Mr. TRESNOWSKI. To answer your question specifically, the information I just gave you and in the body of our full statement, these are average numbers for the Blue Cross system as an intermediary as compared with all commercials.

Mr. STARK. You are taking the whole system?

Mr. TRESNOWSKI. Yes, I do in the body of my fuller report, and I will mention it again, just briefly point out that we are concerned about the point you make, that is, the variation within the Blue Cross system and we point out we have been able to reduce that variation. I will get into that in more detail in a minute.

I go on to say that though expenditures involved in fulfilling our role appear to have risen since the program began, the fact is our provider audit and administrative costs, with adjustment for inflation, are lower than they were when the program began. Specifically, from 1970 to 1975, our overall productivity has increased 32 percent, and our claims department productivity specifically has increased 44 percent.

Let me just provide a few other highlights from the more detailed record you have.

First, provider audit. Audit programs have a return of 313 percent on the dollar spent on them. That is to say, for every dollar spent on audit, $3 returns to the program. We estimate that proper allocation of provider costs to the program achieved through audit has saved medicare $50 million year.

Mr. STARK. That would be about 0.5 percent of the total cost? Mr. TRESNOWSKI. That is right. That is compared with an audit cost for us of in the neighborhood of $20 million.

Second is our claims processing. A tape-to-tape system was developed by BCA and is used for transmitting claims from 57 of our plans which represents more than 90 percent of the claim volume which has reduced bill errors to the point that a 99.9-percent accuracy rate has been established.

Mr. STARK. Could we get into that a little bit?

Mr. TRESNOWSKI. Sure.

Mr. STARK. Are you saying that 99.9 percent of all the bills submitted by patients and providers are paid correctly or are you saying that once you get a bill, it grinds through the paperwork machine and is properly handled in a mechanical sense, in other words, it does not get lost in the mail, and the numbers add up? In Internal Revenue, for instance, they go through an initial processing of your 1040 and if the face of it adds up, it is not kicked out. Is it that level of evaluation, or are you saying that less than one-tenth of 1 percent of all billings are 100-percent accurate in terms of services?

Mr. TRESNOWSKI. No, I think the distinction is that it is accurate from a clerical standpoint. Let me put it in this context, Mr. Chairman. A patient goes into a hospital and the hospital says, "Here is a health insurance benefits number, we would like to know about the eligibility of this patient." That is transmitted through our wire system and in 24 hours the hospital knows whether or not that is, in fact, a medicare beneficiary. In the jargon of the business, we create an "open item." It is created on the tape in Baltimore. That open item sets on that tape until a claim clears through after the patient is discharged from the hospital.

One of the most important things, and you made this point in your opening remarks, is the service to the beneficiaries. One of the biggest complaints you have is they do not know what their benefit status is.

An open item is created on a tape and they inquire and it says "open item" and they do not know benefit status. The importance of the point I am making here is if you transmit the paper in a reasonably accurate way, that is the health insurance benefit number is correct, the charges meet certain edits, that you can close that open item in a relatively fast way.

It is a system consideration, I appreciate, but it is an important one in terms of service to the beneficiary. But to specifically answer your question, it is a clerical editing process and the tape-to-tape system has eliminated a lot of the human frailty associated with the moving of that paper.

Mr. STARK. But you are not saying that only one-tenth of 1 percent of transactions, if that is a better word than bills, are given some kind of special treatment or audit review or

Mr. TRESNOWSKI. You mean in terms of whether the benefits were properly given?

Mr. STARK. Right.

Mr. TRESNOWSKI. Absolutely not.

No. As a matter of fact, in the body of our statement, I think I can even refer to it, we talk about the skilled nursing facility. We have gone from, I think, a 5-percent rejection rate to a level of 23 percent rejection.

Mr. STARK. Thank you.

Mr. TRESNOWSKI. I go on to say that it has speeded up claims processing and saved the Government an average of $4 million a year since 1968.

Let me explain that point, in light of your question to me. Prior to the tape-to-tape program, all of this paper was flowing to Baltimore, and they had rented large office buildings and lots of staff at SSA to take this paper and convert it into an input into their computers. Since we have gone to the tape-to-tape system on 90 percent of the claims, SSA has been able to eliminate that. So we are saying that has saved the program on the average, $4 million a year.

The second one is the model A claims processing system which we also developed. It helps to insure consistently accurate and timely handling of claims and is used by 24 plans processing more than 50 percent of our total claims volume.

The BCA telecommunications system transmits a 100-word message coast to coast for 22 cents, compared with the Western Union charge of more than $16 for the same service, and 98.1 percent of all claims are processed through that system.

The third is provider payment. Because of the speed and accuracy of processing claims, as I have already mentioned, and the fact that fewer than 1 percent of the more than 10,000 provider/cost reports we submit to the Government each year are questioned, provider payment is both timely and appropriate to the regulations of the medicare program, and that is an efficiency point.

Mr. STARK. You are to be commended on that point, most assuredly. In the nature of a commercial, this committee and the Health Subcommittee are going to begin hearings, I think, in the middle of

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September on the fact that the Government has not done its job in questioning more of those. I think that in the home health agency area, the failure of Social Security to question the cost reports which may be fraudulent or excessive, and we have all read about those, is the Government's fault. I am not at all proud that we have not been more diligent on our side in investigating some of these. As an intermediary, I do not even want to begin to suggest that this is BCA's turf, but we should be questioning that more diligently through you to your providers. We have not done a good job there. You have, very much so.

Mr. TRESNOWSKI. Thank

The fourth point is utilization review. I point out that a broad range of support services and systems have been developed to enable PSRO's to become established and to review processes. BCA has developed computer software programs, support plans in furnishing PSRO's into health data profiles. We have also developed guidelines for various levels of review and use of medical information forms for prospective review and thereby trying to eliminate as much as possible the retroactive denial of claims.

The fifth point I would make is with regard to financial management. Our effective cash management has resulted in average daily medicare bank balances of less than 1 percent of funds expended per month. Checks outstanding at only 14 and 16 percent of corporate funds has risen for a rate of yearly savings to the Government of $14.5 million.

BCA has also provided improved plan cost accounting and budgeting capabilities by developing the standard national accounting program. Mr. STARK. Was that not really done as a result of a GÃO study and a discussion by the Government Accounting Office back in 1970 that we could save a lot of money by better cash management?

Mr. TRESNOWSKI. I do not think there was a GAO audit. I think that the Department of the Treasury had some old regulations which needed reevaluation. For example, they did not permit the relayed draw techniques, they did not permit the checks-paid method. Our concern was, we saw considerable growth in the dollar flow and we on our own urged the plans to make these moves.

Mr. STARK. I was a banker at the time and I noticed the result of that very markedly, the increased deposits.

Mr. TRESNOWSKI. I do not want to misrepresent. I would have to say it was a joint move. We certainly were working closely with the Bureau of Health Insurance and the Treasury. The important thing is that the job got done and it saved the Government a lot of money. I can understand your statement.

On the matter of financial management, one indicator of our performance is the percentage allowed for the administrative costs of the BCA following the HEW audit is now at the level of 99.1 percent and averages about 99 percent for all of the years of the program. If you look at the evolution of this, you will see that in 1967-68, we were at about a 96-percent level and we kept going up.

I think that is attributable to the fact that we had to learn to live under the cost principles of the Federal procurement regulations, understand the rules of the game, and as we did, the performance improved.

While our performance stands on its own merit, our record becomes even more apparent when contrasted with the performance of other intermediaries as I pointed out before. Our results are based on the effectiveness in our judgment of the prime subcontracts format. We feel the leadership of BCA coupled with the operational skills of the plan has strengthened our collective ability to function effectively. Mr. STARK. I want to get in here again, because I do not want the record to slip through so well, so carefully. I want to question the fact that your performance relative to other intermediaries is just flatout better. Social Security claims, for example, that they handle most of the more difficult billings, those scattered geographically, the problem things, the nursing home type of situations which are much more complex billings than routine hospital visits. I am not sure that this is the moment to get into this kind of a dialog, but it does occur to me that some plans who have been praised, let us just say group health practices, have great cost records, but the facts are they tend to select from the age group and the occupation group where you get mostly healthy people. I am willing to accept that there is a best way to provide the service that BCA and their members provide, but I do not want to think we have any second-class recipients of medical care. Still I am afraid there is some of that throughout our whole medical care delivery system throughout the country.

"Better" is a term that I am not just willing to accept offhand. Mr. TRESNOWSKI. That is fine. I think that comparisons are odious. My reference here is not to denigrate the performance of either any commercial intermediary or SSA, which I think has been improving, it is only to say that based upon looking at us as a system, they as a system, using the indicators that are available, that is what they furnish out one can conclude that Blue Cross performance is better. We are open to the matter of a system which ought to be weighted, it ought to be changed. I think it is important to note that all parties in the program have improved. So from the beneficiaries standpoint, I think they are getting a better deal.

Mr. STARK. That is a key point.

Mr. TRESNOWSKI. In listing all of these accomplishments, model A, tape-to-tape, the telecommunications system, our management program, I could mention also a wide range of training programs such as those have increased our in-house audit capability to more than 83 percent. In the early days of the program we subcontracted a lot of our auditing to audit firms. We brought those inside and saved considerable money. We provided administrative bulletins and guidelines. You commented on my fuller statement by saying that it was very comprehensive. It was just intended to show you the extent to which our management program operates through that vehicle.

As BCA's leadership has grown, it has come to stand as a key element in accountability, and performance. I think our record in fact demonstrates the wisdom of those who designed the medicare program as an important combination of the public and private assets.

This idea has been challenged from time to time, as I think you are aware, Mr. Chairman. It is important to note that the two independent panels which were established by the Department of Health, Education, and Welfare to study the contract relationship came up with some interesting findings. The National Academy of Public Administration

studied it as did the Advisory Committee on Medicare Administra tion which is known as the Perkins Committee.

In both instances, they underscored the merit of using a contract through which the assets of the public and private sector can be joined. Both of those studies called for the Government to place increasing

Mr. STARK. I think it is important there, if I may interrupt again, you have cited the National Academy of Public Administration study. I am sure that is the same one which on page 4 of their study, the "Administration of Medicare: A Shared Responsibility," in referring to the medicare part A contract says that:

The Medicare contract strengthened BCA significantly as an institution because the individual plans became dependent on it for major parts of their business and this new position capped the significant march of BCA from a loosely knit trade association to a powerful institutional force in the health insurance business. SSA was faced with a powerful confederation that was able to bargain as a national institution with political influence. The BCA leadership took a very firm stance that the contractual relationship was one of an independent contractor performing a service and sought to circumscribe the government's ability to oversee the day to day operations of the program.

I would like to enter the National Academy report in the record because I feel it is often quoted out of its full context in testimony before this committee and because there may very well be two sides. As I say, I am not quite willing to sign the contract to give BCA the right to administer any national health insurance program that may come in the next administration without some bargaining.

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