In July 2004, in its ongoing effort to expand coverage of the service sector in the Producer Price Index (PPI), the Bureau of Labor Statistics (BLS) introduced a new price index for the direct health and medical insurance carriers industry. This index, NAICS 524114–Direct Health and Medical Insurance Carriers, appears in table 5 of this publication. Data are available for December 2002 to present; prior to December 2003, the index is published as discontinued series SIC 6325.

The primary output of this industry is the contractual transfer of the risk for payment of medical costs and financial intermediation. The policy underwritten by the insurer represents a unique output. The policy lists the conditions for which restitution would be made to the policyholder to cover medical costs. The amount of risk being transferred to the insurer is clearly stated in terms of covered benefits (and benefits not covered), and it obligates the insurer to pay claims for all such occurrences. The indexes for this industry measure the change in the total premium (employee and employer contribution) paid to the insurer plus the return on the invested portion of the premium.

The services for which price indexes are available include:

5241141       Medical service plans
524114101     Group comprehensive medical service plans
52411410101   Group managed care medical service plans
52411410102   Group fee-for-service medical service plans
524114102     Other group and individual medical service plans
52411410201   Individual comprehensive medical service plans
52411410202   Dental service plans
52411410203   Supplemental Medicare service plans
52411410204   Other medical service plans
5241142       Accident and health insurance

To track price movement for the selected policy, insurance companies participating in the survey are presented with two options. With the first option, companies are asked to estimate a premium for a “frozen” policy. An actual policy is selected, and the price-determining characteristics are held constant when the policy is priced each year on its anniversary or renewal date. The companies estimate the premium using current charges applied to the characteristics of this policy.

With the second option, the insurance companies follow the selected policy over time. They are asked to provide the actual premium charged to the policyholder and to identify any modifications to the policy each year on the anniversary or renewal date. Any changes in benefits over time must be factored out so that index movements reflect only changes in price and not any additional benefits. To maintain constant quality, the companies must be able to provide the value of the risk change associated with any change to the policy characteristics.

Recently, I took my first real vacation in four years. I left the laptop and cell phone at home and went overseas. In reading the tour brochure (admittedly not until I was actually on the vacation), I noticed it informed me should I have a medical need, health care was free and available. I wondered what travel brochures say for people traveling to the United States. Do we tell people we have excellent health care, but if you are uninsured and need to access it, it will likely bankrupt you?

The positive effects of vacation wore off quickly. A week after my return, my 81-year-old uncle, visiting me from Canada, fell and broke his hip. I dialed 911 for the first time in my life, and waited. It took several attempts for the ambulance to find my home.

I spent a Saturday night in the emergency department. The initial set of X-rays taken had the cardiac leads obscuring a critical part of the images, and we had to again move a patient with a broken hip to repeat the studies.

Multiple hours later, my uncle was in a hospital bed, and I started the process of dealing with coordinating care for a patient insured under the Canadian system. My phone call to Canada resulted in the insurer easily identifying my uncle and his primary care physician in the one and only database, and also resulted in clear directions for me to follow.

The 72 hours spent at my local hospital proved to be an exercise in frustration. In the countless hours I spent there, I saw the primary RN once, and never could get the attending physician to speak with me. The same insurance information was asked for countless times. Forms that needed to be faxed weren’t. Sections of the medical record weren’t forwarded and tests needed to be repeated. But I discovered something. If I wanted to know what was happening, I called Canada! For some reason the medical case worker there could update me continuously. At one point, my uncle wasn’t in his room. I went to the nurses’ desk to inquire where he might have been taken, and discovered it was possible for about a dozen people to give you that “deer in the headlights” look simultaneously. I waited an hour and a half, and then called Canada to find out what was happening (at the hospital I was calling from). They informed me my uncle had been taken for a cardiac echo and would return shortly.

I resorted to more drastic measures to seek information. I wrote a note and taped it to the chart rack in the room. The note would be obvious each time vital signs were checked. A day later, the note was still there. Time was lost when the orthopedic surgeon in Canada insisted that an 81-year-old with a hip fracture needed to have surgery as soon as possible, but the attending physician in the United States insisted he was stable enough for transport. Just when I was getting desperate for information and was considering shopping for a flip chart and brightly colored markers, I received a call from Canada that an air ambulance had been arranged and was on the way.

James M. Connelly, MBA, CPA, joined Henry Ford Health System, Detroit, Michigan, as senior vice president and CFO in 2000, and almost immediately participated in a systemwide renewal effort designed to focus physicians, clinicians, administrative staff, and other employees on achieving strategic business objectives. The renewal included a three-day, offsite retreat for Henry Ford’s physician and administrative leaders. One positive outcome of the renewal effort was an improved relationship between Henry Ford’s medical group and its health plan, Health Alliance Plan (HAP).

HFM: Can you tell us about Henry Ford Health System and your responsibilities as senior vice president and CFO?

Connelly: Henry Ford Health System is a not-for-profit corporation based in Detroit, Michigan. Its components include Henry Ford Hospital, a 903-bed tertiary care hospital; Henry Ford Medical Group, with 800 physicians and researchers in 40 specialties; Health Alliance Plan (HAP), which serves more than 3,200 employer groups and approximately 568,000 members; Henry Ford Wyandotte Hospital, a 302-bed community hospital; Horizon Health System, a major osteopathic care provider; Henry Ford Behavioral Health, which includes Kingswood, a 100-bed psychiatric hospital; Community Care Services, which offers a variety of services from medical supplies, pharmacy, and dialysis to home health, long-term care, and hospice; and William Clay Ford Center for Athletic Medicine, a state-of-the-art sports medicine facility.

Henry Ford also has two joint ventures, one with Bon Secours Health System for Bon Secours Cottage Health Services, and the other with Mercy Health Services for Henry Ford Mercy Health Network. In terms of revenue, Henry Ford is a $2.5 billion operation.

I am responsible for managing the entire fiscal affairs of the system–capital, financings, financial operations, acquisitions, treasury and investments, real estate, financial business strategies, and rating and regulatory agencies.

HFM: What is your service area and payer mix?

Connelly: Our service area is primarily southeast Michigan, although our specialists draw both regionally and nationally. More than 1 million residents receive care from Henry Ford. The payer mix is 32 percent HAP, 30 percent Medicare, 13 percent Blue Cross/Blue Shield, 6 percent Medicaid, and 19 percent other commercial payers.

HFM: In 1998, Henry Ford reported a $43 million loss in operations. A turnaround operation began in 2000, the year you joined Henry Ford. How is the system’s financial outlook today?

Connelly: In 2000, we had a profit of $33.9 million. Then in 2001 we reported a very sizable loss–$87.7 million. We had to react to the 2001 situation, and we did. In the first quarter of 2002, we reported a system loss of only $5.3 million. For the second quarter, we will report a system profit of $3.9 million.

HFM: What strategies have you implemented to improve HFHS’s financial picture?

Connelly: As we saw the way the financial picture was developing in 2000, we undertook a sizable and significant remediation plan. As we had in the past, we retained the Hunter Group to help us assess the situation and develop an implementation plan for change, which we finished in December 2001. We took a number of steps. We made significant changes in the leadership at Henry Ford Hospital. We reduced the workforce in late January and early February, which is why our first-quarter numbers weren’t as good as our second-quarter numbers. We made changes that relate to improving operational processes and patient access, such as transfer processes between our clinics and hospitals. We’ve put considerable emphasis on reducing supply-chain costs. Last, we’re implementing new billing systems for both the medical group and the hospitals.

HFM: Can you elaborate on the top strategies you’ve implemented?

Connelly: There are four things we’ve focused on: labor, supply, revenues, and infrastructure. Like most healthcare organizations, from a strategic perspective, we need to build growth in our patient volume. To do that, in the short run, we need to more aggressively manage our operating expenses to make sure we’re creating the necessary resources to fund the revenue initiatives.

We’ve been focusing on labor expenses. We have reduced our systemwide labor expense by $40 million a year on a run-rate basis since February.

We also have reengineered a number of our corporate support services, creating an integrated model to serve the provider business units. We have created an integrated structure in finance, human resources, information technology, purchasing, and administration. That has given us, in current dollars, a reduction in operating costs of $15 million compared with a year ago.

Our supply costs year-to-date are flat compared with the prior year. But when you consider inflation, and the fact that pharmaceuticals and medical supplies are up 6 to 7 percent, it means we’ve actually achieved savings. We’re more closely managing supply costs with new, extensive monitoring and control mechanisms. We’re using our existing systems, but we’ve compiled, summarized, and disseminated the information differently, giving the operations management feedback they didn’t have previously. For example, with our systemwide payroll, which approaches $25 million every two weeks, we now provide immediate feedback to the business units. They have complete information on their payroll expenses, such as FTE levels, overtime, and any additional payments and compensation. They’re now able to look at their numbers on a real-time basis. They’re able to manage to their targets more effectively and have been able to reduce costs this year and improve productivity.

Another Los Angeles hospital is having serious financial problems.

This time it’s St. Vincent Medical Center, the city’s oldest hospital and a leader in transplant operations and other sophisticated procedures that also has a reputation as a haven for poor patients seeking care.

The Westlake non-profit lost $11.1 million in the year ended June 30 and is on track to lose even more this year. The losses have caused turmoil in St. Vincent’s executive ranks, but so far have not led to any cuts in services.

The hospital’s chief executive and chief financial officer departed last year, and temporary administrators are in their place until a new chief executive, Gustavo Valdespino, starts next month.

A variety of factors are being cited for the problems, including St. Vincent’s break from the Catholic Healthcare West hospital network, as well as higher costs that have outpaced revenue growth.

“We are still in the trenches trying to figure this out,” said Robert Issai, interim chief executive of the Daughters of Charity Health System, the seven-hospital system of which St. Vincent is now a member.

Several other local hospitals have had financial problems recently, including Santa Teresita Hospital in Duarte and Century City Hospital, owned by Tenet Healthcare Corp., which is slated for closure in April. St. John’s Health Center in Santa Monica laid off 10 percent of its staff, citing rising nursing wages and other factors.

Health insurers have raised reimbursements, but that doesn’t solve the problems. These include the increased costs stemming from nurses’ salaries, new technologies and a mandate to seismic retrofit. “I think what you are seeing is not the end of the road,” said Jan Emerson, vice president of external affairs for the California Healthcare Association, an industry trade group.

Ownership changes

St. Vincent, in particular, has been through upheaval as a result of ownership changes, though it has always been sponsored by the Daughters of Charity order since its founding in 1856.

In 1995, the Daughters of Charity joined with other Catholic hospital owners to form Catholic Healthcare West in an attempt to gain heft and achieve operational efficiencies, but the San Francisco-based system lost money. Officials decided to centralize further, prompting the Daughters of Charity to pull out and form its own seven-hospital system in 2002.

The changeover makes it hard to track exactly when St. Vincent began losing money. In calendar 2001, the hospital earned as much as $8.7 million as part of Catholic Healthcare West, according to financial statements filed with the state. But in the first six months of 2002, the hospital posted a $1.2 million operating loss as part of the new system. Investment gains lowered the net loss to $418,000.

In its first full year as part of the Daughters of Charity system, ending in June 2003, St. Vincent lost $12.3 million on an operating basis, and $11.1 million after adjustments. Revenue rose by 5.8 percent but expenses grew by 12 percent, according to figures provided by Issai.

Between last July and November, St. Vincent lost another $5.8 million, and could lose as much as $15 million unless changes are made, said Issai, whose permanent job is chief financial officer of the Sisters of Charity system.

Among the problems found by the interim management so far: the hospital’s billing system apparently atrophied under Catholic Healthcare and was failing to send out millions of dollars worth of bills in a timely manner. This problem has been rectified, Issai said.

Another major issue is the cost of staffing levels that are about 10 percent higher than the industry average. Part of that is explained by St. Vincent being a center for kidney transplants, as well as doing heart, liver and other organ transplants. All of which demand higher staffing.

Bain Farris, a principal with health care consulting firm HealthEvolutions, who is serving as interim chief executive, said that rather than cut back staff or services, one answer could be to offer more “bread and butter” procedures that cost less and pay more, such as hip and knee replacements. “We do all these great high end services, and do them very well. But we have not taken care of more basic services,” he said.

The hospital is also considering opening an emergency room as a way to drive more patients through the door.

Some other problems may be harder to fix, such as rising workers’ compensation insurance rates, which cost the system $13 million in the last fiscal year, about $5 million more than the hospitals spent last year.

Despite the problems, St. Vincent had positive cash flow last year of $4 million, since equipment depreciation lowered net income by $14.7 million, Issai said. Also, the seven-hospital Daughters of Charity system earned $34.8 million in the 2002-2003 fiscal year, providing a cushion for St. Vincent if it should need it.

Dr. Michael Stefan, a former chief of staff who now sits on the hospital board, said the losses were disheartening but that he believed the hospital was “fundamentally sound” and the problems could be worked out.

When it rumbled into the health-care information technology market four years ago, Siemens Medical Solutions promised to redefine the way hospitals create and use information. But the diagnosis of the German giant’s efforts so far has been mixed.

The company’s Soarian medical information system does everything from storing electronic patient records to processing bills. The software is supposed to do for hospitals what enterprise resource planning programs have done for manufacturers: deliver the right data to the right people at every step in the patient-care process to make service delivery as efficient as possible, while reducing errors by replacing paper trails with digital documentation.

“Health care has a whole lot of ‘hurry up and wait,’” says Richard Eshbach, CIO of Mountain States Health Alliance. “Soarian will give us a way to push the care process along in an appropriate, timely matter and avoid delays.”

Soarian arose out of Siemens’ $2.1 billion acquisition in 2000 of Shared Medical Systems (SMS), a Malvern, Pa.-based company founded in 1969 by three ex-IBM mainframe salesmen. The deal was a big push for Siemens into the U.S.: SMS had 1,000 customers, including Cincinnati Children’s Hospital Medical Center.

Siemens, though, was eager to grab more. The Germans immediately installed their own managers to crack the whip at SMS, whose corporate culture had grown stodgy over the years, according to some customers. SMS’ last major product rollout was in 1989 with Invision, a medical information system whose core pieces run only on IBM OS/390 mainframes. Siemens pushed to develop an entirely rewritten information-management system, and the company announced details of Soarian about a year and a half after it bought SMS.

But Soarian has been hurt by delays—some of its software modules have been about a year behind schedule. That’s partly because Siemens delivered some shoddy code early in the beta-testing cycle, according to Greg Walton, CIO of Carilion Health System. “They would get stuff from Bangalore, they would ship it to Germany, and then they’d ship it to us,” he says. “Then we’d say, ‘It doesn’t work.’” Walton says Siemens is still trying to get a handle on the information-technology business. But, he adds, “I think they’re smart enough to figure it out.”

Janet Dillione, senior vice president of Siemens Medical’s U.S. information-technology group, acknowledges some stumbles out of the gate for Soarian. “We’re now being more proactive,” she says. Dillione originally said Siemens Medical would provide Baseline metrics showing a decline in bugs reported by Soarian customers; later, however, the company said it was unable to release this data.

In any event, customers say rolling out Soarian is a massively complex undertaking. The full suite of Soarian financial and clinical systems requires a hospital to change almost every one of its business processes, from registering and treating patients to billing them. “We’ve been able to build our data repository pretty quickly, but we had to do it from scratch,” says Mary Buckley, vice president of information technology at Chester County Hospital, an early adopter of Soarian.

That complexity, combined with Soarian’s delays, caused at least one customer to give up on it. Baptist Health System, based in Birmingham, Ala., pulled the plug on its Soarian project in April because of “the substantial investment, resource and time commitment required to participate as a Soarian early adopter,” the health system said in a statement. Dillione says Siemens Medical and BHS arrived at a “mutual decision” to cancel the project given the customer’s priorities.

The episode reflects the deeply conservative bent of technology managers in health care. Indeed, even one of Siemens Medical’s own employees admits he isn’t ready to give Soarian the green light.

Dave Niven holds the title of CIO at Chesapeake Health, a company that operates a 310-bed hospital in Chesapeake, Va. But he’s actually a Siemens employee: In 2001, Chesapeake Health set up an outsourcing agreement with Siemens for its entire 25-person information-technology staff. Today, Chesapeake Health runs a hosted version of Invision. While Niven is keeping an eye on Soarian, he says the hospital does not expect to implement it for at least two more years. “The strategy we have here is to be a fast-follower, not in the lead,” he says.

Until Soarian has been completely battle-tested, Siemens Medical hopes most of its customers have the same philosophy. But it doesn’t have much more time to get it right, says Dr. Barry R. Hieb, a research director at Gartner. “This is the year that’s going to make or break Siemens,” he says. “If they say, ‘You have to wait another year,’ their installed base is going to start to erode.”

What differentiates an electronic medical record (EMR) from a computer based patient record (CPR)? Those distinctions, coupled with some clinicians’ reluctance to forsake their tried and true ways for technologies that lack a proven track record, make it hard for this particular technology to gain wide-scale acceptance among physicians.

For some in the industry, the terms EMR and CPR are used interchangeably, says Peter Waegemann, CEO of the Boston-based Medical Records Institute. “There is no consensus as to what an EMR or CPR is,” he notes.

But not for all. “We just use the term EMR,” says William F. Jessee, M.D., president and CEO of the Denver-based Medical Group Management Association (MGMA), the largest group practice association in America.

Larry Dolin, president and CEO of Mayfield Heights, OH-based Noteworthy Medical Systems Inc., says there is also confusion surrounding what constitutes an EMR, let alone a CPR. Dolin, whose company has developed a total system for medical data management, views an EMR as a total computer-based medical record that does not rely on paper charts, transcription or dictation, yet includes all doctors’ notes and prescription orders. He believes a true EMR requires physicians to do their own clinical documentation by entering data as they examine patients. Waegemann agrees, saying that you really don’t have an EMR unless the physician is using a computer in the examining room.

But Matthew Morgan, M.D., sees a clear-cut difference between EMRs and CPRs. As an assistant professor in the Department of Medicine at the University of Toronto, and director of healthcare informatics for Atlanta, GA-based Per-Se Technologies, Morgan says an EMR is a confined medical record offering little integration with other systems and is “much more restricted in its scope.” A CPR, on the other hand, “provides a longitudinal patient record over time” that goes beyond the walls of one organization or physician’s practice, he says. Because a CPR cuts across the entire spectrum of healthcare delivery, clinicians are provided with a total view of a patient’s medical history.

The CPR is not a new concept, Morgan says, Citing work done by the Institute of Medicine in 1991, which called for the adoption of CPRs by 2001. Other influential groups including the Agency for Healthcare Research and Quality and the Leapfrog Group are recommending implementation of CPRs as a way to reduce medical errors. But Waegemann says that attempts to compile a comprehensive, prenatal to postmortem medical record have shown few real benefits. “This specific vision has not been implemented and probably won’t be in the next couple of years,” he predicts.

Privacy Issues

One of the biggest barriers to implementing a life-long medical record is the issue of privacy. “It has too many `Big Brother’ overtones,” says Jessee, adding that having all that information in a single database, accessible to any number of caregivers during a lifetime, frightens most patients. It also raises the question of who owns that data and where it will reside. Nevertheless, he believes the kind of longitudinal patient record that has been debated since 1991 eventually will consist of “multiple electronic repositories of different data,” coupled with a linking mechanism, which will still allow for the exchange of specific information.

Morgan agrees that a single database can increase the risk of breaches in security, but says there are more potential breaches to patient privacy in a paper-based world. Dolin agrees. He says his company’s EMR, for example, helps ensure patient privacy because access to patient records is electronically restricted to those who have a need for access, and that user access levels can be defined on an individual or group basis.

Pointing to the ever-growing role of the Internet, Waegemann says, “The future medical record will be a record accessible on the Web.” But he raises the issue of what information patients may want included or excluded from their records. While many patients with chronic illnesses would feel secure knowing that their past histories are available in case of emergency, others may argue their “rights of anonymous care.”

Some people, for example, may not want it known that they experimented with drugs at the age of 15 or had an abortion at 18, he says. Dolin, however, retorts: “We’re not interested in everything that’s happened to you in the world.” Adds Morgan: “As a physician, I have the duty to protect the privacy of my patient.”

Slow but Steady Gains

Whether it’s called an EMR or CPR, physicians have been slow to fully adopt this technology. But that may be changing. “Physicians, by nature, are not opposed to change,” says Morgan. “They will adopt it if it can improve patient care.”

Morgan says physicians have perfected their use of paper over time and are reluctant to give up their methods until something better comes along. But now they’re finding that a computer-based record is better, he says. “In a paper-based world you don’t get real-time clinical decision support.”

Reviews conducted by consulting organizations have shown that providers lose as much as one to four percentage points from their bottom lines to billing inaccuracies associated with outpatient services, such as coding errors, insufficient documentation of medical necessity, and poor charge description master (CDM) maintenance. Clearly, the opportunity exists to improve understanding of the educational and operational issues related to managing ambulatory payment classification (APC) codes.

To gain this understanding and avoid common APC pitfalls, providers need to be aware of the means used to detect billing inaccuracies, areas most often targeted for review, and steps they can take to initiate improvement. Hospitals that don’t become savvy to the APC system and develop appropriate controls could pay a heavy price–significant underpayments or stiff fines and penalties imposed by the Office of Inspector General (OIG).

The following 10 points are suggested ways that providers can encourage compliance and optimize revenue.

1. Establish an Active Compliance Program

The Centers for Medicare and Medicaid Services (CMS) does not mandate corporate compliance programs as a condition of participating in Medicare. However, it has stated that having an effective corporate compliance program may reduce the risk of unlawful or improper conduct significantly and can mitigate penalties incurred if billing or coding infractions occur.

Providers would be wise to devote staff and resources to program development and maintenance. Having this infrastructure in place will support the internal controls and monitoring needed for effective management of APC compliance risk and payment accuracy.

2. Be Familiar with the OIG’s Initiatives

Understanding the government’s areas of focus can help providers direct compliance efforts. In the past, outpatient initiatives in the OIG work plan have emphasized adequate documentation, proper coding, and demonstration of medical necessity. Specific targets have included:

* Controls over transitional pass-through costs;

* Charges for self-administered drugs that originate from outpatient pharmacy services at acute care hospitals; and

* Undocumented, unnecessary, or noncovered charges for outpatient medical supplies.

Even though the latter two review items apply to claims that existed before August 1, 2000, when the APC prospective payment system was initiated, it is important to be vigilant about these areas because the OIG has the authority to audit claims up to six years after submission.

In 2002 and 2003, the scope of the OIG’s interests widened. In addition to pursuing prior concerns, the work plan urged examination of APC outlier payments; payments for APC services delivered when patients are discharged, treated elsewhere, and then readmitted on the same day; and procedure coding of outpatient and physician services. The OIG is undertaking this last initiative because in a previous review it identified a 23 percent nationwide discrepancy between hospital and physician coding. (a)

Four new review areas will begin in 2003:

* Assessing the appropriateness of Medicare billing for diagnostic procedures performed in the emergency department, including X-rays, magnetic resonance imaging (MRI), and computed tomography scans;

* Determining whether outpatient hospital cardiac rehabilitation services meet Medicare coverage requirements, including the presence of a physician in the exercise program area while patients are exercising;

* Assessing the performance of accrediting organizations and state survey and certification agencies in providing hospital oversight of hospital outpatient departments; and

* Evaluating controls to detect potentially excessive Medicare payments for services.

The OIG will assess the adequacy and extent of actions taken as well as potentially excessive payments.

3. Recognize Data Likely to Be Flagged

Techniques the OIG uses to target providers include routine audits, medical review, qui tam (or whistleblower) cases, and data analysis. Areas likely to be flagged for outpatient billing inaccuracies through data analysis may include duplicate billing, APC distribution irregularities, and codes identifying inpatient-only services.

Duplicate billing. OIG estimated that Medicare carriers paid more than $89 million in duplicate bills in 1998. Outpatient service areas most prone to duplicate billing were nail debridements (APC 0009), MRI of the brain or lumbar region (APC 0337), and psychiatric diagnostic interview examination (APC0323). (b) Duplicate billing can have many causes, from undifferentiated information-technology processes to poor staff education. To address this concern, hospitals should closely analyze bills with these APCs to determine whether duplicate billing is occurring at the hospital level and identify possible origins of duplication.

APC distribution irregularities. High volumes of cases in APCs with higher weight, and therefore higher payment, than the norm could draw OIG attention. Sometimes a legitimate reason may explain the irregularity For example, a hospital designated as a trauma center can expect to generate high-level and critical care bills for emergency-department patients more frequently than a nontrauma facility To minimize compliance risks, providers should identify and examine high-level APC trends for billing accuracy

INTRODUCTION

Medicare’s Part B benefit provides coverage for DME and prosthetics, orthotics, and supplies (POS). Part B covers a wide range of DME for use in the home, including oxygen equipment and supplies, hospital beds, wheelchairs, walkers, and renal dialysis machines. The coverage for POS, in both home and nursing home settings, includes enteral nutrition therapy, urological supplies, surgical dressings, and devices such as hand braces and artificial limbs. DMEPOS benefits are especially important to sick and disabled Medicare beneficiaries, allowing them to avoid institutionalization, live more mobile and independent lives, and maintain their quality of life.
While DMEPOS items are of indisputable importance to beneficiaries, concern over fraudulent billing and the high cost of these benefits has attracted scrutiny from policymakers during recent years. Beginning in the late 1980s and continuing through today, Medicare has relied on fee schedules to reimburse DME suppliers. Despite attempts to limit rising costs within this framework, expenditures have grown by over 10 percent per year, twice the rate of the national economy. As of 1996, expenditures on DMEPOS accounted for over $6 billion–about 3 percent–of Medicare’s $193.9 billion total outlays. Although expenditures actually fell in 1998 because of reductions in the fee schedule, expenditures are projected to rise by more than 5 percent annually during the next decade (Board of Trustees, Federal Hospital Insurance Trust Fund, 1999). In addition, several studies suggest that Medicare pays more for DMEPOS than other purchasers pay (U.S. Department of Health and Human Services 1996a, 1996b, 1996c, 1996d; U. S. General Accounting Office, 1997).
As a result of this scrutiny, Congress and CMS have adopted initiatives to reduce DMEPOS expenditures. DMEPOS services are one of four industries that the Federal Government has targeted in Operation Restore Trust, a program designed to prevent Medicare and Medicaid waste, fraud, and abuse. As part of the Balanced Budget Act of 1997, Congress mandated substantial cuts in the Medicare fee schedule for oxygen equipment and supplies, the largest single component of DMEPOS spending. Also as part of the Balanced Budget Act of 1997, Congress approved up to three CMS demonstration projects to use competitive bidding to set the price of Medicare Part B services. In the demonstration projects, suppliers were no longer reimbursed through a fee schedule but received payments based on rates that they bid during the selection process. Suppliers were able to receive payments for items and services covered by the demonstration only if their bids were competitive in terms of quality and value. CMS implemented the first DMEPOS Competitive Bidding Demonstration in Polk County, Florida, with bids for five types of DMEPOS collected in March 1999 and new, lower fees taking effect in October 1999.

These initiatives raised important questions: What impact, if any, will policy initiatives such as reductions in fees and the DMEPOS Competitive Bidding Demonstration have on beneficiaries’ access to and quality of the DMEPOS services they receive? In particular, after the initiatives, will beneficiaries still be able to obtain the same access to DMEPOS services they need, when they need them? Will beneficiaries still receive the same quality of equipment or services? One method of assessing access to and quality of services is to ask users about their satisfaction with the equipment and services they receive from suppliers. This type of rating is often called consumer satisfaction, but it can also be viewed as a summary measure of access and quality from the unique perspective of users of services. Measuring and reporting consumer satisfaction has become an integral part of efforts to promote active participation by consumers in the health care services received (Sangl and Wolf, 1996), and CMS is currently surveying Medicare beneficiaries’ satisfaction with health plans and the fee-for-service system using satisfaction questions developed by the Consumer Assessment of Health Plans Study (CAHPS[R]).

In order to evaluate the effect of the demonstration on beneficiary satisfaction with DMEPOS suppliers, it is necessary to have a baseline measure of beneficiary satisfaction prior to implementing the intervention. This information can then be compared with beneficiary perceptions, or satisfaction, after implementation. Unfortunately, published information about beneficiary satisfaction with DMEPOS suppliers is extremely limited.

In this article, we analyze Medicare beneficiary satisfaction with DMEPOS suppliers using data from a random survey of beneficiaries who use five types of DMEPOS in two Florida counties. Ultimately, this baseline information will be used to evaluate whether Medicare’s DMEPOS Competitive Bidding Demonstration project affects beneficiary satisfaction, access to care, quality of equipment, and product selection. More generally, however, we believe that these estimates represent current levels of beneficiary satisfaction with DMEPOS suppliers.

The British Columbia Nurses’ Union (BCNU) has asked Federal Health Minister Anne McLellan to investigate possible billing practice violations of the Canada Health Act by physicians at two for-profit surgery clinics in Vancouver.

The union is also demanding that BC Health Services Minister Colin Hansen investigate possible violations of a provincial law, the Medicare Protection Act, at the two clinics, False Creek Surgical Centre and Cambie Survey Centre. This act prohibits physicians who bill the Medical Services Plan (MSP) from charging fees to patients covered by Medicare for medically necessary procedures covered by Medicare.
“Doctors who join the Medical Services Plan aren’t allowed to bill patients for any insured service,” said BCNU President Deborah McPherson, RN. “Basically, a doctor is either completely in the MSP or they’re completely out. They can’t practice on both sides of the Medicare fence. We believe that physicians at these clinics - who are listed on the Medical Services Plan - are billing patients for medically necessary procedures (and are) in violation of both the Medicare Protection Act and the Canada Health Act.”

But McPherson said neither the provincial government nor the federal government has taken the necessary steps to halt these possible violations. Under the act, the minister must initiate a consultation with the provincial government about alleged violations. The BCNU hopes that its letters to Canadian and BC officials will spark that discussion.

Pat Palmer analyzes medical bills from all over the country and prides herself on her ability to crack codes.

Medical bills, typically composed of complex multi-page lists of codes, could seem confusing and intimidating to a consumer. Many hospitals, however, are making bills more patient-friendly and less burdensome to interpret.

Palmer makes a living as a medical bill reviewer. One particular code she cracked was for a cost-support device. Palmer discovered that a cost-support device translated into a teddy bear in Virginia - or a heart-shaped pillow in California.
As the founder of the Medical Billing Advocates of America, Palmer serves as a consultant for insurance companies and individuals to uncover medical billing errors. Since the association was established in 1994, Palmer has seen an increased number of corporations contracting medical bill reviewers.

More and more companies are starting to look into the large amount of money going out in medical expenses, said Palmer. They make sure the providers are paying correctly and aren’t billing for things they shouldn’t.

The Medical Billing Advocates of America, headquartered in Salem, Va., has 30 members in 18 states and Washington. The group is pressing for national reform to standardize medical bills and make certain charges fraudulent and abusive.
Under current law, hospitals can be prosecuted if they don’t report Medicare billing errors to the federal government. The statute in the Social Security Act has a 10-year statute of limitations and includes penalties for billing for services not provided and upcoding. The law, however, only applies to misuse of federal money, and does not include provisions for individuals or companies.

Under the government, these charges are considered fraudulent and abusive, said Palmer. Why does that not stand for everyone, not just Medicare?

In Maryland, the Health Cost Services Review Commission regulates approved charges. The items must be used for a patient’s care, with the exception of billing for patient convenience charges such as use of a television or telephone.

I’m not familiar with anything like that [the teddy bear], said Tony Morris, assistant vice president of financial operations for Greater Baltimore Medical Center. But disposable supplies could be part of a patient’s care treatment and on the bill.

Detecting errors

GBMC has been making progress in detecting medical errors before they occur and performing self audits to target weaknesses in the billing system.

We have a compliance program that takes a more proactive approach, said Stacey McGreevy, compliance officer with GBMC. We identify errors that can occur, train people and respond quicker to other potential errors that are out there.

Two years ago, GBMC received approximately $60,000 per month in denials from insurance companies which found charges for tests that were not medically necessary. The hospital has since dropped that amount to $16,000 per month.

It was a hot area - hospitals billing for things that weren’t medically necessary - such as seeing a gynecologist and him ordering a cholesterol test, said McGreevy.

The hospital now recovers approximately 85 percent of all charges because of the systems in place to prevent errors.

Morris said many of the hospital’s errors are the result of human mistakes and include incorrect room charges, keystroke errors and charges for services that were never performed.

Occasionally we will see complaints for services never rendered, said Morris. Sometimes the description is confusing and the charge was correct.

Lack of training and education typically leads to errors, according to Morris.

Hospitals need to continue training, said Morris. When they put people in positions, they need to have a series of quality checks to make sure they’re doing their job.

The Maryland Hospital Association also is increasing its awareness of billing errors.

We’re seeing progress, said Nancy Fiedler, spokeswoman for MHA. There’s an acknowledgment that because bills are complex, errors do occur.

Use it, pay for it

Palmer said patients from across the country have been billed for many ridiculous items, including gloves, sheets, drapes, gowns, flowers, towels, soap and cotton swabs. One client was billed for a fog reduction device that was nothing more than a towel to wipe the lens on a scope.

There is no explanation of what we’re being charged for, said Palmer Patients assume they’re important items used for their care.

GBMC said that if an item is used for the care of the patient, they will be billed for it-including cotton swabs.

If there is an error, the patient needs to go to the hospital, said Morris. If we have charged something [inappropriately], we’ll take it off.

Many medical bill reviewers charge patients based on the amount of money saved. Some larger companies are charged a flat fee or on an hourly basis.

Accu-Rate, an El Paso based medical bill review company, estimates that more than 90 percent of all hospital and doctors’ bills have errors and 70 percent of those errors are overcharges.