Joyce Frieden

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service (for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,' “he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'“

The new program may be low risk to CMS, since it pays only if money is recovered, “but everyone has an incentive to avoid reverting back to what was a very antagonistic relationship between Medicare and the physician,” he added.

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service (for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,' “he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'“

The new program may be low risk to CMS, since it pays only if money is recovered, “but everyone has an incentive to avoid reverting back to what was a very antagonistic relationship between Medicare and the physician,” he added.

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service (for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,' “he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'“

The new program may be low risk to CMS, since it pays only if money is recovered, “but everyone has an incentive to avoid reverting back to what was a very antagonistic relationship between Medicare and the physician,” he added.

WASHINGTON — The Centers for Medicare and Medicaid Services is jumping on the pay-for-performance bandwagon, but members of a physician advisory group warned CMS officials to be careful how they go about it.

“I'm only hoping that you'll structure this so that the quality indicators will be that you've [performed] certain processes, not necessarily the outcome [of them],” said Laura B. Powers, M.D., a Knoxville, Tenn., neurologist and member of the Practicing Physicians Advisory Council.

For example, outcomes are not good in terminal patients, Dr. Powers told this newspaper. “What outcome are they going to measure with an amyotrophic lateral sclerosis patient who is definitely going to die?” she said. Instead, Medicare should assess whether the physician has followed appropriate standards of care for terminal patients.

Trent Haywood, M.D., acting deputy chief clinical officer at the agency, said CMS has debated that very issue. “There has been a lot of discussion about what is the right thing [to measure]. We've always said that we think it's both,” he said. “We definitely want process measures … and the current financial structure is also easier for measuring processes, because that's the way we traditionally pay people.”

However, he added, “our goal is toward getting some evidence of outcomes. The process measures we normally collect are always related to outcomes.”

Council member Peter Grimm, D.O., a radiation oncologist in Seattle, said he believes that outcomes are the most important thing to measure. “You have to have outcomes as the bottom line,” said Dr. Grimm, who runs a quality assurance business involving 300 physicians. “I don't care how people get there. I just care that they get there.”

In his testimony to the council, Dr. Haywood outlined the various steps Medicare is taking to introduce pay for performance into physician reimbursement, including demonstration projects with hospitals and group practices.

Geraldine O'Shea, D.O., an internist in Jackson, Calif., said that she is concerned about the impact of pay for performance on the doctor-patient relationship. “Could it discourage physicians from caring for noncompliant patients?”

There are different ways to address patient compliance, Dr. Haywood said. “If you lean more heavily on process measures, that takes care of part of that problem, because those process measures look at whether you prescribed something or did something. But because we still want to look at outcomes measurement, we also talk about ways in which you allow that patient to be excluded. You can have documentation saying, 'Provided counseling and patient refused.'“

Council member Barbara McAneney, M.D., an oncologist in Albuquerque, N.M., said she was concerned about the expense of the computer system that would be required for physicians to keep track of their outcomes data.

“The most recent quote I got for the EMR that can provide the functions I want … for a practice of nine physicians, they want $400,000,” she continued. “Well, my Medicare drug money just went away, the physician fee schedule is going down, and the [Medicare payment formula] is going to nail us 30% over the next 6 years. Where am I going to find $400,000 to put in an EMR that I can search and find all stage II breast cancer patients, and see whether they got their chemotherapy, and how they are doing, and by the way, how many of them are on Vioxx, and I have got to call them up and get them off it? All these kinds of issues are really going to have to be addressed.”

Dr. Haywood agreed. “We've started to map out strategies to address some of those issues.” The agency is considering certifying EMR systems to help physicians decide which ones to purchase, he noted.

WASHINGTON — The Centers for Medicare and Medicaid Services is jumping on the pay-for-performance bandwagon, but members of a physician advisory group warned CMS officials to be careful how they go about it.

“I'm only hoping that you'll structure this so that the quality indicators will be that you've [performed] certain processes, not necessarily the outcome [of them],” said Laura B. Powers, M.D., a Knoxville, Tenn., neurologist and member of the Practicing Physicians Advisory Council.

For example, outcomes are not good in terminal patients, Dr. Powers told this newspaper. “What outcome are they going to measure with an amyotrophic lateral sclerosis patient who is definitely going to die?” she said. Instead, Medicare should assess whether the physician has followed appropriate standards of care for terminal patients.

Trent Haywood, M.D., acting deputy chief clinical officer at the agency, said CMS has debated that very issue. “There has been a lot of discussion about what is the right thing [to measure]. We've always said that we think it's both,” he said. “We definitely want process measures … and the current financial structure is also easier for measuring processes, because that's the way we traditionally pay people.”

However, he added, “our goal is toward getting some evidence of outcomes. The process measures we normally collect are always related to outcomes.”

Council member Peter Grimm, D.O., a radiation oncologist in Seattle, said he believes that outcomes are the most important thing to measure. “You have to have outcomes as the bottom line,” said Dr. Grimm, who runs a quality assurance business involving 300 physicians. “I don't care how people get there. I just care that they get there.”

In his testimony to the council, Dr. Haywood outlined the various steps Medicare is taking to introduce pay for performance into physician reimbursement, including demonstration projects with hospitals and group practices.

Geraldine O'Shea, D.O., an internist in Jackson, Calif., said that she is concerned about the impact of pay for performance on the doctor-patient relationship. “Could it discourage physicians from caring for noncompliant patients?”

There are different ways to address patient compliance, Dr. Haywood said. “If you lean more heavily on process measures, that takes care of part of that problem, because those process measures look at whether you prescribed something or did something. But because we still want to look at outcomes measurement, we also talk about ways in which you allow that patient to be excluded. You can have documentation saying, 'Provided counseling and patient refused.'“

Council member Barbara McAneney, M.D., an oncologist in Albuquerque, N.M., said she was concerned about the expense of the computer system that would be required for physicians to keep track of their outcomes data.

“The most recent quote I got for the EMR that can provide the functions I want … for a practice of nine physicians, they want $400,000,” she continued. “Well, my Medicare drug money just went away, the physician fee schedule is going down, and the [Medicare payment formula] is going to nail us 30% over the next 6 years. Where am I going to find $400,000 to put in an EMR that I can search and find all stage II breast cancer patients, and see whether they got their chemotherapy, and how they are doing, and by the way, how many of them are on Vioxx, and I have got to call them up and get them off it? All these kinds of issues are really going to have to be addressed.”

Dr. Haywood agreed. “We've started to map out strategies to address some of those issues.” The agency is considering certifying EMR systems to help physicians decide which ones to purchase, he noted.

WASHINGTON — The Centers for Medicare and Medicaid Services is jumping on the pay-for-performance bandwagon, but members of a physician advisory group warned CMS officials to be careful how they go about it.

“I'm only hoping that you'll structure this so that the quality indicators will be that you've [performed] certain processes, not necessarily the outcome [of them],” said Laura B. Powers, M.D., a Knoxville, Tenn., neurologist and member of the Practicing Physicians Advisory Council.

For example, outcomes are not good in terminal patients, Dr. Powers told this newspaper. “What outcome are they going to measure with an amyotrophic lateral sclerosis patient who is definitely going to die?” she said. Instead, Medicare should assess whether the physician has followed appropriate standards of care for terminal patients.

Trent Haywood, M.D., acting deputy chief clinical officer at the agency, said CMS has debated that very issue. “There has been a lot of discussion about what is the right thing [to measure]. We've always said that we think it's both,” he said. “We definitely want process measures … and the current financial structure is also easier for measuring processes, because that's the way we traditionally pay people.”

However, he added, “our goal is toward getting some evidence of outcomes. The process measures we normally collect are always related to outcomes.”

Council member Peter Grimm, D.O., a radiation oncologist in Seattle, said he believes that outcomes are the most important thing to measure. “You have to have outcomes as the bottom line,” said Dr. Grimm, who runs a quality assurance business involving 300 physicians. “I don't care how people get there. I just care that they get there.”

In his testimony to the council, Dr. Haywood outlined the various steps Medicare is taking to introduce pay for performance into physician reimbursement, including demonstration projects with hospitals and group practices.

Geraldine O'Shea, D.O., an internist in Jackson, Calif., said that she is concerned about the impact of pay for performance on the doctor-patient relationship. “Could it discourage physicians from caring for noncompliant patients?”

There are different ways to address patient compliance, Dr. Haywood said. “If you lean more heavily on process measures, that takes care of part of that problem, because those process measures look at whether you prescribed something or did something. But because we still want to look at outcomes measurement, we also talk about ways in which you allow that patient to be excluded. You can have documentation saying, 'Provided counseling and patient refused.'“

Council member Barbara McAneney, M.D., an oncologist in Albuquerque, N.M., said she was concerned about the expense of the computer system that would be required for physicians to keep track of their outcomes data.

“The most recent quote I got for the EMR that can provide the functions I want … for a practice of nine physicians, they want $400,000,” she continued. “Well, my Medicare drug money just went away, the physician fee schedule is going down, and the [Medicare payment formula] is going to nail us 30% over the next 6 years. Where am I going to find $400,000 to put in an EMR that I can search and find all stage II breast cancer patients, and see whether they got their chemotherapy, and how they are doing, and by the way, how many of them are on Vioxx, and I have got to call them up and get them off it? All these kinds of issues are really going to have to be addressed.”

Dr. Haywood agreed. “We've started to map out strategies to address some of those issues.” The agency is considering certifying EMR systems to help physicians decide which ones to purchase, he noted.

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: they could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: they could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: they could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

Fed up with rising imaging costs, insurers are seeking—and finding—novel ways to stem the tide.

On average, costs of imaging—especially high-tech procedures, such as MRI, CT, and magnetic resonance angiograms—have been going up 20% a year for the last several years, according to Thomas Dehn, M.D., cofounder of National Imaging Associates, a radiology utilization management firm in Hackensack, N.J.

“Some will say it's the aging of the population, but the key issue is really demand,” said Dr. Dehn, the company's executive vice president and chief medical officer. “Patients are bright. They're good consumers. They want a shoulder MRI if their shoulder hurts.”

Physician demand is also an important part of the equation, he said. “If you have physicians who want increased [patient volume] in their offices, it is possible that rather than spending cognitive time, for which they're poorly reimbursed, they may choose to use a technical alternative.”

For example, a doctor trying to figure out the source of a patient's chronic headaches “may get frustrated and refer the patient for an MRI of the brain, just to show them they're normal,” Dr. Dehn said. “The treating physician knows in the back of his mind that there isn't going to be anything [there], but it will calm the patient down.”

As to which physicians are responsible for the increase in imaging, the answer depends on whom you ask. The American College of Radiology contends that the growth is largely due to self-referral by nonradiologists who have bought their own imaging equipment. But others say that all specialties are doing more imaging, largely because of improved technology and the improvement in care that it brings.

Whatever the reason that more scans are being done, insurers have decided they've had enough. Take Highmark Blue Cross and Blue Shield, a Pittsburgh-based insurer whose imaging costs have risen to $500 million annually in the last few years.

One Highmark strategy for paring down its imaging costs is to develop a smaller network of imaging providers. To be included in Highmark's network, outpatient imaging centers must now offer multiple imaging modalities, such as mammography, MRIs, CTs, and bone densitometry.

“We were seeing many facilities that were single modality—just CT or just MRI,” said Cary Vinson, M.D., Highmark's vice president of quality and medical performance management. “They were being set up by for-profit companies to siphon away high-margin procedures from hospitals and other multimodality freestanding facilities. We were seeing access problems for referring physicians because the single modality centers were outcompeting the multimodality centers, and they couldn't keep up.”

In addition to credentialing the imaging centers, Highmark is going to start requiring providers to preauthorize all CT, MRI, and PET scans. At first, while everyone adapts to the new system, the preauthorization procedure will be voluntary and no procedures will be denied. But eventually—perhaps by the end of this year—the preauthorization will become mandatory, Dr. Vinson said.

Harvard Pilgrim Health Care (HPHC) of Wellesley, Mass., is taking a slightly different approach. Instead of mandatory preauthorization, HPHC is using a “soft denial” process in which physicians must call for imaging preauthorization, but they can overrule a negative decision if they want to.

“We made a decision based on our network being a very sophisticated, highly academic referral environment, that a hard denial program might not be best way to go,” said William Corwin, M.D., the plan's medical director for utilization management and clinical policy. “Instead, we elected to use a more consultative approach.” The program started in July, so results aren't yet available, he noted.

Plans that start a preauthorization program must first figure out who should be authorized to perform scans. At Highmark, the plan tried to be as inclusive as possible, Dr. Vinson said. “In some cases within a specialty, we tried to determine who was qualified and who was not,” he said. “For instance, for breast ultrasound, we listed radiologists, but we also included surgeons with breast ultrasound certification from the American Society of Breast Surgeons.”

Highmark ran into a turf battle as it tried to credential providers. In this case, the American College of Cardiology and the American College of Radiology “definitely have differences of opinion about who's qualified and who's not” when it comes to cardiology-related imaging exams, Dr. Vinson said. “Highmark took the approach of accepting either society's qualifications. They clearly wanted us to decide between the two, and we would not do that.”

To design their preauthorization programs, both Highmark and Harvard Pilgrim worked with National Imaging Associates, which now has “more than two dozen” clients nationwide and is active in 32 states, said Dr. Dehn. He predicts that at least one more specialty will come into the picture, as more and more molecular imaging is being done to design tumor-specific antibodies. “You may have immunologists who are doing diagnostic imaging.”

Fed up with rising imaging costs, insurers are seeking—and finding—novel ways to stem the tide.

On average, costs of imaging—especially high-tech procedures, such as MRI, CT, and magnetic resonance angiograms—have been going up 20% a year for the last several years, according to Thomas Dehn, M.D., cofounder of National Imaging Associates, a radiology utilization management firm in Hackensack, N.J.

“Some will say it's the aging of the population, but the key issue is really demand,” said Dr. Dehn, the company's executive vice president and chief medical officer. “Patients are bright. They're good consumers. They want a shoulder MRI if their shoulder hurts.”

Physician demand is also an important part of the equation, he said. “If you have physicians who want increased [patient volume] in their offices, it is possible that rather than spending cognitive time, for which they're poorly reimbursed, they may choose to use a technical alternative.”

For example, a doctor trying to figure out the source of a patient's chronic headaches “may get frustrated and refer the patient for an MRI of the brain, just to show them they're normal,” Dr. Dehn said. “The treating physician knows in the back of his mind that there isn't going to be anything [there], but it will calm the patient down.”

As to which physicians are responsible for the increase in imaging, the answer depends on whom you ask. The American College of Radiology contends that the growth is largely due to self-referral by nonradiologists who have bought their own imaging equipment. But others say that all specialties are doing more imaging, largely because of improved technology and the improvement in care that it brings.

Whatever the reason that more scans are being done, insurers have decided they've had enough. Take Highmark Blue Cross and Blue Shield, a Pittsburgh-based insurer whose imaging costs have risen to $500 million annually in the last few years.

One Highmark strategy for paring down its imaging costs is to develop a smaller network of imaging providers. To be included in Highmark's network, outpatient imaging centers must now offer multiple imaging modalities, such as mammography, MRIs, CTs, and bone densitometry.

“We were seeing many facilities that were single modality—just CT or just MRI,” said Cary Vinson, M.D., Highmark's vice president of quality and medical performance management. “They were being set up by for-profit companies to siphon away high-margin procedures from hospitals and other multimodality freestanding facilities. We were seeing access problems for referring physicians because the single modality centers were outcompeting the multimodality centers, and they couldn't keep up.”

In addition to credentialing the imaging centers, Highmark is going to start requiring providers to preauthorize all CT, MRI, and PET scans. At first, while everyone adapts to the new system, the preauthorization procedure will be voluntary and no procedures will be denied. But eventually—perhaps by the end of this year—the preauthorization will become mandatory, Dr. Vinson said.

Harvard Pilgrim Health Care (HPHC) of Wellesley, Mass., is taking a slightly different approach. Instead of mandatory preauthorization, HPHC is using a “soft denial” process in which physicians must call for imaging preauthorization, but they can overrule a negative decision if they want to.

“We made a decision based on our network being a very sophisticated, highly academic referral environment, that a hard denial program might not be best way to go,” said William Corwin, M.D., the plan's medical director for utilization management and clinical policy. “Instead, we elected to use a more consultative approach.” The program started in July, so results aren't yet available, he noted.

Plans that start a preauthorization program must first figure out who should be authorized to perform scans. At Highmark, the plan tried to be as inclusive as possible, Dr. Vinson said. “In some cases within a specialty, we tried to determine who was qualified and who was not,” he said. “For instance, for breast ultrasound, we listed radiologists, but we also included surgeons with breast ultrasound certification from the American Society of Breast Surgeons.”

Highmark ran into a turf battle as it tried to credential providers. In this case, the American College of Cardiology and the American College of Radiology “definitely have differences of opinion about who's qualified and who's not” when it comes to cardiology-related imaging exams, Dr. Vinson said. “Highmark took the approach of accepting either society's qualifications. They clearly wanted us to decide between the two, and we would not do that.”

To design their preauthorization programs, both Highmark and Harvard Pilgrim worked with National Imaging Associates, which now has “more than two dozen” clients nationwide and is active in 32 states, said Dr. Dehn. He predicts that at least one more specialty will come into the picture, as more and more molecular imaging is being done to design tumor-specific antibodies. “You may have immunologists who are doing diagnostic imaging.”

Fed up with rising imaging costs, insurers are seeking—and finding—novel ways to stem the tide.

On average, costs of imaging—especially high-tech procedures, such as MRI, CT, and magnetic resonance angiograms—have been going up 20% a year for the last several years, according to Thomas Dehn, M.D., cofounder of National Imaging Associates, a radiology utilization management firm in Hackensack, N.J.

“Some will say it's the aging of the population, but the key issue is really demand,” said Dr. Dehn, the company's executive vice president and chief medical officer. “Patients are bright. They're good consumers. They want a shoulder MRI if their shoulder hurts.”

Physician demand is also an important part of the equation, he said. “If you have physicians who want increased [patient volume] in their offices, it is possible that rather than spending cognitive time, for which they're poorly reimbursed, they may choose to use a technical alternative.”

For example, a doctor trying to figure out the source of a patient's chronic headaches “may get frustrated and refer the patient for an MRI of the brain, just to show them they're normal,” Dr. Dehn said. “The treating physician knows in the back of his mind that there isn't going to be anything [there], but it will calm the patient down.”

As to which physicians are responsible for the increase in imaging, the answer depends on whom you ask. The American College of Radiology contends that the growth is largely due to self-referral by nonradiologists who have bought their own imaging equipment. But others say that all specialties are doing more imaging, largely because of improved technology and the improvement in care that it brings.

Whatever the reason that more scans are being done, insurers have decided they've had enough. Take Highmark Blue Cross and Blue Shield, a Pittsburgh-based insurer whose imaging costs have risen to $500 million annually in the last few years.

One Highmark strategy for paring down its imaging costs is to develop a smaller network of imaging providers. To be included in Highmark's network, outpatient imaging centers must now offer multiple imaging modalities, such as mammography, MRIs, CTs, and bone densitometry.

“We were seeing many facilities that were single modality—just CT or just MRI,” said Cary Vinson, M.D., Highmark's vice president of quality and medical performance management. “They were being set up by for-profit companies to siphon away high-margin procedures from hospitals and other multimodality freestanding facilities. We were seeing access problems for referring physicians because the single modality centers were outcompeting the multimodality centers, and they couldn't keep up.”

In addition to credentialing the imaging centers, Highmark is going to start requiring providers to preauthorize all CT, MRI, and PET scans. At first, while everyone adapts to the new system, the preauthorization procedure will be voluntary and no procedures will be denied. But eventually—perhaps by the end of this year—the preauthorization will become mandatory, Dr. Vinson said.

Harvard Pilgrim Health Care (HPHC) of Wellesley, Mass., is taking a slightly different approach. Instead of mandatory preauthorization, HPHC is using a “soft denial” process in which physicians must call for imaging preauthorization, but they can overrule a negative decision if they want to.

“We made a decision based on our network being a very sophisticated, highly academic referral environment, that a hard denial program might not be best way to go,” said William Corwin, M.D., the plan's medical director for utilization management and clinical policy. “Instead, we elected to use a more consultative approach.” The program started in July, so results aren't yet available, he noted.

Plans that start a preauthorization program must first figure out who should be authorized to perform scans. At Highmark, the plan tried to be as inclusive as possible, Dr. Vinson said. “In some cases within a specialty, we tried to determine who was qualified and who was not,” he said. “For instance, for breast ultrasound, we listed radiologists, but we also included surgeons with breast ultrasound certification from the American Society of Breast Surgeons.”

Highmark ran into a turf battle as it tried to credential providers. In this case, the American College of Cardiology and the American College of Radiology “definitely have differences of opinion about who's qualified and who's not” when it comes to cardiology-related imaging exams, Dr. Vinson said. “Highmark took the approach of accepting either society's qualifications. They clearly wanted us to decide between the two, and we would not do that.”

To design their preauthorization programs, both Highmark and Harvard Pilgrim worked with National Imaging Associates, which now has “more than two dozen” clients nationwide and is active in 32 states, said Dr. Dehn. He predicts that at least one more specialty will come into the picture, as more and more molecular imaging is being done to design tumor-specific antibodies. “You may have immunologists who are doing diagnostic imaging.”

WASHINGTON — Computerized prescribing could greatly reduce the number of medical errors, especially when it comes to adverse drug events, David Bates, M.D., said at a consensus conference sponsored by the American Association of Clinical Endocrinologists.

In his own health care research at Brigham and Women's Hospital in Boston, where he is chief of general medicine, Dr. Bates and colleagues looked at more than 10,000 medication orders and found 530 errors, an average of 1.4 per hospital admission. Included among those were 35 potential adverse drug events and five preventable adverse drug events.

These data suggest that “about 1 in 100 medication errors results in an [adverse drug event], and 7 in 100 have the potential to do so,” said Dr. Bates, who also serves as medical director of clinical and quality analysis at Partners HealthCare, in Boston.

When do the errors occur? In another study, Dr. Bates and colleagues found that about half of prescribing errors (49%) occur at the ordering stage, followed by 26% at the administration stage, 14% at the dispensing stage, and 11% at the transcribing stage.

Although transcribing accounted for the smallest percentage of errors, it can still be a big problem. Dr. Bates showed a sample of a handwritten prescription for Avandia (rosiglitazone) that was mistakenly dispensed as Coumadin (warfarin). Such problems could be reduced or eliminated by the use of prescribing software, Dr. Bates said.

Ambulatory care settings are particularly ripe for prescribing errors, for several reasons, he said. “There is a long feedback loop, because often you don't hear from patients for a long time, and there are limited resources and redundancy,” he said. In addition, “the average primary care encounter is 12 minutes, and the average time to the first interruption is 18 seconds. And 75% of patients leave with unanswered questions.”

He cited a study by Tejal K. Gandhi, M.D., and colleagues showing that of 661 outpatients, 162 (25%) had adverse drug events, for a total of 181 events. Of those, 13% were serious and 11% were preventable (N. Engl. J. Med. 2003;348:1556-64).

Computerized prescribing can reduce errors in several ways, Dr. Bates said:

▸ Preventing errors from occurring in the first place.

▸ Catching them more quickly after they have occurred.

▸ Tracking the errors themselves.

▸ Providing feedback.

Dr. Bates called computerized prescribing the “single most powerful intervention for improving medication safety to date” and noted that errors could be reduced by more than 80% in some cases.

However, computerized prescribing will work only if the people using it follow all the rules, he continued. For example, at Brigham and Women's Hospital, researchers looked at more than 7,700 drug allergy alerts that were issued by the computer over a 3-month period in 2002 and found that the alerts were overridden 80% of the time. This may have been because only 6% of the alerts were triggered by an exact match between the drug ordered and a drug on the allergy list, Dr. Bates said.

In addition to drug allergies, a good computerized prescribing system should also alert physicians to drug-drug interactions, renal dosing issues, geriatric dosing issues, and dose ceilings, according to Dr. Bates.

And it should have a way to alert physicians to potentially fatal interactions.

As to the future of computerized prescribing, Dr. Bates predicted a time when all physician drug orders would be sent electronically to the pharmacy, where the pharmacist would review them. Simple orders might be filled and dispensed from an ATM-like machine, he added.

In addition to all the safety issues, there is another reason physicians might want to consider electronic prescribing: More payers are starting to demand it, Dr. Bates said.

As an example, he cited the Leapfrog Group, an organization of 160 companies seeking to improve health care quality for their employees.

Leapfrog already uses computerized prescribing as a quality measure in the inpatient setting and is planning to include outpatient computerized prescribing in a new set of measures due out in 2006, Dr. Bates said.

Computerized systems should have a mechanism, such as the one above, to alert prescribers about potentially fatal allergies and drug-drug interactions. Courtesy Dr. David Bates

WASHINGTON — Computerized prescribing could greatly reduce the number of medical errors, especially when it comes to adverse drug events, David Bates, M.D., said at a consensus conference sponsored by the American Association of Clinical Endocrinologists.

In his own health care research at Brigham and Women's Hospital in Boston, where he is chief of general medicine, Dr. Bates and colleagues looked at more than 10,000 medication orders and found 530 errors, an average of 1.4 per hospital admission. Included among those were 35 potential adverse drug events and five preventable adverse drug events.

These data suggest that “about 1 in 100 medication errors results in an [adverse drug event], and 7 in 100 have the potential to do so,” said Dr. Bates, who also serves as medical director of clinical and quality analysis at Partners HealthCare, in Boston.

When do the errors occur? In another study, Dr. Bates and colleagues found that about half of prescribing errors (49%) occur at the ordering stage, followed by 26% at the administration stage, 14% at the dispensing stage, and 11% at the transcribing stage.

Although transcribing accounted for the smallest percentage of errors, it can still be a big problem. Dr. Bates showed a sample of a handwritten prescription for Avandia (rosiglitazone) that was mistakenly dispensed as Coumadin (warfarin). Such problems could be reduced or eliminated by the use of prescribing software, Dr. Bates said.

Ambulatory care settings are particularly ripe for prescribing errors, for several reasons, he said. “There is a long feedback loop, because often you don't hear from patients for a long time, and there are limited resources and redundancy,” he said. In addition, “the average primary care encounter is 12 minutes, and the average time to the first interruption is 18 seconds. And 75% of patients leave with unanswered questions.”

He cited a study by Tejal K. Gandhi, M.D., and colleagues showing that of 661 outpatients, 162 (25%) had adverse drug events, for a total of 181 events. Of those, 13% were serious and 11% were preventable (N. Engl. J. Med. 2003;348:1556-64).

Computerized prescribing can reduce errors in several ways, Dr. Bates said:

▸ Preventing errors from occurring in the first place.

▸ Catching them more quickly after they have occurred.

▸ Tracking the errors themselves.

▸ Providing feedback.

Dr. Bates called computerized prescribing the “single most powerful intervention for improving medication safety to date” and noted that errors could be reduced by more than 80% in some cases.

However, computerized prescribing will work only if the people using it follow all the rules, he continued. For example, at Brigham and Women's Hospital, researchers looked at more than 7,700 drug allergy alerts that were issued by the computer over a 3-month period in 2002 and found that the alerts were overridden 80% of the time. This may have been because only 6% of the alerts were triggered by an exact match between the drug ordered and a drug on the allergy list, Dr. Bates said.

In addition to drug allergies, a good computerized prescribing system should also alert physicians to drug-drug interactions, renal dosing issues, geriatric dosing issues, and dose ceilings, according to Dr. Bates.

And it should have a way to alert physicians to potentially fatal interactions.

As to the future of computerized prescribing, Dr. Bates predicted a time when all physician drug orders would be sent electronically to the pharmacy, where the pharmacist would review them. Simple orders might be filled and dispensed from an ATM-like machine, he added.

In addition to all the safety issues, there is another reason physicians might want to consider electronic prescribing: More payers are starting to demand it, Dr. Bates said.

As an example, he cited the Leapfrog Group, an organization of 160 companies seeking to improve health care quality for their employees.

Leapfrog already uses computerized prescribing as a quality measure in the inpatient setting and is planning to include outpatient computerized prescribing in a new set of measures due out in 2006, Dr. Bates said.

Computerized systems should have a mechanism, such as the one above, to alert prescribers about potentially fatal allergies and drug-drug interactions. Courtesy Dr. David Bates

WASHINGTON — Computerized prescribing could greatly reduce the number of medical errors, especially when it comes to adverse drug events, David Bates, M.D., said at a consensus conference sponsored by the American Association of Clinical Endocrinologists.

In his own health care research at Brigham and Women's Hospital in Boston, where he is chief of general medicine, Dr. Bates and colleagues looked at more than 10,000 medication orders and found 530 errors, an average of 1.4 per hospital admission. Included among those were 35 potential adverse drug events and five preventable adverse drug events.

These data suggest that “about 1 in 100 medication errors results in an [adverse drug event], and 7 in 100 have the potential to do so,” said Dr. Bates, who also serves as medical director of clinical and quality analysis at Partners HealthCare, in Boston.

When do the errors occur? In another study, Dr. Bates and colleagues found that about half of prescribing errors (49%) occur at the ordering stage, followed by 26% at the administration stage, 14% at the dispensing stage, and 11% at the transcribing stage.

Although transcribing accounted for the smallest percentage of errors, it can still be a big problem. Dr. Bates showed a sample of a handwritten prescription for Avandia (rosiglitazone) that was mistakenly dispensed as Coumadin (warfarin). Such problems could be reduced or eliminated by the use of prescribing software, Dr. Bates said.

Ambulatory care settings are particularly ripe for prescribing errors, for several reasons, he said. “There is a long feedback loop, because often you don't hear from patients for a long time, and there are limited resources and redundancy,” he said. In addition, “the average primary care encounter is 12 minutes, and the average time to the first interruption is 18 seconds. And 75% of patients leave with unanswered questions.”

He cited a study by Tejal K. Gandhi, M.D., and colleagues showing that of 661 outpatients, 162 (25%) had adverse drug events, for a total of 181 events. Of those, 13% were serious and 11% were preventable (N. Engl. J. Med. 2003;348:1556-64).

Computerized prescribing can reduce errors in several ways, Dr. Bates said:

▸ Preventing errors from occurring in the first place.

▸ Catching them more quickly after they have occurred.

▸ Tracking the errors themselves.

▸ Providing feedback.

Dr. Bates called computerized prescribing the “single most powerful intervention for improving medication safety to date” and noted that errors could be reduced by more than 80% in some cases.

However, computerized prescribing will work only if the people using it follow all the rules, he continued. For example, at Brigham and Women's Hospital, researchers looked at more than 7,700 drug allergy alerts that were issued by the computer over a 3-month period in 2002 and found that the alerts were overridden 80% of the time. This may have been because only 6% of the alerts were triggered by an exact match between the drug ordered and a drug on the allergy list, Dr. Bates said.

In addition to drug allergies, a good computerized prescribing system should also alert physicians to drug-drug interactions, renal dosing issues, geriatric dosing issues, and dose ceilings, according to Dr. Bates.

And it should have a way to alert physicians to potentially fatal interactions.

As to the future of computerized prescribing, Dr. Bates predicted a time when all physician drug orders would be sent electronically to the pharmacy, where the pharmacist would review them. Simple orders might be filled and dispensed from an ATM-like machine, he added.

In addition to all the safety issues, there is another reason physicians might want to consider electronic prescribing: More payers are starting to demand it, Dr. Bates said.

As an example, he cited the Leapfrog Group, an organization of 160 companies seeking to improve health care quality for their employees.

Leapfrog already uses computerized prescribing as a quality measure in the inpatient setting and is planning to include outpatient computerized prescribing in a new set of measures due out in 2006, Dr. Bates said.

Computerized systems should have a mechanism, such as the one above, to alert prescribers about potentially fatal allergies and drug-drug interactions. Courtesy Dr. David Bates

WASHINGTON — Consumer-driven health care may be all the rage right now, but there's no single cure for the nation's ailing health care system, several experts said at a health care congress sponsored by the Wall Street Journal and CNBC.

“There are no silver bullets,” said Douglas Holtz-Eakin, Ph.D., director of the Congressional Budget Office (CBO). “There is no single item—technology, disease management, tort law—that is likely to prove to be the answer to aligning incentives, providing high-quality care at reasonable costs, and financing it in a way that's economically viable.

“More likely, we'll have a series of incremental changes” that will shore up the system.

“Rising health care costs represent the central domestic issue at this time,” Dr. Holtz-Eakin said.

For example, over the next 50 years, if nothing is done, “the cost of Medicare and Medicaid will rise from 4% of the gross domestic product to 20% —the current size of the entire federal budget.”

Because the population is aging, “we indeed may spend more than we do now” on health care, Dr. Holtz-Eakin continued. “But the key issue is to make sure we do not overspend, that the dollars per unit of high-quality care match up with our desires.”

Robert Reischauer, Ph.D., a former CBO director who is now president of the Urban Institute, noted that Medicare was a particular concern, since Medicare spending is expected to grow very rapidly over the next 10 years. He listed four possible solutions for the Medicare budget crisis.

The first possibility is to reduce the scope of coverage, but “that isn't a practical course of action,” he said.

“All forces are moving in just the opposite direction.”

Another option is to restrain the growth in payments to providers, but already, Medicare is considered “not too generous,” compared with private payers, since it pays on average only about 80% of the private rate.

“[Payment restraint] is clearly not going to happen,” he said.

The third option is to make beneficiaries pay more for care in the form of higher premiums, deductibles, and cost sharing.

“Some people think that will cause beneficiaries to purchase more rationally and cut out low-value services, but we have to remember, the vast bulk of spending is on individuals who are very sick, have many chronic conditions, and aren't in a position to comparison shop,” he said.

“Moreover, the services that they're purchasing are extremely complex and confusing, and providers play a very significant role in determining the demand for and type of services received by beneficiaries.

“Before we bet the ranch on this approach,” he continued, “we're going to have to see what happens to spending patterns among the under-65 population as they are faced with high-deductible plans, health savings accounts, consumer-driven health plans, and other approaches to incentivize them to purchase more rationally. If this proves to be a successful approach for the under-65 population, one can see it gradually angling into the bag of tools that Medicare has.”

However, Dr. Reischauer noted, the potential for shifting more costs onto beneficiaries is limited, “because they already spend a considerable amount of their incomes on Medicare cost-sharing of one sort or another. By 2025, the average 65-year-old Medicare beneficiary will be paying more than the size of their Social Security check in cost-sharing and deductibles.”

A fourth approach is to restructure Medicare in ways to generate competition among providers, Dr. Reischauer said.

This would mean emphasizing technologies that improve efficiency, such as electronic health records and electronic prescribing.

It also would involve decreasing the volume of unneeded services being provided.

Dr. Reischauer noted that researchers at Dartmouth University have looked at health care utilization across geographic areas.

They have found that beneficiaries receiving higher volumes of services generally have poorer health outcomes, even after differences in their health status are accounted for.

“It's conceivable that as our ability to measure differences in quality and to reward quality effectively improves, the Medicare system could be transformed into one that pays only for care which is both necessary and beneficial, but this is likely to be a long and difficult row to hoe,” he said.

Gail Wilensky, a former administrator of the Centers for Medicare and Medicaid Services who is now a senior fellow at Project HOPE, in Bethesda, Md., expressed disappointment that Congress did not do more to address the issue of rising costs when it passed the Medicare Modernization Act of 2003.

That law “is a good example of eating dessert first,” she said.

“There was an opportunity to try and slow down spending in a significant way while a new benefit was being introduced, but primarily, what [the law] does is provide a new benefit and some additional payments to providers of services, but not very much in terms of trying to restructure Medicare for the future,” she said.

One little-known provision of the law does attempt to address the cost issue, she added.

“Starting in 2007, Part B will be much more related to income. The subsidy will start declining significantly for those with higher incomes. As the baby boomers begin to retire, some of them with higher incomes and assets, this is at least one opportunity” to help with the cost problem, she noted.

Americans are going to need to rethink the entire issue of retirement, Dr. Wilensky predicted.

“A couple of weeks ago, [Rep.] Bill Thomas [R-Calif.] talked about the need to think about Social Security and Medicare together.

“Both represent transfers from the working population to the dependent, nonworking population.

“To begin thinking about this as a joint issue may allow us to make more sensible decisions,” she said.

For example, Americans should consider “how we can change both fiscal policies and cultural expectations so our whole concept of retirement begins to … reflect the increasing longevity and, for many individuals, the increased well-being and health status they have at age 65 relative to what 65 meant when Medicare was introduced in 1965,” she said.

“We need to think about fiscal policies to encourage continued labor force participation for people at 65 and 70,” Dr. Wilensky concluded.

WASHINGTON — Consumer-driven health care may be all the rage right now, but there's no single cure for the nation's ailing health care system, several experts said at a health care congress sponsored by the Wall Street Journal and CNBC.

“There are no silver bullets,” said Douglas Holtz-Eakin, Ph.D., director of the Congressional Budget Office (CBO). “There is no single item—technology, disease management, tort law—that is likely to prove to be the answer to aligning incentives, providing high-quality care at reasonable costs, and financing it in a way that's economically viable.

“More likely, we'll have a series of incremental changes” that will shore up the system.

“Rising health care costs represent the central domestic issue at this time,” Dr. Holtz-Eakin said.

For example, over the next 50 years, if nothing is done, “the cost of Medicare and Medicaid will rise from 4% of the gross domestic product to 20% —the current size of the entire federal budget.”

Because the population is aging, “we indeed may spend more than we do now” on health care, Dr. Holtz-Eakin continued. “But the key issue is to make sure we do not overspend, that the dollars per unit of high-quality care match up with our desires.”

Robert Reischauer, Ph.D., a former CBO director who is now president of the Urban Institute, noted that Medicare was a particular concern, since Medicare spending is expected to grow very rapidly over the next 10 years. He listed four possible solutions for the Medicare budget crisis.

The first possibility is to reduce the scope of coverage, but “that isn't a practical course of action,” he said.

“All forces are moving in just the opposite direction.”

Another option is to restrain the growth in payments to providers, but already, Medicare is considered “not too generous,” compared with private payers, since it pays on average only about 80% of the private rate.

“[Payment restraint] is clearly not going to happen,” he said.

The third option is to make beneficiaries pay more for care in the form of higher premiums, deductibles, and cost sharing.

“Some people think that will cause beneficiaries to purchase more rationally and cut out low-value services, but we have to remember, the vast bulk of spending is on individuals who are very sick, have many chronic conditions, and aren't in a position to comparison shop,” he said.

“Moreover, the services that they're purchasing are extremely complex and confusing, and providers play a very significant role in determining the demand for and type of services received by beneficiaries.

“Before we bet the ranch on this approach,” he continued, “we're going to have to see what happens to spending patterns among the under-65 population as they are faced with high-deductible plans, health savings accounts, consumer-driven health plans, and other approaches to incentivize them to purchase more rationally. If this proves to be a successful approach for the under-65 population, one can see it gradually angling into the bag of tools that Medicare has.”

However, Dr. Reischauer noted, the potential for shifting more costs onto beneficiaries is limited, “because they already spend a considerable amount of their incomes on Medicare cost-sharing of one sort or another. By 2025, the average 65-year-old Medicare beneficiary will be paying more than the size of their Social Security check in cost-sharing and deductibles.”

A fourth approach is to restructure Medicare in ways to generate competition among providers, Dr. Reischauer said.

This would mean emphasizing technologies that improve efficiency, such as electronic health records and electronic prescribing.

It also would involve decreasing the volume of unneeded services being provided.

Dr. Reischauer noted that researchers at Dartmouth University have looked at health care utilization across geographic areas.

They have found that beneficiaries receiving higher volumes of services generally have poorer health outcomes, even after differences in their health status are accounted for.

“It's conceivable that as our ability to measure differences in quality and to reward quality effectively improves, the Medicare system could be transformed into one that pays only for care which is both necessary and beneficial, but this is likely to be a long and difficult row to hoe,” he said.

Gail Wilensky, a former administrator of the Centers for Medicare and Medicaid Services who is now a senior fellow at Project HOPE, in Bethesda, Md., expressed disappointment that Congress did not do more to address the issue of rising costs when it passed the Medicare Modernization Act of 2003.

That law “is a good example of eating dessert first,” she said.

“There was an opportunity to try and slow down spending in a significant way while a new benefit was being introduced, but primarily, what [the law] does is provide a new benefit and some additional payments to providers of services, but not very much in terms of trying to restructure Medicare for the future,” she said.

One little-known provision of the law does attempt to address the cost issue, she added.

“Starting in 2007, Part B will be much more related to income. The subsidy will start declining significantly for those with higher incomes. As the baby boomers begin to retire, some of them with higher incomes and assets, this is at least one opportunity” to help with the cost problem, she noted.

Americans are going to need to rethink the entire issue of retirement, Dr. Wilensky predicted.

“A couple of weeks ago, [Rep.] Bill Thomas [R-Calif.] talked about the need to think about Social Security and Medicare together.

“Both represent transfers from the working population to the dependent, nonworking population.

“To begin thinking about this as a joint issue may allow us to make more sensible decisions,” she said.

For example, Americans should consider “how we can change both fiscal policies and cultural expectations so our whole concept of retirement begins to … reflect the increasing longevity and, for many individuals, the increased well-being and health status they have at age 65 relative to what 65 meant when Medicare was introduced in 1965,” she said.

“We need to think about fiscal policies to encourage continued labor force participation for people at 65 and 70,” Dr. Wilensky concluded.

WASHINGTON — Consumer-driven health care may be all the rage right now, but there's no single cure for the nation's ailing health care system, several experts said at a health care congress sponsored by the Wall Street Journal and CNBC.

“There are no silver bullets,” said Douglas Holtz-Eakin, Ph.D., director of the Congressional Budget Office (CBO). “There is no single item—technology, disease management, tort law—that is likely to prove to be the answer to aligning incentives, providing high-quality care at reasonable costs, and financing it in a way that's economically viable.

“More likely, we'll have a series of incremental changes” that will shore up the system.

“Rising health care costs represent the central domestic issue at this time,” Dr. Holtz-Eakin said.

For example, over the next 50 years, if nothing is done, “the cost of Medicare and Medicaid will rise from 4% of the gross domestic product to 20% —the current size of the entire federal budget.”

Because the population is aging, “we indeed may spend more than we do now” on health care, Dr. Holtz-Eakin continued. “But the key issue is to make sure we do not overspend, that the dollars per unit of high-quality care match up with our desires.”

Robert Reischauer, Ph.D., a former CBO director who is now president of the Urban Institute, noted that Medicare was a particular concern, since Medicare spending is expected to grow very rapidly over the next 10 years. He listed four possible solutions for the Medicare budget crisis.

The first possibility is to reduce the scope of coverage, but “that isn't a practical course of action,” he said.

“All forces are moving in just the opposite direction.”

Another option is to restrain the growth in payments to providers, but already, Medicare is considered “not too generous,” compared with private payers, since it pays on average only about 80% of the private rate.

“[Payment restraint] is clearly not going to happen,” he said.

The third option is to make beneficiaries pay more for care in the form of higher premiums, deductibles, and cost sharing.

“Some people think that will cause beneficiaries to purchase more rationally and cut out low-value services, but we have to remember, the vast bulk of spending is on individuals who are very sick, have many chronic conditions, and aren't in a position to comparison shop,” he said.

“Moreover, the services that they're purchasing are extremely complex and confusing, and providers play a very significant role in determining the demand for and type of services received by beneficiaries.

“Before we bet the ranch on this approach,” he continued, “we're going to have to see what happens to spending patterns among the under-65 population as they are faced with high-deductible plans, health savings accounts, consumer-driven health plans, and other approaches to incentivize them to purchase more rationally. If this proves to be a successful approach for the under-65 population, one can see it gradually angling into the bag of tools that Medicare has.”

However, Dr. Reischauer noted, the potential for shifting more costs onto beneficiaries is limited, “because they already spend a considerable amount of their incomes on Medicare cost-sharing of one sort or another. By 2025, the average 65-year-old Medicare beneficiary will be paying more than the size of their Social Security check in cost-sharing and deductibles.”

A fourth approach is to restructure Medicare in ways to generate competition among providers, Dr. Reischauer said.

This would mean emphasizing technologies that improve efficiency, such as electronic health records and electronic prescribing.

It also would involve decreasing the volume of unneeded services being provided.

Dr. Reischauer noted that researchers at Dartmouth University have looked at health care utilization across geographic areas.

They have found that beneficiaries receiving higher volumes of services generally have poorer health outcomes, even after differences in their health status are accounted for.

“It's conceivable that as our ability to measure differences in quality and to reward quality effectively improves, the Medicare system could be transformed into one that pays only for care which is both necessary and beneficial, but this is likely to be a long and difficult row to hoe,” he said.

Gail Wilensky, a former administrator of the Centers for Medicare and Medicaid Services who is now a senior fellow at Project HOPE, in Bethesda, Md., expressed disappointment that Congress did not do more to address the issue of rising costs when it passed the Medicare Modernization Act of 2003.

That law “is a good example of eating dessert first,” she said.

“There was an opportunity to try and slow down spending in a significant way while a new benefit was being introduced, but primarily, what [the law] does is provide a new benefit and some additional payments to providers of services, but not very much in terms of trying to restructure Medicare for the future,” she said.

One little-known provision of the law does attempt to address the cost issue, she added.

“Starting in 2007, Part B will be much more related to income. The subsidy will start declining significantly for those with higher incomes. As the baby boomers begin to retire, some of them with higher incomes and assets, this is at least one opportunity” to help with the cost problem, she noted.

Americans are going to need to rethink the entire issue of retirement, Dr. Wilensky predicted.

“A couple of weeks ago, [Rep.] Bill Thomas [R-Calif.] talked about the need to think about Social Security and Medicare together.

“Both represent transfers from the working population to the dependent, nonworking population.

“To begin thinking about this as a joint issue may allow us to make more sensible decisions,” she said.

For example, Americans should consider “how we can change both fiscal policies and cultural expectations so our whole concept of retirement begins to … reflect the increasing longevity and, for many individuals, the increased well-being and health status they have at age 65 relative to what 65 meant when Medicare was introduced in 1965,” she said.

“We need to think about fiscal policies to encourage continued labor force participation for people at 65 and 70,” Dr. Wilensky concluded.

WASHINGTON — Sen. Ron Wyden (D-Ore.) says that the answer to America's health care problem does not lie with Congress—at least, not initially.

“I spent 2 years studying what went wrong in the Clinton debacle,” he said at a meeting sponsored by America's Health Insurance Plans. Sen. Wyden was referring to President Bill Clinton's unsuccessful effort to get Congress to pass health care reform in the 1990s. He also looked at a similar effort in the 1940s by President Harry S Truman.

His conclusion: “There is a remarkable parallel in 60 years of failure. … For 6 decades, the effort has involved trying to write a piece of federal legislation in Washington, D.C. [But] the special interests would attack the legislation and each other, and everything would fail.”

Instead, “I decided to go 180 degrees the other way,” he said “We'll start it outside [Washington].” In March, Sen. Wyden, along with Sen. Orrin Hatch (R-Utah) and Comptroller General David Walker, announced the formation of the Citizens' Working Group on Health Care. The group is composed of 14 people from across the country, including physicians, health advocates, hospital administrators, academicians, nurses, and a union representative. Health and Human Services Secretary Mike Leavitt will serve as the 15th member.

The group is one result of a new law known as the Health Care That Works for All Americans Act, which was cosponsored by the two senators. One thing the working group will do, according to Sen. Wyden, is “tell people where the $1.8 trillion spent on health care actually goes. … I think people will be pretty surprised.” The information will be made available online as well as in booklets and in libraries.

The working group also will hold public hearings to get input on what should be done to reform the system. “No one has walked the public through the choices and tradeoffs that come with a health care system that works for everybody,” he said. “We're now going to have a real debate about how we create a system that works for everybody.”

After publishing the spending information and listening to public comment, the working group will develop a set of tentative recommendations on a system that works for everybody.

“When they have the tentative set of recommendations, they go back to the public again for another crack, so people will get to weigh in twice,” Sen. Wyden said. Then the recommendations go to Congress, and all committees with jurisdiction over health care will have to hold hearings within 60 days of getting the recommendations.

Although there is no mandate for Congress to take any further action on the recommendations once it has held hearings, “you will have a citizens' road map of where the country feels we ought to be headed in health care, and if at that point the Congressional committees decide they want to ignore what the citizens have to say, then it will be really clear who they're siding with—powerful Washington interests rather than the citizens,” he said.

Sen. Wyden gave a specific example of the type of issue he hopes the working group will address. “We know that a big chunk of the health care dollar gets spent in last few months of someone's life.”

“So the question for the country that the political leaders have been ducking—and that they aren't going to be able to duck any longer—is, in those kinds of instances, do we want to start spending more money on hospice and in-home services and less on expensive treatments and interventions, and use the savings for children, pregnant moms, and people who've fallen through the cracks in the system? It's a difficult conversation to have, but this is the kind of issue that we've got to have a discussion about.”

For more information on the working group, go to www.gao.gov/special.pubs/?citizenshealthpr0228.pdf

WASHINGTON — Sen. Ron Wyden (D-Ore.) says that the answer to America's health care problem does not lie with Congress—at least, not initially.

“I spent 2 years studying what went wrong in the Clinton debacle,” he said at a meeting sponsored by America's Health Insurance Plans. Sen. Wyden was referring to President Bill Clinton's unsuccessful effort to get Congress to pass health care reform in the 1990s. He also looked at a similar effort in the 1940s by President Harry S Truman.

His conclusion: “There is a remarkable parallel in 60 years of failure. … For 6 decades, the effort has involved trying to write a piece of federal legislation in Washington, D.C. [But] the special interests would attack the legislation and each other, and everything would fail.”

Instead, “I decided to go 180 degrees the other way,” he said “We'll start it outside [Washington].” In March, Sen. Wyden, along with Sen. Orrin Hatch (R-Utah) and Comptroller General David Walker, announced the formation of the Citizens' Working Group on Health Care. The group is composed of 14 people from across the country, including physicians, health advocates, hospital administrators, academicians, nurses, and a union representative. Health and Human Services Secretary Mike Leavitt will serve as the 15th member.

The group is one result of a new law known as the Health Care That Works for All Americans Act, which was cosponsored by the two senators. One thing the working group will do, according to Sen. Wyden, is “tell people where the $1.8 trillion spent on health care actually goes. … I think people will be pretty surprised.” The information will be made available online as well as in booklets and in libraries.

The working group also will hold public hearings to get input on what should be done to reform the system. “No one has walked the public through the choices and tradeoffs that come with a health care system that works for everybody,” he said. “We're now going to have a real debate about how we create a system that works for everybody.”

After publishing the spending information and listening to public comment, the working group will develop a set of tentative recommendations on a system that works for everybody.

“When they have the tentative set of recommendations, they go back to the public again for another crack, so people will get to weigh in twice,” Sen. Wyden said. Then the recommendations go to Congress, and all committees with jurisdiction over health care will have to hold hearings within 60 days of getting the recommendations.

Although there is no mandate for Congress to take any further action on the recommendations once it has held hearings, “you will have a citizens' road map of where the country feels we ought to be headed in health care, and if at that point the Congressional committees decide they want to ignore what the citizens have to say, then it will be really clear who they're siding with—powerful Washington interests rather than the citizens,” he said.

Sen. Wyden gave a specific example of the type of issue he hopes the working group will address. “We know that a big chunk of the health care dollar gets spent in last few months of someone's life.”

“So the question for the country that the political leaders have been ducking—and that they aren't going to be able to duck any longer—is, in those kinds of instances, do we want to start spending more money on hospice and in-home services and less on expensive treatments and interventions, and use the savings for children, pregnant moms, and people who've fallen through the cracks in the system? It's a difficult conversation to have, but this is the kind of issue that we've got to have a discussion about.”

For more information on the working group, go to www.gao.gov/special.pubs/?citizenshealthpr0228.pdf

WASHINGTON — Sen. Ron Wyden (D-Ore.) says that the answer to America's health care problem does not lie with Congress—at least, not initially.

“I spent 2 years studying what went wrong in the Clinton debacle,” he said at a meeting sponsored by America's Health Insurance Plans. Sen. Wyden was referring to President Bill Clinton's unsuccessful effort to get Congress to pass health care reform in the 1990s. He also looked at a similar effort in the 1940s by President Harry S Truman.

His conclusion: “There is a remarkable parallel in 60 years of failure. … For 6 decades, the effort has involved trying to write a piece of federal legislation in Washington, D.C. [But] the special interests would attack the legislation and each other, and everything would fail.”

Instead, “I decided to go 180 degrees the other way,” he said “We'll start it outside [Washington].” In March, Sen. Wyden, along with Sen. Orrin Hatch (R-Utah) and Comptroller General David Walker, announced the formation of the Citizens' Working Group on Health Care. The group is composed of 14 people from across the country, including physicians, health advocates, hospital administrators, academicians, nurses, and a union representative. Health and Human Services Secretary Mike Leavitt will serve as the 15th member.

The group is one result of a new law known as the Health Care That Works for All Americans Act, which was cosponsored by the two senators. One thing the working group will do, according to Sen. Wyden, is “tell people where the $1.8 trillion spent on health care actually goes. … I think people will be pretty surprised.” The information will be made available online as well as in booklets and in libraries.

The working group also will hold public hearings to get input on what should be done to reform the system. “No one has walked the public through the choices and tradeoffs that come with a health care system that works for everybody,” he said. “We're now going to have a real debate about how we create a system that works for everybody.”

After publishing the spending information and listening to public comment, the working group will develop a set of tentative recommendations on a system that works for everybody.

“When they have the tentative set of recommendations, they go back to the public again for another crack, so people will get to weigh in twice,” Sen. Wyden said. Then the recommendations go to Congress, and all committees with jurisdiction over health care will have to hold hearings within 60 days of getting the recommendations.

Although there is no mandate for Congress to take any further action on the recommendations once it has held hearings, “you will have a citizens' road map of where the country feels we ought to be headed in health care, and if at that point the Congressional committees decide they want to ignore what the citizens have to say, then it will be really clear who they're siding with—powerful Washington interests rather than the citizens,” he said.

Sen. Wyden gave a specific example of the type of issue he hopes the working group will address. “We know that a big chunk of the health care dollar gets spent in last few months of someone's life.”

“So the question for the country that the political leaders have been ducking—and that they aren't going to be able to duck any longer—is, in those kinds of instances, do we want to start spending more money on hospice and in-home services and less on expensive treatments and interventions, and use the savings for children, pregnant moms, and people who've fallen through the cracks in the system? It's a difficult conversation to have, but this is the kind of issue that we've got to have a discussion about.”

For more information on the working group, go to www.gao.gov/special.pubs/?citizenshealthpr0228.pdf

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,'” he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'”

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,'” he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'”

WASHINGTON — Medicare providers in California, Florida, and New York, beware: Someone may be watching you.

This month the Centers for Medicare and Medicaid Services (CMS) starts its recovery audit demonstration project, a three-state experiment using outside contractors to spot Medicare overpayments and underpayments.

“My understanding is that these are contractors who will look at Medicare claims and find claims which were inappropriately paid, and the monies recovered will mostly return to Medicare, but a percentage will be paid to the contractors,” William Rogers, M.D., director of CMS's Physician Regulatory Issues Team, said at a meeting of the Practicing Physicians Advisory Council (PPAC). Medicare “is going to see if it's a helpful addition to our current efforts to prevent fraud,” he said.

Members of PPAC, which advises Medicare on physician issues, wanted more information. “If it's going to become more widespread, I'd like to hear more about it,” said Robert L. Urata, M.D., a family physician in Juneau, Alaska. CMS officials told council members that more information would be forthcoming at a future meeting.

Dr. Urata isn't the only one with questions. The American College of Physicians is apprehensive about the project. “We are concerned that the financial incentive for the contractor is to find errors and to recoup money—that whole bounty hunter approach,” said Brett Baker, the ACP's director of regulatory affairs. “That may cause a lot of disruption to a lot of people who may not have billed in error but still have to go through a disruption for that decision to be made.”

According to the demonstration project's “statement of work,” contractors may look for both overpayments and underpayments, noncovered or incorrectly coded services, and duplicate services.

However, contractors are not to look for overpayments or underpayments that stem from miscoding of the evaluation and management service for example, billing for a level 4 visit when the medical record supports only a level 3 visit). They are to look for incorrect payments arising from evaluation and management services that are not reasonable and necessary, and violations of Medicare's global surgery payment rules even in cases involving evaluation and management services.

Mr. Baker said ACP “appreciates the sensitivity to the complexity in selecting the level of service, since it's been demonstrated that informed and knowledgeable people can have differences of opinion on what is an appropriate level of service.”

He also praised CMS for the improvements it has made in its own auditing process. “Years ago, Medicare would look at a small number of claims and then extrapolate errors and say, 'You owe us $100,000,'” he said. “They have since improved that process.”

Now the agency conducts an analysis of physicians' billing profiles and looks for statistical outliers. Mr. Baker said the ACP is encouraging CMS to become more sophisticated in its analysis—for example, by looking at factors such as the number of hospitalizations a particular patient has had—to see whether there might be reasons for that bill to be outside the norm.

Mr. Baker said that physicians are also concerned that the pilot program may spread to other states. “We're in the process of pulling together information on the program, which will probably result in a letter to CMS saying, 'If it's the law to do this, we want you to implement this in as fair a way as possible.'”

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: They could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: They could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

WASHINGTON — Members of a Medicare physician advisory group have reservations about the Centers for Medicare and Medicaid Services' proposed new program for paying for physician-administered outpatient drugs under Medicare Part B.

Medicare currently pays physicians the average sales price (ASP) of the drug—a number that is supposed to represent the total paid for the drug by all buyers divided by the number of units sold—plus an additional 6%. But under the proposed rule, beginning next year physicians would have a choice: They could either stick with the current system or obtain the drugs directly from a vendor that will be selected by Medicare via a competitive bidding process.

The system would require that physicians choose one system or the other for all the drugs commonly furnished to their specialty; they could not get reimbursed ASP plus 6% for one drug and then buy another drug directly from the vendor, according to Don Thompson, director of outpatient services at CMS's Center for Medicare Management.

But Ronald Castellanos, M.D., a Cape Coral, Fla., urologist and chairman of the Practicing Physicians Advisory Council, said at a council meeting that an all-or-nothing system wouldn't work very well in his practice. “There are certain drugs that I use that I can't buy for ASP plus 6%.”

Mr. Thompson said that while Dr. Castellanos couldn't pick and choose what system he would use for which drug, he could try to influence which urology drugs will be included in the program. “The categories could be structured differently; your comment [on the proposed rule] could be, 'I think the category should include these drugs and not these other drugs,'” Mr. Thompson said at the meeting. “But once a drug is in a category, the physician cannot opt in and out for that drug.”

Dr. Castellanos proposed that the council, which advises Medicare on matters of interest to physicians, urge CMS to revise the rule to allow physicians to pick and choose which system they would use “on a drug-by-drug basis.” That recommendation passed easily.

Both Dr. Castellanos and council member Barbara McAneny, M.D., an Albuquerque oncologist, expressed concern about what would happen to beneficiaries—usually, those without Medicare supplemental coverage—who couldn't afford the copays for the drugs. “I want manufacturers to show up with free drugs for patients who have no bucks,” Dr. McAneny said. “Physicians, because we're not good businessmen, have eaten that money, but now it's hard to do that because we're not making enough on ASP plus 6%.”

Dr. Castellanos wondered whether the drug vendors who are going to contract with Medicare would be required to provide drugs for beneficiaries even if they didn't have the needed copays.

“The contractor would be required to supply that drug to you,” Mr. Thompson replied. “If you're asking if a contractor would waive coinsurance for that particular beneficiary, there's no separate requirement for vendors that would be any different from physicians,” who can waive the copay on a case-by-case basis, he said.

Dr. Castellanos pressed further. “These patients have ongoing treatments that can last for years. You're telling me that even though a patient is unable to pay coinsurance, that the contractor will bill the patient, but still has to supply the drug?” he asked.

Mr. Thompson seemed to answer in the affirmative. “We did not propose any mechanism for a contractor to deny supplying drugs to a beneficiary,” he said.

Council members also wanted to make sure they could get drugs for off-label use under the new system. They recommended that CMS require contractors to provide drugs for off-label use “when the evidence supports such use.”

WASHINGTON — Despite their growing popularity, health savings accounts are not a good solution to the problem of rising health care costs, at least not for California state employees and retirees, Fred Buenrostro said at a health care congress sponsored by The Wall Street Journal and CNBC.

Mr. Buenrostro is chief executive officer at the California Public Employees' Retirement System (CalPERS), the second largest health care purchaser in the country. CalPERS, based in Sacramento, provides health benefits to more than 1.2 million employees, retirees, and family members.

In California, out-of-pocket health care premiums have nearly tripled in 5 years, and Gov. Arnold Schwarzenegger (R) is seeking to cut the amount of premium assistance the state gives to employees and retirees. So “CalPERS, like other employers, is hearing the call of consumer-driven health care,” including health savings accounts, Mr. Buenrostro said.

“We are resisting it because we don't want our highway workers, our police officers, our firefighters, our office workers, to switch from our defined benefits health care model to a defined contribution model. We oppose putting our members at risk in such a complex, broken market,” he said.

Under a defined benefit plan like those that CalPERS offers, employers agree to pay for a particular level of benefits, no matter what the cost of the plan is. But under a defined contribution plan, the employer pays only a certain amount toward the cost of an insurance policy; any additional costs must be paid by the enrollee.

So CalPERS is trying other ways to cut health care costs. One technique is to avoid doing business with providers that the plan perceives to be too high cost. “Two years ago, we dropped two big HMO partners because their prices went over the top,” Mr. Buenrostro said.

The plan is also using generic drugs in 95% of cases, and giving members incentives to buy mail-order drugs. CalPERS has extended the length of its PPO contracts to improve its negotiating position, and is encouraging members to use “centers of excellence” for various procedures.

CalPERS also is talking with other purchasers about price inequities of health care in local markets, and plans to convene a conference of purchasers on this issue later in the year, Mr. Buenrostro said.

A big part of controlling CalPERS' costs has been getting the best price for hospital services. Between 2001 and 2003, hospital prices rose 60%, which was “just unaffordable,” he said. CalPERS partnered with California Blue Shield to analyze the costs.

“Blue Shield came up with what was then a shocking discovery: In many cases there was no correlation between price and quality,” he continued. “I thought they were kidding.” For example, they found that the cost of chemotherapy could range from $135,000 to $300,000.

As a result of the analysis, CalPERS notified 38 hospitals and 17 physician practices that they were in danger of being dropped from CalPERS' provider network unless they dropped their costs and agreed to undergo performance assessments. The proposed change would have saved the plan $36 million in the first year and $50 million for the next few years.

After negotiations with the hospitals and scrutiny from the state insurance department, CalPERS ended up dropping 24 hospitals and several physician practices as of January, forcing 32,000 members to switch their primary care physicians. Although the move resulted in complaints from members as well as the California legislature, Mr. Buenrostro has no regrets.

“It will save tens of millions of dollars for our members and the taxpayers [who pay our salaries], and the decision helped us keep our HMO and PPO premium increases for members under 65 at 9.9% without any takeaways or any increases in copays or deductibles,” he said. “We're pretty proud of that.”

Despite CalPERS' success, the state of California, like other employers, can't solve the long-range health care cost problem by acting on its own, Mr. Buenrostro said. “We can only solve this problem if we get a national solution.”

WASHINGTON — Despite their growing popularity, health savings accounts are not a good solution to the problem of rising health care costs, at least not for California state employees and retirees, Fred Buenrostro said at a health care congress sponsored by The Wall Street Journal and CNBC.

Mr. Buenrostro is chief executive officer at the California Public Employees' Retirement System (CalPERS), the second largest health care purchaser in the country. CalPERS, based in Sacramento, provides health benefits to more than 1.2 million employees, retirees, and family members.

In California, out-of-pocket health care premiums have nearly tripled in 5 years, and Gov. Arnold Schwarzenegger (R) is seeking to cut the amount of premium assistance the state gives to employees and retirees. So “CalPERS, like other employers, is hearing the call of consumer-driven health care,” including health savings accounts, Mr. Buenrostro said.

“We are resisting it because we don't want our highway workers, our police officers, our firefighters, our office workers, to switch from our defined benefits health care model to a defined contribution model. We oppose putting our members at risk in such a complex, broken market,” he said.

Under a defined benefit plan like those that CalPERS offers, employers agree to pay for a particular level of benefits, no matter what the cost of the plan is. But under a defined contribution plan, the employer pays only a certain amount toward the cost of an insurance policy; any additional costs must be paid by the enrollee.

So CalPERS is trying other ways to cut health care costs. One technique is to avoid doing business with providers that the plan perceives to be too high cost. “Two years ago, we dropped two big HMO partners because their prices went over the top,” Mr. Buenrostro said.

The plan is also using generic drugs in 95% of cases, and giving members incentives to buy mail-order drugs. CalPERS has extended the length of its PPO contracts to improve its negotiating position, and is encouraging members to use “centers of excellence” for various procedures.

CalPERS also is talking with other purchasers about price inequities of health care in local markets, and plans to convene a conference of purchasers on this issue later in the year, Mr. Buenrostro said.

A big part of controlling CalPERS' costs has been getting the best price for hospital services. Between 2001 and 2003, hospital prices rose 60%, which was “just unaffordable,” he said. CalPERS partnered with California Blue Shield to analyze the costs.

“Blue Shield came up with what was then a shocking discovery: In many cases there was no correlation between price and quality,” he continued. “I thought they were kidding.” For example, they found that the cost of chemotherapy could range from $135,000 to $300,000.

As a result of the analysis, CalPERS notified 38 hospitals and 17 physician practices that they were in danger of being dropped from CalPERS' provider network unless they dropped their costs and agreed to undergo performance assessments. The proposed change would have saved the plan $36 million in the first year and $50 million for the next few years.

After negotiations with the hospitals and scrutiny from the state insurance department, CalPERS ended up dropping 24 hospitals and several physician practices as of January, forcing 32,000 members to switch their primary care physicians. Although the move resulted in complaints from members as well as the California legislature, Mr. Buenrostro has no regrets.

“It will save tens of millions of dollars for our members and the taxpayers [who pay our salaries], and the decision helped us keep our HMO and PPO premium increases for members under 65 at 9.9% without any takeaways or any increases in copays or deductibles,” he said. “We're pretty proud of that.”

Despite CalPERS' success, the state of California, like other employers, can't solve the long-range health care cost problem by acting on its own, Mr. Buenrostro said. “We can only solve this problem if we get a national solution.”

WASHINGTON — Despite their growing popularity, health savings accounts are not a good solution to the problem of rising health care costs, at least not for California state employees and retirees, Fred Buenrostro said at a health care congress sponsored by The Wall Street Journal and CNBC.

Mr. Buenrostro is chief executive officer at the California Public Employees' Retirement System (CalPERS), the second largest health care purchaser in the country. CalPERS, based in Sacramento, provides health benefits to more than 1.2 million employees, retirees, and family members.

In California, out-of-pocket health care premiums have nearly tripled in 5 years, and Gov. Arnold Schwarzenegger (R) is seeking to cut the amount of premium assistance the state gives to employees and retirees. So “CalPERS, like other employers, is hearing the call of consumer-driven health care,” including health savings accounts, Mr. Buenrostro said.

“We are resisting it because we don't want our highway workers, our police officers, our firefighters, our office workers, to switch from our defined benefits health care model to a defined contribution model. We oppose putting our members at risk in such a complex, broken market,” he said.

Under a defined benefit plan like those that CalPERS offers, employers agree to pay for a particular level of benefits, no matter what the cost of the plan is. But under a defined contribution plan, the employer pays only a certain amount toward the cost of an insurance policy; any additional costs must be paid by the enrollee.

So CalPERS is trying other ways to cut health care costs. One technique is to avoid doing business with providers that the plan perceives to be too high cost. “Two years ago, we dropped two big HMO partners because their prices went over the top,” Mr. Buenrostro said.

The plan is also using generic drugs in 95% of cases, and giving members incentives to buy mail-order drugs. CalPERS has extended the length of its PPO contracts to improve its negotiating position, and is encouraging members to use “centers of excellence” for various procedures.

CalPERS also is talking with other purchasers about price inequities of health care in local markets, and plans to convene a conference of purchasers on this issue later in the year, Mr. Buenrostro said.

A big part of controlling CalPERS' costs has been getting the best price for hospital services. Between 2001 and 2003, hospital prices rose 60%, which was “just unaffordable,” he said. CalPERS partnered with California Blue Shield to analyze the costs.

“Blue Shield came up with what was then a shocking discovery: In many cases there was no correlation between price and quality,” he continued. “I thought they were kidding.” For example, they found that the cost of chemotherapy could range from $135,000 to $300,000.

As a result of the analysis, CalPERS notified 38 hospitals and 17 physician practices that they were in danger of being dropped from CalPERS' provider network unless they dropped their costs and agreed to undergo performance assessments. The proposed change would have saved the plan $36 million in the first year and $50 million for the next few years.

After negotiations with the hospitals and scrutiny from the state insurance department, CalPERS ended up dropping 24 hospitals and several physician practices as of January, forcing 32,000 members to switch their primary care physicians. Although the move resulted in complaints from members as well as the California legislature, Mr. Buenrostro has no regrets.

“It will save tens of millions of dollars for our members and the taxpayers [who pay our salaries], and the decision helped us keep our HMO and PPO premium increases for members under 65 at 9.9% without any takeaways or any increases in copays or deductibles,” he said. “We're pretty proud of that.”

Despite CalPERS' success, the state of California, like other employers, can't solve the long-range health care cost problem by acting on its own, Mr. Buenrostro said. “We can only solve this problem if we get a national solution.”