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Document 9 of 9.

APRIL 22, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 5038 words

HEADLINE: PREPARED STATEMENT OF
TERRY COLEMAN
BEFORE THE HOUSE WAYS AND MEANS COMMITTEE
HEALTH SUBCOMMITTEE
SUBJECT - MEDICARE PROCESS FOR
COVERAGE DECISIONS AND BENEFICIARY APPEALS

BODY:

Thank you for the opportunity to testify regarding the Medicare process for coverage decisions and appeals. Since I have worked as a lawyer for the Health Care Financing Administration (HCFA) and its parent Department of Health and Human Services, and subsequently have practiced in the private sector, I hope I can provide some useful information for the Committee based on that combined perspective. This statement represents my personal views and not necessarily those of my current or past clients.1
Decentralized Process for Making Coverage Decisions
A threshold question in considering the Medicare coverage process is who should make the policies. The unusual aspect of Medicare's current process for making coverage decisions is its decentralized nature. The Medicare claims processing contractors - the carriers and fiscal intermediaries - independently interpret and apply Medicare's requirements. In addition, in a relatively small number of cases, HCFA's Central Office issues national coverage decisions that apply everywhere. The result of this largely decentralized process is that Medicare coverage varies depending on location. The degree of variation is not necessarily extreme, but conditions for coverage of certain items and services clearly vary from state to state, and items and services covered by Medicare in some states may be denied coverage in other states.
The Medicare contractors not only interpret how Medicare policy applies to particular claims - which they must inevitably do - but they also issue broad policies. HCFA expressly authorizes the contractors to develop "local medical review policies" that define what each carrier considers to be a medically necessary use of an item or service. The contractors also interpret other provisions of Medicare law when there is no national interpretation.
The policy of decentralization stems, I believe, from two factors -a long-standing interpretation about the respective roles of the contractors and HCFA intended by Congress, and the inability of the HCFA Central Office to take on a larger workload. The first factor derives from the fact that the Medicare statute, from its enactment in 1965, has required the program to use insurance companies to process claims and administer the program. This provision led to the view within HCFA and its predecessor agency that Congress wanted the contractors, rather than the federal government, to make many of the detailed decisions about administration of the program. This view was fortified by the way in which the statute was drafted. In particular, section 1842 of the Act, which describes how the carders are to administer the Part B program, imposes certain responsibilities directly on the carriers, rather on the Secretary as statutes are ordinarily worded. This language led some in HCFA to believe that the agency was limited in the extent to which it had authority to control decisionmaking by the carriers. While this view has undoubtedly diminished in recent years, I believe the historical notion that HCFA should refrain from too much control over the contractors' policies explains much of the current arrangement. Also influencing deference to the contractors was the belief that medical practice varies regionally and that local careers are in the best position to adjust coverage policy to reflect those regional variations.
The other factor leading to decentralization was the relatively small staff at the HCFA Central Office. Since the staff is able to make comparatively few national coverage decisions, and the carder medical directors have been available to fill any decisionmaking void, it has been easy to defer to the contractors' decisions.
The decentralized decisionmaking process results in a lack of uniformity in coverage policy that is difficult to defend. It would seem desirable for Medicare beneficiaries to have the same benefits regardless of where they live. Although medical practice clearly varies regionally, this variation is usually seen as an undesirable result of differences in practice style rather than being scientifically based. In addition, the decentralized process makes it difficult for persons interested in Medicare coverage of a new technology to present information to the program. If HCFA does not issue a national coverage decision, individual medical directors all over the country separately consider the data, consult with their own experts, and arrive at independent conclusions.
In recent years, HCFA has recognized the undesirable aspects of nonuniform coverage policies and has attempted to increase the degree of uniformity. Much of this effort has not taken the form of additional national coverage decisions, however, but instead greater coordination of actions by the carriers. For example, the four durable medical equipment regional carders jointly developed their extensive coverage manual. Carrier medical directors often hold meetings under the auspices of HCFA at which they exchange views on coverage policy with an eye toward increasing uniformity. The carriers have formed workgroups which have issued "model" coverage policies intended for adoption by all carders.
Increasing uniformity through joint cartier action rather than national coverage decisions by HCFA has serious procedural disadvantages. The carriers use a relatively nonpublic process in which the opportunity for input is limited. In addition, if a national organization seeks to influence coverage policy, it is difficult to learn what individual carriers are doing and to deal with the many carriers involved. Perhaps most troubling is that coordinated action by the contractors amounts to the making of national Medicare policy by non-government employees who are not accountable through the normal process of administrative and congressional oversight.
There is some debate in the provider community as to whether increased issuance of national coverage decisions by HCFA is desirable. Those who are reluctant to see greater involvement by the HCFA Central Office fear that HCFA may act unreasonably, and that the decentralized process, offering the possibility that at least some carriers will act reasonably, is better. My personal view is that HCFA should issue more national coverage decisions, provided that, as I will discuss later, it does so with an open process and there is a practical opportunity for judicial review of the decisions.
It would be useful if Congress clarified the respective roles of the contractors and HCFA in establishing coverage policy. It is one thing for HCFA to rely on the contractors because its staff size is inadequate to handle all the questions. It is another thing altogether for HCFA to defer to the independent decisions of the contractors because HCFA may believe that Congress wants coverage decisions to reflect supposed regional differences in medical practice or that Congress prefers coverage decisions to be made by the contractors rather than by HCFA. If Congress believes in the desirability of uniform Medicare coverage policy throughout the country to the extent possible, it could make that direction to HCFA clear.
Also, to the extent that the contractors retain authority to make policy, Congress may want to address whether they should, in effect, be permitted to make national policy without HCFA's involvement by developing joint policies with other contractors.

Opportunity for Public Input in Coverage Policy Decisions
The process for making decisions about coverage policy is informal both at HCFA and at the contractors. In 1986, Congress revised the Part B Medicare appeal procedures and in the process exempted national coverage decisions from the notice and comment rulemaking requirements that ordinarily apply to substantive agency policies.
I was involved in the 1986 legislation on behalf of HCFA and am familiar with the background of this exemption. Its purpose was twofold. First, since the legislation was establishing a new procedure for judicial review of Medicare Part B decisions, including coverage policies, there was a concern that the pre-existing body of coverage decisions would be found procedurally defective. HCFA and its predecessor agency had issued a large number of national coverage decisions since the beginning of the Medicare program. Those decisions were not issued after notice in the Federal Register and opportunity for public comment, and there was little or nothing otherwise in the form of an administrative record that would explain and support the decisions. Accordingly, without the exemption, there was the possibility that many completely sound decisions would be overturned because of a failure to comply with the Administrative Procedure Act.
In addition to the concern that the existing body of national coverage decisions would be placed in jeopardy by the new appeals process, there was also concern that national coverage decisions should be allowed to be made without burdening the process with the requirements that the Administrative Procedure Act imposes on new regulations. HCFA's experience, like that of many other federal agencies, is that the rulemaking process -- developing and publishing a proposed regulation, reviewing and developing a written response to the comments received, and publishing the final version -- typically takes two years or more and requires extensive effort. If the national coverage decision procedure were to remain viable for more than occasional use, there had to be a process other than full rulemaking.
While it remains desirable that national coverage decisions should be exempt from full rulemaking, HCFA's announcement several months ago that it will revise its procedures to allow for greater public input is a major improvement over the current relatively closed process. The objective should be to develop a procedure that allows the public an opportunity to know what HCFA is considering, to place items on HCFA's agenda, to submit information, to respond to any concerns that HCFA may have, and to receive a timely decision.
The procedures used by the contractors to develop coverage policy are also informal. In the case of local medical review policy, the contractors are required by HCFA to present proposals to a Carrier Advisory Committee that consists of physician representatives and to circulate the proposal to local medical organizations for comment. The degree to which these comments influence the outcome appears to vary from contractor to contractor, but in many cases it has proved to be a useful process. A significant deficiency, however, is that proposals are distributed only to selected local physician and provider groups and not to beneficiary or national organizations that might have an interest in the matter.
In the case of coverage decisions that are not considered local medical review policies, the contractors' decisionmaking may be an entirely closed process. Interested parties may not learn of the policy until it is announced. Some of the carriers' joint efforts I discussed earlier, such as the development of model policies, have also been conducted essentially in secret.
It would be desirable if Congress developed an administrative process for HCFA's use in making coverage decisions that struck a balance by providing an opportunity for public input without burdening the process with rulemaking-type requirements that make it useless as a practical matter. To the extent that the contractors remain involved in making coverage decisions, they too should be subject to a more open process, and a process that allows for the participation of the public, including beneficiary and national organizations.
Criteria for Coverage
There is no comprehensive statement in the Medicare regulations of the criteria that HCFA and the contractors are to use in making coverage decisions. In addition, the provisions in the Medicare manuals that discuss various aspects of coverage policy are often incomplete or ambiguous. As a result, there is no clear statement in any official Medicare publication of the policy on such fundamental issues as what is considered an experimental procedure, what are the criteria used to determine whether a particular service is considered medically necessary, the discretion if any that carriers have to deny coverage of a drug for conditions approved by the Food and Drug Administration, and many other common issues. The lack of clearly defined criteria for coverage creates much confusion, especially under the decentralized system in which careers continue to play a major role in applying Medicare policy.
HCFA attempted to remedy this situation in the 1980s by developing a Federal Register notice to set forth the process and criteria for Medicare coverage. Although this document was published as proposed regulations in 1989, it has never been finalized, and HCFA apparently plans to begin over again.
It is essential that HCFA regulations clearly set out in detail the general rules and criteria for Medicare coverage. If the regulations were sufficiently clear and comprehensive, they would eliminate many of the disputes with the contractors, which develop their own interpretations of the Medicare statute and policy in the absence of any guidance from HCFA.
The absence of comprehensive regulations means that the Medicare carriers differ not only on how they apply Medicare policy to particular services but they even differ on the policy they purport to apply. A recent example I am aware of is the policy on what type of clinical studies reported in the medical literature should be required to support Medicare coverage of an approved drug being used in a manner not included in the Food and Drug Administration-approved labeling. Some carders insist on there being Phase III studies reported, while other carders are more flexible and consider all types of studies. This does not seem to be a matter on which there should be state-by-state differences in policy. Another example is that carriers differ in whether they deny coverage of certain drugs that can be administered subcutaneously because they differ in their definition of what is excluded from coverage as a self-administered drug. Broad principles of Medicare coverage such as these should be decided at the national level by HCFA, rather than being left for independent decision by each Medicare contractor.
If the HCFA Central Office lacks the resources to deal with issues, it should consider other ways to reach nationally uniform policies rather than always delegating authority to the contractors. For example, a topic on which HCFA could ease its burden is determining which "off- label" uses of drugs should be covered. Many drugs are used by physicians for purposes not included in the labeling as approved by the Food and Drug Administration. HCFA's general policy is that each carrier can determine whether a particular off-label use is appropriate and, if so, Medicare will cover the use. Because this approach results in non-uniform and sometimes ill-considered decisions by carriers, Congress in 1993 amended the Medicare statute to establish rules for coverage of off-label uses of drugs used in cancer chemotherapy. Under the statute, Medicare must cover such drags if the off-label use in question in listed in one of the major drag-use compendia or is other,vise supported by clinical studies published in peer reviewed scientific literature. The compendia base their monographs on a review of the literature and are considered scientifically sound. HCFA could administratively adopt the same policy for all drugs but for some reason has chosen not to do so. This would seem to be an opportunity for HCFA to establish uniform rules for Medicare coverage based on the scientific literature with little effort.
Appeals of Coverage Decisions
The Medicare statute allows beneficiaries who have been denied coverage of an item or service to appeal that decision through a series of administrative appeals and then into federal district court if the increasing jurisdictional amount prerequisite is satisfied at each step of the appeals process. The process differs slightly between Medicare Part A and Medicare Part B, but I will focus on Part B, since disputes and appeals are relatively rare with respect to coverage of Part A services.

When the Medicare statute was first enacted, the only appeals mechanism for Part B coverage denials was a hearing before the Medicare carrier for disputes involving at least $100. No judicial review was allowed because, the legislative history indicates, Congress assumed that Part B disputes would involve small amounts of money that did not warrant burdening the federal courts with additional litigation.
Subsequently, the courts added further remedies. Although Congress had established no administrative hearing for cases worth less than $100, a court held that constitutional due process required an oral hearing, and HCFA therefore created one? More important, in June 1986 the Supreme Court held in the Michigan Academy case that, because the availability of judicial review was to be presumed in the absence of clear congressional intent to the contrary, judicial review of Medicare Part B policies was available? The Court held that Congress intended to bar judicial review only of cases in which the issue was a specific dollar amount, and that beneficiaries and others could challenge Medicare regulations and policies.
At about the same time that the Supreme Court greatly expanded Part B judicial appeal rights, Congress was considering the issue of Part B appeals. In October 1986, the Medicare statute was amended to create an appeals mechanism for Part B that is parallel to the appeals system for Part A. Under this system, the individual appealing first requests reconsideration of the denial. This "review" step is frequently the first time the carrier has actually considered the claim, since the initial denial may have been by computer. If the claim is still denied after review, the appeal goes to an informal hearing before an employee of the carrier and, if the claim is denied again, to a hearing before an administrative law judge. Many appeals are resolved favorably to the appellant at the carrier hearing or administrative law judge stages, but the appellant can proceed to federal district court if he is still dissatisfied and the amount in dispute is at least $1000.
The 1986 legislation that created the Part B appeals mechanism included some special provisions related to national coverage decisions. The law provides that national coverage decisions may not be reviewed by administrative law judges; that national coverage decisions may not be overturned because they were not issued through the Administrative Procedure Act process; and that if a court determines that the administrative record underlying a national coverage decision is inadequate, it must remand the matter to HCFA for additional proceedings to supplement the record before the court rules.
As I discussed earlier in connection with the exemption from notice and comment rulemaking requirements, these provisions were intended to address two concerns -- protecting the past national coverage decisions from being overturned because of the manner in which they were issued, and maintaining some informality in the process for issuing national coverage decisions. The compromise adopted in the statute subjects national coverage decisions to judicial review, but if th administrative record is deemed inadequate to support the decision, HCFA is given an opportunity to supplement the record before the court rules on whether the record, as so supplemented, supports the decision. As a prospective matter, this process was intended to allow HCFA to avoid the burden of developing an extensive administrative record for national coverage decisions that may not be controversial. In the event that a decision thought to be simple is challenged, HCFA can attempt to defend its decision by supplementing the record. If Congress revises the process for making coverage decisions, it should consider retaining this or some similar mechanism to allow HCFA to make national coverage decisions promptly, while still allowing for appropriate judicial review.
Ironically, the 1986 amendments had the effect of diminishing appeal rights for challenges to broad Medicare policies. As I indicated earlier, just a few months prior to the enactment of the amendments, the Supreme Court had allowed direct challenges to Medicare policies as long as particular claims were not involved. Since the 1986 amendments forced appeals into the administrative law judge process, however, almost all courts have since ruled that direct challenges to agency policies are no longer available. As a result, any challenge to a Medicare Part B regulation or policy must now take the form of an appeal of particular denied claims and must be appealed through the entire administrative appeals mechanism -- a process that can easily take two years or more -- even though the officials involved in the administrative appeal have no authority (and should have no authority) to overturn a national coverage decision. Only after two years or more of a pointless administrative process can the policy be challenged in court. Even then the challenge takes the form of an appeal of particular claims, and the decision is technically limited to those claims. Thus, as a practical matter, the Supreme Court's holding has been overruled by Congress, and there is no longer an effective means to challenge HCFA coverage policies.
In my view, Congress should consider restoring the right of beneficiaries and other interested parties to obtain judicial review of Medicare regulations and other policies without first going through the administrative law judge process. The Supreme Court unanimously recognized that fight in 1986, but Congress implicitly, and perhaps inadvertently, repealed it only a few months later when it enacted the existing appeals mechanism.
Issues Related to Coverage of New Technologies
Although the Committee's focus is on the process for making coverage decisions, I would like to briefly mention two related procedural issues that also bear as a practical matter on coverage of new technologies.
- Issuance of New Codes
Every drug and medical device that is covered by Medicare, and for which separate payment is made, has a billing code under the HCFA Common Procedure Coding System. New codes are issued by HCFA in cooperation with insurance organizations. The policy of HCFA and these other organizations is that an application for a new code is not considered until the product has been on the market for six months. In addition, the cut-off date for consideration of new codes is relatively early in each year for code changes to take effect the following January 1. As a result, if a drag is approved by the Food and Drug Administration on, for example, February 1, 1999, the requirement for six months of marketing experience and the early cut- off date mean that a new code for the drug will not go into effect until January 1, 2001-- nearly two years after approval.
Until a specific code for a drug goes into effect, physicians administering the drug must use a non-specific, miscellaneous code and provide additional information about the drug in narrative format on the claim. This means that the claim cannot be processed automatically, and payment to the physician is delayed. Physicians may be reluctant to use new products if they encounter payment delays and more burdensome billing requirements.
The reason that HCFA requires six months marketing experience is apparently the desire to determine whether a new product will result in a sufficient number of Medicare claims to warrant issuing a new code. While this may be a justifiable policy to apply in the case of minor medical devices, which may not be successful in the marketplace, it is unreasonable to apply this policy to new drags and important medical devices that will plainly generate many thousands of Medicare claims. Indeed, it is unclear why there should be an application process at all for new drugs, in which a committee evaluates whether to issue a new code, since Medicare covers all new non-self- administrable drugs. If HCFA routinely issued a new billing code as soon as it was informed that an injectable drug was being marketed, the cut-off date could be extended much later in each year, and the need for six months marketing history could be eliminated. In the unlikely event that no claims were ever filed for the drug, the code could be deleted at a future time.
- Adjusting DRGs for New Technologies
In the case of drugs, medical devices, and surgical procedures furnished to hospital inpatients, a question that is often more important than coverage is the payment level for the new technology. New procedures are assigned to a diagnosis-related group (DRG) that describes their general circumstances. For example, treatment of brain cancer with a new drug would fall into the DRG for non-surgical treatment of brain cancer, and a hospital using the drug would receive the existing payment amount for that DRG. If that payment amount is not appropriate for the new procedure, HCFA allows for the possibility that the new procedure can be transferred to a different DRG with a more appropriate payment level, or that a wholly new DRG might be created for the new procedure.

The HCFA policy, however, is that it will evaluate whether the payment level is appropriate based only on Medicare claims data. Therefore, the new procedure must remain in the initial DRG at least a year or two while claims data are accumulated and analyzed by HCFA.
This rigid insistence on using only Medicare claims data results in delays in setting appropriate payment levels. When payment amounts are significantly less than the costs incurred by hospitals, they may refrain from using the new procedures, to the detriment of Medicare beneficiaries. For example, when Medicare first decided to cover bone marrow transplants for certain conditions, they were assigned to DRGs for the underlying conditions, which had average payment levels of about $5,000 to $10,000. Of course, everyone understood that this amount was far below the actual cost of a bone marrow transplant, but HCFA adhered to its policy of making no changes until actual claims data were collected. Eventually, that data became available, and in 1990 HCFA created a new DRG for bone marrow transplants and assigned it the average payment amount of about $45,000.
While it is understandable that HCFA does not want Medicare to overpay for new procedures, there would seem to be room for the agency to make a conservative estimate of costs and assign new technologies to DRGs that are more likely to represent their true costs. It seems to be poor policy to discourage hospitals from providing life-saving treatments such as bone marrow transplants for leukemia by deliberately setting a payment rate that is far below any fair estimate of the costs involved. Adjustments to refine the payment amount can be made in subsequent years based on actual claims data in the same manner that they are made now.A related issue is the problem of tracking the use of new drag therapies in hospital claims data. Although new ICD-9-CM codes are assigned to new surgical procedures for hospital billing purposes, they are not assigned to new drug therapies. Accordingly, even after a year or more of actual claims data exists, it may be difficult or impossible to identify the patients who received the new drug therapy. If those patients cannot be identified, it is impossible to determine whether the drug therapy is classified in the appropriate DRG or to move the therapy to a different DRG. It would be desirable if HCFA assigned ICD-9-CM codes to costly drug therapies so that use of the drug therapy could be followed and the DRG adjusted if appropriate.
Conclusion In summary, there are a number of issues that Congress may wish to consider to improve the Medicare process for coverage decisionmaking and appeals:
- The role of the contractors in deciding coverage policy should be re-examined, since their involvement leads to non-uniform interpretation of Medicare benefits and requirements. To the extent that they continue to make policy, the use of coordinated action by these unaccountable companies to promulgate national coverage policies is highly questionable.
- There should be more openness and opportunity for public participation in national coverage decisions without imposing the Administrative Procedure Act requirements applicable to rulemaking.
- HCFA should issue regulations that clearly and comprehensively set out the criteria for Medicare coverage of items and services.
- Congress should consider reinstating the procedure for direct judicial review of Medicare Part B policies that the Supreme Court established but that was effectively overturned by Congress in the 1986 amendments.
- HCFA should consider a more flexible approach to dealing with issues that in reality affect the introduction of new technologies, such as the issuance of new codes and the assignment of new procedures to appropriate DRGs.
Thank you for the opportunity to present this statement.
FOOTNOTES:
1 In accordance with the Committee's rules, I state that I have not received any Federal government grants or contracts during the current or past two fiscal years, and that I am not representing any entities in my appearance be(ore the Committee. I am currently a partner in the Washington, D.C. law firm Fox, Bennett & Turner, where I have practiced since 1989. Prior to that, I held various positions in the Department of Health and Human Services, including Deputy General Counsel (1981-86), Acting General Counsel (1984-85), Chief Counsel of HCFA (198688), and Deputy Administrator of HCFA (1988-89).
2 Gray Panthers v. Schweiker, 652 F.2d 146 (D.C. Cir. 1980), 716 F.2d 23 (D.C. Cir. 1983).
3 Bowen v. Michigan Academy of Family Physicians, 476 U.S. 667 (1986).
END

LOAD-DATE: April 24, 1999

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