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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

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;

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

o Provide insight into appropriateness indicators and effective quality assurance and utilization review mechanisms for cataract surgery; and

O 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

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. 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.

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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.

Question. The sites will apparently be allowed to advertise and utilize special marketing

inducements to attract patients and referrals from other facilities, practices that currently do not appear to be allowable under Medicare. What specific inducements and practices would you allow? Are you concerned about setting a bad precedent by allowing special privileges and inducements for a procedure which is widely practiced and 95 percent effective?

Answer. HCFA will not conduct any direct marketing on behalf of demonstration providers. extent of HCFA representation in marketing or advertising will be to allow designated providers to identify themselves as "Medicare Designated Cataract Surgery Providers," characterizing them as highly efficient providers who are subject to rigorous utilization and quality review.


To assure designated providers do not engage in unduly aggressive or misleading marketing practices, all marketing plans and materials used by demonstration providers to promote availability of services under the demonstration will be subject to HCFA's prior approval.

Designated providers remain free to offer the same program benefits to prospective cataract surgery patients as non-demonstration providers. However, because designated providers are able to offer cataract surgery services to beneficiaries at a lower total cost to Medicare, beneficiaries may benefit from these efficiencies in the form of lower out-ofpocket costs. This may be accomplished under the demonstration's authority by permitting designated providers to waive beneficiary deductibles and coinsurance if they so desire and at their own expense.

In addition, physicians and facilities practicing as designated providers may offer program benefits such as prompt forwarding of surgical records to the patient's primary care physician, and more coordinated pre- and post- surgical service delivery.


Question. What have you been able to accomplish to reduce administrative costs through shared computer maintenance and processing arrangements?

Answer. In the last three years we have actively encouraged contractors to adopt shared processing and shared maintenance arrangements. In FYS 1990 and

1991, a total of $31 million in savings is expected from shared maintenance and shared processing arrangements. In FY 1992, we estimate that nearly $8 million dollars in savings will result from shared processing arrangements alone.


Question. Is legislation still needed to bring about further savings in this area?

Answer. Under its current statutory authority, HCFA cannot mandate any shared systems arrangements. Although new legislation may not be required, strengthening HCFA's ability to provide powerful incentives to contractors to participate in shared systems, shared claims processing and shared systems maintenance arrangements is still perceived as necessary if savings are to be maximized.


Question. Your budget zeros out two programs important to helping ensure health care services in rural areas, the Rural Hospital [Health] Transition Grant program and the Essential Access Community Hospitals program. These programs were funded at $24,398,000 and $9,759,000 respectively in 1991.

I have a lot of praise for these programs and the important job they do in helping rural hospitals survive and become viable.

Is your proposal to eliminate these two programs a budget gimmick or do you really believe the programs are ineffective?

Answer. HCFA's decision not to include funds in our FY 1992 budget request for the Rural Health Care Transition Grants Program (RHCTGP) is based on our belief that before additional funds are sought to continue this program, an assessment/evaluation of the program is needed. It is still too early to judge the impact of the RHCTGP on the financial viability of rural hospitals and access to care by beneficiaries in rural areas. Hospitals that received grants in FY 1989 have just completed their first year under the program, with many having just

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