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6 Decisionmaking in the Health Care Financing Administration KATHLEEN A. BUTO Although the Health Care Financing Administration (HCFA) has been pro- viding coverage and payment for medical services and technologies through the Medicare program for more than 25 years, the basis for coverage remains a mystery to many beneficiaries and health care providers. Because so much dis- cretion is left to Medicare's claims-paying agents, coverage varies widely, de- pending on local medical practices in a given area of the country. This chapter describes how the current, decentralized system of coverage has developed, dis- cusses how it has created problems of equity, and details some of the changes that will improve the basis for coverage decisionmaking and promote more uni- formity in covering Medicare benefits. BACKGROUND ON MEDICARE COVERAGE When Medicare was enacted in 1965, the U.S. Congress intended that it protect elderly individuals from the catastrophic costs of expensive hospitaliza- tions and post-acute care. The benefits package reflects that purpose: Medicare provides coverage for a broad range of benefits related to hospital care, physi- cians' services, home health care, skilled nursing care, medical equipment, and laboratory services. Medicare limits coverage for certain items such as immuno- suppressive drugs (for a fixed period of time following a covered transplant). The law specifically excludes coverage for certain items, including self-adminis- tered drugs, many preventive services, and eyeglasses as well as hearing aids. In general, one can conclude from the following statement that the law is intention- ally vague and provides the Medicare program broad authority to cover medical . . . items and services: 87
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88 KATHLEEN A . BUTO Notwithstanding any other provisions of this title, no payment may be made . for any items or services which are not reasonable and necessary for the diagno- sis or treatment of illness or injury or to improve the functioning of a malformed body member (Section 1862(a) (11(A) of the Social Security Act). Medicare has operated for more than 25 years without any regulations that spell out its interpretation of how to implement this statutory language and with little explanation to the public of the process used by HCFA to cover items and services under the program. The program has provided no complete list of the items and services that it covers. For example, most inpatient medical or surgical treatments and procedures are not explicitly listed as covered services. Instead, most decisions on coverage are made by contractors, such as Blue Cross and Blue Shield plans, which pay more than 600 million claims per year on behalf of Medicare. For years, the Medicare program was structured to permit these con- tractors to be responsive to local medical practice patterns in making their deci- sions on coverage. Only about 10 to 20 national coverage decisions regarding new treatments and procedures are made each year, ranging from significant medical breakthroughs, such as liver transplants, to more modest changes in diagnostic technology, such as new uses of ultrasonography. Generally, an item is referred for a national coverage decision if it has the potential for rapid diffu- sion, is significantly expensive, or there is a wide variation in coverage among contractors. Although the Medicare program has changed dramatically over the years, becoming more centralized in its decisionmaking, the overall approach to cover- ing services has remained the same. Additions to coverage have been incremen- tal, with a focus on the categories of services specified in the law and without regard to broader issues, for example, equity across sites of service. Numerous technologies and services have been added as covered items, whereas few chang- es or deletions have been made among those items and procedures that are al- ready covered. Although previously decentralized decisionmaking meant, at times, greater speed in coverage and the flexibility to recognize emerging tech- nologies, demands are increasing for more consistency and equity in Medicare coverage policy. PROBLEMS WITH THIS APPROACH Medicare coverage has been tied to the specific categories of benefits ("pi- geonholes") set up in the law. Because coverage questions are considered nar- rowly in the context of these coverage categories Medicare has extended cov- erage to items never considered by Congress to be part of the Medicare benefits package. One example is that, despite the narrow coverage for drugs, some years ago Medicare began covering drugs used in infusion pumps because they were categorized as part of the covered durable medical equipment and were essential for making the equipment useful (Section 60-14; Coverages Issues Manual).
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DECISIONMAKING IN THE HEA f TH CARE FINANCING ADMINISTRATION 89 Medicare also covers parenteral and enteral food nutrients, not otherwise allowed in the program, as a part of the prosthetic device benefit. This is because the technology is considered a replacement for essential parts of the gastrointestinal system, and the food nutrients are covered because they are critical to the suc- cessful use of the technology (Section 65-10; Coverage Issues Manual). This peculiar way of approaching coverage results in apparent inequities; for example, food nutrients are not billable to Medicare-other than for the use indicated above-even if the requirement for them stems from a medical need. The flexibility and discretion permitted Medicare contractors in paying claims has sometimes resulted in widely varying coverage across the country. This has been especially noticeable as suppliers, manufacturers, and clinical lab- oratories have expanded from local to national markets. Oncologists have point- ed to problems with inconsistent coverage of chemotherapy drugs used for indi- cations other than their approved labeling (unlabeled uses). Patients with cancer who receive treatment at a regional cancer center may learn, when they return home to a different area with a different carrier, that their coverage does not continue. The General Accounting Office has pointed out that inconsistency in covering these drugs for"unindicated" uses has driven some oncologists to admit some cancer patients to hospitals, incurring higher-than-necessary total costs for treatment because different payment rules apply (General Accounting Office, 1992) (Section 13553 of the Omnibus Reconciliation Act of 1993 [P.L. 103-66] will require uniform covverage of unlabeled anticancer drugs, effective January 1, 1994~. The current process for setting national Medicare coverage policy is consid- ered to be a major obstacle in ensuring access for beneficiaries to important technologies and procedures in a timely way. There are no final regulations setting out the rules and criteria for national decisionmaking, although proposed regulations were issued in 1989 (Federal Register, 1989~. Concerns exist about the length of time that it takes for national Medicare coverage decisions to be made, possible duplication with Food and Drug Administration review of devices or drugs, and general discomfort that decisions are made "in the dark" (National Advisory Council on Health Care Technology Assessment, 1988~. The proposal to include cost-effectiveness as a criterion for Medicare coverage raised concerns on the part of providers, physicians, manufacturers, and beneficiaries that Medi- care would use this yardstick as a way to unduly restrict coverage of new items and services (McCarthy et al., 1989~. Although all groups would agree that improvements in the national coverage approach are needed, reaching a consen- sus on how that should be done is still a long way from being achieved. The Medicare program traditionally has used its contractor structure to mon- itor the utilization of procedures and technologies. A combination of resource constraints on contractors and a lack of clear coverage policies has led many physicians and others to complain about the paperwork burden and "hassle fac- tor" that they believe characterize the Medicare program. One of the worst-case
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9o KATHLEEN A. BUTO scenarios is when two reviewing authorities send different signals. For example, a peer review organization approved an admission for laparoscopic cholecystec- tomy as medically necessary, whereas the carrier denied the physician's claim for that admission on the basis that the procedure was still investigational. Although it may be impossible to completely eliminate these problems in clinical areas when there are legitimate differences of medical judgment about the value of certain procedures, the lack of clarity about what Medicare covers contributes to the adversarial and frustrating relationships between contractors and providers. Unlike private insurers, the Medicare program must often issue national cov- erage policies through formal rulemaking to give the public an opportunity to comment before coverage policies are finalized. This is especially true where coverage is limited or withdrawn for a particular technology. Although the pro- cess ensures broad input and participation in decisions affecting beneficiaries and providers, the regulatory apparatus creates some problems when making cover- age decisions. For policies requiring input on the terms of coverage (e.g., heart transplants), many coverage decisions can be implemented quickly, but formal rulemaking has meant delaying coverage of a significant new procedure up to one year, the typical time required to complete the rulemaking process. Technol- ogy assessments appear to take too long to complete in many cases more than one year. This is at least partly because decisionmakers are aware that coverage decisions are virtually irreversible, and formal rulemaking makes it very difficult to modify or withdraw coverage for a technology or procedure. For example, it took three years to withdraw coverage for extracranial-intracranial bypass sur- gery for the treatment or prevention of stroke, even though only 10 comments on the proposed change were received and there was broad agreement among clini- cians that coverage should be withdrawn. In considering any changes in the current coverage process, the Medicare program must find ways to balance the need for public input in decisionmaking with better flexibility to modify or change coverage decisions over time. PAYMENT CHANGES Although dissatisfaction with the current coverage process has highlighted the need to modify the current Medicare coverage system, the driving force for greater uniformity and clarity in Medicare coverage of technologies and proce- dures is from changes in Medicare payment methodologies. Increasingly, the payment approaches historically based on an individual provider's costs or charg- es are being replaced by national fee schedules or payment methods. The first such major change was to a prospective payment system (PPS) for inpatient hospital services. PPS sets a payment rate on the basis of a patient's diagnosis. Because the payment groupings are set nationally, hospitals, physicians, and man- ufacturers have demanded centralized decisionmaking on assigning technologies and procedures to specific groupings. They have increased pressure further for quicker response times and clear-cut criteria for coverage.
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DECISIONMAKING IN THE HEALTH CARE FINANCING ADMINISTRATION 91 PPS has also influenced how particular technologies disseminate into clini- cal practice. For example, prior to 1991, expenses related to capital plant and equipment were still reimbursed on a retrospective cost basis (Federal Register, 19913. Thus, even under a method that provided incentives to reduce costs in other areas, hospitals were given incentives to continue to acquire many expen- sive items of equipment, indeed, to substitute capital for labor when possible. For some technologies, such as magnetic resonance imaging (MRI) scanners, the lack of an add-on payment in the inpatient PPS payment helped to encourage the proliferation of freestanding outpatient MRI facilities. In those settings, MRI is eligible for the more generous charge-based payments. The Medicare physician fee schedule, or resource-based relative value scale, is similarly forcing greater uniformity in coverage rules for physicians' services. Now that Medicare pays for physicians' services on a similar basis around the country, there is increased demand for more uniformity and greater clarity and predictability in the services that are covered. In constructing the fee schedule, HCFA had to arrive at a common agreement about the amount and nature of physician work associated with each of the 7,000 procedure codes used by physi- cians. In many cases, packages of services or "bundles" were established when several services are commonly provided in relation to a procedure. In that way, Medicare explicitly recognized and accepted practice patterns and made cover- age and payment for those services more uniform. Numerous individual examples indicate how payment policy affects the use and diffusion of technologies under the Medicare program. When Medicare began paying for erythropoietin for patients with end-stage renal disease, the payment was based on the optimal dose of 3,600 units of the drug. Facilities had an incentive to keep the dose as low as possible and to retain the difference in payment between the optimal dose and the actual dose administered. When the payment was changed to $11 per 1,000 units, the average dose rose from 2,724 units in December 1990 to an average in September 1992 of 3,899 units (data from the Medicare Decision Support System, Bureau of Data Management and Strategy [BDMS], HCFA, 1991 bills paid). For echocardiography, a combina- tion of non-specific coverage guidelines, the available payment under the Medi- care program, and inexpensive equipment has contributed to a rapid growth in spending, from $40.8 million in 1988 to $405.3 million in 1991 (data from the Medicare Decision Support System, BDMS, HCFA, 1991 National Claims His- tory Data System). No evidence suggests that better clinical outcomes are asso- ciated with the explosion in use of this particular technology. TOWARD A MORE REASONABLE COVERAGE APPROACH HCFA is taking a number of steps to make the Medicare coverage of items and services more understandable, more responsive to changes in technology, and more uniform. One important change is to involve the medical directors of claims-paying contractors such as Blue Cross and Blue Shield and Travelers', as
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92 KATHLEEN A. BUTO well as the HCFA physicians who provide advice on national coverage decisions, in the identification of coverage questions and in the technology assessments used as a basis for making decisions. To that end HCFA has merged these two previously created advisory groups into a HCFA Technology Advisory Commit- tee (TAC). For example, in the spring of 1993 the TAC conducted an assessment of a new ventricular assist device approved by the Food and Drug Administration for use in patients suffering from postcardiotomy ventricular dysfunction. Rather than requesting an assessment by the Public Health Service, HCFA developed a rational policy to cover the device for its labeled indication based on the TAC assessment. It was issued in October 1993. This process is akin to the one used by Blue Cross and Blue Shield's Technology Evaluation and Coverage Program, which makes recommendations on coverage for selected technologies for local Blue Cross and Blue Shield plans (see chapter 7~. HCFA is also considering contracting out some aspects of technology as- sessments, including literature reviews or analyses of the quality of medical evi- dence supporting the use of a medical practice or technology. These efforts should increase both the timeliness and the quantity of assessments produced for the Medicare program. HCFA has organized special CMD review groups to consider certain issues when there has been a widespread lack of uniformity. These include carrier policies on uses of approved drugs for purposes other than those listed on the label and items of medical equipment (e.g., wheelchairs). In addition, each carri- er is setting up a local physician advisory group to help identify problems in coverage and payment and to promote more openness and uniformity in carrier decisionmaking. Beginning in October 1993, HCFA reduced the number of carriers from 34 to 4 regional carriers to process claims for durable medical equipment, prosthetics and orthotics, and supplies. This initiative is designed to reduce fraud and abuse, as well as promote uniform coverage of these items. In the proposed regulation of January 1989, HCFA discussed some major changes in its approach to covering items and services under Medicare. It pro- posed that cost-effectiveness be included as a coverage criterion along with the longstanding criteria of safety, effectiveness, and appropriateness. Cost-effec- tiveness was to be used as an additional consideration in reviewing expensive new technologies that add little or nothing to the efficacy or effectiveness of existing alternatives. If Medicare proceeds to include cost-effectiveness as a coverage criterion in final regulations, the rules will need to clarify that the use of cost-effectiveness as a consideration is intended to encourage development of better outcomes data in support of coverage and to explain how it will not be used to limit access under Medicare to important but expensive new technologies. In the same regulation, HCFA also suggested the greater use of coverage limited by time or provider, similar to the approach now taken by Medicare in covering heart and liver transplants. As already noted, the regulatory apparatus makes it difficult to change the terms of Medicare coverage once initial decisions
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DECISIONMAKING IN THE HEALTH CARE FINANCING ADMINISTRATION 93 have been made, even in the face of better data on outcomes or the usefulness of a technology. Industry groups have urged that Medieare consider interim eover- age for important new technologies, with a revision of coverage once the teehnol- ogy has diffused and more is known about its usefulness. For example, HCFA should not withhold coverage of a health e are technology when there is evidence of effectiveness in a limited set of circumstances simply because its effectiveness in a broader set of circumstances is still unknown. HCFA is considering greater use of time- or provider-limited coverage similar to the approach now taken by Medicare in covering heart and liver transplants. That is, Medieare would cover a technology but set certain restrictions, such as limiting the site of service or requiring specific data to be submitted to HCFA by the provider of the service. Because data submission would be a condition of coverage, this approach would also ensure that data, uniformly collected and reported, could be evaluated at an early stage. The Medicare program is working with the Agency for Health Care Policy and Research (AHCPR) to look at the applicability of AHCPR-supported prac- tice guidelines in Medicare coverage. Few coverage questions have arisen in the practice guidelines issued so far on pain management, pressure sores, and urinary incontinence (Acute Pain Management Guideline Panel, 1992; Panel for the Pre- dietion and Prevention of Pressure Ulcers in Adults, 1992; Urinary Incontinence Guideline Panel, 1992~. Most of the physicians' services and institutional care described in the guidelines are already covered under the Medieare program. A few items, such as self-administered pain management drugs, are excluded under the statute. HCFA expects the next two practice guidelines-on cataract surgery and benign prostatie hypertrophy to raise many more coverage questions. Over time, HCFA expects practice guidelines, whether developed through AHCPR or other organizations using similarly rigorous methods, to play an increasingly important role in defining coverage parameters and medical review criteria and in raising questions about the appropriateness of existing coverage. HCFA is also moving ahead on its own to use Medicare patient data and medical society practice guidelines to assess patterns of e are for hospitals. Early in 1993, four peer review organizations (PROs) began a pilot test that focuses on several cardiovascular procedures, such as treatment of myocardial infarction, bypass surgery, and angioplasty (Jencks and Wilensky, 19921. These PROs are developing approaches for profiling hospitals for mortality, complications, read- missions, and other outcomes. They are working with hospitals, physicians, and others to understand and interpret data on practice guidelines and to develop plans for addressing problem areas for hospitals whose performance are below benchmarks. This change in the approach used by PROs moves away from a quality-of-eare review that relies on penalties to bring about changes. Instead, PROs expect to use information and feedback on practice patterns to help stimu- late more lasting changes in the ways that institutions and practitioners assess their own quality of care. Although the principal purpose of this change is to
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94 KATHLEEN A. BUTO improve patterns of care for hospitals and physicians, longer-term data on pat- terns of care and outcomes may lead to improvements in Medicare coverage criteria. For example, Medicare could limit coverage of certain diagnostic tests routinely administered if it appears that they add little or no value to improved diagnosis or treatment of coronary artery disease. Coverage policy, designed to ensure access for beneficiaries to appropriate medical technologies and services, falls short to the extent that current payment rules dictate the site of service for a given technology or create incentives to use an expensive technology when a more cost-effective alternative exists. As HCFA begins to develop alternatives for a PPS for outpatient hospital services, it will be looking at ways to recognize appropriate differences in costs by site, without having payment levels dictate the site of service. HCFA is considering questions about how to classify services for payment, the extent to which diagnostic tests and other items should be included in a payment bundle, and the impact of such a system on other sites of service. HCFA also plans to consider more systematical- ly, in any future changes in the reimbursement system, the effect of Medicare payment incentives on the use of technologies. CONCLUSION The landscape has changed dramatically for the Medicare program since its inception in 1965. The program originated as a highly decentralized operation, with coverage and payment for services determined largely by local patterns and conventions. Now, the Medicare program has moved to national payment ap- proaches, like PPS and the resource-based relative value scale. The rules for covering items and services, however, remain an artifact of the earlier era. Cov- erage still varies widely from area to area, and the coverage decisionmaking process appears slow and mysterious. In addition, different payment amounts for technologies, depending on the site of service, can inappropriately influence where services are available and how often they are provided. The Medicare program has begun to make changes that will result in more uniform coverage, the ability to modify coverage on the basis of experience with an item or procedure, and more timely and outcome-based analyses of technolo- gies. Beneficiaries, providers, and physicians deserve to know what is or is not covered under Medicare and to have the same rules apply across the country. Medicare coverage should also be capable of changing as data become available on outcomes related to the use of technologies and services. The rules for cover- age should be explicit, and the process should be an open one. Medicare must face these issues squarely. Not only are they significant for Medicare, they are critically important in considering health care reform for the broader population.
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DECISIONMAKING IN THE HEALTH CARE FINANCING ADMINISTRATION 95 REFERENCES Acute Pain Management Guideline Panel. 1992. Acute Pain Management: Operative or Medical Procedures and Trauma. Clinical Practice Guideline. AHCPR Publication No. 92-0032. Rockville, Md.: Agency for Health Care Policy and Research, Public Health Service, Department of Health and Human Services. Coverage Issues Manual. Section 60-14. HCFA Publication 6, internal document. Coverage Issues Manual. Section 65-10. HCFA Publication 6, internal document. Federal Register. 1989. Criteria and procedures for making medical services coverage decisions that relate to health care technology. 54 FR 4302 (January 30, 1989~. Federal Register. 1991. Prospective payment system for inpatient hospital capital-related costs. 56 FR 43358 (August 30, 1991~. General Accounting Office. 1992. Medicare Reimbursement Policies Can Influence the Setting and Cost of Chemotherapy. Publication No. GAO/PEMD-92-28. Washing- ton, D.C.: U.S. Government Printing Office. Jencks, S. F., and Wilensky, G. R. 1992. The health care quality improvement initiative. Journal of the American Medical Association 268(71:900-903. McCarthy, C. M., Samuel, F. E., Sammons, J. H., and Rother, J. March 30, 1989. Letter to Louis W. Sullivan, Secretary of the U.S. Department of Health and Human Ser- vices, Washington, D.C. National Advisory Council on Health Care Technology Assessment. 1988. The Medicare Coverage Process. Internal document. Panel for the Prediction and Prevention of Pressure Ulcers in Adults. 1992. Pressure Ulcers in Adults: Prediction and Prevention. Clinical Practice Guideline, Number 3. AHCPR Publication No. 92-0047. Rockville, Md.: Agency for Health Care Policy and Research, Public Health Service, U.S. Department of Health and Human Services. Social Security Act, as amended. 1965. Section 1862(a)~1~(A). Urinary Incontinence Guideline Panel. 1992. Urinary Incontinence in Adults: Clinical Practice Guideline. AHCPR Publication No. 92-0038. Rockville, Md.: Agency for Health Care Policy and Research, Public Health Service, U.S. Department of Health and FIuman Services.
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