The original 1973 waiver instructions, in Intermediary Letter No. 73-30. stated that one of the criteria a provider must meet to receive presumptive status is that "the most recent State Agency survey found compliance with all Standards for Utilization Review and that the intermediary has no information to contradict the State Agency "findings." This instruction has been reinforced by waiver regulations published in December, 1974. With the revised regulations, Blue Cross Plans will be obtaining information over time that may contradict annual State Agency Surveys conducted both prior and subsequent to the issuance of the revised regulations. The unanswered question is what steps the intermediary should take in such instances. Also, the revised utilization review regulations do not replace the certification/recertification requirements for extended stay cases contained in existing waiver and reimbursement regulations. These regulations must be made compatible with the admission review and extended stay review requirements of the revised regulations, as provider compliance with the former is still required and must be reviewed by intermediaries as a criteria for presumption of provider compliance.

Finally, in areas where PSROS are conditionally or fully operational and where the Secretary has not yet waived the Medicare Utilization Review Conditions of Participation, potential conflicts exist. If PSROS have not closely adhered to the quidelines set forth for their program by the Bureau of Quality Assurance (BQA), providers will be required to operate or participate in two or three systems of review-one set forth by the Medicare regulations, one managed by the PSRO, and possibly a separate one for a State Medicaid Program which has been granted a waiver by the Secretary as being "superior" to the revised Medicare Conditions.

To avoid inequities and confusion, PSRO criteria for the granting of presumptive status to providers must be made clearly compatible with the revised Conditions of Participation, and federal criteria and procedures for evaluating whether a State Medicaid utilization review program is sufficiently superior to merit a waiver from the new Conditions must be clearly delineated.

Recognition of Prevailing Charge Increases for Physicians' and Certain Other Services Tied to Economic Indixes

Overall, we believe that the proposed regulations conform with Public Law 93-603, section 224(a), and with the accompanying Report of the committee on Finance.

We are concerned, however, that the proposed regulations do not adequately define some of the important elements of how the determination of reasonable charges for physicians' services is to be administered. The regulations should specifically provide for the following: 1) the responsibility of the Secretary to compute and publish the national economic index, 2) the frequency of recomputation of the index, 3) the effective implementation date, 4) the methodology used in computing the actual national economic index, and 5) a definition of "cumulative economic index." Without this detail, what appears on its face to be a reasonable and appropriate mechanism may in fact become the opposite when fleshed-out in practice.

Termination of the Inpatient Routine Nursing Salary Cost Differential as a Reimbursable Cost of a Provider

The existing regulations, Section 405.430, were promulgated to give financial recognition to the fact of the increased costs associated with providing care to aged patients. The regulations were promulgated after the careful analysis of several studies which indicated that general routine nursing care in hospitals was, in fact, more costly for aged persons, persons who were 65 years and older, than for patients who were less than 65.

In view of the history of this provision, the arguments presented in the preamble to the proposed regulations do not, in our judgment, address the question of the cost of general routine nursing care for the aged. Moreover, no evidence is presented to establish a legitimate basis for changing the existing reimbursement procedure.

Absent evidence-and none has been provided, since the additional studies committed to in 1970 have not been undertaken-that the routine nursing service differential is no longer warranted, the proposed regulations are, at a minimum, contrary to the intent of the law under which Medicare was established. It states in part in Section 1861 (v) (1) (A), ". . . the necessary costs of efficiently delivering covered services to individuals covered by the insurance programs established by this title will not be borne by individuals not so covered and the

-costs with respect to individuals not so covered will not be borne by such insurance programs."

We recognize that the environment and delivery patterns of health care services have changed since the issuance of the initial regulations. In order to understand the impact and implications of these changes, we urge, instead of an intuitive decision, that an independent study be undertaken to determine the applicability of the routine service nursing salary cost differential. The findings of that study should then be used to provide the basis for an appropriate modification, if any, to the regulations applicable to the inpatient routine nursing salary cost differential.

Further comments on the proposed regulations are set out in more detail in the Appendix to this statement.

Revision in the Scheduling of Limits on Hospital Inpatient General Routine Service Costs-Reduction from the 90th to 80th Percentiles

We believe this revision has in some respects improved the Program's procedures for application of the limits in hospital inpatient general routine service costs. However, we are concerned that the proposed action to reduce the cost limits from the 90th percentile plus 10% of the median is being taken without adequate study.

As you are aware, the current provision has only been in operation for a short time. Sufficient experience and time have not been available to assess its impact, let alone determine the need and direction of any modification. Again, prudent management requires that evidence be gathered and evaluated before a change as fundamental to the financial well-being of the delivery system as this be made. We urge that the change to the 80th percentile plus 10% of the median not be made in the limitation to be published for cost reporting periods beginning on or after July 1, 1975. Before any change is made, studies should first be undertaken regarding the impact and appropriateness of both the existing limitations and possible alternative ones for the future. The results of such studies would then serve as the basis for future changes in the regulations concerned with the level of the limitation imposed on general routine service costs.

CONCLUSION

As both a Medicare Intermediary and a major carrier of private health benefit coverage, we recognize the responsibility of the payer to act as a prudent purchaser. However, balancing and complimenting this responsibility is the equally important obligation to act as a prudent manager. The temptations of intuitive and expeditious decisions must be controlled.

The issues addressed above represent in principle the type of actions which a responsible payer has an obligation to pursue. The benefit of these initiatives should not be allowed to be either dissipated or reversed through inappropriate decisions. We do not urge a retrenchment in policy but rather a more careful implementation; one which is sensitive both to the need to act and the detrimental impact which inappropriate action will produce.

APPENDIX-NURSING SALARY COST DIFFERENTIAL

The preamble cites Public Law 92-603 as support for the proposed regulations. These amendments increased the scope of coverage under Medicare to disabled and end-stage renal disease patients under age 65. The larger the segment of the below age 65 population covered under Medicare, according to the preamble, the more appropriate is an average routine per diem amount for beneficiaries which corresponds to that of the general patient population.

For such an argument to have validity, it must be demonstrated that 1) the age 65 patient population no longer requires a significantly greater amount of general routine nursing care than other segments of the total patient population, or 2) the Medicare program does not have a higher proportion of patients aged 65 and over than other payers, or 3) the below age 65 patient population under Medicare requires significantly less general routine nursing care than below age 65 patients in the general population, thereby off-setting any greater amount of general routine nursing care required by patients age 65 and over under the Medicare program.

As none of these three conditions has been demonstrated to be met, the use of an average per diem would be inappropriate and inequitable, resulting in a legitimate cost differential being shifted from one payer-the Medicare Program-to all other payers.

With respect to the first condition, the original studies conducted in connection with the introduction of the nursing service differential established a correlation between nursing service and patient age. Specifically, the studies found that persons age 65 and over required additional hours of general routine nursing service above and beyond that required for those under age 65. No further studies have been undertaken to contravert those findings.

On its face, the second condition is totally invalid, as over 95% of the population age 65 and over are beneficiaries under the Medicare Program.

With respect to the third condition, no studies have been undertaken which demonstrate that Medicare patients below age 65 require lesser amounts of general routine nursing care than similar aged patients in the total population. Logic would suggest that if any difference were to exist, it would be in the opposite direction.

A second basis quoted in the preamble for eliminating the differential is the fact that a greater number of special care beds (intensive care, coronary care, etc.) now exists and, therefore, there has been a substantial shift of the intensely ill patients from general routine care areas to these special care units. Further, the preamble states that since Medicare utilization is higher in the special care units, than in general routine care areas, this affects, to a significant extent, the additional nursing care which was originally reflected in the differential.

There are a number of factors which would need to be considered in reaching this conclusion. Among these are:

1. the relative utilization of general routine care areas by patients 65 and over at the time of the original studies and currently.

2. the relative utilization of special care areas by patients 65 and over, both at the time of the original studies and currently.

3. the relative shift of patients 65 and over and those under 65 to special care areas from general routine care areas from the time of the original studies, and

4. the cost of rendering nursing care in general routine areas for patients 65 and over compared to patients under 65.

In view of the multiplicity of factors affecting this issue, the conclusion reached in the preamble could only be supported by a study which specifically compared the cost of care in general routine nursing care areas for Medicare beneficiaries with the cost of such care for all other patients. No evidence is presented that such a study has been made.

The third point listed in the preamble states that the Medicare program gives special recognition to its beneficiaries' utilization of special care areas and that the nursing differential does not apply to special care areas.

We agree that Medicare does, in fact, give special reimbursement consideration to its utilization in the special care units and that the current formula for calculating the nursing salary cost differential does not apply to these units. However, this does not support the termination of the nursing salary cost differential because it does not address the central issues-the comparable cost of nursing care in the general routine nursing care areas for patients 65 and over and those under 65.

Furthermore, the studies upon which the differential was originally based only considered general routine nursing care utilization and cost of care in those areas and specifically excluded consideration of the special care units.

Appendix II

STATEMENT BY THE BLUE Cross AssoCIATION ON IMPLEMENTATION OF THE CHRONIC RENAL DISEASE AMENDMENT, JULY 30, 1975

The Blue Cross Association welcomes the opportunity to present our comments on the Chronic Renal Disease Provision (Section 2991 of the 1972 amendments to the Social Security Act) which you presently have under consideration.

We are interested in this legislation because of the major role we play in the Medicare and Medicaid programs and our significant role in the private market. As fiscal intermediary under Part A of the Medicare program, the Blue Cross organization serves 91 percent of the nation's hospitals, 88 percent of the home health agencies, and 52 percent of the extended care facilities participating in Medicare.

The 74 non-profit Blue Cross Plans have a major commitment to meeting the health care needs of our nation, serving more than 105 million Americans in both public and private programs. In fulfilling our duties and responsibilities for the

health of the American people, we at the Blue Cross organization have welcomed the opportunities to assist government-through testimony to various committees and through consultation with the various involved agencies-in developing, amending, and implementing legislation on major health programs.

The renal provision is unique, marking the first time that persons under 65 years of age covered under Medicare and the first time a federal program was given responsibility for financing care for a specific medical diagnosis, namely, end stage renal disease. Also, it provides reimbursement for virtually all costs resulting from kidney dialysis and transplantation.

We are concerned over the lack of progress that has been made in the nearly two years since the legislation became effective. We believe that not enough attention and resources have been directed to the implementation of this provision. As a result, policy and procedural issues still remain. Immedately following the effective date of this provision. difficulties were encountered in all areas of claims payment. As a result, payment backlogs developed. Due to the concerted and creditable efforts of the Bureau of Health Insurance's small renal disease staff, in cooperation with intermediaries and carriers, many obstacles to payment were removed. However, some initial problems have not yet been resolved.

Final regulations establishing the conditions of participation for renal treatment facilities are yet to be published. Further, there has been limited success in establishing functioning medical review boards despite the publication in April 1974 of final policies for the Renal Program of Medicare by the Office of Policy Development and Planning and the Office of the Assistant Secretary of Health. When the renal provision became effective on July 1, 1973, facilities already furnishing dialysis and/or transplant services were recognized under the Medicare program through limited agreements with the Secretary. Since no conditions of participation for renal treatment facilities have been established, all these facilities are entitled to reimbursement by the Medicare program even though the frequency of renal services rendered may be as low as one or two dialysis treatments or kidney transplants per year. The adverse impact on cost and quality of care that delays in establishing the regulatory requirements could have is readily apparent. The health field generally recognizes that low utilization patterns, particularly for more complex services, are undesirable. We urge that these needed regulations be developed and put into effect as quickly as possible.

We also are concerned whether there is enough coordination between the various Department of Health, Education and Welfare agencies involved with this provision to assure consistent and cohesive development and application of policies. Policies and precedures needed for implementation of the renal disease benefit policy are still being formulated. While it has been necessary to modify various aspects of Medicare policy and procedures to accommodate the unique aspects of kidney-related treatment, efforts to achieve this have not been well organized. Policy and related procedures have been issued in various ways. For example, policy and instructions for the renal provision are contained in approximately 20 Intermediary Letters-a temporary mechanism for issuing instructions-various memoranda, letters, and question and answer bulletins. Some of this policy is no longer in effect or has been modified and there is no central source for reference purposes. This multiplicity of documents compounds the complexity of operating instructions. Consolidation of all current instructions into one document or manual would greatly facilitate operations-from both the intermediary and provider standpoints.

The complexity of the procedures formulated for implementing this benefit has required extensive effort by providers and intermediaries alike in seeking to comply with the instructions. For instance, the Act provides that the Secretary is authorized to limit reimbursement under Medicare for kidney transplant and dialysis. Seeking to comply with the Congressional intent, instructions have been developed that require extensive recordkeeping and review activity. The provider must complete multiple forms for itemization and justification of specific services which exceed "routine" tolerances. Also, recordkeeping requirements significantly beyond those already required for the Medicare program are necessary to identify and segregate costs related to kidney treatment. The intermediary is required to manually review and adjust all bills involving renal treatment based on charge screens. Originally, the charge screen for dialysis was set at $150. Now, however, there are a minimum of 15 different monetary screens that an intemediary must consider before applying-in any one set of circumstances-the appropriate screen to each provider's bills. Further, there are multiple options on methods of billing which require ongoing coordination by the intermediary and carrier to assure that duplicate payments ae not made for the same services.

The cost of renal services across the country vary significantly-from $5 to $50 for physicians' services related to a dialysis treatment and from $90 to $400 for dialysis itself-making cost containment highly desirable for both the beneficiary and the program. The complexity of the process, however, for both providers and intermediaries significantly increases the administrative cost of processing these bills with, as yet, unknown results. The impact of the screens on actual provider costs is impossible to predict and difficult to determine due to the retroactive nature of the cost settlement process. Further, there is no cost containment methodology for kidney transplantation which is the most costly form of treatment.

We recommend that priority be given to the unresolved issues relative to the conditions of participation for renal treatment providers and that chronic renal disease networks and a medical review board be established as promptly as possible. We also urge better coordination of all activity and the most timely resolution of all unresolved policy and procedures, with all instructions incorporated in an organized manner. Also, existing procedures should be modified, in light of operational experience in order to minimize the complexities of the current procedures wherever possible.

We hope that these comments and recommendations will prove useful in your deliberations. If the members of the subcommittee or your staff have questions or desire further information on any of the areas highlighted in this statement, we will be pleased to respond.

Mr. ROSTENKOWSKI. Thank you very much. Are there any questions? Thank you.

Dr. Beddingfield, if you will identify your association and proceed with your testimony?

STATEMENT OF EDGAR T. BEDDINGFIELD, JR., M.D., WILSON, N.C., VICE CHAIRMAN, COUNCIL ON LEGISLATION, AMERICAN MEDICAL ASSOCIATION; ACCOMPANIED BY C. WILLARD CAMALIER, JR., M.D., WASHINGTON, D.C., CHAIRMAN, COUNCIL ON MEDICAL SERVICE; AND HARRY N. PETERSON, DIRECTOR, DEPARTMENT OF LEGISLATION

Dr. BEDDINGFIELD. Thank you, Mr. Chairman and members of the subcommittee.

I am Dr. Edgar T. Beddingfield, Jr., of Wilson, North Carolina, vice chairman of the American Medical Association's Council on Legislation. Participating with me in presenting the views of the American Medical Association is Dr. C. Willard Camalier, Jr., of Washington, D.C., chairman of the AMA's Council on Medical Service. Accompanying us is Harry N. Peterson, director of our department of legislation.

We have submitted a complete text of our statement to the committee. We ask it may be made a part of the record.

Mr. ROSTENKOWSKI. Without objection.

Dr. BEDDINGFIELD. The AMA is again pleased to have an opportunity to participate in hearings which are designed to review important aspects of the medicare program. As you know, we appeared at the June 12 hearings of your subcommittee to express our views on certain sections of the law and specifically on the manner of implementation of those sections by HEW.

We are pleased that these hearings will again review those issues and that the hearings are specifically held to review legislation on which the regulations were based. With respect to some of the new issues added in this hearing, it seems obvious that problems in these