected: 49.
Type of coverage policy: No policy; Number of codes affected: 79;
Percent of codes affected: 25.
Type of coverage policy: Total; Number of codes affected: 316; Percent
of codes affected: 100.
Source: GAO analysis.
[End of table]
In the absence of a national coverage policy, contractors have broad
discretion to develop local coverage policies that can define or
restrict coverage for new procedures and devices. About 65 percent of
the 316 new codes for procedures and devices were included in at least
one local coverage policy that had been created by at least one claims
administration contractor.[Footnote 25] For example, in the absence of
a national coverage policy, as of December 2002, three carriers and two
fiscal intermediaries had developed local coverage policies to define
or restrict coverage for a new, minimally invasive surgery for
abdominal aortic aneurysms.
While local coverage policies affected about 65 percent of the new
codes for procedures and devices, each individual contractor's policies
generally affected only a small number of the new codes. For example,
we found that--on average--individual carriers had policies that
affected 8 percent of the 316 procedure and device codes. Further, some
of the new codes were incorporated into local policy by only one
single-state carrier. For example, Blue Cross Blue Shield of Montana
was the only carrier to develop a local policy that outlined how to
bill for a new code for venous access catheters, which affected
coverage only for beneficiaries in Montana. Similarly,
HGSAdministrators was the only carrier to establish a local policy that
outlined coverage for new codes involving certain cochlear implantation
procedures, which affected coverage only for beneficiaries in
Pennsylvania.
Variations in Local Coverage Policies Lead to Program Inequities and
Inefficiencies:
Allowing carriers and fiscal intermediaries to make local coverage
policies leads to different treatment for beneficiaries in different
locations and to inefficiencies due to duplication in contractors'
policy-making efforts. Because the authority to make local coverage
policies is divided among carriers and fiscal intermediaries, Medicare
can cover a procedure for a beneficiary receiving care in one locality
and not cover that procedure for a beneficiary with a similar medical
condition being treated in another location. Further, because more than
one fiscal intermediary can pay part A claims for hospitals in a given
area, Medicare can cover a procedure for a specific diagnosis in one
hospital, but not in another hospital in the same local area. Local
policy development is also inefficient because carriers and fiscal
intermediaries duplicate many of the steps--such as identifying and
assessing the medical literature to determine if the procedure or
device has clinical benefit--taken by other carriers or fiscal
intermediaries that have developed policies on the same procedures and
devices. Despite these problems, some groups still support coverage
policy developed at the local level.
Local Coverage Policy Leads to Coverage Variations that Can Affect
Beneficiaries' Access to Treatment:
Because CMS gives claims administration contractors discretion to
determine coverage and develop local coverage policy, beneficiaries'
coverage for specific procedures and devices varies nationwide. One
recent example of the impact on beneficiaries involves a surgical
treatment--called deep brain stimulation (DBS)--for tremors associated
with the two most common neurological disorders.[Footnote 26] DBS may
produce significant improvement in physical functioning for people
suffering from severe, debilitating tremors that can no longer be
controlled by medication.[Footnote 27] There are two kinds of DBS--
unilateral brain stimulation of the thalamus and bilateral stimulation
of other brain structures. Bilateral DBS can help reduce the typically
more debilitating symptoms of Parkinson's disease, including stiffness
and slowness. According to a survey of carriers we conducted, Medicare
coverage of bilateral DBS varied considerably. (See fig. 1.) As of July
31, 2002, carriers serving 30 states and part of another covered
bilateral DBS, while carriers did not cover this procedure in 10 states
and the District of Columbia. In 9 states and part of another, carriers
indicated that they might approve the procedure on a case-by-case
basis. For example, in Missouri, where two carriers serve different
parts of the state, bilateral DBS was covered in the western part of
the state and was covered on a case-by-case basis in the eastern part.
Figure 1: Carrier Coverage for Bilateral DBS by State, as of July 31,
2002:
[See PDF for image]
[End of figure]
In October 2001, a beneficiary with Parkinson's disease requested that
CMS issue a national coverage policy on bilateral DBS. At the time of
his request, the beneficiary was not covered for bilateral DBS because
he lived in Texas, where the carrier did not cover this
surgery.[Footnote 28] On April 1, 2003, CMS implemented a national
policy that covered DBS for all beneficiaries who meet certain coverage
criteria.
While a national coverage policy will help ensure consistent bilateral
DBS coverage, variations in coverage continue to be a concern for
beneficiaries needing other procedures. For example, carriers vary in
their coverage for tumor assay tests that are used to diagnose or
monitor the response to treatment of cancer and were assigned codes in
2001. Carriers in Florida and New Jersey have local policies that
clearly prohibit coverage for one of these tests because they do not
consider its clinical benefits to be proven. In contrast, carriers in
other states--such as Rhode Island and Pennsylvania--cover this test
for physicians to monitor the course of disease in patients with
established diagnoses of certain types of cancers. In 2001, Medicare
paid over $382,000 for this tumor assay test in 38 states.[Footnote 29]
We also found that part B coverage for treatment options can differ
even for beneficiaries who are treated in the same state and are served
by the same carrier. One reason that policies may vary within a
carrier's service area is that, since 1990, more than 40 percent of
Medicare carriers have left the program. As of October 2002, 11 of the
remaining carriers have assumed responsibilities for administering
their claims. For example, prior to December 1, 2000, National Heritage
Insurance Company (NHIC) served northern California and another carrier
served southern California. After NHIC assumed responsibility for
claims administration in southern California, NHIC staff assessed local
policies in its jurisdiction to understand the extent to which its
policies varied. Our analysis of NHIC's data found that 38 percent of
southern California's policies were not shared by northern California
in September 2001. (See table 2.)[Footnote 30] We found that northern
and southern California still had varying local coverage policies as of
October 2002, including the examples in table 2.
Table 2: Variations in Local Coverage Policies in Northern and Southern
California:
Region: Northern California; Total local coverage policies: 80; Number
of local coverage policies limited to one region: 22; Percent of local
coverage policies limited to one region: 28; Examples of local coverage
policies limited to one region: * Whole body bone and/or joint imaging;
* Extracapsular cataract removal.
Region: Southern California; Total local coverage policies: 145; Number
of local coverage policies limited to one region: 55; Percent of local
coverage policies limited to one region: 38; Examples of local coverage
policies limited to one region: * Audiology testing; * Pap smear,
diagnostic; * Vagus nerve stimulation for epilepsy.
Source: GAO analysis.
[End of table]
Coverage policies for part A services can also vary within each state
because hospitals and other part A providers can choose their fiscal
intermediary. As a result, different fiscal intermediaries may serve
providers in the same state, or even in the same city. This can result
in differential coverage of a procedure, if two fiscal intermediaries
in the same state have differing policies. For example, the two fiscal
intermediaries who pay hospital claims in Kansas each have local
coverage policies on a specific type of cataract surgery. However,
these policies are not identical. One fiscal intermediary's policy
lists covered diagnoses that are not listed as covered in the other
fiscal intermediary's policy, which leads to differences in claims
payment.
Further, CMS does not require carriers and fiscal intermediaries that
pay claims for services and items in the same geographic area to
develop similar local coverage policies, even for the same treatments.
This can lead to differences in coverage depending on location of
service, such as whether a procedure is performed in a doctor's office
and paid by the carrier, or performed in a hospital outpatient
department and paid by the fiscal intermediary responsible for that
hospital's claims.
Duplicative Efforts to Develop Local Policies by Carriers and Fiscal
Intermediaries Result in Program Inefficiencies:
Allowing individual carriers and fiscal intermediaries to develop their
own policies results not only in instances of inequitable coverage, but
also is inefficient as each contractor takes parallel steps to develop
policies on similar topics. For example, eight carriers have developed
local coverage policies for a method of measuring changes in heartbeats
on an electrocardiogram, which are a possible harbinger of sudden
cardiac death. Further, two fiscal intermediaries have developed local
coverage policies for a new, minimally invasive treatment for abdominal
aortic aneurysms, and four fiscal intermediaries have developed
policies for upper gastrointestinal endoscopy, which is a procedure
using a lighted tube to visualize the esophagus, stomach, and part of
the small intestine.
We identified duplicative efforts to develop policies for procedures
and devices assigned codes in 2001 among the four carriers that we
visited. As table 3 shows, we found that for six procedures, two
carriers independently developed or revised their own coverage
policies. For example, two carriers each developed new local coverage
policies for a procedure to graft tissue-cultured skin, called
bilaminate skin substitute.
Table 3: Local Coverage Policies for Procedures with New Codes
Developed or Revised by Four Carriers in Four States:
Procedure addressed by local coverage policy: Bilaminate skin
substitute; Carrier/state: National Heritage Insurance Company:
Massachusetts: Yes; Carrier/state: Blue Cross Blue Shield of Rhode
Island: Rhode Island: [Empty]; Carrier/state: Noridian Administrative
Services: Nevada: [Empty]; Carrier/state: CIGNA HealthCare Medicare
Administration: Tennessee: Yes.
Procedure addressed by local coverage policy: Percutaneous
vertroplasty; Carrier/state: National Heritage Insurance Company:
Massachusetts: Yes; Carrier/state: Blue Cross Blue Shield of Rhode
Island: Rhode Island: [Empty]; Carrier/state: Noridian Administrative
Services: Nevada: [Empty]; Carrier/state: CIGNA HealthCare Medicare
Administration: Tennessee: Yes.
Procedure addressed by local coverage policy: Endoscopic
ultrasonography, upper gastrointestinal tract; Carrier/state: National
Heritage Insurance Company: Massachusetts: Yes; Carrier/state: Blue
Cross Blue Shield of Rhode Island: Rhode Island: [Empty]; Carrier/
state: Noridian Administrative Services: Nevada: Yes; Carrier/state:
CIGNA HealthCare Medicare Administration: Tennessee: [Empty].
Procedure addressed by local coverage policy: Ocular photodynamic
therapy; Carrier/state: National Heritage Insurance Company:
Massachusetts: Yes; Carrier/state: Blue Cross Blue Shield of Rhode
Island: Rhode Island: [Empty]; Carrier/state: Noridian Administrative
Services: Nevada: Yes; Carrier/state: CIGNA HealthCare Medicare
Administration: Tennessee: [Empty].
Procedure addressed by local coverage policy: Magnetic resonance
angiography; Carrier/state: National Heritage Insurance Company:
Massachusetts: [Empty]; Carrier/state: Blue Cross Blue Shield of Rhode
Island: Rhode Island: Yes; Carrier/state: Noridian Administrative
Services: Nevada: [Empty]; Carrier/state: CIGNA HealthCare Medicare
Administration: Tennessee: Yes.
Procedure addressed by local coverage policy: Immunoassay for tumor
antigen; Carrier/state: National Heritage Insurance Company:
Massachusetts: [Empty]; Carrier/state: Blue Cross Blue Shield of Rhode
Island: Rhode Island: Yes; Carrier/state: Noridian Administrative
Services: Nevada: [Empty]; Carrier/state: CIGNA HealthCare Medicare
Administration: Tennessee: Yes.
Source: GAO analysis.
[End of table]
Although the carriers we visited attempt to build on the work of others
or adapt policies developed by individual or groups of carrier medical
directors, they still often duplicate research efforts. Each carrier
ultimately has to arrive at, and justify, its own coverage policy,
which means that the carrier medical director and other staff must
review the evidence and other related policies. Each carrier also takes
parallel steps to complete the process required to adopt the policy,
such as consulting with experts, holding public and carrier advisory
committee meetings, responding to input received, and posting draft
local coverage policies on the carrier's Web site.[Footnote 31]
Each contractor that develops policy must devote staff time to this
activity. One multistate carrier we visited developed or revised 21
policies in fiscal year 2002, which was a full-time task for a
registered nurse, with help from one of the carrier's medical directors
and support staff. This carrier reported that its medical directors
generally commit 10 to 30 percent of their time to policy development.
Medical directors at other carriers also reported committing
significant amounts of their time to developing policy. One carrier
medical director told us that, because his resources for evidence
gathering are limited, he often relies on physicians and suppliers for
evidence even though he knows this could bias the selection of
information to be considered.
Lack of information and communication from CMS regarding the
development of national coverage policies has resulted in wasted local
policy development efforts. Two medical directors stated that there are
no designated points of contact at CMS headquarters and no established
channel of communication between them and CMS staff who make national
coverage policies. According to one carrier medical director, in the
absence of detailed information on the status of CMS's efforts to
develop a national policy on ocular photodynamic therapy, which is a
new procedure that uses a laser-activated drug to treat macular
degeneration, the carrier developed its own policy. Overall, to clarify
their coverage, eight carriers developed local coverage policies for
this treatment, which could have affected beneficiaries in 23 states
and a portion of another state. While these carriers were obtaining
comments on their draft policies, in November 2000 HCFA issued a
national coverage policy on this therapy for beneficiaries with certain
types of eye lesions.
Some Groups Contend that Local Coverage Policy has Benefits:
While critics view variations in local coverage policy as inequitable
treatment of beneficiaries, device manufacturers' representatives,
some physicians and physician groups, and claims administration
contractors stated that the local coverage process has benefits. For
example, supporters indicated that the local process results in
coverage policy being made more rapidly than in the national process.
However, comparative timeliness information is difficult to generate
because claims administration contractors and CMS track different key
dates for their processes. For example, CMS reports the date when a
national coverage policy is requested and the agency's review is
initiated. In contrast, contractors report the date that a draft local
policy is released for comment--a point further along in the process
than the initial request date tracked in the national process.
Nevertheless, certain features of the local process may allow it to
respond quickly in expanding coverage. For example, claims
administration contractors can follow an expedited process when they
expand coverage, such as when they add new diagnoses as coverable in an
existing policy.
Supporters of local coverage policy have also argued that the steps
Medicare claims administration contractors take to consult with
physicians and the DME industry are a positive characteristic of the
local process. As appendix IV shows, when contractors propose a new or
more restrictive local coverage policy, carriers' and DME regional
carriers' advisory committees[Footnote 32] routinely review and comment
on draft local policies[Footnote 33] and contractors hold public
hearings about proposed policies. Further, all contractors post draft
policies on their Web sites and on a centralized Web site,
draftLMRP.net, and inform the public of how to comment on draft
policies and the closing dates for comments.[Footnote 34] Carrier
medical directors, who regularly consult with practicing physicians on
draft policies, told us that such consultations help them avoid
unintended consequences, which might be obvious to practicing
physicians or others, and could be beneficial for CMS.
National Coverage Policy Adds Consistency, But Current Policy
Development Process Could Be Strengthened:
Developing national policy creates more consistent coverage for
beneficiaries because it applies to all beneficiaries regardless of
their treatment location. Further, because national coverage policy
does not vary depending on location, it can be communicated more easily
to physicians, other providers, suppliers, and the general public.
However, concerns have been expressed about the openness,
understandability, and slow pace of the national coverage process, and
CMS has attempted to improve it--for example, by publishing the steps
it takes to make national coverage policies[Footnote 35] and issuing
coverage memorandums that outline the evidence considered to arrive at
its policies. Nevertheless, some problems persist, such as the lack of
consistent public, expert, or practitioner input on proposed coverage
changes.
National Coverage Policy Promotes Programmatic Consistency:
Developing coverage policy with national applicability promotes
coverage consistency because it applies to all beneficiaries regardless
of where they receive treatment. Across the country, beneficiaries,
physicians, other providers, and suppliers already have consistent
coverage policies for DME, prosthetics, orthotics, and medical supplies
because DME regional carriers develop identical policies. Companies
providing DME in multiple states can do so knowing that one set of
coverage rules applies. In addition, coverage for many laboratory
services is subject to more consistent policies. The Balanced Budget
Act of 1997 mandated that HCFA establish national coverage policies for
laboratory tests[Footnote 36] and, as of November 2002, over 40 percent
of laboratory services currently billed to carriers were subject to
national coverage policies.
Having national coverage policy simplifies coverage for providers who
serve beneficiaries in multiple states. In its report on Medicare
laboratory payment policy, the Institute of Medicine noted that
Medicare's current administration of laboratory claims through its
carriers and fiscal intermediaries created inconsistency in the
interpretation of policy and procedures and led to variable
interpretations of medical necessity for the same tests given under the
same circumstances in different locations. These inconsistencies
created particular problems for laboratories that performed tests on
specimens drawn from beneficiaries in many different states, because
the laboratories had to deal with differing policies and procedures for
similar claims.[Footnote 37]
Although national coverage policy could lead to greater programmatic
consistency, Medicare still allows local variations in the application
of its national policies. For example, HCFA issued a memorandum on
national coverage of a noninvasive diagnostic test to measure heart
function in 1998.[Footnote 38] The national coverage policy stated that
Medicare would cover the test for beneficiaries with suspected or known
cardiovascular disease. Some carriers chose to clarify this broad
coverage description in order to automate claims denial by specifying
the appropriate diagnoses and the diagnostic codes that would indicate
medical necessity for performing this test, while other carriers did
not. As a result, a beneficiary in Tennessee diagnosed with "shortness
of breath" could have the test covered by Medicare, whereas a
beneficiary with the same diagnosis in Michigan would not have the test
covered.
We and others have recommended that CMS work toward a more consistent
coverage approach. In 1996, we reported that carriers differed in their
policies for six groups of medical procedures that could be
inappropriately used.[Footnote 39] As a result, we recommended that the
agency analyze expensive and inappropriately used services, identify
local coverage policies for these services, and work with claims
administration contractors to develop more consistent policies for
them. Since then, the agency has encouraged claims administration
contractors to develop policies to address expensive and
inappropriately used services. More recently, the Medicare Payment
Advisory Commission recommended that the local coverage policy-making
process be abolished in favor of a single national process in order to
develop more consistency in the program.[Footnote 40] The commission
noted that eliminating local coverage policies would reduce the current
complexity, inconsistency, and uncertainty in the Medicare program,
along with the associated burden on providers and beneficiaries.
Concerns Remain about the Openness, Understandability, and Timeliness
of CMS's National Coverage Process:
Over the years, the agency's national coverage process has been
criticized for its lack of openness, lack of understandability, and
slow pace. Critics have stated that the national coverage process was
not open because meetings of scientific experts and clinicians advising
the agency were not open to the public. Further, they have charged that
the process was not understandable because the steps that the agency
followed were not clear. In the late 1990s, the agency acknowledged
that its advisory committee structure had flaws, its process was not
always clear and understandable to outside parties, and its progress in
developing policies was not easy to follow. To address these problems,
the agency began developing a new coverage process. However, we found
that the new national process
1) does not routinely provide for consultation with experts or allow
the public to comment on draft policies, 2) is conducted without clear
criteria to guide policy making and make it more understandable to
interested parties, and 3) generally does not meet agency-set time
frames.
CMS Developed Its New National Coverage Process to Address Concerns
about Openness and Understandability:
One of the first steps the agency took to make its national coverage
process more open was to establish a new advisory committee. In 1993,
HCFA had created the Technology Advisory Committee to provide it with
expert advice concerning whether Medicare should cover specific
technologies on a national basis.[Footnote 41] This panel included
officials from HCFA, employees from other agencies within HHS, and
carrier medical directors. However, under the Federal Advisory
Committee Act, committees that include members who are not government
employees and provide expert advice to the federal government are
required to do so through open public meetings.[Footnote 42] Because
the Technology Advisory Committee included carrier medical directors
employed by private sector companies, the committee did not fall within
the exception in the act for advisory committees made up wholly of
government employees. In 1998, we found that, because meetings of the
committee had been closed, the Technology Advisory Committee was in
violation of the Federal Advisory Committee Act.[Footnote 43]
To make its advisory process more open and understandable, in 1998 HCFA
established a new group--MCAC. When CMS chooses to ask MCAC for
assistance, MCAC conducts open, public meetings to assess the
scientific and clinical evidence of the effectiveness and
appropriateness of services and items, such as DME, which are covered
or eligible for coverage under Medicare.[Footnote 44] The committee--
with up to 120 members divided into specialty panels--includes experts
in a broad range of medical, scientific, and other professional
disciplines, as well as consumer and industry representatives as
nonvoting members. MCAC does not advise CMS as to whether Medicare
should cover a service or item. Instead, it discusses medical
literature, technical assessments, and other information on the
clinical effectiveness of medical services and items, and advises CMS
on whether there is sufficient evidence to show that a service or item
leads to an appropriate health outcome. When CMS uses MCAC assistance,
interested parties have access to public meetings and transcripts,
which can help make CMS's final coverage policy more understandable to
them.
To further enhance openness and understandability, CMS routinely
publishes technical assessment reports on procedures and devices that
it is considering for coverage. Technical assessment reports are
written evaluations of the clinical usefulness of medical
interventions, based on a systematic review of the literature and a
synthesis of the data from multiple studies. In December 1999, CMS
instituted an agreement with HHS's Agency for Healthcare Research and
Quality to obtain, as needed, technical assessment reports. The Agency
for Healthcare Research and Quality generally contracts for technical
assessments to be conducted by academic or research centers that
specialize in evaluating medical evidence. CMS decides, on a case-by-
case basis, which issues will be referred to MCAC, to the Agency for
Healthcare Research and Quality for an outside technical assessment
report, or to both.[Footnote 45]
CMS took other steps to make its national coverage process more open
and understandable. In January 1999, the agency created a Web site that
provides information on pending and final national coverage policies--
including a tracking sheet that indicates the dates key actions were
taken, such as referral to MCAC for a review of clinical evidence, and
coverage memorandums that explain CMS's rationale in making a
particular policy.[Footnote 46] In addition, in April 1999, to help the
public understand its new process, the agency published a notice in the
Federal Register outlining the procedural steps it would take in
developing a national coverage policy.[Footnote 47] CMS also noted that
it would reconsider coverage policies based on new scientific and
medical information. This has allowed individuals to challenge earlier
coverage policies. Such challenges have been the most common reason for
external requestors to seek a national coverage policy. In fiscal years
2000 and 2001, there were 12 external requests for CMS to review a
previously adopted policy, compared to 5 external requests to create a
policy for a new item or service.
National Coverage Process Not Always Open to Experts and the Public:
CMS has taken significant steps to improve its policy making through
its new national coverage process. Nevertheless, the national process
is not always open to outside scientific experts, practicing
clinicians, beneficiaries, and others. CMS does not publish its draft
national coverage policies, and it does not always consult with MCAC,
specialty or practicing physician groups, and other experts when
developing national coverage policies.
While CMS has recently taken steps to obtain comments on national
policies as they are being developed, CMS does not post draft national
coverage policies on its Web site or use other means to obtain and
incorporate relevant input on draft policies before making them final.
Beginning in October 2001, CMS was required by law to ensure that the
public is afforded notice and opportunity to comment prior to
implementation of a national coverage policy.[Footnote 48] CMS has not
published a Federal Register notice revising its procedural steps to
indicate how this notice and opportunity to comment will be provided.
An agency official noted that the public may check on the status of
national coverage policies that are being developed on the agency's Web
site and may submit comments to CMS at any point in the policy
development process. CMS noted on its Web site that, for each national
coverage policy requested since April 2002, a 30-day comment period
would occur starting from the date of the request. However, because the
agency does not publish its draft national coverage policies, this
comment process does not afford the public the opportunity to review
them. Furthermore, the comment process does not require CMS to address
in the public record any comments it has received before contractors
implement the final policy.
Furthermore, CMS does not always openly consult with outside experts
when developing national coverage policies. While MCAC provides a
vehicle for CMS to obtain advisory opinions in an open forum, CMS has
used the MCAC for less than one-sixth of its national coverage
policies. CMS indicated that it calls upon the MCAC when CMS deems the
evidence to be more difficult to assess or when the coverage issue is
controversial or has potential to have a major impact on the Medicare
program. Since MCAC was established, CMS has requested its input for 9
of the 55 completed policies on national coverage--about 16
percent.[Footnote 49] When CMS chooses not to ask for MCAC's views,
there is no other provision for an open public discussion. And, when
MCAC is not used, it is also not clear to the public how CMS is
evaluating clinical evidence until the agency publishes a coverage
memorandum explaining the rationale for the final policy.
Finally, while CMS sometimes contracts with the Agency for Healthcare
Research and Quality for technical assessment reports, it does not
routinely obtain input from other HHS agencies that could provide
expertise, such as FDA.[Footnote 50] Because FDA considers evidence on
safety and effectiveness before approving medical devices and drugs for
marketing, routinely consulting with FDA officials who are familiar
with such evidence could provide additional insight on coverage issues
for CMS. However, when we began this review, FDA officials we
interviewed reported little contact with CMS staff working on coverage
matters. CMS officials responsible for coverage matters also reported
having limited contact with FDA. However, during our review, CMS and
FDA officials met to discuss how to coordinate more effectively, while
allowing FDA to protect proprietary information that companies have
provided to it during the course of its review.
CMS and FDA officials agreed that closer communication with FDA about
its reviews of particular devices and drugs could prove beneficial to-
-and lack of coordination could hinder--CMS coverage policy making. For
example, in October 2001, CMS announced that it intended to cover
ocular photodynamic therapy, a laser procedure that requires a light-
sensitive drug, for patients with a certain type of age-related macular
degeneration--a disease that can cause blindness. However, FDA had not
added treatment for this type of macular degeneration as a labeled use
of the drug. After its October 2001 announcement, CMS developed
concerns about the underlying data from the clinical trial upon which
the policy was based. After reconsideration, CMS rescinded its
memorandum on coverage for beneficiaries with this type of the
disease.[Footnote 51]
Recognizing the importance of having CMS work effectively with FDA, in
November 2002 the HHS Secretary's Advisory Committee on Regulatory
Reform[Footnote 52] issued a report that included five recommendations
for improving interagency coordination, collaboration, and
communication relating to new medical device technologies.[Footnote 53]
One of the recommendations was to establish a process, with input from
affected stakeholders, to enable early coordination between FDA and
CMS. Further, the Advisory Committee recommended that, when
appropriate, FDA and CMS should have parallel reviews, thereby
promoting more timely patient access to innovative therapies. Such a
parallel review could have CMS consult with device manufacturers during
the design of a clinical trial developed under FDA auspices, so that
the clinical trial could address issues of concern for both CMS and
FDA.
Lack of Clear Criteria Raises Concerns about Understandability of
National Coverage Process:
Critics of the national coverage process have also been concerned that
the basis for CMS's policies was not understandable, and this continues
to be a problem. The fundamental question in determining whether
Medicare should cover a new procedure or device is whether it is
"reasonable and necessary" for Medicare beneficiaries. However, the
agency has not published the criteria that it uses in the national
process to determine whether a service or item is reasonable and
necessary, nor has it provided information that outlines the evidence
needed to demonstrate that a procedure or device is clinically
beneficial.[Footnote 54]
In May 2000, HCFA published a notice of intent to develop a regulation
addressing the criteria for making coverage policies.[Footnote 55] This
was not the agency's first attempt to develop such a regulation. In
1989, HCFA had proposed a regulation that would better define when a
service or item was "reasonable and necessary."[Footnote 56] The agency
tried to include cost-effectiveness as part of the criteria, but this
issue generated controversy and the proposed rule was never finalized.
HCFA's approach in its May 2000 notice of intent was to solicit public
input before the agency began developing a proposed rule. In addition
to medical benefit, this notice proposed that an item or service would
be covered only if it demonstrated "added value"--which meant that it
substantially improved health outcomes; provided access to a
beneficial, but different treatment option (for example, treating with
a covered drug instead of surgery); or could substitute for an existing
item or service at an equal or lower cost to the Medicare population.
Proposing the "added value" criterion led to resistance, due to
concerns that the agency was planning to use cost considerations as a
basis for its coverage policies. CMS has not taken further regulatory
action to define what criteria it would apply to determine whether a
service or item was reasonable and necessary.
In response to questions we raised about the criteria it uses in its
national coverage process, CMS officials did not cite specific criteria
that are used. Instead, they stated that a set of case law criteria was
evolving through the national policies they had made, and suggested the
criteria could be inferred from reading the coverage memorandums on the
CMS Web site. However, having beneficiaries, physicians, and device
manufacturers infer criteria that may apply to coverage policies from
coverage memorandums does not substitute for specifying, and making
public, clear criteria. Interested parties may not be able to infer the
criteria from CMS's coverage memorandums or may differ in their
interpretations. In contrast, the agency has published guidance on
criteria in a manual for claims administration contractors to use in
developing their coverage policies. These criteria help contractors to
determine when a procedure or device that fits into Medicare's benefit
categories and is not excluded from coverage by statute may be covered
because it is considered reasonable and necessary. (See app. V.):
In addition to not publishing the criteria for its national process,
CMS has not published guidance on how it will consider evidence in
making national coverage policies. Officials said that they are in the
process of preparing guidance to help the public better understand the
types of evidence used in making national policies. Agency officials
stated that they employ an evidence-based approach in the national
coverage process. Using this approach, clinical research results based
on a strong methodology are given more weight than other types of
evidence. The MCAC advisory input and technical assessments that CMS
sometimes obtains are part of its evidence-based approach.
Issues of Timeliness Conflict with Need for Public Input:
The timeliness of the agency's coverage policy making has been a long-
standing issue. We reported in 1994 that, when complicated clinical
issues were involved, it could take HCFA several years to develop
national coverage policies.[Footnote 57] Device manufacturers raised
the issue of timeliness of the national coverage process again during a
hearing before the House Ways and Means Committee in l999.[Footnote 58]
HCFA responded to concerns about timeliness by setting time frames for
developing national coverage policies in its April 1999 Federal
Register notice about its coverage procedures. In this notice, HCFA
stated that it intended to respond in writing to requesters of national
coverage policies within 90 calendar days of receiving the
request.[Footnote 59] The agency noted that it generally expected to
meet this 90-day time frame and would likely be able to respond in less
time if the coverage issue was supported by clear medical and
scientific evidence and was not complex or controversial. However, the
notice further stated that the time frame could be longer if, for
example, at a later time, the requester submitted subsequent medical
and scientific information for consideration or if the coverage issue
was referred to MCAC or required an outside technical assessment.
In practice, CMS has generally taken considerably longer than the 90-
day goal established in 1999. Our analysis of 55 national coverage
policies showed that only 10 met the 90-day goal.[Footnote 60] Our
analysis showed timeliness differences based on whether the coverage
policy requester was an outside party or within CMS and whether the
issue was referred to MCAC or for a technical assessment. Overall, the
agency took an average of about 7½ months to issue a coverage
memorandum for the 55 national coverage policies, with 12 taking a year
or more.[Footnote 61] Policies responding to requests that were
generated within the agency took longer than those that were requested
by an outside party--such as a device manufacturer or a provider
association. There were 28 internal requests, which took an average of
about 251 days, and 27 external requests, which averaged about 188 days
for CMS to issue a coverage memorandum.[Footnote 62]
Referring a coverage issue to MCAC or requesting a technical assessment
report added months to the national coverage process. The agency
requested technical assessments for most issues referred to MCAC to
help that committee assess the evidence.[Footnote 63] While the 39
policies that were processed without outside advice took an average of
about 152 days, the 16 policies that were referred for MCAC advice, a
technical assessment, or both averaged about 411 days--or over 8 months
longer.
Conclusions:
As a national program affecting 40 million beneficiaries, Medicare
needs consistent coverage policies. Giving contractors broad discretion
to make local coverage policies for procedures and devices has led to
inequitable variations in coverage for beneficiaries depending on where
they are treated. In addition, dividing the authority for making
coverage policy among local contractors has resulted in program
inefficiencies. While developing policy through a national process
offers the advantages of consistency and efficiency, concerns remain
about the openness and timeliness of CMS's national coverage process.
Further, concerns have been expressed about the process because the
agency has not published clear criteria for judging if a particular
procedure or device is reasonable and necessary for Medicare
beneficiaries.
We believe that a more equitable and efficient way to develop coverage
policy would be to eliminate development of local policy for procedures
and devices that have established codes. Instead, Medicare coverage
policies should be made through a new, single process that develops
consistent, national coverage policies for procedures and devices. Such
a process could also examine current local coverage policies on
procedures and devices to determine whether these policies should be
consolidated into national coverage policies that would be consistent
for all beneficiaries or be eliminated.
Developing a new national coverage process would require careful design
and implementation. The new process should address areas of long-
standing concern about openness, timeliness, and clarity of policy
making. Key aspects of a new process would include routinely consulting
with the public, clinicians, and other experts before finalizing
coverage policies; leveraging the expertise of others within HHS, such
as those within FDA; and closely adhering to established time frames to
improve timeliness of policy issuance. We also believe that CMS needs
to develop clear criteria for its national process to make its coverage
policies more understandable to others.
Recommendations for Executive Action:
To ensure that all Medicare beneficiaries are treated equitably, we
recommend that the Administrator of CMS:
* eliminate the ability of claims administration contractors to develop
new coverage policies for procedures and devices that have established
codes;
* develop and implement a plan to evaluate the merits of all existing
local coverage policies that affect procedures and devices with
established codes, with the intent of incorporating appropriate aspects
of local policies into national coverage policies and eliminating the
remainder;
* establish a new process for making national coverage policies that
requires public input on draft policies, adheres to time frames, and
provides for routine consultation with key HHS and external
stakeholders with scientific, clinical, and programmatic expertise;
and:
* promulgate written criteria for assessing whether a service or item
is reasonable and necessary.
Agency Comments and Our Evaluation:
In its written comments, HHS generally disagreed with our
recommendations and stated that our draft report did not provide an
adequate analytic basis for our recommendations. (See app. VI for HHS's
comments.) Specifically, HHS said that we did not demonstrate how
developing coverage policy nationally would eliminate inequities
related to differing coverage in different parts of the country and did
not fully explore the weakness of developing consistent national policy
for procedures and devices with established codes or the benefits of
developing differing local policies.
Our report's findings and recommendations are based on considerable
analytic work. For example, as we noted in our draft report, we
assessed national and local policies that related to procedures and
devices assigned 320 new codes in 2001; conducted site visits to four
Medicare contractors that provided a basis for our analysis of the
processes they followed to develop policy and the policies they chose
to develop; analyzed the timeliness and process followed to develop 55
national coverage policies; and conducted numerous interviews with, and
analyzed documents provided by, CMS and FDA officials, carrier medical
directors, experts on evidence-based medicine, and representatives of
beneficiaries, physicians, and device manufacturers and suppliers. We
believe that the evidence demonstrates that allowing coverage policies
to be developed by different contractors leads to differing policies
and inconsistent coverage for beneficiaries. Such inequities would be
addressed by developing all policies nationally for procedures and
devices with established codes. The draft report acknowledges both the
weaknesses in the current national process and the strengths of the
local processes.
In its comments on our specific recommendations, HHS disagreed with our
first recommendation--that CMS eliminate claims administration
contractors' ability to develop new coverage policies for procedures
and devices that have established codes. The department argued that
developing consistent policy nationally for procedures and devices with
established codes would drastically alter the intended design of the
Medicare program as a regionalized program, remove the Secretary's
discretion to make coverage policies, and prevent Medicare from testing
new, experimental treatments before enough clinical evidence is
available to warrant national coverage. HHS also stated that CMS did
not have the resources to develop sufficient national policies, so that
the recommendation would increase Medicare payments in future years
because contractors would not be able to prevent overuse of certain
services and items.
In our opinion, developing consistent coverage policies nationally for
procedures and devices with established codes would help modernize
Medicare and is an appropriate role for CMS. As our draft report
indicates, Medicare has already evolved into a program with a
decreasing number of contractors who often serve multiple states and
develop policies that are not specific to one locality's needs.
Implementing our first recommendation would not remove the Secretary's
discretion over coverage policies, although it would require greater
commitment to fulfilling this responsibility. Following implementation
of our recommendation, contractors would still be able to develop local
policies for new procedures and devices entering the market and billed
under miscellaneous codes. These coverage policies would allow for
experimentation and could provide a basis for national policy making
once the procedures or devices have codes assigned.
Removing the inefficient, duplicative policy making currently conducted
by 19 carriers and 27 fiscal intermediaries could allow CMS to focus
the $19.5 million allocated to local policy development and additional
funds allocated to national policy development to achieve a more
strategic approach to coverage policy. In addition, because similar
types of improper or abusive billing practices may be taking place in
several localities or may migrate from one locality to another, having
consistent national coverage policies to prevent improper billing or
overuse of services could result in program savings. It is also more
equitable for both providers and beneficiaries. Contractors that have
concerns about specific utilization problems would still have the
opportunity to propose new policies to be adopted nationally. Such
national policies would benefit other contractors that may experience
similar utilization problems.
Regarding our second recommendation--which calls for CMS to develop and
implement a plan to evaluate existing local coverage policies, with the
intent of incorporating aspects of them into national policies or
retiring them--HHS agreed that local coverage policies should be
evaluated on a regular basis. It noted that CMS currently requires its
contractors to separately evaluate their own policies. However, HHS did
not respond to the intent of our recommendation, namely that one entity
should review all policies for each procedure and device so that the
best policy can be developed nationwide.
HHS disagreed with our third recommendation, that CMS develop a new
process for making national coverage policies. The department indicated
that, instead, a Federal Register notice will soon be published that
incorporates process improvements and steps that have already been
taken to streamline the MCAC process. HHS also indicated that it
routinely communicates with FDA on coverage matters and has extensive
contacts with experts at the National Institutes of Health.
As we recognized in our draft report, CMS has made improvements in its
current national process. Because information on its newest planned
process improvements has not been published, we cannot comment on
whether these changes will fully address long-standing concerns about
the openness, understandability, and timeliness of its policy making.
CMS has made progress by streamlining the MCAC decision process and is
working to improve its coordination with FDA. We believe that
communication with FDA should be an integral part of the development of
each Medicare coverage policy that involves drugs and devices, or
procedures that rely on drugs and devices.
HHS disagreed with our fourth recommendation, which would require CMS
to publish written criteria it would use to assess whether a service or
item is reasonable and necessary. The department said it relies on
publishing the rationale for each coverage policy: that is, it uses a
case law approach and does not presently plan to engage in rule making
on this subject. HHS is considering other options that might be
helpful, but is not planning to issue guidance that would serve as
written criteria. As a national program of great significance, we
believe Medicare should be transparent in the criteria it uses for
interpreting whether a service or item is reasonable and necessary and
can be covered.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report
to the Secretary of HHS, the Administrators of CMS and FDA, appropriate
congressional committees, and other interested parties. We will also
make copies available to others on request. In addition, the report
will be available at no charge on the GAO Web site at http://
www.gao.gov.
If you or your staff have any questions about this report, please call
me at (312) 220-7600 or Sheila K. Avruch at (202) 512-7277. Other key
contributors to this report are listed in appendix VII.
Sincerely yours,
Leslie G. Aronovitz
Director, Health Care--Program Administration and Integrity Issues:
Signed by Leslie G. Aronovitz:
[End of section]
Appendix I: Scope and Methodology:
To assess the extent that new procedures and devices are incorporated
into the Medicare program, we analyzed new Current Procedural
Terminology (CPT) and Healthcare Common Procedure Coding System (HCPCS)
Level II codes from the HCPCS tape sent to contractors in October 2000.
This tape included the codes adopted by the American Medical
Association's CPT Editorial Panel and the codes adopted by the HCPCS
National Panel. Most of these new codes became effective on January 1,
2001. We selected the codes that represented procedures and devices
used in a physician's or allied health professional's office, or by
beneficiaries in the home, as well as anesthesia and laboratory
services. We excluded codes that represented drugs, blood work,
ambulance-related services, and devices used only in the inpatient
hospital setting. We did not include codes added to identify items to
which special Medicare hospital outpatient payment rates apply or codes
that the Panel had adopted for other insurers, but not Medicare. We
also did not analyze the extent to which Medicare covered new
procedures and devices that were not assigned new codes in 2001. For
the list of 320 codes in our scope, we reviewed the coverage status the
Centers for Medicare & Medicaid Services (CMS) had given to each code,
and we determined whether either national or local coverage policies
existed in 2002 for these codes. As part of our research on local
policies, we assessed coverage policies by carrier and fiscal
intermediary. We analyzed payment data from the Medicare part B extract
and summary system for the new codes. To determine the percentage of
Medicare part B payments billed under miscellaneous codes, we also
analyzed payment data from the Medicare part B extract and summary
system for HCPCS Level I and II miscellaneous codes and all HCPCS codes
billed.
To determine the effect of the local coverage process on beneficiaries,
carrier and fiscal intermediary efficiency, and stakeholders, including
device manufacturers and physicians, we interviewed key CMS officials
and staff and reviewed documents. We conducted site visits at four
carriers: Blue Cross Blue Shield of Rhode Island, CIGNA HealthCare
Medicare Administration, National Heritage Insurance Company, and
Noridian Administrative Services. CIGNA also serves as a durable
medical equipment (DME) regional carrier and Blue Cross Blue Shield of
Rhode Island also serves as a fiscal intermediary. We chose these
carriers in order to include both multistate and single-state carriers
and to include one carrier that was also a DME regional carrier and one
that was also a fiscal intermediary. At these site visits, we used a
structured protocol to interview contractor medical directors and other
staff to assess their local policy development processes and to
document policies developed in fiscal years 2000 and 2001. We also
analyzed data on local coverage policies on LMRP.net, a CMS-sponsored
Web site listing local policies by carrier, DME regional carrier, and
fiscal intermediary, and surveyed carrier medical directors to
determine whether deep brain stimulation, a surgical procedure to treat
tremors associated with Parkinson's disease, was covered under part B
for physicians' services in each state. This procedure was selected for
study due to variation in its coverage at the time we did our work.
To evaluate the effects of the national coverage process on
beneficiaries and other stakeholders and to identify concerns about it,
we analyzed the national process in terms of its steps, time frames,
criteria and evidence used, coordination with claims administration
contractors, and coordination with the Food and Drug Administration
(FDA) approval processes. We interviewed experts on evidence-based
medicine, CMS and FDA officials, Medicare Coverage Advisory Committee
(MCAC) executive committee members and MCAC panel members, and
representatives of beneficiaries, physicians, and device manufacturers
and suppliers, including the Center for Medicare Advocacy, AdvaMed, the
AARP Foundation, the Medical Group Management Association, the National
Institute for Health Care Management, the American College of
Physicians-American Society of Internal Medicine, the American College
of Cardiology, the American College of Chest Physicians, the Marshfield
Clinic, and the American Academy of Family Physicians. We obtained
their views on issues related to the national coverage process, such as
the effectiveness of the national process and the implications of the
process for beneficiaries and others. We also observed meetings of the
MCAC executive committee, the MCAC medical and surgical procedures
panel, and the MCAC diagnostic imaging panel, to understand their roles
in the coverage policy-making process, and reviewed MCAC minutes from
selected meetings held in 1999 through 2002, as well as selected
meeting transcripts. We analyzed 55 national coverage policies, which
were requested by external requestors or internally by CMS after
January 1, 1999, and had a CMS coverage memorandum issued by July 31,
2002, in order to determine the amount of time needed and the process
used to make each policy. We also analyzed the support and rationale
used to make some of these policies.
[End of section]
Appendix II: Coding Assignment Process:
Figure 2 shows the steps that occur for codes to be added for use in
the Medicare program. Common Procedure Terminology (CPT) codes are used
for medical services and procedures furnished by physicians and other
health care professionals and Healthcare Common Procedure Coding System
(HCPCS) Level II codes are used for other services, products, and
supplies. When new codes are added, old codes may need to be deleted or
revised so that the use of each code is clear.
Figure 2: Process for Adding, Deleting, and Revising CPT and HCPCS
Level II Codes for Use in the Medicare Program:
[See PDF for image]
[End of figure]
[End of section]
Appendix III: Process That CMS Follows to Develop National Coverage
Policies:
[See PDF for image]
[End of figure]
[End of section]
Appendix IV: Process That Carriers and Fiscal Intermediaries Follow to
Develop Local Coverage Policies:
[See PDF for image]
[End of figure]
[A] Fiscal intermediaries may have advisory committees, but CMS does
not require them to do so.
[End of section]
Appendix V: Coverage Criteria for Medicare Claims Administration
Contractors:
Figure 3 shows the coverage criteria published for Medicare claims
administration contractors to help them determine whether a procedure
or device is reasonable and necessary. Criteria focus on whether
services are appropriate and clinically beneficial. Contractor guidance
also describes the different types of evidence that are used to
determine whether a procedure is reasonable and necessary and an
assessment of the relative quality of different types of evidence.
Figure 3: Criteria for Claims Administration Contactors to Use to
Determine Whether a Procedure or Device Is Reasonable and Necessary:
[See PDF for image]
[A] Services provided in routine clinical trials on or after September
19, 2000, and which meet the requirements of the Clinical Trials
National Coverage Determination are considered reasonable and
necessary. See Medicare Coverage Issues Manual, 30-1, Routine Costs of
Clinical Trials (Sept. 19, 2000).
[End of figure]
[End of section]
Appendix VI: Comments from the Department of Health and Human Services:
Ms. Leslie G. Aronovitz
Director, Health Care - Program Administration
and Integrity Issues United States General
Accounting Office Washington, D.C. 20548:
MAR 24 2003:
Dear Ms. Aronovitz:
Enclosed are the department's comments on your draft report entitled,
"Medicare: Divided Authority for Policies on Coverage of Procedures and
Devices Results in Inequities." The comments represent the tentative
position of the department and are subject to reevaluation when the
final version of this report is received.
The department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Dennis J. Duquette:
Acting Principal Deputy Inspector General:
Signed by Dennis J. Duquette:
Enclosure:
The Office of Inspector General (OIG) is transmitting the department's
response to this draft report in our capacity as the department's
designated focal point and coordinator for General Accounting Office
reports. The OIG has not conducted an independent assessment of these
comments and therefore expresses no opinion on them.
Comments of the Department of Health and Human Services on the General
Accounting Office's (GAO) Draft Report, "MEDICARE: Divided Authority
for Policies on Coverage of Procedures and Devices Results in
Inequities" (GAO-03-175):
The Department of Health and Human Services (department) appreciates
the opportunity to comment on this draft report.
This report responds to a request from the Chairman of the Subcommittee
on Health, House Committee on Ways and Means. The GAO was asked to
review the extent to which new procedures and devices are incorporated
into Medicare, the effect of Medicare coverage policy-making processes
on beneficiaries, and the degree to which the Centers for Medicare and
Medicaid Services (CMS) has addressed concerns about its national
coverage process.
Medicare is committed to having an open, understandable and predictable
coverage process for benefits provided by the program. Medicare law
provides for broad coverage of many medical and health care services,
including care provided by hospitals, skilled-nursing facilities, home-
health agencies and physicians. The law does not provide an all-
inclusive list of services covered by Medicare and generally does not
specify which medical devices, surgical procedures, or diagnostic
services should be included or excluded from coverage. The Congress
gave the Secretary of the Department of Health and Human Services the
authority to decide which specific items and services Medicare can
cover within these categories. The law states that Medicare cannot pay
for any items or services that are not "reasonable and necessary" for
the diagnosis and treatment of illness or injury. For more than 30
years, the Medicare program has exercised this authority to determine
whether specific services that meet one of the broadly defined benefit
categories are covered under the program. Most Medicare coverage and
policy decisions are made locally by Medicare contractors --the private
companies that by law process and pay Medicare claims. The CMS also has
authority to make coverage policies that apply nationwide. In the
absence of national decisions for particular services, contractors have
discretion to issue local Medicare coverage policies.
It is worth noting that the Medicare structure of coverage decisions at
both the national and local level is not unique. Within the Federal
Employees Health Benefits Program, in the Blue Cross and Blue Shield
Service Benefit Plan (Plan), the Blue Cross Blue Shield Association's
Technology Evaluation Center uses evidence based on technology to make
national policy determinations on treatments or tests as to
experimental/investigational and medical necessity. Absent such a
determination, coverage may be adjudicated to reflect an individual
Plan's local policy.
General Comments:
The GAO draft report does not provide an adequate analytic basis for
the recommendations it proposes. It advocates developing a centralized
national coverage policy without fully exploring the weaknesses of such
an approach or recognizing possible benefits of the local coverage
process. While GAO properly emphasizes the importance of consistent and
equitable coverage for all beneficiaries, it does not demonstrate how a
centralized national coverage policy will eliminate alleged inequities
or link current inequities to the local coverage process. Moreover, the
GAO report does not consider inequities that might arise in a
centralized, national system and only briefly acknowledges some of the
benefits to Medicare beneficiaries inherent in a coverage system with
both local and national decision-making. In summary, the report does
not adequately address and justify how establishment of a new,
centralized process for making national coverage policies would result
in more timely and equitable coverage decisions than continued
evaluation and implementation of on-going improvements to the process
currently in place. The report also does not note the enonnous resource
implications of such a centralized process.
Although the department is highly respectful of GAO's work in this
case, we feel strongly that GAO is incorrect, and that these changes
would lead to a far more cumbersome and unwieldy Medicare program for
beneficiaries, providers and suppliers. The department is anxious to
debate this before Congress and will strongly work to discourage these
changes.
With regard to GAO's specific recommendations:
GAO Recommendation for Executive Action:
The GAO recommends that the Administrator of CMS eliminate the ability
of claims administration contractors to develop new coverage policies
for procedures and devices that have established codes.
Department Response:
The department disagrees with this recommendation. It is important to
note that Medicare was designed as a regionalized program that could
accommodate local variations in treatment, utilization of care, and the
needs of unique beneficiary populations. The GAO's recommendations
would drastically alter the intended design of the program.
A system based on the GAO's recommendations would, in essence, remove
the discretion for coverage determinations granted to the Secretary by
Congress in section 1861(a)(1)(A) of the Social Security Act. It de
facto delegates the CMS coverage process to the American Medical
Association Current Procedural Technology (CPT) Editorial Panel because
the volume of codes would prevent CMS from making coverage decisions on
most items or services. There are 200 new CPT codes added every year
and 8,000
existing codes. If contractors (including Durable Medical Equipment
Regional Carriers) cannot make coverage decisions for established
codes, then the only coverage policy will be National Coverage
Decisions (NCDs). The CMS does not have the resources to make more than
20-30 NCDs per year. Therefore, if Congress accepted this
recommendation, we would be making unrestricted payment nationally for
every new procedure regardless of whether it is medically reasonable
and necessary; or indeed, safe for the Medicare population. This would
be a very shortsighted result.
Although the report does describe some of the advantages of having
local coverage policies (namely, that the process is faster and more
open to comment from providers and manufacturers), it does not mention
that allowing contractors to develop local coverage policies gives
Medicare the opportunity to test new, experimental treatments before
enough clinical evidence is available to warrant national coverage.
In addition, there are Healthcare Common Procedure Coding System
(HCPCS) level 2 codes that we specifically create in order to allow
payment but not to imply coverage. Providing these level 2 codes allow
us to be responsive to new technology but not to waive our right to
make coverage decisions. It may be more difficult to grant these level
2 codes for new technology without the ability for our contractors to
restrict coverage in those instances where evidence shows a new
technology is not reasonable and necessary.
The implications of the elimination of local coverage decisions for
total program expenditures would be significant. There would be
significant distributional effects between services within payment
systems (e.g., outpatient prospective payment system, physician fee
schedule) due to unrestricted payment for certain services. There would
also be increased aggregate payments for certain items and services
(e.g., drugs, durable medical equipment). We specifically note that
there is significant potential for aggregate payments under the
physician fee schedule to increase thereby causing negative updates in
future years to adjust for the additional payments. In addition,
because all other payment systems (e.g., inpatient/outpatient
prospective payment system) do not have a volume adjustment, total
Medicare spending would also increase significantly.
We believe that the local medical review policies (LMRPs), developed by
Medicare contractors allow for timely, accurate, and effective regional
reaction to changes in the practice of medicine. By allowing
contractors the discretion to develop LMRPs, the Medicare program is
afforded flexibility to address needs that are not national in scope.
This flexibility would be lost if all policy development were
centralized nationally.
The LMRPs also allow contractors to quickly react to localized
utilization variances. Often, abusive billing manifests itself
differently in different geographic regions. An item or service abused
in one region may be ordered appropriately in another region. The LMRPs
allow the contractor in the affected area to develop policy to address
the abusive billing while other providers remain unaffected.
Additionally, LMRPs are often used to provide additional educational
guidance to the provider community. Without the LMRP process, it would
not be possible to consider the unique needs of local providers and
beneficiaries.
Finally, elimination of local coverage decisions would have a negative
impact on the timeliness of claims processing. If a national policy
process, such as that proposed by GAO, failed to result in a
substantial number of policies (either coverage or non-coverage),
contractors would need to individually review every claim for every
service. This added workload would delay the decision-making process.
As the report noted, the ability to automate coverage and non-coverage
decisions significantly improved contractors' ability to process claims
within statutorily defined timeframes. On all accounts, this change
would stifle Medicare's responsiveness to our beneficiaries.
Recommendation for Executive Action:
The GAO recommends that the Administrator of CMS develop and implement
a plan to evaluate the merits of all existing local coverage policies
that affect procedures and devices with established codes, with the
intent of incorporating appropriate aspects of local policies into
national coverage policies and eliminating the remainder.
Department Response:
The department agrees that LMRPs should be evaluated on a regular
basis, and that greater consistency among LMRPs should be fostered. The
CMS is aggressively pursuing these through far more contractor and
contractor medical officer coordination. Currently, all contractors are
required to review all LMRPs at least annually to identify those
policies that are obsolete, those that would benefit from
nationalization, and those that would require revision.
Recommendation for Executive Action:
The GAO recommends that the Administrator of CMS establish a new
process for making national coverage policies that requires public
input on draft policies, adheres to timeframes, and provides for
routine consultation with key HHS and external stakeholders with
scientific, clinical, and programmatic expertise.
Department Response:
The department disagrees with this recommendation. We are sensitive to
GAO's observations and acknowledge the benefits of timely policy making
with input from both public and private sector stakeholders. We have
made significant strides in these areas (as GAO notes) through
implementation of the national coverage determination process announced
in the April 17, 1999, Federal Register. In order to increase the
opportunities for public participation in making national coverage
determinations and to streamline the decision-making process, continued
enhancement to the current process is warranted rather than
establishment of a new process as GAO recommends. Such enhancements
are
on the threshold of implementation in a soon-to-be published Federal
Register Notice incorporating process improvements. Also, a recent
change to the Charter of the Medicare Coverage Advisory Committee
(MCAC) will further streamline the process by virtue of eliminating the
need for Executive Committee ratification of MCAC panel
recommendations. This single change alone will save an average of 2-3
months from the national coverage determination process when MCAC
consultation is invoked. We believe the CMS process has improved
substantially in the past two years. The process is more open and
transparent. Most of these "changes" seek to benefit manufacturers who
already aggressively approach the agency - not patients. The process
serves patients well, and exposing the agency to even more structured
pressure from special interests will be counter productive.
Finally, we routinely communicate with the Food and Drug Administration
on coverage matters and are working to improving coordination. We also
have extensive contacts with experts in the National Institutes of
Health.
Recommendation for Executive Action:
The GAO recommends that the Administrator of CMS promulgate written
criteria for assessing whether a service or item is reasonable and
necessary.
Department Response:
The department disagrees with this recommendation. The CMS does not
presently plan to engage in rulemaking on this subject. As GAO notes,
we currently publish the rationale for each National Coverage
Determination on our Web site. This practice yields a "case law" type
approach to helping stakeholders understand how CMS applies "reasonable
and necessary" in specific clinical instances. We are examining other
options that may help stakeholders understand this topic, and our
process, but have no plans to issue any other specific document or
guidance at this time.
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Sheila K. Avruch, (202) 512-7277:
Acknowledgments:
The following staff members made important contributions to this work:
Barrett Bader, Sandra Gove, Karen Kemper, Joy Kraybill, and Craig
Winslow.
FOOTNOTES
[1] "Procedure" is used in this report to define all medical actions
taken to prevent, diagnose, treat, or manage diseases, injuries, and
impairments. This definition includes services such as counseling,
evaluation, management of patients, surgery, and laboratory and other
tests.
[2] Part B services include physician and outpatient hospital services,
diagnostic tests, mental health services, outpatient physical and
occupational therapy, ambulance services, some home health services,
durable medical equipment (DME), prosthetics, orthotics, and medical
supplies.
[3] Related post-hospital services include some care provided by
skilled nursing facilities and home health agencies.
[4] In this report, we refer to carriers, DME regional carriers, and
fiscal intermediaries as "claims administration contractors." Unless
otherwise specified, the term "carrier" refers to a Medicare claims
administration contractor that pays part B claims. The 19 carriers
include 4 that also process DME claims and, in this role, are referred
to as "DME regional carriers." Under part B, carriers pay claims for
treatments provided to beneficiaries in their service areas, which can
be portions of states, individual states, or multiple states. Under
part A, hospitals and other providers have a choice of which fiscal
intermediary to use, and, as a result, more than one fiscal
intermediary may pay claims for services provided in any particular
geographic area.
[5] We conducted Medicare carrier site visits at National Heritage
Insurance Company, Blue Cross Blue Shield of Rhode Island, Noridian
Administrative Services, and CIGNA HealthCare Medicare Administration.
[6] CIGNA also serves as one of four DME regional carriers that process
all Medicare claims for DME, prosthetics, orthotics, and supplies.
[7] Blue Cross Blue Shield of Rhode Island serves as both the carrier
and a fiscal intermediary in that state.
[8] This report will refer to HCFA in discussing actions taken before
the agency's name was officially changed on July 1, 2001.
[9] Physicians and suppliers must provide additional documentation when
submitting Medicare claims using a miscellaneous code. Contractors
manually review these claims to determine what procedure or device is
being billed, whether it should be covered, and the amount that should
be paid. In 2001, miscellaneous codes accounted for less than one
quarter of 1 percent of part B payments.
[10] Local codes are scheduled to be eliminated as part of the
establishment of standards and requirements for the transmission of
health information under the Health Insurance Portability and
Accountability Act of 1996. Pub. L. No. 106-191, § 262, 110 Stat. 1936,
2021.
[11] The CPT Editorial Panel is predominantly comprised of AMA-
appointed physicians, but also includes physicians nominated by CMS,
the Blue Cross/Blue Shield Association, the American Hospital
Association, the Health Insurance Association of America, and a
nonvoting representative from the American Health Information
Management Association.
[12] The HCPCS National Panel is comprised of representatives from CMS,
the Blue Cross/Blue Shield Association, and the Health Insurance
Association of America.
[13] For additional information about codes, see U.S. General
Accounting Office, HIPAA Standards: Dual Code Sets Are Acceptable for
Reporting Medical Procedures, GAO-02-796 (Washington, D.C.: Aug. 9,
2002).
[14] 42 U.S.C. § 1395y(a)(1)(A) (2000).
[15] Medicare does not cover outpatient, self-administered drugs.
However, it does cover physician-administered drugs and drugs used in
immunosuppressive therapy (for organ transplant recipients) and
anticancer chemotherapy. 42 U.S.C. § 1395x(s)(2)(J) and (Q) (2000).
[16] See U.S. General Accounting Office, Medicare: Beneficiary Use of
Clinical Preventive Services, GAO-02-422 (Washington, D.C.: Apr. 12,
2002).
[17] In 2001, CMS received 10 external requests for national coverage
policies, and CMS staff internally decided to consider 8 additional
national coverage policies.
[18] Some national policies specifically state that CMS is allowing
carriers to use their own discretion when determining coverage. For
example, a coverage memorandum regarding speech generating devices
stated that "carriers. . . will make coverage decisions for claims for
any [of these] devices on either a case-by-case basis or through a
local policy."
[19] 42 U.S.C. § 1395hh(a)(2) (2000).
[20] Even if the contractor has developed a policy that limits
coverage, its medical director may make an individual coverage decision
for a beneficiary with a rare condition or when a beneficiary has no
other treatment options.
[21] Carriers have also developed local policy at the direction of CMS.
For example, CMS program memorandum AB-01-129, dated September 15,
2001, directed carriers to develop local medical policies for Doppler
flow studies, a test that monitors a patient's blood flow and can be
used during kidney dialysis.
[22] A total of 1,146 new codes were added to the HCPCS list for 2001.
There were 826 new codes not included within the scope of our study,
including 640 codes added to identify items to which special Medicare
hospital outpatient payment rates apply; 113 codes developed for
private health insurers or Medicaid; and 73 for other services, such as
ambulance services, drugs, and blood-related services.
[23] In October 2000, CMS identified 11 of the 320 new codes as
noncoverable. Subsequently, CMS deemed 7 of these 11 codes as
coverable. Specifically, in a national coverage policy that became
effective in April 2001, CMS outlined conditions under which
contractors could cover 4 of these codes used to bill for intestinal
transplantation procedures. CMS also issued instructions that 3 codes
for medical nutrition therapy could be covered after the Congress
specified such therapy in statute as a Medicare benefit, effective
January 2002. Medicare, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000, Pub. L. No. 106-554, app. F, § 105, 114 Stat.
2761, 2763A-471.
[24] For example, when a national policy indicates a procedure is
covered, claims administration contractors can supplement the policy by
adding conditions that must be met, the only acceptable diagnoses for
billing, or the frequency with which the procedure can be provided as a
covered service.
[25] We conducted this analysis in August 2002 by searching for the
codes on LMRP.net. If a contractor revised its policies to update them
with new codes and published the revisions on its local Web site, but
neglected to update LMRP.net, such revisions would not appear in our
analysis.
[26] Essential tremor and Parkinson's disease are the two most common
neurological disorders. Essential tremor affects about 1.5 million
Americans; Parkinson's disease affects about 1 million. Tremor is a
common symptom of both, but Parkinson's disease also causes rigidity,
slowness of movement, and poor balance.
[27] One device manufacturer estimated that about 85,000 individuals
with Parkinson's disease and 5,000 individuals with essential tremor
are candidates for treatment with DBS.
[28] The carrier began to cover this surgery on August 12, 2002.
[29] Based on claims analysis from part B summary data for 2001 claims
extracted as of
June 5, 2002.
[30] Until recently, beneficiaries in northern and southern California
suffering from essential tremor and Parkinson's disease were covered
differently for DBS. In June 2002, NHIC consolidated local policies in
northern and southern California to cover bilateral stimulation.
[31] DraftLMRP.net, a CMS-sponsored Web site, allows the public to view
draft local policies of carriers, DME regional carriers, and fiscal
intermediaries posted to their Web sites during the required comment
period.
[32] Carriers' advisory committees are composed of physicians, a
beneficiary representative, and representatives from other medical
organizations. DME regional carriers' advisory work groups consist of
physicians, other clinicians, beneficiaries, suppliers, and
manufacturers.
[33] Fiscal intermediaries may have advisory committees, but CMS does
not require them to do so.
[34] Claims administration contractors can expand coverage without such
consultation--for example, they can add additional diagnoses for which
a treatment would be considered medically necessary.
[35] 64 Fed. Reg. 22,619 (Apr. 27, 1999).
[36] Pub. L. No. 105-33, § 4554(b), 111 Stat. 251, 461.
[37] Institute of Medicine, National Academy of Sciences, Medicare
Laboratory Payment Policy: Now and in the Future (Washington, D.C.:
2000).
[38] HCFA issued its coverage memorandum on this test--cardiac output
monitoring by electrical bioimpedance--on September 22, 1998, with
coverage effective for services performed on or after July 1, 1999.
[39] U.S. General Accounting Office, Medicare: Millions Can Be Saved by
Screening Claims for Overused Services, GAO/HEHS-96-49 (Washington,
D.C.: Jan. 30, 1996).
[40] Medicare Payment Advisory Commission, Reducing Medicare Complexity
and Regulatory Burden (Washington, DC: December 2001).
[41] The Technology Advisory Committee was formed by merging two
earlier advisory groups, the Physicians Panel, which HCFA established
in 1980, and the Coverage/Payment Technical Advisory Group, which HCFA
established in 1983.
[42] 5 U.S.C. App. 5, § 10(a) (2000).
[43] U.S. General Accounting Office, Office of the General Counsel, B-
278940 (Washington, D.C.: Jan. 13, 1998).
[44] The first meeting of MCAC took place in September 1999. MCAC meets
on a varying schedule, depending on requests for coverage policies.
[45] The agency is currently developing guiding principles that will
help it determine when referrals for technical assessment reports, MCAC
assistance, or both should be made.
[46] In December 2002, CMS launched a Medicare coverage database, which
allows users to search for national coverage policies, documents
related to national coverage policies, and local coverage policies. The
database may be accessed at http://www.cms.hhs.gov/coverage/.
[47] 64 Fed. Reg. 22,619 (Apr. 27, 1999).
[48] BIPA § 522(b) and (c), 114 Stat. 2763A-546.
[49] MCAC was established on December 14, 1998. As of July 31, 2002,
CMS had published 55 national coverage memorandums pertaining to
requests after January 1, 1999.
[50] Medicare generally will not cover new medical devices or drugs, or
procedures that depend on new devices or drugs, until after FDA has
approved the devices and drugs for marketing. However, FDA approval
does not guarantee Medicare coverage because the Medicare statute
requires that services and items fit into one of Medicare's benefit
categories and be reasonable and necessary for beneficiaries' care in
order to be covered.
[51] Ocular photodynamic therapy is a new treatment that uses a light-
sensitive drug to guide a laser. On November 8, 2000, HCFA issued a
memorandum announcing its intent to cover this therapy for patients
with predominantly classic lesions in the eye. In May 2001, The
Vitreous Society formally requested that HCFA also cover this treatment
for patients with nonclassic lesions. On October 17, 2001, CMS issued a
memorandum describing its intent to cover ocular photodynamic therapy
for patients with nonclassic lesions, based on the results published in
a clinical trial. FDA had not approved this use of the drug as a
labeled use in the procedure for patients with nonclassic lesions.
Because the drug had been found to be safe and effective for patients
with classic lesions, physicians could still use the drug "off-label"
for patients without classic lesions. Soon after CMS issued its October
2001 memorandum indicating that it intended to cover this therapy for
patients with nonclassic lesions, the agency decided to reconsider its
stance. On March 28, 2002, CMS issued a new memorandum that rescinded
the October 2001 memorandum on covering patients with nonclassic
lesions, but maintained the coverage granted in November 2000 for those
with classic lesions.
[52] On June 8, 2001, the HHS Secretary announced a departmentwide
initiative to reduce regulatory burdens in health care and respond
faster to the concerns of health care providers, state and local
governments, and individuals who are affected by HHS rules. As part of
this initiative, HHS established the Secretary's Advisory Committee on
Regulatory Reform to provide findings and recommendations regarding
potential regulatory changes that would enable its programs to reduce
burdens and costs associated with the department's regulations, while
at the same time maintaining or enhancing effectiveness, efficiency,
impact, and accessibility.
[53] Department of Health and Human Services, Bringing Common Sense to
Health Care Regulation: Report of the Secretary's Advisory Committee on
Regulatory Reform (Nov. 21, 2001).
[54] In contrast to CMS, FDA has established definitions for the
"safety" and "effectiveness" criteria that manufacturers must meet in
order to receive FDA approval for a device. FDA has also established
standards for the evidence it considers to be valid when deciding
whether to approve a device for marketing. 21 C.F.R. § 860.7 (2002).
[55] 65 Fed. Reg. 31,124 (May 16, 2000).
[56] 54 Fed. Reg. 4,302 (Jan. 30, 1989).
[57] U.S. General Accounting Office, Medicare: Technology Assessment
and Medical Coverage Decisions, GAO/HEHS-94-195FS (Washington, D.C.:
July 20, 1994).
[58] Medicare Coverage Decisions and Beneficiary Appeals: Hearing
Before the Subcommittee on Health of the House Committee on Ways and
Means, 106th Cong. 80-81 (1999) (statement of Walter M. Rosebrough,
Jr., on behalf of the Health Industry Manufacturers Association).
[59] 64 Fed. Reg. 22,619, 22,622 (Apr. 27, 1999). The notice also
indicated that the agency would follow the same procedures and time
frames when coverage policy questions were generated internally. After
this notice was issued, BIPA established a new process for
beneficiaries to directly appeal coverage policies. As part of this new
coverage policy appeals process, BIPA also imposed timeliness
requirements on the Secretary of HHS for responding to requests from
beneficiaries that he develop coverage policies for an item or service
they need. Specifically, BIPA requires that one of four actions be
taken within 90 days: 1) issue a national coverage policy, 2) issue a
national noncoverage policy, 3) determine that no national coverage or
noncoverage policy is appropriate, or 4) issue a notice stating that
the review is not complete, identifying the remaining review steps to
be taken, and establishing a deadline by which the review will be
completed. On August 22, 2002, CMS issued proposed regulations on
BIPA's new coverage policy appeals process. 67 Fed. Reg. 54,534.
[60] We analyzed the 55 national coverage policies that were requested
after January 1, 1999, and had a coverage memorandum issued by July 31,
2002. Timeliness data are based on information posted on CMS's Web site
that indicates the date of request for a national coverage policy and
the date the coverage memorandum was issued. Publishing the coverage
memorandum is the first step to implementing the policy. It has taken
up to 9 additional months after publishing a coverage memorandum for
CMS to issue the national instructions that constitute the coverage
policy and for the claims administration contractors to implement
necessary payment changes.
[61] In June 2002, CMS issued a report to the Congress on 10 national
coverage policies that were published and implemented in fiscal year
2001. See Department of Health and Human Services, Report to Congress
on National Coverage Determinations (Washington, D.C.: June 2002). The
report showed that the average time to implement 4 policies without a
technical assessment or MCAC input was 96 days (not including 2
emergency policies related to coverage of liver transplants) and the
average time to implement 4 policies that had a technical assessment or
MCAC input was almost 280 days.
[62] Two of the 27 external requests had coverage memorandums dated on
the same day they were formally requested. Both of these involved
temporary coverage of liver transplants in nonapproved hospitals during
a flooding emergency in Houston, Tex.. When these two national coverage
policies were excluded from our analysis, the average time frame to
issue a coverage memorandum for the remaining 25 external requests
increased to about 203 days.
[63] As of July 31, 2002, all but two national coverage policies that
had been reviewed by MCAC also had technical assessments.
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