unit of net productive hours. Similar effects of variations in quality of operations are also found in other aspects of an Intermediary operation, such as auditing of providers where professional judgments are vital to determinations of the scope of such audits as well as determination of complex provider cost questions Our experience in analyzing potential performance problems, identified by statistical comparisons, has in some instances revealed variations of quality as being significant in contributing to the statistical variation. The need is, of course, to assure there is neither an inadequate nor an excessive commitment of resources to the quality aspects of the Intermediary functions. Program guidelines are helpful in making these determinations, as well as the experience and judgments of all Intermediaries where Program guidelines are not definitive. Finally, on age 28 of the draft report, there is a recommendation that the Committee consider amending the Act to permit redesignation of an Intermediary when the provider's selection does not appear to be consistent with efficient administration because of the small number of providers served by the selected Intermediary. As we read Sections 1816(b) and (e) of the Act, the Secretary already has the necessary authority to take actions as suggested in the draft report when questions of efficient administration are raised due to small numbers of providers being served by one Intermediary, in specific areas of the country or generally. If you or any members of your staff want to discuss any of these comments, please let me know. Very truly yours, BERNARD R. TRESNOWSKI. NOTE: Page numbers cited may not agree with the actual location of the material. Mr. GREGORY J. AHART, APPENDIX VI JULY 23, 1975. Director, U.S. General Accounting Office, Washington, D.C. DEAR MR. AHART: The Performance of the Social Security Administration In Dealing Directly with Institutional Providers of Medicare Services Compared with the Performance of Private Fiscal Intermediaries. We are pleased that the captioned Draft Report recognizes that there are significant differences in the cost for administering the Program for various types of providers (Hospitals, Skilled Nursing Facilities, and Home Health Agencies). For example, in handling a comparable number of claims, The Travelers must administer the program for 689 providers as compared to 94 for Maryland Blue Cross. We find that the facts as they pertain to The Travelers are essentially correct for the period reviewed. We sincerely appreciate the opportunity to review and comment on this report. Very truly yours, Mr. GREGORY J. AHART, L. E. CARTER, Second Vice President Medicare Administration. APPENDIX VII MUTUAL OF OMAHA, Omaha, Nebr., July 28, 1975. Director, U.S. General Accounting Office, Washington, D.C. DEAR MR. AHART: We appreciate the opportunity to review the draft of this report. A factor of major significance in Part A performance comparisons is the relative difficulty of claim processing when the preponderance of claims are from skilled nursing facilities and home health agencies as opposed to hospitals. We are pleased to note the question was conclusively researched in this study. This position is further supported by our fiscal 1975 unit cost of $8.24 reduced from the $10.44 reported in this draft. The increase from 27 to 73 in the number of hospitals Mutual serves contributed largely to this reduction. Sincerely, B. H. PATTERSON, Vice President, Medicare Administration. APPENDIX VIII DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Mr. GREGORY J. AHART, Director, Manpower and Welfare Division, Washington, D.C. OFFICE OF THE SECRETARY, Washington, D.C., August 22, 1975. DEAR MR. AHART: The Secretary asked that I respond to your request for our comments on your draft report to the Congress entitled, "The Performance of the Social Security Administration in Dealing Directly with Institutional Providers of Medicare Services Compared with the Performance of Private Fiscal Intermediaries." They are enclosed. We appreciate the opportunity to comment on this draft report before its publication. Sincerely yours, Enclosure. Overview CHARLES MILLER, Acting Assistant Secretary, Comptroller. The data in the draft report-on which GAO's analyses as well as conclusions are based-is nearly two years old. It reflects neither the improvements that have been made in our direct reimbursement operations, nor the very substantial changes in workload that have occurred since 1973. In this connection, the number of paper bills handled by the Division of Direct Reimbursement (DDR) has risen from 288,000-as shown in GAO's report for calendar year 1973-to 354,000 in fiscal year 1974 and to 654,000 in fiscal year 1975. And actuarial predictions are that the increase will continue for 1976 and 1977. At the same time, there has been only a moderate increase in DDR staff, so that we anticipate a dramatic reduction in DDR unit costs. Because of our concern that readers of the GAO report would draw opinions and conclusions based on out-dated information, we asked GAO in July for additional time to respond to the report to enable us to include in the response cost data applicable to fiscal year 1975, which will be available by the end of August. [See GAO notes 1 and 2, p. 36 [280]] We might add that some time ago DDR attempted to develop unit costs for purposes of comparison with the other intermediaries, and these attempts proved unsuccessful, partly for reasons of methodology. Methodology The GAO study results are more dependent on methodology than on the actual operations of DDR. For example, bills handled by a tape-to-tape operation established by DDR are excluded from the number divided into DDR costs in determining unit cost on the grounds the bills "are not processed by DDR," even though the costs analyzed include costs such as claims examination, cost auditing, and professional relations with respect to the services represented by these bills. At the same time, automated bills processed by intermediaries are included in developing intermediary unit costs for comparative purposes. Also, while the report recognizes that billing mix (i.e., occurrence of bills of differing degrees of processing difficulty) is a critical factor in comparing DDR efficiency to that of intermediaries, no effort is made to properly weight billing mix. Rather, the weighting formula developed for internal purposes by an intermediary quite unlike DDR in billing mix and operation is accepted and used in the analysis, even though it is not known whether the weighting factors accurately reflect the relative difficulty of processing different types of bills. There are other matters that range from major problems, such as charging costs incurred by SSA regional offices in assisting DDR without developing and charging costs incurred by these offices in assisting the intermediaries, to inconsistencies of relatively minor impact on the findings. Of particular note is failure to go beyond budget estimates in allocating costs between the direct dealing provider operations of DDR and the many other functions it performs for the Bureau. A similar approach is taken with respect to costs of activities of other components of Government allocated to DDR operations by GAO. Perhaps the most serious problem is failure to address in a meaningful way the qualitative factors in intermediary operation. In considering the profes sional relations aspect of intermediary operation, for example, the report relies on number of reported visits as a measure of performance without any reference to visit content or results. In considering audit effort, the report relies on the number of "audits"-a term that embraces activities that range from limited audits of single aspects of provider operations to full-field audits of the total operations of providers and related organizations-and does not assess the quality of cost settlements based on these audits. The study addresses only the mechanical handling of bills and no aspect of quality in claims processing or any other aspect of the intermediary or DDR operation. The result does not, in our opinion, constitute a valid review of performance. We are in process of developing updated cost data for submission to the Committee. In this connection, though, we must reiterate that we do not believe that such data can be meaningfully compared with data on intermediary costs on the basis advanced by GAO. [See GAO note 1.] We will continue our efforts to develop a methodology capable of weighting bill mix and the many other factors that complicate comparative evaluation of intermediary performance. GAO NOTES.-1. The data referred to above has been provided to GAO and is included as appendix IX. Therefore, HEW no longer plans to submit it to the committee. DEAR MR. AHART: In regard to your draft report on the intermediary funetion carried out by the Social Security Administration, we are enclosing material reflecting fiscal year 1975 costs and workload of the Division of Direct Reimbursement, Bureau of Health Insurance, together with a cost comparison of the Division with the private intermediaries discussed in the report. We appreciate your consideration of this material in finalizing the report and regret any inconvenience we may have caused you and your staff. Sincerely yours, Enclosure. F. D. DEGEORGE, Associate Commissioner for Management and Administration. Attached is the computation of DDR's "intermediary" operating costs for the fiscal year ending June 30, 1975. These costs were delineated and compiled using the same basic approach employed by GAO during their audit of DDR's calendar year 1973 costs. As you will note from the spread sheet, we processed a total of 1,097,362 “intermediary" bills during FY 1975. This bill count total includes 443,286 magnetic tape bills. We have segmented the aggregate and unit bill costs as follows: 1. Total intermediary costs attributed to DDR's operation (claims processing, audit, and regional office costs). $6,242,472÷1,097,362=$5.69 cost per claim 2. Total intermediary costs shown in item 1 less all costs attributed to provider reimbursement and audit ($1,737,425). $6,242,472-$1,737,425=$4,505,047 $4,505,047 1,097,362=$4.11 per claim Calculation of DDR's intermediary administrative costs-Fiscal year June 30, 1975 1 Total DDR salaries, benefits, and other costs. Add: Less: Printing (BHI). Division of Management (BHI). Subtotal_ Total... SSA Overhead (15%) -. Bureau of Data Processing Postal.... Treasury Department.. Audit contracts_ GPPP costs of administering Community Health Centers.. Subtotal. Total... Current operation (including RO $20,893). Renal branch. Nonintermediary costs. Subtotal____. Grand total__ Claims Processing Costs Including Provider Audit and Provider $6,242,472÷1,097,362 claims=cost per claim $5.69. Claims processing costs including provider audit and provider reimbursement ___ Less: Provider audit and provider reimbursement.. Total administrative costs excluding provider audit and $4,505,047÷1,097,362 claims = Cost Per Claim $4.11. Claims processing costs (per above)--- Less remaining regional costs included in above. Total administrative costs excluding audit and regional $3,956,6021,097,362 claims = Cost Per Claim $3.61. 1 Above calculations include 443,286 tape-to-tape billings. $4,855, 000 76, 000 186, 000 25, 000 287, 000 5, 142, 000 771, 300 481, 300 56, 600 3,575 462, 000 118,000 710, 367 2, 603, 142 7, 745, 142 763, 936 452, 597 286, 137 (1, 502, 670) 6, 242, 472 6, 242, 472 (1, 737, 425) 4, 505, 047 4, 505, 047 3,956, 602 1 Includes tape billings. * Includes BCA costs of $0.29 for model system users, and $0.23 for nonmodel system users. (Maryland BC uses model system; Chicago does not.) Mr. DUNCAN. I think it shows the average cost of auditing was $12.39 compared with $7.31 for Travelers, and so forth. Has private industry considered playing an active role if HMO's are utilized as part of a national health insurance program? Mr. RATHGEBER. Yes. In fact, this bill does encourage the formation of HMO's. Some private insurers have been active in forming HMO's already. It is a form of delivery which we think is a good one, which can be economical, and a number of companies are experimenting along these lines to see what role they can fill to promote the HMO form of delivery. Mr. DUNCAN. Thank you very much. Thank you, Mr. Chairman. Mr. ROSTENKOWSKI. Mr. Burleson? Mr. BURLESON. Thank you, Mr. Chairman. I apologize for not having been here to hear your initial statement, but I have read it, and of course I am in agreement with your views. Mr. Pettengill and Mr. Hemry are oldtimers before this committee, and I know the chairman and others welcome them and Mr. Rathgeber. We are very happy to have you. Yes, Mr. Chairman, strangely enough, I subscribe to the views these witnesses express, and I take advantage to say that I think this is the approach to any national health legislation if we want to stay out of socialistic medicine and socialistic health care. Mr. Meany was here yesterday, and he answered a question in the discussion relating quite a lengthy discussion on the subject of cost of Government administration versus the private sector of health insurance. What, generally, are problems you see with the so-called health security program which Mr. Meany discussed yesterday, in broad outlines, or specifics? Mr. RATHGEBER. Well, we see many problems. I might just mention a few. First of all, the method of financing is one which would greatly increase the tax burden of the country, both from general revenues and from social security taxes. As I pointed out in the testimony, we feel that the country is already overburdened with taxes, and a terrific new load, maybe $60 or $70 billion of additional national taxes, would be a very undesirable thing. |