must utilize the services of a physician assistant or nurse practitioner. The population served by the hospital's outpatient clinic is so small that the hospital can not employ both a physician and a nurse practitioner or physician assistant. The committee bill would waive the requirement for a nurse practitioner or physician assistant so that the hospital could be certified as a rural health clinic. The hospital would have to meet all other requirements of the Act. Sec. 4025-Limitations on Charges for Medicare Beneficiaries Eligible for Medicaid Benefits

Approximately 10 percent of Medicare beneficiaries are also eligible for full Medicaid benefits under the eligibility criteria established in each State. These are commonly referred to as "dual eligibles". In addition, a significant number of Medicare beneficiaries is entitled to have Medicaid pay their Medicare premiums and costsharing, because they meet income and resource standards established by the Medicare Catastrophic Coverage Act of 1988. These are referred to in the statute as "qualified Medicare beneficiaries". Although the current statute does not explicitly require that physicians accept assignment for services furnished to dual eligibles, the requirements of the Medicaid program have had that result as a practical matter. Since physicians are precluded from billing patients under Medicaid, they must accept assignment in order to obtain any reimbursement from Medicaid. The Medicaid fiscal agents typically have arrangements with the Medicaid program so that the physician can submit a single claim to the Medicare program; the Medicare carrier, after processing the claim, will transmit it to the Medicaid administrator for further processing. The Medicaid programs typically pay the Medicare coinsurance only to the extent that their payment, plus the Medicare payment, does not exceed what the Medicaid program would pay for the service in question.

The current statute does not require that physicians take assignment for qualified Medicare beneficiaries. However, because these beneficiaries are not actually determined to be eligible for Medicaid under the State's eligibility criteria, they are not dual eligibles. Consequently, the Medicaid rules that result in assignment being accepted for all dual eligibles are not applicable to qualified Medicare beneficiaries. Thus, physicians are able to bill these patients directly and to charge amounts in excess of what Medicare determines to be reasonable and what Medicaid will reimburse. This appears to create an anomaly and defeats the Congressional purpose of protecting qualified Medicare beneficiaries from high out-ofpocket expenses for health care.

The committee bill would amend current law to require that physicians take assignment under Medicare for all services furnished to dual eligibles and qualified Medicare beneficiaries (if such services are also covered under the Medicaid program in the State). Thus, it codifies the current practice with respect to dual eligibles and extends it to qualified Medicare beneficiaries. It does not change the current policy regarding the amount which a Medicaid program must reimburse on such claims. It would also apply existing sanctions against a physician who knowingly and willfully bills a patient directly in violation of this new rule.

Sec. 4026-Study by Physician Payment Review Commission

The Physician Payment Review Commission (PPRC) was created by the Consolidated Omnibus Budget Reconciliation Act of 1985, based on provisions which originated in this committee. Its purpose is to review and evaluate the methodology for reimbursing physician services under Medicare and related issues, and to make recommendations to the Congress on policy changes. The Congress has enlarged the responsibilities of the PPRC since its original enactment, both through formal amendments to the statute and through informal requests. The PPRC has issued three annual reports, the most recent of which presents thoughtful recommendations for comprehensive reform of the Medicare payment system. These recommendations form the basis for the committee's payment reform proposal set forth in section 4001. The PPRC will continue to evaluate and monitor this reform and make recommendations to the Congress on further revisions. Section 4001 of the committee bill extends the PPRC's continuing responsibilities in this regard.

The committee is also interested in having the PPRC do a similar analysis of payments for physician services under Medicaid. Consequently, the bill would charge the PPRC with reviewing the adequacy and appropriateness of payments for physician services under State Medicaid plans.

The committee is particularly concerned that low Medicaid payment levels may be discouraging physicians from participating in Medicaid, although the committee recognizes that payment levels are only one determinant of of physician participation. A State-byState comparison of Medicaid and Medicare payments for 1986 shows that, on average, Medicaid payments were 67 percent of the Medicare allowable charge for a brief follow-up office visit and 61 percent of the Medicare allowable charge for an appendectomy. In some States, the Medicaid rates were less than 40 percent of the Medicare rates. (see Medicaid Source Book (1988), Appendix G.) The committee anticipates that the PPRC will develop recommendations to the Congress with respect to changes in Medicaid payment policy that would improve beneficiary access to physician services of high quality, taking into account the circumstances unique to each of the three major beneficiary populations serviced by Medicaid (mothers and children, the elderly, and the disabled).

PART B-PROVISIONS RELATING TO PARTS A AND B OF MEDICARE

Sec. 4041-Health Maintenance Organizations and Competitive Medical Plans

Temporary Waiver for Watts Health Foundation. Section 9312(c) of the Omnibus Budget Reconciliation Act of 1986 provided for a temporary waiver of the "50/50 rule" in section 1876 of the Social Security Act (which requires that no more than 50 percent of an MHOS enrollees be Medicare and Medicaid beneficiaries) for the federally qualified HMO operated by the Watts Health Foundation. The committee bill would extend the waiver for 4 additional years, to January 1, 1994, with the requirement for an annual review by the Secretary of the plan's compliance with the quality assurance requirements of section 1876. Because the Foundation's HMO will

not be in compliance with the rule by January 1, 1990, an extension is essential if the HMO is to continue its section 1876 contract with Medicare.

The "50/50 rule" requires an HMO to attract at least one-half of its enrollees through contracts with employers in the service area or through other means of enrolling individuals who are not eligible for either Medicare or Medicaid. The purpose of the rule is to assure Medicare and Medicaid beneficiaries that their HMO will provide quality care and serve the entire community well. The committee believes the Watts Health Foundation has a long history of such service to the Watts community and surrounding areas. As an additional assurance of continued high quality of care during the waiver, the Secretary would conduct an annual review of the plan's compliance with the quality assurance requirements of section 1876. In the absence of this provision, such a review would normally be conducted every 2 years.

Limit on Charges for Emergency Services and Out-of-Area Coverage. Section 1842 h) of the Social Security Act provides for limits on the charges that physicians can bill for services furnished to Medicare beneficiaries. Physicians who have signed a participation agreement must accept the Medicare reasonable charge as payment in full and physicians who have not signed such an agreement cannot bill the patient more than the "maximum allowable actual charge" ("MAAC"), as determined under the statute.

In the circumstance where a physician is providing care to a Medicare beneficiary enrolled with an HMO or CMP and has no contract with the plan, these Medicare limits do not currently apply. The physician, whether he has signed a participation agreement or not, can charge any amount to the plan, since the plan has no protection against unreasonable charges.

HMO's and CMP's are required to provide all medically necessary services, including emergency and out-of-area services. While these plans have contracts with physicians to provide care to their enrollees, emergency care and medically necessary physician care provided outside the plan's service area (when a Medicare enrollee is traveling, for example) are often provided by physicians who do not have contracts with the plans. The committee's amendment would prohibit non-contract physicians from billing more than they could bill a Medicare patient under the limits established in accordance with section 1842. Participating physicians would have to accept the amount of the Medicare reasonable charge as payment in full from the HMO. Non-participating physicians could not charge the HMO more than their individual MAAC amounts prescribed under section 1842.

Disclosure of AAPCC Assumptions. The committee bill would require the Secretary to give HMO's advance notice of any changes in the methodology and assumptions used in the calculation of the payment rates for HMO's and CMP's under section 1876. Notice would be required 45 days prior to the announcement of payment rates for the following year.

Changes in methodology and assumptions can have a major impact on payment rates. The committee believes plans should have an opportunity to comment to the Secretary before any such changes take effect.

Incentive Payment Plans. The Omnibus Budget Reconciliation Act of 1986 included a provision which was designed to prohibit financial incentives between physicians and HMO's that might have an adverse impact on the quality of care being furnished. This provision was to take effect on April 1, 1990. The committee bill would repeal the provision.

Since this provision was enacted, there have been several studies on the subject. None has produced any evidence that HMO physician incentive plans have resulted in Medicare beneficiaries being denied medically necessary services. In the absence of such evidence, the committee believes there is no basis for deciding which particular incentive arrangements should be prohibited. Under these circumstances, it would be unwise to legislate any prohibitions.

Increase to 100 Percent of AAPCC. Under current law, payment rates for HMO's and CMP's are equal to 95 percent of the AAPCC. The committee's bill would increase the rate to 100 percent.

In the last 2 years, over 60 HMO's have dropped out of the Medicare section 1876 risk contract program, leaving approximately 130 risk contracts with HMO's. Many have cited inadequate payment rates as the reason for terminating their contracts. Because it is advantageous to Medicare beneficiaries to have the choice of getting health care through the fee for service system or through HMO's, the committee believes steps should be taken to encourage HMO's to continue in the risk program. The committee would also expect the Secretary to pay HMO's participating in demonstration projects at 100 percent of the AAPCC (unless the percentage amount was itself an issue being evaluated under the demonstration).

Sec. 4042-Peer Review Organizations

Practitioner right to reconsideration of PRO determination prior to notice to beneficiary. Under section 1154(a) of the Social Security Act, peer review organizations ("PRO's") are required to review services to determine whether they are medically necessary, whether their quality meets professionally recognized standards of care, and whether they were furnished in the appropriate setting. The section authorizes the PRO's to conclude that Medicare payments should be denied for services that do not satisfy these requirements. It also requires the PRO to notify both the provider of the service and the patient when it has made such a determination. Both the provider and the patient then have a right to have the PRO reconsider its determination that payment should be denied. When these notice and reconsideration provisions were enacted, the PRO's did not have authority to deny payments for failure to meet professionally acceptable standards of quality. The provisions appeared to work reasonably well for denials based on the other two requirements. The authority of PRO's to deny payment for substandard care was added by the Consolidated Omnibus Budget Reconciliation Act of 1985, but no change was made in the statutory requirements for notice and reconsideration.

The Secretary issued a notice of proposed rulemaking, implementing the COBRA amendment, in January of this year. That proposed regulation retained the patient notice requirement as it

had previously been implemented. Secretary concluded that the statute gave him no discretion regarding when the notice of the denial was sent to the patient. Both the PRO's and the physician community, as well as some beneficiary groups, have expressed concern, however, about this arrangement. Many view it as likely to encourage unwarranted malpractice claims. Some also point out that it can be very confusing to patients if the PRO reverses its determination after the provider has received a reconsideration and the PRO then has to send a second notice to the patient reversing its earlier notice. This is not an infrequent occurrence.

The committee bill would address these concerns by amending section 1154 to require that, in the case of denials for substandard care, the provider or practitioner would receive its notice and have its right to reconsideration made available before the notice to the beneficiary. If the provider chose to have its reconsideration prior to the notice to the patient and the PRO reversed its determination, there would be no notice to the patient. If the provider chose to have its reconsideration prior to notice to the patient, and the PRO did not reverse its determination, the provider would not entitled to another reconsideration after the notice to the patient. The patient would retain the current right to a reconsideration following the notice.

The committee bill would also revise the language of the notice to the patient, in an attempt to make it clear that the denial was based on the PRO's judgment and did not necessarily represent conclusive evidence of malpractice. The notice would also state that the matter had been discussed with the patient's physician and provider, as an indication that the patient might want to pursue further discussions with either or both of them. The committee intends, however, that the PRO will be responsive to the patient should the patient inquire further of the PRO on the issues involved in the notice.

Clarification of willing and able test for physician sanctions. Under current law, PRO's are authorized to recommend to the Secretary that a physician be fined or excluded from the Medicare program for failure to provide care of acceptable quality, either in a substantial number of cases or in a gross and flagrant manner. The PRO's recommendations are reviewed by the HHS Inspector General, under authority delegated to him by the Secretary. If the sanction is approved by the Inspector General, the physician has the right to a formal hearing by an administrative law judge.

In addition to being found to have violated his obligation to provide quality care, the physician must be found to be unwilling to comply, or to lack the ability substantially to comply, with this obligation. This "willing and able" test is applied throughout the sanction process-by the PRO, the Inspector General and the administrative law judges. Several cases have arisen in which this test has been used by the physician unreasonably to undermine the sanction process. In these cases, the physician has demonstrated that he is not willing to cooperate with the PRO in pursing a course of remedial education or corrective action and has also refused to cooperate with the Inspector General. However, when it became clear that the evidence before the administrative law judge of his violation was too strong to rebut, he has declared to the