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While the potential for a "conflict-of-interest" exists with respect to physicians who self-refer, there are limitations in our authority for dealing with it.

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Section 1801 of the Act states that "nothing in
this title shall be construed to authorize and
Federal officer or employee to exercise any
supervision or control over the practice of
medicine or the manner in which medical services
are provided ...." Accordingly, the only
effective weapon we have for controlling
excessive self-referrals is Section 1862 (a) (1)
(A) of the Act, which states that " payment
may be made... for any expenses incurred for
items or services .. which ... are not
reasonable and necessary."

Section 1877 of the Social Security Act imposes restrictions on physical ownership or investment interest in entities that furnish clinical laboratory services. However, the statute does not authorize us to apply these restrictions to other Medicare providers or suppliers.

Section 1877 (f) of the Act sets forth reporting
requirements for ownership arrangements. This
section requires the Secretary to collect
ownership information for selected entities in at
least 10 States. In the States that are chosen,
entities that furnish diagnostic imaging of any
type are required to provide us with a list of
the covered items and services that are furnished
by the entity and the names and unique physician
identification numbers of all physicians with an
ownership or investment interest in the entity,
or whose immediate relatives have an ownership or
investment interest.

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Section 6204 (f) of OBRA 89, as amended by Section 4207 (e) of OBRA 90, requires HCFA to submit to Congress a statistical profile comparing utilization of items and services by Medicare beneficiaries served by entities in which the referring physician has a direct or indirect financial interest and by Medicare beneficiaries served by other entities. This report is to due Congress on June 30, 1992.

Question. How much does Medicare pay out for imaging tests, and how much do you think is unnecessary overutilization?

Answer. We do not have specific figures regarding how much is paid for imaging services. Medicare contractors, as part of their Medical Review activities, have edits designed to reject claims for further development when over-utilization is suspected.


Question. Can Medicare Contractors identify and audit physicians who submit an extraordinary high number of reimbursement claims for imaging studies?

Answer. Yes. Medicare Contractors currently conduct a program of postpayment medical review to identify and audit physicians who submit unexplainably high numbers of claims for all types of services. If a physician submits a large number of claims for imaging tests, a carrier draws a sample of claims and patient records to verify the medical necessity of the service, and visits the site of service to verify the type of equipment used. If the physician billed for an inflated level of service using more sophisticated equipment than he or she actually had, the carrier would recover any overpayment.


The Inspector General's office has developed a computer data base system that permits States to identify individuals, pharmacies, and physicians who use and prescribe excessive amounts of abusable drugs under Medicaid. According to the Inspector General, over half a billion dollars of Medicaid funds are spent annually on "street" drugs in vogue with addicts.

Question. How many States are using computer programs such as the one developed by the Inspector General to zero in on most likely cases of fraud and abuse?

Answer. According to the Office of the Inspector General (OIG), eight States are implementing the software, and another twenty-two are reviewing the documentation. All States with a Medicaid Management Information System (MMIS) conduct postpayment reviews of patterns of provider practice and recipient use of Medicaid services. The only States without an MMIS are Nevada and Rhode Island. Prescription drugs are reviewed from three perspectives: 1) physician prescribing patterns; 2) pharmacy dispensing

patterns; and 3) recipient use. This activity is accomplished through Surveillance and Utilization Review (SUR) reports from the MMIS.

Question. Do you keep track of doctors and pharmacists banned from the Medicaid program?

Answer. Yes, a Cumulative Sanction Report is published April 30 of each year and distributed to all State Medicaid Agencies. This report is updated monthly with additional sanction and reinstatement information.

Question. What are the results to date of curbing use of Medicaid funds for "street" drugs?

Answer. States use lock-in programs to restrict individual recipients, who have overutilized Medicaid items or services, to designated providers for a reasonable period of time. Many States have implemented recipient restriction and lock-in programs. The most common reason for being placed on lock-in is abuse of prescription drugs. States such as Texas with 13,000 lock-ins and Michigan with 6,000 lock-ins have many years of experience in managing lock-in programs. States use SUR exception criteria to identify recipients who are candidates for lockin. Following case review, recipients identified as abusers may receive a warning letter or mandatory education on proper use of health services. Recipients who continue to abuse the program may be asked to select one physician or pharmacy.

Physicians and pharmacists are screened for their appropriateness as a lock-in provider. Included among the States with successful lock-in programs are: California, Connecticut, Maine, Maryland, Minnesota, New York, Ohio, and Virginia.

Question. What can your office do to encourage States to take stronger actions to target physicians and pharmacies that run Medicaid drug mills?

Answer. Through memoranda to our regional offices (ROS), we have encouraged States to consider using the OIG computer software as a supplement to the SUR reporting activity. According to the OIG, eight States are implementing the software, and another twenty-two are reviewing the documentation. We have asked our ROs to contact the remaining States to ask them to consider use of the OIG software.


We understand that the Health Care Financing Administration (HCFA) is getting ready to implement a Medicare cataract demonstration project.

Question. Why is HCFA proposing to test cataract surgery which essentially rewards high volume outpatient practices for a discounted price?

Answer. Cataract surgery is performed over one million times a year at an estimated cost to the Medicare program of over $3 billion annually. The per case cost of this procedure has not significantly decreased to reflect the technological improvements and the shift in surgical setting from inpatient to outpatient that has taken place during the past decade, but rather has stabilized as a result of regulatory intervention and congressional mandates.

This demonstration project would be an opportunity to study efficiencies that can be achieved by managing an episode of care for cataract surgery, while maintaining high quality of care throughout the episode. This arrangement would combine the physician and facility services on the day of surgery, the intraocular lens, and various pre-and post-operative tests and visits into one comprehensive package and single negotiated global fee. In this manner it will:

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Allow providers flexibility in managing the mix
and type of services used to accommodate their
practice style preferences;


Provide incentives to manage patient care so that
cost efficiencies are realized while maintaining
a high standard of quality of care;

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Reduce Government involvement in the pricing of
individual services in the providers' decision


Provide insight into appropriateness indicators
and effective quality assurance and utilization
review mechanisms for cataract surgery; and
Provide information regarding factors influencing
providers' decisions to participate and
beneficiaries' decisions to select designated
providers under a demonstration that will be
strictly voluntary.

It is recognized that the highest volume providers are likely to have a competitive pricing

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advantage as a result of economies of scale; therefore, HCFA will invite a volume related pricing approach which will allow smaller providers to participate by proposing discounted prices reflecting potential efficiencies in their scale of practice.

Question. What impact will this proposal have on small, full-service ophthalmology practices?

Answer. Smaller volume providers should not be discouraged from proposing discounted pricing reflecting potential efficiencies in their scale of practice. HCFA expects to select designated providers based on several volume-related thresholds for pricing, anticipating larger discounts at higher volumes. Participation in the demonstration, by both providers and beneficiaries, located in the demonstration area is completely voluntary. In the event providers do not participate in the demonstration, they may continue to treat Medicare beneficiaries and receive payment under the usual Medicare fee-for-service payment system. In turn, beneficiaries remain free to select the provider of their choice for cataract surgery.

Question. Can you explain your rationale for selecting cataract surgery as a test procedure, and what you hope to learn from the project when the Deputy Inspector General recently testified that high volume with this procedure is "twice as likely to be of poor quality," "more likely to have postoperative complications," and "less likely to result in improved visual acuity?

Answer. HCFA has consulted extensively with the Office of Inspector General (OIG) regarding its draft report, Outpatient Surgery: Medical Necessity and Quality of Care," and is acutely aware of OIG's concerns regarding high-volume cataract surgery providers. OIG representatives have actively participated in the design of this demonstration, and HCFA has incorporated several quality and appropriateness safeguards into this project specifically to avoid the potential problems identified by the OIG. In fact, criteria for selection of designated providers will emphasize appropriateness and quality indicators, and designated providers will be subjected to more intensive prospective and retrospective assessment of the appropriateness and quality of surgery and follow-up care than is currently being practiced.

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