5.

Reimbursement

Medicare and Blue Cross/Blue Shield, the largest government and private health insurance programs, respectively, pay for a substantial share of the Nation's total health care outlay. In 1978, for example, medicare financed 24 percent of all hospital care and 16 percent of all physicians' services. In fact, its payments represented more than 15 percent of all personal medical expenditures in the United States. In the same year, Blue Cross/Blue Shield paid for nearly 11.5 percent of all personal health care expenditures (84). Through financing, both programs can affect the rates at which new technologies are developed, diffused, and utilized, and at which inefficacious, outmoded, and unsafe services are phased out.

This chapter focuses on the medicare program and its reimbursement coverage process. Also included is a discussion of Blue Cross and Blue Shield and its reimbursment coverage process. The latter discussion is included because the national Blue Cross and Blue Shield Associations

and the affiliated plans (the actual administrative units, who are relatively autonomous and who receive guidance but not mandatory procedures from the national associations) represent the largest nongovernmental third-party payer in the Nation and because their processes of deciding on coverage of medical technologies for reimbursement are similar to medicare's.

Medicare is a nationwide, federally administered health insurance program authorized in 1965. It provides benefits for people over age 65, for certain individuals eligible for disability payments, and for certain individuals who need kidney transplantation or dialysis. The medicaid program is a Federal program that is administered individually by each participating State government. Each State can use its own procedures for coverage decisions. Although medicaid is not covered in this chapter, in concept, many of the arguments presented would apply equally well to that program.

Section 1962 of the Social Security Act mandates that medicare shall pay only for medical services that are "reasonable and necessary" for diagnosis, treatment, or improved functioning.1 By granting Government officials the authority to determine which new and existing services2 are eligible for reimbursement, this section of the law involves medicare in technology decisions. Medicare has refrained from establishing a definitive interpretation of the "reasonable

1Sec. 1862. (a) Notwithstanding any other provisions of this title, no payment may be made under part A or part B for any expenses incurred for items or services (1) which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.

'The Social Security Act also specifically excludes certain services from payment eligibility.

and necessary" language of the Social Security Act and relied on a loosely structured and decentralized mechanism to provide coverage guidelines.

The medicare program is administered in two parts: part A, financed by payroll taxes, provides reimbursement for services in hospitals, extended care facilities, and other institutions; and part B, a voluntary supplementary program, pays for physicians' services. Under the present coverage mechanism, the contractors who administer part A, fiscal intermediaries, and part B, carriers, of medicare bear the initial responsibility for identifying coverage

issues and determining reimbursement policy.3 Through the advice provided by their medical advisors, contractors make coverage determinations about the majority of new services that they identify (98).

When the contractors feel unable to make a judgment on a particular coverage issue, they submit the issue to one of 10 medicare regional offices. As a rule, referrals are made by carriers, who process physicians' bills, rather than by fiscal intermediaries, who process hospital bills. This is because under the cost reimbursement system, hospital bills generally are not examined for questions about the use of a particular technology. In fact, most hospital billing forms provide little specific information about the various elements of service (398,574). Although intermediaries, as well as hospitals, physicians, and the manufacturers of drugs and devices, may occasionally raise a coverage issue, carriers usually perform this function.

Coverage decisions by both contractors (239) and regional offices (398) appear to be based primarily on two related criteria: 1) the technology's stage of development, and 2) its general acceptance. If a new technology is perceived to have moved beyond experimental status toward full clinical application and to be accepted by the local medical community, then it is deemed "reasonable and necessary." These criteria, however, lack precise standards, and the contractors' procedures for considering them tend to be informal and highly variable. Thus, for example, a medical advisor may base a decision on immediate personal knowledge of a technology's stage of development and acceptance or may survey the literature and seek out the opinions of other medical consultants, local specialty society representatives, advocates of the procedure, and the advisors of other area insurance programs.

In addition, both contractors and medicare regional offices appear to show considerable variation in the priority they accord to coverage questions and their approach to handling them. Some regional offices will attempt to resolve

'Medicare contractors for part A deal with hospital services and contractors for part B deal with physicians' services.

many of the issues referred to them by seeking out the opinions of local contractors; others will tend to transmit such issues directly to the medicare central office (398,291). Similarly, within a region, some carriers will display far more initiative than others in identifying a coverage issue, pursuing information about it, and making a decision (398). As a result, the specific package of benefits for which medicare will provide reimbursement varies somewhat across the country, and there is no national standard for covered services.

When the contractor and medicare regional office are unable to resolve an issue, it is referred to the Health Care Financing Administration (HCFA). This agency, in turn, may request a coverage recommendations from the Public Health Service (PHS). Historically, PHS generated its responses through an informal and loosely structured procedure. Typically, one, two, or three professional PHS staff members assigned to the task researched a coverage question by attempting to survey the relevant medical literature and consult with appropriate experts. This process has been inherently unsystematic, because the small PHS staff has lacked the benefit of established channels of communications to medical specialty groups and to other PHS agencies such as the National Institutes of Health (NIH) and the Food and Drug Administration (FDA) (98).

Within this ad hoc framework, PHS has traditionally applied four criteria to coverage recom

'Reimbursement coverage questions are referred to the Health Standards and Quality Bureau (HSQB) in HCFA. Prior to the creation of HCFA, they were referred to medicare's Division of Provider and Reimbursement Policy.

"In 1977, the Administrator of HCFA and the Assistant Secretary of Health entered into an agreement which formalized the Public Health Service's role in providing coverage recommendations. Since the late 1960's, the medicare program's lack of medical advisors has resulted in an almost automatic referral of coverage questions to PHS, although occasionally HCFA has tried to group related issues together or resolve a matter which seems to warrant little attention because it has either been previously raised and answered by PHS or it concerns an apparently worthless service (e.g., colonic irrigation) or a well-established and accepted one.

"The current PHS unit providing coverage recommendations is the National Center for Health Care Technology (NCHCT). The Center was created by Public Law 95-623 in November 1978. Before the formation of NCHCT, the Office of Health Practice Assessment bore this responsibility. Previously, it was the function of the Bureau of Quality Assurance in the Health Services Administration.

mendations: 1) safety, 2) efficacy, 3) stage of development, and 4) acceptance by the medical community. Although, these criteria have recently been made more explicit' through a PHS staff paper on coverage policy, they still lack precise definition.

PHS recommendations generally have not attempted to recommend specific indications for use of technologies. The PHS staff have maintained that coverage policies should be expressed in broad terms and questions of appropriate usage for a set of specific patient indications should be addressed by the practicing medical community and the Professional Standards Review Organizations. Thus, a PHS description of its coverage policy notes (98):

The coverage system cannot attempt to be an encyclopedic listing of which interventions to use in which circumstances nor serve as a kind of substitute for medical education and clinical training. Rather, the coverage system uses broad strokes to sketch the boundaries of accepted good medical practice, and leaves the fine-tuning of the system to the "back-end" mechanism, the Professional Standards Review Organizations (PSROs).

Recently, however, HCFA has shown some reluctance in accepting PHS recommendations and sought to issue guidelines which cite indications for use more often.

After the PHS staff develop a coverage recommendation, they send a memorandum to HCFA's Health Standards and Quality Bureau (HSQB). This Bureau has usually accepted the

"Historically, these criteria have been developed and utilized implicitly (33).

"A PHS staff paper provides the elaboration of these terms (98): 1. Safety: What is the likelihood and severity of risk associated with the technology?

2. Efficacy: What is the likelihood that the technology will produce the desired health benefit? No distinction is drawn here between efficacy and effectiveness, although in other contexts, "efficacy" is used to mean the probability that a modality will produce a desired outcome under ideal circumstances, while "effectiveness" is used to mean that the desired outcome will result under average clinical conditions. The term "efficacy" as used here is intended to convey a hybrid of both meanings, since the data base for coverage decisions is sometimes derived from laboratory or clinical trial environments and sometimes from routine practice environments. 3. Stage of development: Has the technology moved beyond the experimental stage to full clinical application?

4. Acceptance by the medical community.

policy suggested by PHS and has issued appropriate guidelines to medicare regional offices and contractors (282). Because of the large volume of services involved, policy implementation depends mainly on the good faith of providers and on the threat of potential audits.

Cost and Efficacy

Although the cost of medical technology has focused attention on reimbursement, cost information has not been explicitly or directly considered in medicare coverage determinations. In a few cases, where PHS has concluded that a new technology is a modification of an existing intervention and offers little additional benefit, it has favored coverage but recommended payment at the same level as that for the established service. This type of judgment represents a weighing of marginal cost and marginal value, so it might be said that PHS has conducted implicit cost-effectiveness analyses (CEAs). The practice of paying usual and customary fees, however, does not easily accommodate such analyses.

Unlike cost, efficacy is one of the four criteria. PHS has traditionally applied to coverage questions. Several recent PHS procedural changes have promoted more systematic examination of efficacy data: 1) the development of communication ties with NIH, FDA, and medical specialty societies; 2) the formal linking of FDA drug and medical device policies to PHS coverage determinations (98); and 3) the setting of a precedent in the computed tomography (CT) body scan decision to restrict coverage to uses that are supported by current evidence of efficacy (282), although the list of indications for those scans appears to include nearly every possible use (389).

The extent to which these procedural changes will ensure a greater emphasis on efficacy remains uncertain. Despite the CT body scan recommendation, PHS has generally not attempted to specify indications for use, contending it would do so only in the consideration of drugs or in an exceptional case involving a high-risk or a high-cost technology. Although it is committed to reflecting FDA's safety and efficacy rulings by following FDA's decisions on ap