oversight

Costs of Physician and Psychiatric Care--Civilian Health and Medical Program of the Uniformed Services

Published by the Government Accountability Office on 1971-07-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

HOllSE    Oi? REPREtiENTATIVES



                            LM089734




Costs Of Physician And
Psychiatric Care--Civilian
Health And Medical Program
Of The Uniform d Services  B-   133142




Department of Defense




BY THE COAU’TROLLER GENERAL
OF THE UNITED STATES
                                    COMPTROLLER          GEMERAL      OF      THE       UNITED           STATES
                                                       WASHINGTON.     D.C.         20546




           B-133142

  b        Dear    Mr.    Chairman:

                    The General      Accounting         Office      has made           a review                       of costs in-
           curred     for services     furnished        by physicians,             including                       psychiatrists,
           under    the Civilian     Health     and Medical           Program           of the                    Uniformed
           Services      and for related       administrative            activities        and                    costs0       The
           review     was made     in response         to your request               of October                        20, 1969.
           This is the fourth       report     pursuant        to this request.              We                    expect      to issue
           a summary        report   on the review           shortly-

                    We have not obtained            written     comments     from     the Department       of
       1   Defense      on the matters       included        in the report.     We have discussed        the                                     r
            substance     of our findings        with officials       of the Office     for the Civilian                                      -,-
                                                                                                                                                ! ‘i
       ;$~ Health     and Medical      Program’of           the Uniformed      Services     and with of-
           ficials    of those fiscal’agents          included      in our review.

                  In accordance       with arrangements         made with your office,            we plan
           to send copies      of this report    to the responsible        officials     in the Depart-
           ment   of Defense,      We plan to make        no further    distribution        of this report
           unless   copies    are specifically     requested,      and then we shall make            distribu-
           tion only after your agreement           has been obtained          or public     announcement
           has been made        by you concerning       the contents     of the report.
                                                                                                                                          .
                                                                Sincerely               yours,




                                                                Comptrbller                      General
                                                                of the United                    States

           The Honorable        George            Ii. Mahon
II j       Chairman,      Committee               on Appropriations                              :’ ‘.
           House     of Representatives




                                   50TH      ANNIVERSARY              1921-           1971
COMPTROLLERGENERAL'S                                COSTS OF PHYSICIAN AND PSYCHIATRIC CARE--
REPORTTO THE                                        CIVILIAN HEALTH AND MEDICAL PROGRAMOF
COMMITTEEON APPROPRIATIONS                          THE UNIFORMED SERVICES
HOUSEOF REPRESENTATIVES                             Department of Defense  B-133142


DIGEST
------

WHYTHE REVIEW WASMADE'
        The Chairman, Committee on Appropriations,                    House of Representatives,
        asked the General Accounting Office (GAO) to make a comprehensive                               re-
        view of the      Civilian    Health     and   Medical  . _Program    of
                                                                        ---^err- the  Uniformed
                                                                                    Wm.1__^.__ ..___. Ser-:
                     (See app. I J I~---_--*A..    -
        vices.
        _.. ._~
        This report,       GAO's fourth of a series on this subject deals with pay-                              /
        nents
          --.     to  physicians,    including       psychiatrists;       surveiJJgn_ce over the+-
        cost and quality         of services;     administrative        cosyc-and      related      audits. ;:
                                                                                       ----Lo*--.._;"--.-"
        It is based on reviews conducted in Californ'iaa;-Colorado,                        Georgia,
        Virginia,      and Nebraska.

        Written comments have not been obtained from the Department                           of Defense
        on matters discussed in this report.,  .


FINDINGS AND CONCLUSIONS
        As of September 30, 1970, physician          claims under the program were being
        paid under 48 contracts     with Blue Shield and Blue Cross agencies, State
        medical societies,     and private    insurance companies.     Theseprganiza-
        tions--known   as fiscal   agents--processed       and paid $84.4 million    in phy-
        sician fees under the program for,fiscal           year 1970.   (See pp. 7 and 8,)
                                             1
        Use of the reasonable-charge       concept
        Maximum-fee schedules for paying physician        claims were discontinued    and
        the reasonable-charge       concept was adopted in 1967 and 9968. Under the
        reasonable-charge      concept, which was adopted by the Social Security Ad-
        ministration     Medicare program in 1966, a physician    received   his custom-
        ary charge for each service rendered as long as the charge was within
        the prevailing     level of charges made for tha; service by other physi-
        cians in the same locality.

        Physician profiles    are histories     of eachOphysician's     past charges for a
        specific   medical service and are used in determining          a physician"s     cus-
        tomary charge for that service.         This method for determining       reasonable
        charges was adopted by the program.          The prevailing  charge is derived
        from individual    physician  profiles     and is the charge most frequently
        and widely used by physicians        in a locality   for a particular     medical
        procedure.
 Tear    Sheet
                                                                      JULY        9,197          2:
    GAQ noted that the control    provided by the use of profiles     was somewhat
    limited   since the use of profiles   allowed physicians,   over a period,  to
    influence    the amounts they would receive for specific    procedures by
    charging higher fees which would eventually     provide the justification
    for increased fees,     (See PO 9.)

    Tests by GAO and studies by the Department of the Army show that average
    amounts paid for selected medical procedures have increased as much as                   I

    70 percent in some States since the reasonable-charge  concept' was adopted.

    Reasons given by fiscal      agent officials      for these increases included
    (7) the use of usual and customary fees encouraged physicians              to develop
    a higher profile     through increased charges in billings,         (2) the trend
    toward specialization      had increased fees, and (3) some physicians         charged
    only what they knew to be allowable          under fee schedules, although their
    normal charges were higher.         (See p. 17.)
    GAO found that there was little    standardization    among the fiscal   agents
    in the bases for paying claims against the program.         Many fiscal  agents
    were not considering  customary charges of physicians       and paid fees based
    on schedules of allowances or relative      value scales--a   method of deter-
    mining the amount of a physician's     fee for a particular    service by using
    agreed levels of units of effort    and values per unit.      (See pp. 10 to 73.)
    The establishment    of physician   profi'les     for paying reasonable charges
    does not appear feasible     or economical      for many of the program's fiscal
    agents.     (See pp. 74 and 15.).                                                        I


3   GAO believes    that a different     procedure for determining  fees to be paid
    to physicians may be warranted        because of problems, or potential  problems,
    Jn implementing     the reasonable-charge     concept.  (See P. 18.)
     t
    Compaz-hon of payments made to physicians
    Average payments made for selected medical procedures under the program
    were generally     in line with average payments under other health care
    programs.     Comparisons of 'amounts charged by individual  physicians   against
    the program with, amounts they charged against other health care programs
    for the same medical procedures showed that some physicians       charged one
    program more than another program for the same service--possibly        due to
    complications    in jndiwidual   cases. GAO did notp however9 find indications
    of physicians    charging consistently  higher amounts to the program.     (See
    PP. 19 to 25.)
    SubstantiaZ    amounts paid individual     p?zgsicians,
    clinics,    and group practice  organizations
    The number of physicians  or clinics  or group practices receiving more
    than $2cP,OOOfrom the program increased about 72 percent in 1969 over the
             number receiving  more than $20,000 in the previous            year.          0: these 13
             physicians--eight  of whom were psychiatrists--received                over     $5O,OO?l.
             (See pp. 25 and 26.)

             Psgchiattic      care
             Psychiatric care benefits  under the program usually            are more liberal
             than those under other health programs.    Approval is           required     for care
             in excess of 90 days, but there is no limitation    on          dollar    value or the
             number of days of care authorized.   (See pp. 27 and            28.)

             GAO found that extensive    care had been provided  to program beneficiaries
             and that several psychiatrists    had been paid large amounts under the
             program.  (See -pp. 29 to 32.)

             The fiscal agents included in GAO's review had made no attempts                    to de-
I            termine whether patients  receiving    psychiatric care in high-cost                 facili-
I            ties could obtain the prescribed    care in lower cost facilities.                   (See
I
I            p- 33.)
I
I .
             GAO found that psychiatric care had been approved             and provided  in facil-
             ities which did not conform to criteria prescribed             by the program office.
i        .   (See pp* 33 t0 37.)
I
I
I            UtiZization      reviews   of medical   care furnished
I
I
I             Utilization  reviews--evaluations         of the quality,    qu'antity,    or timeliness
I            .of medical services--had        not been performed on a systematic basis by any
 I
 I
              of the four fiscal       agents included in GAO's review.          One of them recently
              implemented procedures which should help in performing                adequate reviews.
              The program office       has provided   limited   guidance to fiscal      agents for
              establishing   utilization      review procedures.       GAO believes    that effective
              utilization  reviews are necessary.           (See pp. 38 to 41.)
             Administrative       costs and weaknesses in controb
             Administrative     costs of fiscal    agents processing    physician    claims against
             the program increased from $754,000 in fiscal          year 1966 to $5.8 million
             in fiscal     year 1970. Reasons for the increase included           (1) computeriza-
             tion of fiscal     agent operations    to handle increased claims resulting          from
             the expansion of benefits       and increased use of the program, (2) full al-
             locations     of costs to the program as it became a larger part of the fis-
             cal agents' business9 and (3) the hiring and t?aining             of additional    em-
             ployees by the fiscal      agents to cope with the expanded program.            (See
             pp. 42 and 43.)

             Standards for evaluating    the performance of fiscal    agents are lacking.
             As a result,  widely varying costs for processing     the program claims and

     I




     I
     I
                                                                                                   I

   different levels      QP contract   performance   have been accepted.       (See
   pp* 45 to 47.)

   GAQ identified problems in the payment by the California     fiscal agent
   of physicians' claims for obstetrical  and psychiatric   care stemming
   from errors in computer programs and the lack of management controls.
   (See pp. 29 and 48.)
   &ruUing   outpatient  deduc&bZe       and
   other insurance provisions

   For outpatient  care, a deductible  is applied against claims submittedg
   Payments made to physicians   on behalf of certain      beneficiaries         under             I
   other insurance must be applied against related claims under the program.                       I
   GAO noted that the program was incurring     additional    costs by not limit-                  I
                                                                                                   I
   ing the amounts physicians might receive in these instances to the                              I
   amounts payable through application    of reasonable-charge         criteria.       (See            I
   ppm 51 tcJ 57.)       .                                                                             I
                                                                                                       I
                                                                                                       I
   GAO belie&s    that the    certification      of other insurance on the claim form                  I
                                                                                                       I
   should be revised to      elicit     a more informati've  response as to whether the                I
   beneficiary  has other     health insurance which may pay a71 or a portion       of                 I
   the claimed amount.       (See pp. 57 and 58.)
   Legislation  for the program requires   that a119 beneficiaries,  other than                        I
   dependents of active duty members9 declare other insurance provided by
   law or through employment.   GAO believes     that an opportunity for reduced                           I
   costs exists ?f the same legal and administrative      provisions pertaining                            I
   to other insurance apply to aill beneficiaries.      (See pp. 56 and 57.)

   Need for expanded audit coverage        and
   reZated ~vaZuat:ion controZs
   Audit work performehby       the Department of Health, Education,          and Melfare's
   Audit Agency in reviewing      the activities      of the program's fiscal     agents
   was limited.    Insufficient    time was spent by the Audit Agency on the as-
   signments to adequately cover fiscal          agent activities;     however, GAO be-
   lieves that execution of the expanded,program            coverage planned by the
   Audit Agency staff should result in valuable            benefits  to the Government.
   (See pp- 59 to 63.)

RECOJMENDATIONSOR SUGGESTIONS
   GAO believes   that the Executive Director,    Office for the Civilian   Health
   and Medical   Program of the Uniformed Services3 should consider
                                  8
      --developing a more effective,     less costly method for determining    the
         amounts to be paid to physicians     (see p. 78.)

      --issuing      guidelines  for use in establishing      effective   contro7           over
          psychiatric     care (see p. 37.)

           1                                                   1
                                            4                                       .
                                                                                        ,
                   @-I
                 --seeking   ways to use available      Government facilities   for both in-
                    patient  and outpatient   psychiatric     care of dependents and to trans-
                    fer patients   to lower cost civilian      or Government facilities  when-
                    ever medically   feasible  (see p. 37);

                 --establishing     and enforcing    more definitive     criteria   for   approving
                    psychiatric   facilities    under the program      (see p. 37);

                 --providing     guidelines outlining     the requirements        for effective   uti-
                    lization   reviews9 approval     of the utilization        review systems of the
                    fiscal   agents, and conduct of effective         surveillance      to ensure that
                    these systems are implemented properly           (see p. 41);

                 --establishing    performance standards       for effectively      evaluating     and
                    comparing the operations   of fiscal       agents and for taking prompt ac-
                    tion to improve the operations     of    fiscal    agents whenever their
                    costs or levels of performance     are     considered     unacceptable     (see
                    pp. 49 and 50);

                 --applying    the reasonable-charge  limitation    on bills   to beneficiaries
                    for payment under the deductible     provisions   and limiting   payments
                    to physicians,    where combined with other insyrance payments, to the
                    reasonable charge for service rendered (see pp. 54 and 56);

                 --proposing  legislation     which would require dependents of active duty
                    members to reportother      insurance provided by law or through em-
                    ployment (see p. 57);     and
             --revising   the claim form to obtain a more informative   certification
I                as to the beneficitiries' other health insurance coverage (see p. 58).




    Tear Sheet




                                                  5
                          Contents

                                                                   Page

DIGEST                                                               1

CHAPTER

   1      INTRODUCTION                                               6

   2      BASES USED FOR PAYING CHAMF'US CLAIMS                      9
              Evaluation      of methods of paying CBAMPUS
                 claims                                            11
                    Methods of paying CHAMPUS claims               11
                          Physician    profiles                    12
                          Relative    value scales                 13
                          Fee schedules                            13
                    Problems in applying         and using the
                       reasonable-charge        basis of payment
                       under CHAMPUS                               14
              Effect     of conversion      to reasonable-charge
                 basis                                             16
              Conclusions       and reconnnendations               18

  3       COMPARISONS OF CHARGES AND PAYMENTS FOR PHY-
          SICIANCAREUNDERCHAMPTJSAND             OTHERHEALTH
          CARE PROGRAMS                                            19
               Comparisons      of average amounts paid under
                 CHAMPUS and other health          programs         19
                    Colorado                                        21
                    Georgia                                         22
                    Ohio                                            23
                    California                                      24
               Comparisons      of charges made by individ-
                 ual physicians                                     24
               Physicians      or clinics  receiving      large
                 amounts under CHAMPUS                              25

  4       NEED FOR GUIDELINES, CONTROLS, AND BETTER
          ADMINISTRATION OF BENEFITS FOR PSYCHIATRIC
          CARE                                                      27
              Comparison of benefits under CHAMPUS and
                 other programs                                     29
CHAPTER                                                                Page

               Extensive   psychiatric        care provided       to
                  CHAMPUS beneficiaries                                29
               Charge practices       of some psychiatrists            31
               Need to consider       obtaining       psychiatric
                  care at lower cost facilities                         33
               Care approved    in facilities           which do not
                  conform to prescribed          criteria              33
               Recommendat ions                                        37

  5       UTILIZATION      REVIEWS                                     38
                Guidance from OCHAMPUS                                 38
                Implementation     of utilization       reviews        39
                Benefits    from utilization      reviews              40
                Conclusion     and recommendations                     41

  6       ADMINISTRATIVE COSTS OF FISCAL AGENTS PROC-
          ESSING CLAIMS FOR CARE FURNISHED BY PHYSI-
          CIANS                                                        42
               Trend of administrative        costs                    42
               Need for standards       to evaluate   the per-
                  formance of fiscal      agents                       45
               Problems in the payment of physician
                  claims                                               48
                     Duplicate    payments made to physi-
                        cians                                          48
                     Errors    in claims for obstetrical
                        care                                           48
              Conclusions       and recommendations                    49

  7       APPLICATION OF OUTPATIENT DEDUCTIBLE AND
          OTHER INSURANCE PROVISIONS OF CHAMPUS                        51
               Outpatient      deductible                              52
                      Conclusions     and recommendation               54
               Other insurance                                         55
                      Recommendation                                   56
               Certification      of other insurance                   57
                      Recommendation                                   58
  8       REVIEWS AND AUDITS OF PHYSICIAN FISCAL AGENT
          ACTIVITIES                                                   59
               Reviews by Contract        Performance    Review
                  Branch                                               60
                      Conclusion                                       61
               HEWAA audits                                            61
                      Conclusion                                       63
CHAPTER                                                                       Page

   9       SCOPE OF REVIEW                                                     64

EXHIBIT

   A       Methods by which fiscal     agents for              the States
             of California,  Colorado,      Georgia,             and Ohio
             pay CHAMPUS physician     claims                                  68

   B       Trend      in average      payments    made to physicians           73

   C       Comparison of psychiatric      benefits  and re-
             strictions for inpatient      care under CHAMPUS
             and other selected     programs                  75

   D       Comparison of psychiatric    benefits   and re-
             strictions for outpatient    care under
             CHAMPUS and other selected     programs                           77

APPENDIX

   I       Letter     dated October 20, 1969, to the Comp-
              troller     General from the Chairman,  Commit-
              tee on Appropriations,      House of Representa-
              tives                                                            81
                               ABBREVIATIONS

cwus        Civilian      Health and Medical         Program     of the Uni-
               formed     Services

GAO         General      Accounting      Office

OCHAMPUS Office   for the Civilian      Health           and Medical        Program
            of the Uniformed     Services

HEWAA       Health,      Education,      and Welfare     Audit    Agency
COMPTROLLER GENERAL'S                   COSTS OF PHYSICIAN AND PSYCHIATRIC CARE--
REPORTTO THE                            CIVILIAN HEALTH AND MEDICAL PROGRAMOF
COkBi'ITTEEON APPROPRIATIONS            THE LINIFORMEDSERVICES
HOUSEOF REPRESENTATIVES                 Department of Defense  B-133142


DIGEST
------

WHYTHE REVIEW WASMADE
   The Chairman, Committee on Appropriations,     House of Representatives,
   asked the General Accounting Office     (GAO) to make a comprehensive    re-
   view of the Civilian   Health and Medical Program of the Uniformed Ser-
   vices.   (See app. I.)
   This report,    GAO's fourth of a series on this subject deals with pay-
   ments to physicians , including   psychiatrists;  surveillance   over the
   cost and quality    of services; administrative  costs; and related    audits.
   It is based on reviews conducted in California,      Colorado, Georgia,
   Virginia,    and Nebraska.

   Written comments have not been obtained         from the Department     of Defense
   on matters discussed in this report.


FINDINGS AND CONCLUSIONS
   As of September 30, 1970, physician claims under the program were being
   paid under 48 contracts     with Blue Shield and Blue Cross agencies,        State
   medical societies,     and private    insurance companies.   These organiza-
   tions--known   as fiscal   agents--processed    and paid $84.4 million    in phy-
   sician fees under the program for fiscal        year 1970.   (See pp. 7 and 8.)

   Use of idze reasonuble-churye      concept

   Maximum-fee schedules for paying physician         claims were discontinued    and
   the reasonable-charge       concept was adopted in 1967 and 1968. Under the
   reasonable-charge      concept, which was adopted by the Social Security Ad-
   ministration     Medicare program in 1966, a physician     received   his custom-
   ary charge for each service        rendered as long as the charge was within
   the prevailing     level of charges made for that service by other physi-
   cians in the same locality.

   Physician profiles    are histories     of each physician's     past charges for a
   specific   medical service and are used in determining          a physician's     cus-
   tomary charge for that service.         This method for determining       reasonable
   charges was adopted by the program.          The prevailing  charge is derived
   from individual    physician  profiles     and is the charge most frequently
   and widely used by physicians        in a locality   for a particular     medical
   procedure.


                                          1
GAO noted that the control     provided     by the use of profiles     was somewhat
limited    since the use of profiles    allowed physicians,      over a period,  to
 influence    the amounts they would receive for specific        procedures by
charging higher fees which would eventually         provide the justification
for increased fees.      (See p, 9.)

Tests by GAO and studies by the Department of the Army show that average
amounts paid for selected medical procedures have increased as much as
70 percent in some States since the reasonable-charge  concept was adopted.

Reasons given by fiscal       agent officials      for these increases included
 (1) the use of usual and customary fees encouraged physicians              to develop
a higher profile     through increased charges in billings,          (2) the trend
toward specialization       had increased fees, and (3) some physicians         charged
only what they knew to be allowable           under fee schedules, although their
normal charges were higher.          (See p. 17.)
GAO found that there was little    standardization    among the fiscal    agents
in the bases for paying claims against the program.         Many fiscal  agents
were not considering  customary charges of physicians       and paid fees based
on schedules of allowances or relative      value scales--a   method of deter-
mining the amount of a physician's     fee for a particular     service by using
agreed levels of units of effort    and values per unit.       (See pp. 10 to13.)
The establishment    of physician  profiles      for paying reasonable  charges
does not appear feasible     or economical     for many of the program's fiscal
agents.     (See pp. 14 and 15.)

GAO believes    that a different     procedure for determining  fees to be paid
to physicians    may be warranted     because of problems, or potential  problems,
in implementing     the reasonable-charge     concept.  (See P. 18.)
Comparison   of payments made to ph.ysicians
Average payments made for selected medical procedures under the program
were generally     in line with average payments under other health care
programs.     Comparisons of amounts charged by individual   physicians   against
the program with amounts they charged against other health care programs
for the same medical procedures showed that some physicians       charged one
program more than another program for the same service--possibly        due to
complications    in individual   cases. GAO did not, however, find indications
of physicians    charging consistently  higher amounts to the program.     (See
PP. 19 to 25.)
SubstantiaZ  amounts paid individua2      physicians,
cZin.ics, and group practice   organizations
The number of physicians  or clinics  or group practices receiving more
than $20,000 from the program increased about 72 percent in 1969 over the
number receiving  more than $20,000 in the previous           year.          Of these, 73
physicians--eight  of whom were psychiatrists--received               over     $50,000.
(See pp. 25 and 26.)

Psychiatric      Care
Psychiatric care benefits  under the program usually           are more liberal
than those under other health programs.    Approval is          required     for care
in excess of 90 days, but there is no limitation    on         dollar    value or the
number of days of care authorized.   (See pp. 27 and           28.)

GAO found that extensive    care had been provided  to program beneficiaries
and that several psychiatrists    had been paid large amounts under the
program.  (See pp. 29 to 32.)

The fiscal agents included in GAO's review had made no attempts                   to de-
termine whether patients  receiving   psychiatric care in high-cost                 facili-
ties could obtain the prescribed    care in lower cost facilities.                  (See
p. 33.)
GAO found that psychiatric  care had been approved           and provided  in facil-
ities which did not conform to criteria  prescribed           by the program office.
(See iv* 33 t0 37.)
Utilization      reviews of medica    care furnished
Utilization  reviews--evaluations         of the quality,     quantity,    or timeliness
of medical services--had        not been performed on a systematic basis by any
of the four fiscal       agents included     in GAO's review.      One of them recently
implemented procedures which should help in performing                adequate reviews.
The program office       has provided   limited    guidance to fiscal      agents for
establishing   utilization      review procedures.       GAO believes    that effective
utilization  reviews are necessary.            (See pp. 38 to 41.)

Administrative      costs and weaknesses in controk
Administrative     costs of fiscal    agents processing    physician    claims against
the program increased from $754,000 in fiscal          year 1966 to $5.8 million
in fiscal     year 1970. Reasons for the increase included           (1) computeriza-
tion of fiscal     agent operations    to handle increased claims resulting          from
the expansion of benefits       and increased use of the program, (2) full al-
locations     of costs to the program as it became a larger part of the fis-
cal agents' business, and (3) the hiring and training             of additional    em-
ployees by the fiscal     agents to cope with the expanded program.             (See
pp. 42 and 43.)

Standards for evaluating   the performance of fiscal    agents are lacking.
As a result, widely varying costs for processing     the program claims and
   different levels     of contract    performance    have been accepted.        (See
   pp. 45 to 47.)

   GAO identifie$    problems in the payment by the California     fiscal agent
   of physicians'    claims for obstetrical  and psychiatric   care stemming
   from errors    in computer programs and the lack of management controls.
   (See pp- 29 and 48.)

   Handling outpatient deductible        and
   0 ther insurance provisions
   For outpatient  care, a deductible  is applied against claims submitted.
   Payments made to physicians   on behalf of certain       beneficiaries         under
   other insurance must be applied against related         claims under the program.
   GAO noted that the program was incurring     additional      costs by not limit-
   ing the amounts physicians might receive in these instances to the
   amounts payable through application    of reasonable-charge          criteria.       (See
   pp. 51 to 57.)

   GAO believes   that the certification      of other insurance on the claim form
   should be revised to elicit       a more informative   response as to whether the
   beneficiary  has other health insurance which may pay all or a portion        of
   the claimed amount.     (See pp* 57 and 58.)
   Legislation   for the program requires   that a17 beneficiaries,  other than
   dependents of active duty members, declare other insurance provided         by
   law or through employment.    GAO believes    that an opportunity for reduced
   costs exists if the same legal and administrative      provisions pertaining
   to other insurance apply to all beneficiaries.       (See pp. 56 and 57.)

   Need for expanded audit coverage and
   related evahation  controls
   Audit work performed by the Department of Hea'lth, Education,           and Welfare's
   Audit Agency in reviewing    the activities      of the program's fiscal    agents
   was limited.    Insufficient   time was spent by the Audit Agency on the as-
   signments to adequately cover fiscal        agent activities;    however, GAO be-
   lieves   that execution of the expanded program coverage planned by the
   Audit Agency staff should result      in valuable    benefits  to the Government.
   (See pp. 59 to 63.)


RECO&lMENDATIONS
               OR SUGGESTIONS
   GAO believes    that the Executive Director,   Office for the Civilian               Health
   and Medical    Program of the Uniformed Services,    should consider

      --developing  a more effective,   less costly method for            determining          the
         amounts to be paid to physicians    (see p. 18.)

      --issuing       guidelines   for use in establishing    effective    control      over
          psychiatric      care (see p. 37.)


                                            4
--seeking   ways to use available      Government facilities   for both in-
   patient  and outpatient   psychiatric     care of dependents and to trans-
   fer patients   to lower cost civilian      or Government facilities  when-
   ever medically   feasible  (see p, 37);

--establishing      and enforcing   more definitive        criteria  for   approving
   psychiatric    facilities    under the program       {see p. 37);

--providing    guidelines     outlining      the requirements         for effective  uti-
   lization   reviews,    approval      of the utilization         review systems of the
   fiscal   agents, and conduct of effective              surveillance     to ensure that
   these systems are implemented properly               (see p. 41);

--establishing    performance standards         for effectively      evaluating     and
   comparing the operations   of fiscal         agents and for taking prompt ac-
   tion to improve the operations     of      fiscal    agents whenever their
   costs or levels of performance     are       considered     unacceptable     (see
   pp. 49 and 50);

--applying    the reasonable-charge   limitation    on bills to beneficiaries
   for payment under the deductible      provisions   and limiting payments
   to physicians,     where combined with other insurance payments, to the
   reasonable    charge for service rendered (see pp. 54 and 56);

--proposing  legislation  which would require            dependents of active duty
   members to report other insurance provided             by law or through em-
   ployment (see p. 57); and
--revising  the claim form to obtain a more informative   certification
   as to the beneficiaries' other health insurance coverage (see p. 581,




                                  5
                                   CHAPTER 1

                                INTRODUCTION

        The Civilian      Health    and Medical      Program of the Uni-
formed Services1         (CHAMPUS) was established           pursuant     to the
Dependents'      Medical    Care    Act   of  1956   (Pub.   L.   569,  84th
Congress)      and the Military        Medical    Benefits      Amendments of
1966 (Pub. L. 89-614, 10 U.S.C. 1071).                    Under CHAMPUS, med-
ical care is provided           by civilian      sources to dependents          of
active     duty members, dependents           of deceased members, and to
retired     members and their         dependents.       Authorized     services
under CHAMPUS include           physician     care on an inpatient          or
outpatient      basis,    hospital     care, drugs, and special           care to
handicapped      persons.       This report      contains     the results      of
the review of the physician              component of CHAMPUS.

         In our review we examined into (1) the amounts paid to
participating       physicians     under CHAMPUS, (2) the basis for
payment of physician          charges,   (3) the administrative           costs
incurred      by fiscal    agents in processing       claims for care fur-
nished by physicians,           (4) the extent     of fiscal     agent surveil-
lance over the cost and quality             of services      provided     to bene-
ficiaries,      and (5) the adequacy of audits made by respon-
sible Government agencies           of administrative        costs incurred
and benefit      payments made for physician          services      under
cHAMPus.

       Because of the lack of criteria        and data for evaluating
the reasonableness    of physician      charges and profits--included
in the Committee's    request --agreement       was reached with the
office   of the Chairman that we should concentrate            our ef-
forts   on comparing payments to physicians           made under CHAMPUS
with those made under other medical programs.              It was also
agreed that we would identify        large amounts paid to physi-
cians under CHAMPUS during       selected    periods.     The results
of our comparisons    and the data on high-income          physicians
are shown in chapter     3.




1
 The term "uniformed      services" includes   the Army, Navy, Air
Force, Marine Corps, Coast Guard, and the Commissioned Corps
of the Public Health      Service and the National   Oceanic and
Atmospheric  Administration.

                                         6
        CHAMPUS operates       on a cost-sharing      plan whereby a por-
tion of the cost of medical services               is paid by the bene-
ficiary    receiving       the care,   Active    duty members whose depen-
dents receive        inpatient    care are required      to pay the first
$25 or $1.75 a day, whichever           amount is greater,        of the hos-
pital    charges while the Government pays the remainder                of the
hospital     charges and the reasonable          fees of medical profes-
sionals.      Retired      members and their     dependents    and the de-
pendents of deceased members pay 25 percent                 of total   charges
for inpatient       care,

       For outpatient       care, including       drugs, all beneficiaries
pay a $50 deductible          ($100 maximum deductible         for each fam-
ily)   each fiscal     year.      After   they have paid the deductible,
dependents    of active      duty members pay 20 percent             of the re-
maining charges for outpatient              care while retired        members
and their    dependents      and the dependents        of deceased members
pay 25 percent      of these charges.           In addition,     retired   mem-
bers and dependents         of other than active         duty members hav-
ing insurance      provided      by law or through employment are re-
quired    to use the benefits          of such insurance      before payment
can be made under CHAMPUS.

        Responsibility   for administering      CHAMPUS has been dele-
gated from the Secretary        of Defense and the Secretary      of
Health,    Education,   and Welfare,     through channels,   to the
Executive     Director,  Office   for the Civilian    Health and Medi-
cal Program of the Uniformed         Services   (OCHAMPUS), who func-
tions under the jurisdiction         of the Surgeon General,    Depart-
ment of the Army.

         OCHAMPUS, located      at Fitzsimons     General Hospital     near
Denver, Colorado,       administers      the program in the United
States,     Puerto Rico, Canada, and Mexico.            Health benefits
in other overseas areas, including             the processing     and pay-
ment of physician       claims,     are administered     by the Military
commanders for such areas.             OCHAMPUS also has contracted
with various      types of organizations--referred            to as fiscal
agents --to process and pay physician             and outpatient    drug
claims.      As of September 30, 1970, OCHAMPUS had 48 contracts
with fiscal      agents for paying claims in the 50 States,              the
District     of Columbia,    and Puerto Rico.        OCHAMPUS processes
and pays claims from Canada and Mexico.                The fiscal   agents,
grouped by types of organizations,             are as follows:


                                       7
                                                             Number of
                                                      entities       (States,
                                            Number          District     of
                                           of con-       Columbia,       and
                                            tracts          Puerto Rico)

Blue Shield agencies                           36                 36
State medical     societies                     5                  5
Insurance   companies                           3                  7
Medical   society   and Blue Shield             1                  1
Medical   society   and insurance
   company                                     2                   2
Blue Cross agency                             -1                  -1


       Twenty-two  of the fiscal   agents       also function     as fis-
cal agents (carriers)      for the Social       Security   Administra-
tion's   Medicare  program.

       Payment of physician      fees accounted       for $84.4 million,
or more than 35 percent      of the total       benefit     payments made
under CHAMPUS by the Government in fiscal               year 1970.      By com-
parison,   payments for outpatient         drugs under CHAMPUS in fis-
cal year 1970 totaled     only about $2.8 million,            or slightly
more than 1 percent     of total     benefit    payments.




                                      8
                                      CHAPTER2

                 BASES USED FOR PAYING CWUS                    CLAIMS

       OCHAMPUS began converting    from fee schedules     for paying
physician   claims  to the reasonable-charge     concept in May
1967, as each contract    with a fiscal     agent expired.     Thus,
CHAMPUS followed   the example of the Social Security         Medicare
program which adopted the concept in 1966.

         The reasonable-charge        concept requires      consideration
of an individual        physician's     customary    charges for services
and the prevailing         charges of other physicians          in the same
locality      for similar     services.     Under fee schedules--the
bases for payments prior            to 1967--the   maximum levels       of fees
were established        for various     medical   services    through negoti-
ations     between OCHAMPUS and the medical           society     of each State.

        OCI-JAMFWSrecently            notified      its fiscal     agents to adopt
the physician          profile       method of determining           reasonable
charges.        Profiles        represent      histories      of  each    physician's
past charges for a specific                   medical     service    and they are
used to determine             the physician's          customary     charge for that
service.        The prevailing           charge for a particular            medical
procedure       is derived         from the individual           physician     profiles
and is the charge most frequently                      and widely used by physi-
cians in a locality.                 The use of this method, however,                 en-
ables physicians            to influence         the amounts they will           receive
for specific        procedures.            By charging      higher     fees, the phy-
sicians    will     eventually         create justification            for increased
fees.

       Physician   fees had shown significant       increases    after
the reasonable-charge       concept was introduced,       whereas they
had remained relatively       constant   during the period when fee
schedules were used.        An OCHAMEWSstudy and our tests          showed
that average amounts paid for selected          procedures     had in-
creased by as much as 70 percent in some States after               the
reasonable-charge      concept was adopted.      Some increase      ap-
peared to have been warranted         at the time of conversion,
since the fee schedules       then in use were due to be updated.
Also, part of the increase         was due to the general rise in
physician     fees throughout    the United States during the pe-
riod.

                                            9
        CCHAMPUS contracts        with fiscal      agents that also process
Medicare claims require           that payments to physicians          be no
higher than those under Medicare for similar                 services,
During February 1969 Medicare imposed a freeze on physician
fees at the December 1968 level.                This freeze on fees has
had little     influence      on CHAMPUS payments because (1) more
than half of the CHAMFUS fiscal               agents do not process Medi-
care claims,       (2) some fiscal        agents have developed,       or are
now developing,       physician      profiles     based on charges after
the freeze became effective,              and, (3) the most prevalent
medical    services     furnished     under CHAMPUS, such as tonsillec-
tomy and adenoidectomy          (under age 18) and obstetrics,           are
not common to Medicare and, consequently,                 are not subject
to the fee limitations          set by Medicare.

       There has been little       uniformity       among CHAMPUS fiscal
agents in the methods of determining               amounts payable to
providers     of care.     Methods used by fiscal         agents in these
determinations      include physician       profiles,     schedules of al-
lowances,     the California     Relative     Value Scale (see pp. 12
and 131, and combinations         of these methods.




                                     10
EVALUATION OF METHODS OF
PAYING CHAMPUS CLAIMS

        CHAMPUS contracts       provide    that,     if the fiscal      agent
processes both CHANPUS and Medicare                claims,     the fiscal      agent
ensures that payments for services               to the sources of care
be no higher      than payments for comparable              services    furnished
in comparable       circumstances      under Medicare.           For CHAMEWS
fiscal    agents that do not process Medicare                claims,    the con-
tracts    provide    that steps be taken to ensure that payments
under CHAMPUS are no greater            than those made on behalf              of
private    policyholders      and subscribers          of the fiscal      agent.
       In converting      to the reasonable-charge          concept,    CHAMPUS
followed    the lead of the much larger            Medicare    program.
Since both programs operate within             the same medical care
system, it appears that the smaller program would inevitably
be influenced      strongly    by policy   initiatives       taken by the
larger   program.

        According    to the Social Security         Administration,        pay-
ments for claims under the reasonable-charge                  method requires
that charges under Medicare            should be no higher than charges
for comparable       services  provided      to policyholders         and sub-
scribers      of the Medicare     fiscal    agent (carrier)        under com-
parable     circumstances.     The Social Security          Administration
interpreted       it to be the intent       of the Congress--in         passing
Public     Law 89-97 which governs Medicare--that               reasonable
charges would be determined            on the basis of customary charges
of a physician       and of the prevailing        charges of other phy-
sicians     in the same locality.         Prior   to the inception         of
Medicare,      the concept of paying physicians            on the basis of
customary and prevailing          charges was not widely used by Blue
Shield Plans; payments by Blue Shield organizations                     were
usually     made on the basis of fee schedules,

Methods    of paying     CHAMPUS claims

       CHAMPUS contracts   with fiscal    agents require     that
reasonable   charges be determined     by taking     into considera-
tion the customary charge for services         usually    made by the
physician,   as well as the prevailing      charges of other physi-
cians in the same locality      for similar    services.



                                        11
       Different     methods used by CHAMPUS fiscal    agents for de-
termining      the reasonableness   of physicians'   charges,   as of
June 1970, according        to data obtained   by OCHAMPUS, follow.
                                                             Number of
                                                          fiscal  agents

       Physician      profile                                      27
       Schedule of allowances                                     15
       California       Relative      Value
          Scale                                                     1
       Other (combinations):
               Relative      value scale and
                  schedule of allowances
                  (some physician         profile)                  1
               Schedule of allowances              and
                  physician      profile                            1

The bases     for payments used by each of the four                 fiscal    agents
we visited      are described in exhibit A.

       At the time of our review,             some fiscal       agents were in
the process of developing            physician     profiles       based on current
charges of physicians.           OCHAMPUS officials           recently    informed
us that they were requiring            all fiscal       agents to adopt the
use of physician      profiles       to conform with contract           require-
ments.    The Social Security          Administration,          in developing
the reasonable-charge          basis,    required     the use of profiles
except when carriers         used a relative        value scale, as an in-
terim measure, when data was insufficient                   for determining
the customary charge of the physician                 for a particular         medi-
cal procedure    or service.
         Some observations on the use of physician  profiles,
relative     value scales, and fee schedules for determining
amounts to be paid to physicians     are discussed  beSow.

       Physician      profiles

       The profile  system, when combined with a local peer
review for reasonableness,      appears to be a flexible       and re-
sponsive   system.   It represents    an administrative      mechanism
for paying physicians     on the basis of their       usual and cus-
tomary charges as recorded by fiscal       agents.       But physician


                                            12
profiles  are largely     controlled      by physicians   themselves.
They can, if they so desire,         influence     their profiles   by
charging higher      fees which will,      over a period    of time, pro-
vide the justification       for higher fees in the future.

       Relative      value    scales

       Relative    value scales,        such as the California        Relative
Value Scale, establish          general    guidance     for formulating
medical fees.        Elements included        in this guidance       are uni-
form descriptions        and a standardized        identification       code for
medical    services,     standard values for recognized            units    of
effort   or service      for individual       medical procedures,        and
segmentation       of medical and surgical           procedures.

        Essentially,       the relative        value scale consists            of five
 separate     sections     or studies       showing, within         each section,
 the value of one service             or procedure        in relation       to another.
For example,         in the surgery        section,     if a value of 40 units
were assigned to an appendectomy                   and 80 units       to a cataract
operation      and if a $6-a-unit           conversion       factor    were estab-
lished,     the charge for.these            surgical      procedures       would be
computed as follows:              appendectomy,        40 units     times $6 equals
$240; cataract         operation,      80 units      times $6 equals $480.
In essence, use of a relative                value scale is similar             to use
of a fee schedule and is useful                  for evaluating         the reason-
ableness of physician             charges,     especially       for rarely      per-
formed and unusual procedures.

       Fee schedules

         Use of fee schedules provides         a simple and inexpensive
method of determining        maximum payments for common physician
procedures.       Fee schedules    are, however,      relatively    in-
flexible      and changes are cumbersome to accomplish.             There
is some indication       that the inflqibility          in fee schedules
may have contributed        to the nonparticipation          of some phy-
sicians     in CHAMPUS.




                                          13
Problems in applying     and using             the
reasonable-charge    basis of
payment under CHAMPUS

        Introduction       of the reasonable-charge       concept has caused
OCHAMPUS to lose its previous            controls    over amounts paid
to physicians        through the negotiated       fee schedules.      Under
the method used for establishing             the reasonable     charge,   phy-
sicians      can, if they wish, influence         the levels    of future
payments for their          services.

       Fees paid to physicians         over the period    of a CHAMPUS
contract   remained relatively         stable under fee schedules;
but fees paid under the reasonable-charge             basis are subject
to change without      OCHAMPUS approval       unless special   limita-
tions,   such as a freeze on fees, are imposed.             Fees also
vary among localities,         whereas under fee schedules      they
were uniform    within   fairly     broad geographic    areas,,

         CHAMPUS fiscal        agents that do not process Medicare                   or
private     insurance       claims on a reasonable-charge              basis could
have difficulty           in establishing      physician     profiles        because
of the broad data base needed for setting                    a reasonable          charge
for individual           medical procedures.         Physician      profiles
become more effective             as the number of charges included                  in
the profile        increases.        About 70 percent       of the charges in
physician       profiles      used by the Georgia fiscal,           agent--to
pay claims when fees charged exceeded relative                       value scale
maximums --consisted           of a single     charge for a medical or
surgical     procedure        performed    by an‘individual         physician.
Further,      11 CHAMPUS fiscal          agents that did not process
Medicare      claims paid even fewer claims based on physician
profiles      than the Georgia fiscal           agent.      The lack of an ade-
quate data base for establishing                profiles     probably        applies
also to them.

       Administrative       costs associated        with establishing       and
maintaining      physician     profiles      are significant.       The esti-
mated cost to the fiscal              agent in South Dakota for develop-
ing customary        and prevailing       charge profiles     for CHAMPUS
was $4,300 to $6,000;          and the estimated         cost of using pro-
files,    excluding     the cost of other claim processing              proce-
dures, was $1.13 per claim.              An OCHAMPUS official        said that



                                          14
one fiscal    agent estimated that, if the use of profiles                were
adopted,   the cost per claim would be almost double.

        The average administrative        cost per claim, based on
actual or proposed rates for the most recent contract                  periods,
for fiscal     agents using physician       profiles     was $6.20; while
the average cost per claim         for fiscal      agents using schedules
of allowances     or relative    value scales was $3.60.          It must
be recognized,      however, that the higher administrative             costs
per claim of some fiscal        agents might be indicative          of more
effective    and comprehensive       claims and utilization       reviews.

       In California,       the one State in our review which had
been operating        under the physician    profile   system, it was
not feasible      for us to audit the profiles.           The computer
programming and processing         necessary    to identify    the specific
claims that support a physician's           customary charge would be
very expensive.




                                      15
EFFECT OF CONVERSION TO
REASONABLE-CHARGE BASIS

       The average cost per claim and the total         physician
costs of CHAMPUS remained relatively          stable between fiscal
year 1960 and fiscal        year 1966, a period when fee schedules
were in effect       and the types of beneficiaries     and authorized
benefits   remained constant.       Fee quotations   from attending
bhysicians    during this period,     which were used in compiling
the physician      fees index of the Consumer Price Index,        showed
an increase    of about 19 percent.

       The CHAMPUS average cost per claim and the physician
fees index followed    comparable trends after    the reasonable-
charge method of payment was adopted.     The rate of increase
for CHAMPUS, however, exceeded the rate of increase         for the
physician   fees index, probably  because physician     charges
against   CJJAMPUShad been at a lower level under the prior
use of fee schedules which served to limit      amounts paid.
        Our limited      review of data for selected                surgical
procedures       from four States also showed a general upward
trend in payments to physicians.                  Average amounts paid1 (see
exhibit    B) generally        increased     noticeably       after     conversion
to the reasonable-charge             method, with the exception                of pay-
ments in the State of Ohio, where a new fee schedule had
been established         shortly     before the conversion.               It appears
reasonable       that some increase        in fees might have occurred
had new fee schedules            been negotiated        instead      of the conver-
sion to the reasonable-charge              method.        But the average amount
paid in Colorado         increased      by as much as 77 percent               for one
procedure--dilation           and curettage--6        months after          converting
from the fee schedules.              Also, fees for most procedures                  have
continued      to increase       beyond the increases          which occurred
immediately        after   the conversion      to the reasonable-charge
method.

        Periodic   studies     made by OCHAMPUS of payments to physi-
cians    for selected      surgical  procedures show the increases


1Payments include    the amounts paid by both the fiscal    agent
 and the beneficiary    through deductible  and coinsurance   pro-
 visions.

                                           16
which have occurred    since fiscal  year 1966.  Our interim  re-
port,  B-133142 dated May 19, 1970, showed examples of in-
creases in average amounts paid for selected     procedures  of
16 to 76 percent   from the first   6 months of 1966 to the
first  6 months of 1968.

       A Columbia University        study of the physician       component
of CHAMPUS stated that payments for surgical              procedures     had
increased     substantially--     an average increase     of 24 percent
during the period July 1966 to July 1967--after               the change
from maximum-fee schedules          to the reasonable-charge       method.
The study stated also that (1) the Social Security                Medicare
program had set a precedent           for generous reimbursement        of
physicians     through the use of the reasonable-charge            concept,
which the smaller CHAMPUS found itself            unable to withstand,
and (2) the Department          of Defense had agreed to adopt the
reasonable-charge         concept after apparently     concluding     that
it would cost CHAMPUS no more than the alternative                of rais-
ing the maximum allowances          under fee schedules.

       Fiscal    agent officials    provided    various    reasons for in-
creased physician        fees.   Responses included       opinions     that:
(1) the concept of reimbursing           a physician     on the basis of
his usual and customary fees had enticed              doctors    to develop,
through    increased     charges in billings,       a higher profile         for
these charges,       (2) a trend toward specialization           had in-
creased the fees, and (3) some physicians               hadghargedonly
what they knew to be allowable           under fee schedules even
though their      normal charges were higher.

        Officials       of the State medical societies             offered    the
following        reasons for increased          physician    costs:      (1) the
general      inflationary      trend had applied          to physicians,      e.g.,
the higher         costs for labor,      supplies,       and taxes,     (2) modern
medical school teaching             methods and the fear of malpractice
suits had caused physicians              to perform more services           than
they had previously           performed,      (3) the cost of malpractice
insurance        had increased      substantially,        and (4) the advent
of Medicare          had caused physicians         to become more fee con-
scious.




                                         17
CONCLUSIONS AND RECOMMENDATIONS

        We have found no system or basis of payment for physi-
cian services      that will prove entirely            satisfactory        for all
parties    concerned.       The availability         of physicians        measured
against    the demand for care and availability                 of money oper-
ates to determine        fee levels        in a manner similar         to com-
modities     or other services.           Physician    profiles     can    be in-
fluenced     and controlled      by physicians,themselves.                Maximum-
fee schedules would operate             to conserve Government funds
but they might reduce the number of physicians                     willing     to
serve the program's         beneficiaries,        thus the objectives          of
the program might suffer.
       We recommend that the Executive         Director,    OCHAMPUS,
consider    developing      a more economical   and effective     method
of determining      physician     fees than the profile     method, which
fiscal   agents have been requested        to adopt in implementing
the reasonable-charge         concept.




                                         18
                                 CHAPTER3

                 COMPARISONS OF CHARGES AND PAYMENTS

                  FOR PHYSICIAN    CARE UNDER CHAMPUS

                    AND OTHERHEALTHCARE        PROGRAMS

        Our comparisons   of the average payments1 made for se-
lected medical procedures       under CHAMPUS with average pay-
ments made under other health         programs showed that payments
under CHAMPUS were generally        in line with payments under
other programs which paid on the basis of reasonable            charges.
A comparison of the amounts charged by individual          physicians
for services     provided  under CHAMPUS with amounts those phy-
sicians    charged for the same services       under other programs
showed that some physicians       charged one program more than
another    for the same service , possibly      because of complica-
tions in the individual      cases.      But no signs of consistently
higher charges to CHAMPUS were observed.

        We identified      large amounts paid under CHAMPUS to in-
dividual     physicians,      clinics, or group practices during
1968 and 1969.

COMPARISONS OF AVERAGE AMOUNTS PAID UNDER
CHAMPUSANDOTHERHEALTHPROGRAMS

        Comparisons between average payments made by CHAMPUS,
Medicare,       the Federal Employees Health Benefits            Program
 (hereinafter        referred     to as the Federal Employees Program)
and private        plans for obstetrical         care, office  visits,    and
five surgical          procedures      showed that amounts paid were gen-
erally     about the same under each program when the reasonable-
charge method was used.               Amounts paid under programs using
fee schedules were generally               less than payments for similar
services      under CHAME'US. Under fee schedules,            however,    spe-
cial rates may have been agreed to by physicians                   due to
special      circumstances,         such as the low-income    bracket   of the

lpayments     include the amounts paid by both the fiscal    agent
  and the beneficiary    through  deductible and coinsurance
  provisions.

                                     19
policyholder, or the policyholder may have been billed   for
an amount in addition to the amount paid by his program.

      The results   of our comparisons    of amounts paid for
claims in Colorado,    Georgia,  Ohio, and California    are dis-
cussed below.     Amounts paid by the various     fiscal a.gents
were paid on a reasonable-charge      basis,  except where other-
wise noted.




                                20
Colorado

       The CHAMPUS fiscal   agent,   a Blue Shield agency, also
paid claims of Blue Shield private         plans,  Medicare,      and the
Federal Employees Program.        CHAMPUS claims were paid on the
basis of a private     plan fee schedule or a relative         value
scale developed    for the State, whichever       was greater.       The
fiscal   agent had not developed     physician    profiles    for
CHAMPUS or for other programs and plans.

         Cur comparisons    showed that average payments to physi-
cians under CHAMPUS were similar           to average payments under
Medicare,     the Federal Employees Program, and one private
plan but that they were greater          for some procedures         than
two private      Blue Shield plans which were paying on the basis
of fee schedules.        Fiscal agent officials        stated that pay-
ments for one of the two Blue Shield plans,               the most preva-
lent of that agent,       represented    only  partial      coverage    for
many subscribers       whose income exceeded the income limit
criteria     of the plan.      Data on the results      of our compari-
sons of average amounts paid for selected              physician     proce-
dures during the 6-month period ended June 1969 follow.

                                      Tonsil-
                                      lectomy
                                         and                                                          Obstet-
                                     adenoid-                                                          rical
                                      ectomy                                  Dilation      Total        care     Normal
                                       (under    Appen-    Cholecys-               and     hyster-   (delivery    office
           Programs                   age 18)   dectomv     tectomy           curettage     ectomv     only)      visits
cwus                                  $71.17    $166.82      $305.56           $70.33      $345.55    $117.93     $5.19
Federal Employees Program              73.50     161.50       325.84            69.25       330.63     118.00      5.51
Blue Shield private      plans:
      A-based on fee schedule          50.00     125.00          250.00         50.00       250.00     lQ0.00
      B-based "     "       "          73.30     150.00          309.20         62.80       324.20     114.00
      C (note b)                       76.92     162.50          343.75         72.00       343.75     123.50       (a>
Supplemental    benefits
   plan (note cl                                                                                                   5.42
Medicare                                ca,      161.21
                                                     -           340.00
                                                                     -          67.17
                                                                                   -        336:67          ca,    5.69

aNot applicable.
b
  Only a small number of claims        were paid under    this     plan     from January    to June 1969.
'This   plan   is available   only   to Blue Cross-Blue    Shield         members on a group basis.




                                                          21
Georgia

       The fiscal     agent in Georgia,           which processes     only
CHAMPUS claims,       utilizes       both a relative      value scale and
physician    profiles       developed      solely   from CJAAMPUSclaims.
The CHAMPUS fiscal          agent was able to obtain          from the fiscal
agent processing       Medicare       claims only the dollar        values for
use with conversion          factors     in applying    the relative       value
scale.

        Our comparisons    showed that the CHAMPUS fiscal         agent
had not allowed      payments to physicians    in any substantially
greater    amounts than payments allowed by fiscal           agents for
other programs on the reasonable-charge         method.       The major-
ity of reviewed      claims paid by a private      insurance     program
were paid on the basis of fee schedules          that were not in-
tended to cover full       payment.   Details  of our comparisons
of average amounts paid during        the 6-month period       ended
June 1969 follow.

                          Tonsil-
                          lectomy
                             2nd
                          adenoid-
                            ectomy                                    Dilation       Total     (3bsetrical      care
                            (ur,&r          Appen-  Cholecys-              and      hyster-                   Delivery
       Programs          -age--- 18)        dectomy tectomy           cur-et=
                                                                      -e-            ectomy    Total            -only
CHAMPUS                     $97.83         $181.43     $322.83         $97.17       $309.17   $207.63          $110.50
Federal Employees
   Program                   99.31          195.67       317.66          86.25       328.38    202.28           115.58a
Private    plan
   (note b)                  46.02          130.87       175.50          43.50       176.50
Medicare     (note d)          (e)          197.33       319.05          81.67       312.17

aThe fiscal  agent      for the Federal Employees          Program pays amounts on the basis of complete ob-
 stetrical  care.       The $115.58 is an estimate          of the portion of total  obstetrical care appli-
 cable to delivery        only.

bMost payments      under this plan were based on fee schedules.   The average                 payments      made were
 approximately      one half of the average charges made for these procedures.

'Not    compared.
5-k dicare    data is for     the period     April   through      June 1969 only.

eNot applicable.




                                                               22
Ohio

        Comparisons     of the CHAMPUS, the Federal              Employees     Pro-
gram j   and  Medicare     for    six   selected    medical     procedures     for
the period      January    to June 1969 showed that all the average
amounts allowed        under CHAMPUS were greater             than those al-
lowed under the Federal             Employees    Program and that the
amounts allowed        by CHAMPUS were greater           for two of the four
procedures      that could be compared with Medicare                 experience.
Payments under the Federal              Employees Program during           the
period    were based on fee schedules,              and the average amounts
allowed    were more than $30 below the average amounts charged
by the physicians.          However,       our review    of claims under the
Federal    Employees     Program for the January            to May 1970
period,    after    the switch        to the reasonable-charge          basis,
showed a substantial           increase     in the amounts paid.

       We were unable      to make comparisons         with private    plans
because the CHAMPUS and Medicare            fiscal     agents did not have
any comparable      claims    under their     private     plans and because
the fiscal    agent for the Federal         Employees       Program refused
to allow us access to information             on claims      of its private
business.     Details     of the comparisons         of average amounts
paid for physician        services  follow.

                                                               Tonsil-
                                                               let tomy
                                                                   and
                                                              adenoid-
                                                               ectomy                                         Dilation     Total    Obstetrical
                                                                (under         Appen-           Cholecys-           and   hyster-          care
                         Programs                              age 18)        dectomy            tectomy    curettage     ectomy       (a)

WUS             (note    a)                                    $84.00         $178.19            $300.35      $ 86.39     $294.61      $184.23
Federal         Employees      Program          (note    b)     61.67          156.97             237.00        54.75      262.83       154.33
Federal         Employees      Program          (note    c)     90.67          202.61              312.50      106.67      362.17       213.63
Medicare          (note     a>                                    (d)          195.93              280.33       63.85      311.17           Cd)

aPaid       January         to   June    1969    based    on reasonable              charges.
b.
 Pald       January         to   June    1969    based    on fee        schedule.

'Paid       January         to   May    1970    based    on reasonable              charges.

$4 ot      applicable.




                                                                                    23
California

        The California      fiscal   agent processes     CHAMPUS claims in
addition      to those for Medicare and the Federal Employees
Program, but it was not feasible             to compare average amounts
paid by the programs because of the manner in which the rec-
ords are maintained.           We did, however,      compare amounts al-
lowed to individual        physicians     under CHAMPUS with amounts
allowed under Medicare           and under the fiscal     agent's  private
plans,    including    the Federal Employees Program which is con-
sidered part of the fiscal           agent's   private   business.     Pay-
ments for all programs handled by this fiscal                agent are
based on physician        profiles    based on data from Medicare,
CHAMPUS, Medicaid,        and its private      business.

        We found that amounts allowed          for payment to individual
physicians      for similar       types of services  were generally    the
same, or less, under CHAMPUS than the amounts the fiscal
agent allowed        for payment under Medicare       or its private
business     programs.         Medicare and CHAMPUS payments were based
on profiles       existing      in December 1968, which were frozen as
of that time.          Private    program claims were based on current
profile     data,

      An official      of the California     Physicians'    Service    in-
formed us,     and  our  review   indicated,   that    the current   pro-
files  were generally       higher than the frozen profiles         used
for Medicare      and CJJAMPUS.

COMPARISONS OF CwlRGES MADE
BY INDIVIDUAL PHYSICIANS

       Amounts charged to CHAMETJSby individual             physicians
for services    provided     to beneficiaries      were generally       the
same as amounts charged for comparable             services    to other
medical programs.        Claims of 160 physicians         who submitted
one or more claims against         CHAMPUS and one or more against
at least one other program during             a comparable   time period
included   24 claims charging       CHAMPUS amounts greater          than the
physicians    were charging     other programs.

      The differences were generally     small, and we did not
examine the claims in depth to determine       if complications
might have caused the increased     charge.    The remaining

                                     24
136 physicians      charged CHAMPUS the same or less than they
charged other programs.        In many cases our comparisons     were
necessarily     based on one CHAMPUS claim--the    only claim sub-
mitted    by the physician    during our selected  period,    Cur
comparisons     were limited   to claims submitted  from California,
Colorado,    Georgia,    and Ohio.

PHYSICIANS OR CLINICS RECEIVING
LARGE AMOUNTS UNDEX CHAMPUS

        A total    of 170 physicians,      clinics,      or group practices
received      amounts exceeding     $20,000 from the Government
under CHAMPUS in 1969.          The total      of 170 represents         an in-
crease of 72 percent       from the previous          year.      The  amounts
ranged from $20,208 to $106,128.               CCHAMPUS data showed that
124 of the 170 were individual            physicians,       including      two
dentists,       and 34 were group practices         or clinics.        The re-
maining 12 could not readily           be classified.          Psychiatrists,
obstetricians,       and gynecologists       comprised      69 percent       of the
124 physicians.

        Of 13 physicians    t3ho received    over $50,000 under
CHAMPUS in 1969, eight were psychiatrists                and three were
obstetricians.       A psychiatrist      in Virginia      received    the
largest     amount, $106,128.       Nine physicians,        including    four
psychiatrists      and four obstetricians,         received      over $50,000
under CHAMPUS in 1968.

     Data for physicians                      or clinics  that received                 large     pay-
ments in calendar  years                     1968 and 1969 follows.

                        Physicians,      Clinics. and Group Practices
                        Bedeitinn      $20,000 or More Under CH&PUS

                                      1968               __   1969                    Increase       _
                            NUlTl-                       Num-                  Num-
                            ber         Amount           her      Amount
                                                                  -            &           4Tizxws
Individual
   physicians                86       $2,835,635         124    $4,072,949      38      $1,237,314
Clinics      or group
   practices
Unclassified                  13          475,143         34     1,397,366      21           922,223
                             -                           12         323,272     12           323.272
     Total                   99       :3,3_10,778        170    $5_,793,.587
                                                                          -     71      $2.482.809
                                                                                          ---




                                                    25
                Physicians,     Clinics,  and Group Practices
                  Receiving     Over $50,000 from        CHAMPUS             l




                              1968                   1969                      Increase
                     Num-                      M-                            Num-
                     ber        4nount         &         Amount              &       haunt
Individual
   physicians           9      $656,576         13   $             868,894       4   $212,318
Clinics   or group
  practices           -2        129,891        7                   589,465   5       459,574

                      11       $786,467        gg    $1.458.359              2       $671.892

        Utilization       reviews conducted by fiscal   agents of phy-
sicians       who have been paid large amounts are discussed        in
chapter       5. We did not analyze       the claims of these physicians
and clinics         in detail.




                                          26
                                     CHAPTER 4

                  NEED FOR GUIDELINES,          CONTROLS, AND

                     BETTER ADMINISTRATION         OF BENEFITS

                            FOR PSYCHIATRIC        CARE

       Psychiatric         care benefits    under WAMEWS are generally
more liberal         than those authorized       under other medical pro-
grams.     Total       costs of psychiatric      care for 1969 under
CHAMPUS were         about $34.5 million,       or about 16 percent  of the
total   program        costs.   When all claims have been processed,
the costs for          1970 are expected to be higher.

        Psychiatric     care furnished       on an inpatient        basis has
been available        in certain     circumstances      to eligible      benefi-
ciaries     since inception       of the program.        The Military      Medi-
cal Benefits        Amendments of 1966 expanded benefits              to include
psychiatric       care furnished       on an outpatient      basis.      The
amendments also authorized             a special   program for mentally
retarded     or physically       handicapped     dependents     of active      duty
members.       (See report     B-133142 dated March 16, 1971.)

         Authorized      medical benefits       under CHAMPUS include            the
treatment       of nervous,      mental,    and emotional       disorders.         Hos-
pitalization         in excess of 90(l)        days for patients        with these
disorders       requires     approval     by OCHAMPUS. The responsible
physician       furnishes     a medical     statement    containing        the diag-
nosis and proposed plan of management.                   If the case is ap-
proved,      OCHAMPUS notifies         the sponsor,     hospital      or facility,
physician,        and fiscal     agent of the approval.            All cases re-
quire review when the approved period                 expires,      or at least
annually.         Reapproval     requires    submission     of a new medical
statement       and its review by OCWUS.                Many cases are ap-
proved retroactively.              As of December 31, 1969, records of
OCJHMPUS showed that there were about 3,400 active                         cases in-
volving      psychiatric      care and that about 2,400 cases involv-
ing mental disorders           had been closed.


1Prior    to November       21,   1969,   the   limitation      was 45 days.


                                           27
       OCHAMPUS personnel            consider      the professional             diagnoses
and prescribed        treatments         by the attending         physicians           as
acceptable     criteria        for approval.           Therefore,       little       attempt
has been made by OCHAMPUS to ascertain                      whether        a patient
will   benefit     significantly          from the proposed           treatment.
OCHAMPUS has interpreted               its responsibility           for considering
economy to relate           exclusively       to the sponsors'             interests
since the authorizing             act is considered           beneficial          legisla-
tion which should be construed                  liberally.

      OCHAMPUS had not established             criteria      for the perfor-
manceofutilization         reviews --evaluation          of quality,      quantity,
or timeliness       of medical    services     provided--by        fiscal       agents
(see ch. 5) nor attempted          to determine         whether   more econom-
ical  sources      of psychiatric     care were available.              Facilities
for treatment       of nervous,    mental,     or emotional        disorders
were being approved         for care of beneficiaries,             although        they
did not meet minim-um criteria           established        by OCWUS.

         Nostandards         have been established           by OCHAMPUS to aid
its fiscal         agents in evaluating            whether    physician       and hospi-
tal costs        for a specific         psychiatric       diagnosis       are reason-
able,      and there is no general              agreement     among psychiatrists
with regard          to standards        for evaluating       treatment       for psy-
chiatric       cases.        One authority       on psychiatry        told us that
psychotherapy           should be limited          to one session         a week after
the third       week of treatment,            but another       told us that the
normal      frequency        should be approximately            three sessions       a
week.       The    fiscal      agents   included     in   our   review--those      which
pay psychiatric            claims     in California,       Colorado,        and
Virginia--had           not established         such standards,         although   two
of them were working               toward that goal with the aid of psy-
chiatrists.

        Considering       the cost to CHAPPUS, we believe                  that manage-
ment improvements           and better       controls      over the amounts paid
for psychiatric          care are needed.            Following    is a discussion
of (1) the liberal           benefits      available       under CHAMPUS as com-
pared to other programs,              (2) the extensive          psychiatric       care
provided       to CWUS        beneficiaries,          (3) the charge practices
of some psychiatrists,             (4) the need to consider             obtaining
psychiatric         care at lower cost facilities,               and (5) the ap-
proval      of care in facilities            which do not conform            to pre-
scribed      criteria.


                                             28
COMPARISON OF BENEFITS UNDER
CHAMPUS AND OTHER PROGRAMS

        The benefits     authorized     for psychiatric        care under
CHAMPUS were generally          more liberal      than those authorized
under other programs with which we made comparisons.                         (See
exhibits     C and D.)      OCHAMPUS approval        is required       for in-
patient     care in excess of 90 days, but there is no limita-
tion on dollar       value or number of days of care authorized.
Other programs impose such limitations                 on either      a single-
confinement      or a lifetime      basis.     Psychiatric       care    benefits
under the Medicare        and Medicaid      programs are specifically
limited     as to the number of days of hospital               care, the num-
ber of visits,       or the dollar      amounts authorized          for outpa-
tient    care.

       In our review of claims for psychiatric           care at the of-
fice of the fiscal       agent for California,       we noted that,   for
a l-hour   psychotherapy      session about $3 more was being paid
under CHAMPUS than under Medicare             and about $5 more than
under Medicaid.       The   contract    between   OCHAMPUS and its fis-
cal agents requires       that amounts paid by fiscal        agents for
CHAMPUS beneficiaries        be limited     to the amount paid under
Medicare   for the same service.

      We advised the fiscal           agent of these overpayments    and
the fiscal   agent informed         us that they resulted    from manual
processing   which was necessary           because of the inability   to
price psychotherapy         claims by computer.      We plan to examine
into the related       circumstances       and the adequacy of action
taken during    additional       review work.

EXTENSIVE PSYCHIATRIC CARE PROVIDED
TO CHAMPUS BENEFICIARIES

        Once OCHAMPUS approval       is given for extended psychiat-
ric care, the amount that may be expended by a fiscal                    agent
for such care is unlimited.           We found that about $37,000 had
been expended for hospitalization           and psychiatric        treatment
for one patient;        about $32,000 for another.         Costs of over
$4,000 were paid for treatment          of one beneficiary         for alco-
hol addiction;       over $5,000 for treatment       of adjustment         re-
action    of adolescence,     with depression,     for another patient;
and about $7,000 for treatment          of a patient     suffering       from
recurring    hallucinations      due to use of LSD.

                                        29
       Although   the care and costs cited above may be entirely
proper 9    they are significant for individual    cases and in-
dicate    the need for close monitoring     of such cases.




                               30
CHARGE PRACTICES OF SOME PSYCHIATRISTS

       At offices     of the three fiscal        agents where we reviewed
psychiatric     care, we found that some psychiatrists                 charged
for a hospital      visit   every day a patient          was in the hospital
and charged kor other services            on these same days.           In Colo-
rado one psychiatrist        was paid about $105~000 for the care
of patients     for each of 1,288 consecutive             days through
June 30, 1970.        Tkis doctor was paid for some type of ser-
vice for each day any of his patients                was hospitalized.
Abosst December 1967 he began charging                for services     such as
psychotherapy      and electrostimulation          therapy,     in addition
 to the daily     charge for a hospital        visit.

        Four other psychiatrists       maintained  offices     in the same
private     psychiatric  hospital     as this doctor.      Their billing
practices     were simiPar-- payments ranged from 138 consecutive
days,for     one doctor   to 1,106 consecutive      days for another,
including     743 consecutive     days charged for one patient.

       One of these doctors       in February      1967 began charging
for other services      in addition     to visits,      while another     doc-
tor did not start     this practice      until     January 1970.     One of
the doctors was paid for providing             psychotherapy     and group
therapy   on the same day.        We were informed        that the fiscal
agent recently    changed his policy         to allow payment for only
one procedure    a day.

       Charges normally   allowed to these doctors       for services
during January    through June 1970 were $30 or $35 an hour for
psychotherapy,    $15 for group therapy,     $15 for electrostimu-
lation   therapy,   and $10 or $12 for daily    hospital     visits.

       The doctors        informed   us that it was a practice              at the
hospital    for (1) these doctors             to visit      en masse all the
patients    3 days a week, (2) the attending                   physician     to visit
his patients        alone 2 days a week, and (3) the "officer                     of
the days" to visit          all the patients       on the remaining         days.
The doctors       take turns being officer             of the day, which in-
cludes making dail.y rounds and night                  calls when needed.            A
hospital    visit      consists    of visiting       the patients,        conferring
with the nurse concerning             the patients,         writing     or changing
of orders,     and possibly        conferring      in person or by telephone
with patients'         relatives    or with hospital           personnel.


                                           31
       At the time of our review,            the Colorado      fiscal  agent
was initiating       action to review        the propriety       of the claims
submitted      in these cases.

       In California    five psychiatrists,          who each received
over $20,000 from CHAMPUS during 1968, were considered                       by
the fiscal     agent as having been overpaid            about $21,700 be-
cause they had billed        for anesthesia        in conjunction       with,
and as an addition      to, charges for electroshock              treatments
or for a hospital      admission     examination      on the same day as
or the day following        a psychiatric      examination.         One of
these doctors received         about $153,000 in 1968.            His charges
were considered      to be within     regulations;       but, because he
billed   for more than one procedure           a day, the fiscal         agent
reduced his charges by about $11,000.                According      to the fis-
cal agent's     medical adviser,       the doctor was in solo practice
and worked up to 20 hours a day.              CHAMPUS payments to this
doctor were about $63,500 in 1969.
       One psychiatrist          in Virginia       was paid about $106,000
by CHAMPUS during         1969.     Included       in his billings     were 772
consecutive      daily    visits    to one patient        at $10 a visit.        The
fiscal    agent did not pay the psychiatrist                 for more than one
procedure     in a single        day but allowed only the most expen-
sive psychiatric        procedure      billed      each day.     The doctor in-
formed us that he did not personally                   make each visit.       He
explained     that he and three other psychiatrists                 had an ar-
rangement whereby all of their                patients    were visited     daily
by one of them.         Each doctor billed            for his own patients
and the billings        included      charges for visits         made by the
other psychiatrists           to his patients.




                                        32
NEED TO CONSIDER OBTAINING             PSYCHIATRIC      CARE
AT LOWER COST FACILITIES

      Our comparison     of costs for selected     facilities      in Vir-
ginia  showed that the average daily       rate for accommodation
and food for psychiatric      patients  in general      hospitals    was
$43 compared with $32 in private       psychiatric       hospitals   and
about $5 in State mental hospitals.

          The OCHAMFUS fiscal      agents for California,        Colorado,
and Virginia,       where we made our review        of psychiatric       care,
made no efforts       to ascertain      whether patients     in high-cost
facilities      could obtain     the prescribed     care in lower cost
facilities.       OCHAMPUS once considered        limiting     inpatient
care for nervous        or mental    disorders  furnished      at high-cost
facilities      to 45 days, but no action       was taken.

       At the six military     hospitals      we visited,      very limited
inpatient      facilities  for psychiatric        care were available,
but most of them had extensive           outpatient     psychiatric    facil-
ities     which were used by CHAMPUS beneficiaries.

       We obtained    data from six Veterans       Administration       hos-
pitals     and found that three of them had facilities            which
could provide      some inpatient     psychiatric   care to CHAMPUS
beneficiaries--one       of them had leased 159 psychiatric           beds
to a county organization;         another    had 30 vacant psychiatric
beds at the time of our review;           and the other had facilities
and could provide      treatment    for CTMMPUS beneficiaries         on a
modest scale.

        Veterans        Administration       policy      allows retirees     ,under
certain     circumstances           to receive      care in Veterans       Adminis-
tration     facilities.           We recognize       that difficulties       might
be involved         if other CHAMPUS beneficiaries,                 such as minors,
were allowed psychiatric               treatment       in these facilities.

CARE APPROVED IN FACILITIES WHICH DO
NOT CONFORM TO PRESCRIBED CRITERIA

          A psychiatric        hospital     under CHAMPUS is defined   in the
interim      joint     directive       of the Departments   of Defense and
Health,      Education,        and Welfare,      dated December 8, 1966, as



                                         33
       "Jlc* an institution            for the treatment          of nervous,
       mental or emotional             disorders      *** operated        in ac-
       cordance with the laws of the jurisdiction                         in
       which it is located             and has a professional             staff
       including      one or more licensed             physicians       who are
       qualified      psychiatrists          (i.e.,     who have completed
       three years or more approved residency                      training
       or are board qualified              or certified)        in addition
       to such ancillary           psychiatric        personnel      as psy-
       chologists,       psychiatric         or other social workers,
       psychiatric       aides, occupational             or vocational
       therapy     personnel,        teachers       and nursing personnel
       as appropriate         Jr**."

         The Acting    Secretary      of Health,     Education,      and Welfare,
in a letter       dated December 8, 1966, expressed               concern about
the quality       standards     for hospitals      and related      facilities
being paid under CHAMPUS and suggested                  that the issue could
readily     be resolved     if pertinent       regulations      that govern
facilities      approved under the Medicare             program were incor-
porated     in the joint      directive.

        The definition      of a psychiatric        hospital      has been
broadly    interpreted      under CHANPUS in order to provide              treat-
ment to children,         who otherwise     would be denied services            be-
cause of the lack of psychiatric             institutions         which treat
children     and also meet the more limited              criteria     for a psy-
chiatric     hospital     as defined    by the American Medical           Associ-
ation,    American Psychiatric        Association,         or the Social     Se-
curity    Administration.

        Thus facilities        are considered   to be psychiatric       hos-
pitals    by OCHAMRJS if the facility         (1) is operated        in ac-
cordance with the laws of the jurisdiction              in which it is
located    and (2) has a professional         staff  including      one or
more licensed        physicians    who are qualified    psychiatrists,

          The requirement        of the joint       directive        of the Depart-
ment of Defense and the Department                   of Health,        Education,    and
 Welfare that a psychiatric              facility      be licensed        by the ju-
 risdiction       where it is located            has no meaning or effect
where local        statutes      do not require        licensure.         OCHAMPUS of-
ficials      stated that about half of the States do not require
any type of licensing              of psychiatric        facilities       and that,
 in some States,         a facility     can be licensed             by as many as
four different         agencies,

                                          34
       In view of the statements   of OCJMMPUS officials,      we
reviewed    the records pertaining  to three facilities     furnish-
ing psychiatric     care to CHAMPUS beneficiaries,      The results
of this review follow.

      1. One facility       was providing     care to some CHAMPUS ben-
         eficiaries      under the special       handicap provision         of
         CHAMPUS and other CHAMPUS beneficiaries               were receiv-
         ing psychiatric        care under the basic provision.
         The records       show that OCHAMPUS had received           com-
         plaints     from sponsors and local welfare           agencies
         concerning      the quality     of care given by the facility,
         Staff turnover       at this facility      was high and there
         were periods       when no psychiatrist        was on the staff.
         Onsite inspections         by OCHAMPUS did not reveal          cir-
         cumstances adverse enough to warrant              disapproving
         the facility.        The director     of the facility       had
         tried     to remove children      under the special       handicap
         provision      of CHAMPUS and place them under the basic
         provision      of CHAMPUS. This was disapproved             after
         OCHAMPUS concluded         that it was an apparent        effort
         by the director       to obtain more money.

         The facility       notified       OCHAMPUS by letter        in April
         1970, 4 months after            the fact,      that they had ceased
         to be a psychiatric           hospital     as of January        1, 1970.
         The letter      stated that CHAMPUS was being billed
         $500 a month--the           amount being charged for CKAMPUS
         beneficiaries       under the handicapped           portion--for
         residential      care provided         for each of the five chil-
         dren involved.           The charge under the basic program
         (as a psychiatric           hospital)     had been $600 a month
         for each child.           OCHAMPUS allowed payment of the
         $500 charges on the basis that custodial                    care was
         provided      to the children.           A further    consideration
         was that the facility             would not then try to collect
         payment from the sponsors.

      2. Another psychiatric        facility       used by CHAMPUS was not
         licensed     by the State Department            of Public Welfare
         as required      under State law.          The facility    had no
         psychiatrist       on the staff,       and there was no indica-
         tion that the operator           intended     to obtain   one.    The
         admission     policy    of the facility        precluded   accep-
         tance of children        whose primary        problem was nervous,

                                       35
    mental,    or emotional.      Thus the facility    did not
    comply    with either    of the criteria     set by OCHAMPUS.

   After     a review of the facility,             OCHAMPUS requested
   the Surgeon General,          Department        of the Army, to ap-
   prove (1) removing         the facility          from the CHAMPUS
   list    of approved     treatment      facilities       for nervous,
   mental,     and emotional      disorders,          (2) denying new ap-
   plications       for admission,      and (3) reviewing         cases
   being treated,       with a view to removing the benefi-
   ciaries     from the facility.

   In June 1969 the Deputy Assistant                Secretary     of De-
   fense (Health        and Medical),        to whom the request      had
   been referred,        gave the facility        until    January   1,
   1970, to meet the requirements               of a psychiatric      hos-
   pital.     Although      OCHAMPUS could not provide            us with
   evidence     that the facility          had complied with the re-
   quirements,       we noted that the Deputy Assistant              Sec-
   retary    in December 1969 directed            that the facility
   be approved on the basis of his conclusion                   that it
   met the applicable          requirements      as a hospital      and
   was a facility        for the management and care of the
   emotional      disorders,of       children.

3. A psychiatric      residential       treatment      center for ado-
   lescents     was approved for CHAMPUS beneficiaries                  on
   the basis that the consulting              psychiatrist      partic-
   ipated   in the treatment          of patients      and consulted
   with the facility's          staff   once or twice monthly on
   weekends and that the facility               met the established
   criteria     for a residential         treatment      center for emo-
   tional   disturbances.

   The State in which the facility            is located    does not
   require     nonpublic    schools to be licensed.         Contrary
   to the State's        Compulsory School Attendance         Law,
   children     have not been required        to attend    class and
   the facility       has no certified    teachers.      A committee
   of the State legislature          has been investigating        this
   facility     because of complaints       from the community,
   a former instructor,         a former resident,     and sponsors
   of children      in the facility.


                                36
         Pending outcome of the investigation,       OCHAMPUS has
         advised the facility   that no new CXAMPUS benefi-
         ciaries  should be accepted without     its prior     ap-
         proval.   But CHAMPUS continues     to pay fees ranging
         up to $850 a month per pupil    for patients      enrolled
         in the facility.

RECOMMF,NDATIONS

      We recommend that       the Executive       Director,      OCHAMPUS,
consider

     --issuing       guidelines      for use in establishing        effective
         control     over psychiatric      care, such as more frequent
         reviews     of cases involving       extensive    outpatient       vis-
         its,    therapy     sessions,   and hospital    stays;

     --seeking   ways to use available        Government       facilities
        for both inpatient     and outpatient       psychiatric         care
        of dependents    and to transfer      patients     to lower cost
        civilian  or Government facilities          whenever it appears
        to be medically    feasible,   and;

     --establishing       and enforcing       more definitive        criteria
        for approving      psychiatric       facilities     under    CHAMPUS.




                                       37
                                       CHAPTER 5

                               UTILIZATION        REVIEWS

        A utilization         review has been defined       by the Social
and Rehabilitation            Service   of the Department     of Health,      Edu-
cation,     and Welfare as any organized           activity    which evalu-
ates quality,         quantity,      or timeliness  of the medical       ser-
vices provided.

        Contracts       between OCHAMPUS and the fiscal         agents pro-
vide that fiscal           agents apply safeguards      against    the fur-
nishing    of unnecessary          medical    services.  Guidance provided
by OCHAMPUS for this activity               has been very limited.       Con-
sequently,      utilization        reviews of the fiscal     agents vary
considerably.           They range from sophisticated        automated    sys-
tems, which automatically               compare many facets of claims to
detect those which have unique characteristics                  and thus
merit individual           review,    to simple manual systems, in which
the claims examiner uses his judgment to set aside for spe-
cial review any claims which do not look "right."

        Only one of the fiscal       agents we visited      had developed
a utilization    review encompassing        multiple    procedures    and
most of these had been in effect           for only a short time.
The other fiscal      agents used no consistent         or systematic
procedures    in performing    utilization       reviews although     two
of the agents were in the process of developing               such pro-
cedures.

GUIDANCE FROM OCHAMPUS

        Contracts       between OCHAMPUS and the fiscal                 agents     typi-
cally    provide      that the fiscal agent shall

        I'*** Apply safeguards           against     unnecessary      utili-
        zation     of services     furnished       eligible     benefi-
        ciaries.      In carrying       'out his responsibility              the
        Contractor      must take the necessary             steps to rec-
        oncile     any inconsistencies          encountered        in its
        claims review.         Issues involving           apparent    incon-
        sistencies      between diagnosis          and treatment        and
        any other questions          relating      to the reasonable-
        ness of items or services             rendered      by physicians

                                             38
         and other sources of care should be reviewed          by
         the Contractor's      medical  staff.   Claims review
         techniques   developed     as a result  of the Con-
         tractor's   experience     may be used or adapted for
         operations   applicable     to this program. **I1

        According        to the Department         of Health,     Education,       and
Welfare,     institutional           services     should be reviewed         for such
considerations           as necessity       of admission      and duration        of
stay and noninstitutional                services     should be subject         to
surveillance         for assurance that the services               furnished       are
based on actual            need and that frequency           of the care and
services     furnished         are appropriate       and not excess to the
need.      A utilization          review includes       procedures       for review-
ing the need for medical services,                   evaluating      the propriety
of individual          claims and analyzing          accumulated       claims for
individual        patients,       and evaluating       claims data to identify
patterns     and trends of normal and abnormal utilization                         of
services.

        Except for furnishing             the requirement       that fiscal       agents
review--using          their    own procedures--records           of all physi-
cians who receive            $25,000 (formerly         $20,000)     or more during
1 year under the program,                OCHAMFUS has not furnished             spe-
cific    utilization         guidelines      for application        by all its
fiscal    agents.         On occasion,       OCHAMPUS has requested            specific
reviews of drug benefits                and issued special        instructions         to
a particular         fiscal     agent.      One fiscal     agent expressed         some
doubt as to the medical practices                   of physicians       who had
earned over $20,000 under CHAMPUS in one year.                          However, no
actions      were taken by the fiscal             agent, apparently          because
no guidelines          existed.

       OCHAMPUS does not have complete records            indicating       the
types of utilization       procedures     being used by the fiscal
agents nor information        on whether they are performing          utili-
zation   reviews.     An OCHAMPUS official      estimated      that fewer
than 10 fiscal      agents were mechanized sufficiently            to per-
form complete utilization        reviews.

IMPLEMENTATION OF UTILIZATION              REVIEWS

         Some differences       in utilization      reviews       made by fiscal
agents     in four States       included      in our review       are indicated
below.
                                               Cali-   Colo-
     --Fiscal   agent     has                fornia    rado        Georgia          Ohio

Medical     advisors         or con-
   sultants                                   Yes       Yes           No             Yes
Qualified      utilization
  review staff                                Yes       Yes           Yes            Yes
Qualified      claims exam-
   iners and supervisors
   of claims examiners                        Yes       Yes           Yes            Yes
Developed       its own mutili-
   zation guidelines                          Yes       No         Limited           No
New utilization            programs
  ,under development                          Yesa      Yes           No             Yes
Computerized         utilization
   review procedures                          Yes       No         Limited           No

aUtilization        review      procedures      have been in effect          only    a
 short time.

     All the fiscal    agents we reviewed    had local medical re-
view boards or committees     to which questionable    claims or
cases could be referred,     but an official    of one of them said
that he could not recall     any referrals   having been made in
the past 2 years.

BENEFITS FROM UTILIZATION                REVIEWS
          OCHAMPUS does not maintain             statistics       on the amounts
recovered        or reductions       in billings       that have resulted           from
utilization        reviews.       Statistics      of the California          fiscal
agent, however,          showed that its medical              advisers   for
CHAMPUS reviewed          2,093 claims and saved the program an es-
timated      $273,000 during the period July 1968 through March
1969.       This agent's       audit review staff           or the local review
committees --composed           of experienced         medical personnel--
completed       reviews on 53 CHAMPUS claims pertaining                   to the
period      July 1968 through March 1969 and January through May
1970 and concluded           that 39 of the claims were unacceptable,
Related      actions    resulted       in savings of about $3,300.

       The California           fiscal  agent has also reviewed,    or is
presently   reviewing,           cases involving  providers   of care who
were paidover$20,000              during 1968 or 1969 under CHAMPUS.


                                             40
Twenty of the 45 providers       reviewed    for 1968 submitted   ques-
tionable    claims amounting   to about $55,000.       At the time of
our review,     eight of 65 providers     paid over $20,000 during
1969 were found to have submitted         questionable   claims.

       The Ohio fiscal agent referred   20 claims to its medical
consultant   during 1969,   On six of the claims the amount
charged by the physician    was reduced by the fiscal   agent in
accordance with the recommendation     of the medical  consul-
tant .

CONCLUSION AND RECOMMENDATIONS

          We conclude that,     to ensure that the medical     services
furnished      to beneficiaries     are necessary    and of high qual-
ity and to prevent         the expenditure    of Government funds for
unnecessary        or substandard   services,   a system of effective
utilization        reviews is needed.

        We recommend that the Executive                Director,      OCHAMPUS,
consider     (1) providing        guidelines      which outline        the require-
ments for an acceptable            utilization       review system, (2) re-
viewing    and approving        the utilization          review systems of the
fiscal    agents,   and    (3)    conducting      effective       surveillance        to
ensure that the systems are properly                   implemented.          0cHAtmJs
efforts    to develop such guidelines              should be coordinated
with those of the Social Security                 Administration,          which has
issued utilization         review guidelines           to the Medicare          car-
riers.     We recognize       that the extent          of use of a utiliza-
tion review system would depend 'upon the apparent                         validity
and the number of claims processed,                  the capabilities            of
fiscal    agent claims examiners,              and the prospective           benefits
versus the costs of performing                 the reviews.




                                           41
                                       CHAPTER 6

         ADMINISTRATIVE         COSTS OF FISCAL AGENTS PROCESSING

               CLAIMS FOR CARE FURNISHEB BY PHYSICIANS

        CHAMPUS incurs administrative       costs primarily    through
cost-reimbursable     contracts    with fiscal     agents which pro-
cess and pay claims submitted         by providers     of care and by
beneficiaries.

        Fiscal   agents are generally      reimbursed    for administra-
tive costs through provisional           rates    per claim,    which are
estimated      to cover processing     costs and other approved ex-
penses and which are applied         to the number of claims pro-
cessed during certain       periods    of time.      Payments for ad-
ministrative      costs are based on invoices         submitted   periodi-
cally     to OCHAMPUS by the fiscal       agents,      -

   s After  completion           of a contract     period,         fiscal  agents
submit proposals     for        actual administrative             costs incurred
under each contract.

       Costs are finalized     on the basis of audits      of costs
conducted    by the Department     of Health,  Education,    and Wel-
fareis   Audit Agency (MEWAA) and subsequent        contract   settle-
ment negotiations      between fiscal   agents and OCHAMPUS.

TREND OF ADMINISTRATIVE              COSTS

        Administrative          costs of physician             fiscal    agents averaged
about $917,000 a year for fiscal                    years 1958 through            1966.
The Military        Medical Benefits            Amendments of 1966, which ex-
panded the benefits             available       under CHAMPUS and extended
authorized       medical care coverage              from civilian           sources to
retired      members and their            dependents        and to dependents         of
deceased members, increased                 the volume of claims and placed
additional       responsibilities           on the fiscal           agents,      These
responsibilities         included         handling     deductibles         and cost-
sharing      arrangements        and resolving          situations       in which other
insurance--      insurance       provided       by law or through            employment--
paid a portion         of the physician's             claim.        Also, beginning       in
May 1967, the reasonable-charge                    concept of paying physician


                                           42
claims was introduced                as each of the contracts            then    in force
expired.

      Administrative           costs of physician    fiscal             agents in-
creased significantly            after fiscal   year 1966,              as shown below.

                    Number of             Administrative                Average
        Fiscal         claims                    costs                    cost
         year       processed                (note a>                  per claim

         1966              343,000           $      754,000              $2.20
         1967              387,000               1,544,ooo                3.99
         1968              718,000               3,910,000                5.45
         1969              995,000               5,338,OOO                5.36
         1970           1,103,000b               5,777,ooob               5.24

aCosts     allocated       by GAO to appropriate              fiscal    year.

b Fiscal     year      1970 figures      are unaudited.

        Significant       reasons for the increase           in costs since fis-
cal year 1967 include            (1) computerization         of fiscal     agent
operations       to handle the increased          claims which followed          the
expansion       of benefits      in 1966 and the increased           use of the
program by beneficiaries,             (2) allocation        of full    costs to
CHAMPUS as it became a larger              part of the fiscal          agents'
business --before         1967 CHAMPUS was a small portion              of the
business       of fiscal     agents,   and apparently        some expenses were
not allocated         because of the limited         participation       and im-
pact-- and (3) the hiring            and training      of additional       employees
to cope with the expanded program,

         During fiscal   year 1970 the administrative  costs per
claim     ranged from $2.37 for Montana to $9.93 for the Dis-
trict     of Columbia,    A summary of administrative  costs per
claim     for processing    physician claims under CHAMPUS follows.




                                            43
                        Number of contracts
                     Fiscal              Fiscal
                      year                year
 Costs   per claim    1969                 1970

$3.00 or less           7                   6
$3.01 to $4.50         26                  23
$4.51   " $6.00         7                  12
$6.01   " $7.50         5                   3
$7.51   " $9.00         2                   2
 Over $9.00            -1                  -2




                     44
NEED FOR STANDARDS TO EVALUATE THE
PERFORMANCEOF FISCAL AGENTS

        OCHAMPUS has not effectively                 managed its fiscal           agents
because of a lack of standards                  and procedures          for evaluat-
ing their       performance.          The OCHAMPUS contracts              do not in-
clude any incentives             for promoting        efficiency        and economy
of operations.          Further,       OCHAMPUS has not maintained                the
type of data which would permit an effective                          evaluation      of
the operations         of fiscal       agents.       OCHAMPUS has no way of
correlating        the cost per claim of a fiscal                  agent with fea-
tures of that agent's              operation,       such as developing           and
using physician         profiles       and utilization         reviews.        Because
of these deficiencies,              OCHAMPUS must accept widely varying
costs for processing             claims and different            levels     of con-
tract     performance      by fiscal        agents.

       Significant       differences       in the activities      and duties
performed      by fiscal      agents and in the productivity          of their
operations      undoubtedly       account for some of the variations
in claim rates.          The cost of living        in different     geographi-
cal areas and the condition             of the related       labor market
should be considered            in evaluating    claim rate differentials.

       Significant differences             exist    in the number of claims
processed per day, backlog               of claims,    and claims returned.
For example:

       1. In June 1970, the number of claims processed                           daily
          per employee ranged from 30.3 in New Mexico                          to 4.1
          in Utah.

       2. At the end of June 1970, the backlog                      of claims on
          hand was 61.3 days for Utah but only                      .l days for
          North Carolina.

       3, For June 1970, claims returned        to claimants for cor-
          rection    or completion,   expressed   as percent of claims
          processed,    was 44 percent    for Puerto Rico but only
          4.7 percent    for South Dakota,

        Differences      also exist  in the manner in which the
reasonable-charge         concept for paying physicians   has been
applied      (see ch.    21, and in the extent  to which utilization


                                           45
reviews    have been performed         (see ch. 5).          Other differences
noted were in the maintenance              of family     files    and in the
efforts    made to inform      providers       of care on the various
features    of CJAAMEWS. Family         files--which         are helpful      in re-
ducing the number of claims           returned        to the providers        of
services,     in determining      proper      amounts of payments,          and in
detecting     duplicate    payments --are maintained             by some fiscal
agents but not by others.            Efforts      to implement        a contrac-
tual requirement        to keep providers         informed      about CHAMPUS
have ranged from publication            of a monthly         newsletter     to no
action    at all.

        OCJGMPUS has not terminated            any of its contracts        with
fiscal     agents because of unsatisfactory              performance    or high
administrative          costs.    OCHAMPUS officials        informed   us that
this was due to experience               in two attempts      to change fiscal
agents.       In these cases,         the Executive    Director     was directed
by higher       authority      to retain    the fiscal    agents.

           The following     data relating      to four fiscal     agents we
visited       are indicative      of differences      among them in the ac-
tivities        and duties    they perform      and the productivity      of
their       operations.

                                           California         Colorado     Georgia       Ohio

1970 claim volume    (note a>                 256,000          12,000       27,000      27,000
1970 cost per claim     (note a>               S8.09b          $5.04        $2.66       $3.67
Claims   paid per employee    day,
   June 1970                                       8.6         15.1         15.7         6.5
Claims   backlog, in days, at end
   of June 1970                                   24.6          3.4         26.4        33.7
Claims   returned by fiscal    agent
   in June 1970                                   17.8%         9.7%        18.5%       37.1%
Claims   rejected by fiscal    agent
   in June 1970                                   17.9%        14.7%        11.2%        1.0%

aVolume     and cost figures   shown are for       contracts    which    ended in the period
 closest     to the end of fiscal   year.1970.         For California,        the data for the
 recent     2-year contract  has been used--       on an allocated       basis where appro-
 priate.
b
    Data supplied  by the California       fiscal    agent states that the cost       per
    claim has decreased   to approximately        $6.90 as of Jan. 11, 1971.




                                             46
       Contract   requirements       for physician      fiscal    agents have
been standardized,        but OCHANPUS has not developed             perfor-
mance standards        to measure the extent to which the fiscal
agents are meeting contractual            requirements.         When OCHALYPUS
receives     an abnormal number of complaints             or inquiries       on
questionable     matters     or observes that fiscal           agents are
making many mistakes         in a specific      area, a numbered OCHAYPUS
letter    or memo is issued to all fiscal            agents.       OCHAMPUS
maintained     no listing      or index of the letters          or memos it
had issued;     however, we have been informed              that a listing
has now been made and that a copy will               be sent to each fis-
cal agent,

        We were informed     that advice was given to fiscal                 agents
by telephone       and that many problems were resolved                 in this
manner, but we saw few records of the telephone                      conversations.
Further,     OCHAMPUS does not maintain              records showing whether
fiscal    agents have performed         the required         or desired    pro-
cedures,      such as conducting      utilization         reviews and estab-
lishing    and maintaining      physician        profiles      and family    history
files.     OCHAMEUS Contract      Performance           Review Branch does
make onsite      reviews of fiscal         agent operations        to evaluate
their    performances.      This function          is discussed      in chapter      8.

        We did not review the administrative                      costs of the
largest     physician       fiscal     agent--the       California      Physicians'
Service,     which accounts for about 34 percent                      of the total
administrative          costs of physician           fiscal     agents.      At the
time of our review,            both HEWAA and California               State auditors
were auditing         the fiscal       agent's     records of the public            pro-
grams that the fiscal              agent handled,         e.g.,    Medicare,    CHAMPUS,
and Medicaid.           Since many of the administrative                  costs in-
curred by the fiscal             agent pertained          to two or more of the
public    programs and possibly              its commercial         business    and
auditors     would need to use the same records                     to verify     costs
and evaluate        the allocations          among the programs,           we decided
that it would be inappropriate                  for us to audit the records
at that time.




                                          47
PROBIZM       IN THE PAYMl%iT OF PHYSICIAN                 CLAIMS

        During our review we observed and identified          specific
problems and lack of proper control         in the payment of physi-
cian claims.       These problems concern the prevention        of du-
plicate     payments and errors   in processing   of claims for cer-
tain types of care by the fiscal        agent for California.

Duplicate      payments         made to physicians

        Each of the fiscal    agents included                  in our review had
designed    some procedure    for detecting                 duplicate   payments
made to physicians.        The procedures   of               the fiscal    agents for
California    and Georgia were mechanical                    and those of the fis-
cal agents for Colorado       and Ohio were                 manual.

       Although   we did not identify    any duplicate    payments
during our review of the fiscal        agent for California,     we
noted that voluntary      refunds   of about $6,600 were received
by the fiscal     agent from physicians     during January through
March 1970 for payments that had been made because the phy-
sicians     had submitted   claims for the same service more than
once.

        During our review we found that the fiscal                        agent for
California       had established          on its computer two or more his-
tory files       for the same sponsor.             a limited       test revealed
that about 30 percent              of the sponsors we checked had more
than one history          file     and that the potential            for making du-
plicate     payments was increased             by the existence          of the mul-
tiple    history    files.         Further,    duplicate      history      files   re-
sult in additional             costs for computer access time, addi-
tional     correspondence,          and erroneous       handling       of deductibles
payable by the sponsors.

      Recently    the fiscal    agent put into operation     a new com-
puter program designed        to detect and merge multiple     history
files  for individual      sponsors.     Th%s should reduce the prob-
lem of processing     duplicate      payments to physicians.

Errors      in claims     for    obstetrical        care

       During our review of the activities   of                     the fiscal   agent
for   California, we found that, in processing                       physician

                                               48
claims for medical procedure      code 4822 (obstetrical  care--
delivery   only),  the reasonable   charge was being computed in-
correctly.     Of 30 claims reviewed,    we found that some over-
payment occurred     in 20 and that the average overpayment     was
$11.50 for these claims.

        Discussions    with the fiscal      agent's     computer officials
revealed     that the overpayments       were caused by an error in
the computer program.          Subsequently    we found other types of
errors     in processing    claims.    Because of the apparent          lack
of management controls         over computer programming         and proc-
essing and because of the possibility               that a large amount in
overpayments       may have been processed,        we are performing       an
additional      review to determine      the extent      of this problem
and the management' controls         needed to improve the computer
services.

       We found that neither      the fiscal    agent nor OCHAMPUS had
developed    procedures    for periodically     making test checks of
the processing     of claims by the computer to ensure that the
computer programs had been correctly           designed    and compiled
to cover all the features       of an effective       claims review and
to ensure that the processing          was being properly     performed.

CONCLUSIONS AND RECOMMENDATIONS

      Our limited    review of the administrative         costs incurred
by the fiscal     agents for Colorado,      Georgia,   and Ohio showed
that they were allowable       and allocable     under the contracts.
In general,    however,    OCHAMPUS has exercised      limited  manage-
rial  control    over the activities     of fiscal    agents.

         We believe      that opportunities        would be found for ef-
fecting      significant       economies for the program--both           in ad-
ministrative         costs and in the payment of medical fees--if
meaningful        standards     were developed      for the duties      and ac-
tivities       of fiscal     agents.     The Executive      Director,    OCHAMPUS,
should consider          developing     standards     to be used in evaluat-
ing the performance           of the fiscal       agents.    Effective     con-
trols     should also be established            to prevent     overpayments     and
duplicate       payments to physicians.            Further,    a comprehensive
operations       manual is needed to achieve more uniform                claim
processing        procedures      and provide     a complete and organized
reference       to the various       program directives        and guidance.


                                        49
       Whenever a fiscal    agent's    levels    of performance  or
costs are considered     unacceptable,        OCHAMPUS should take
prompt action   to seek improvement         in the operations   of the
fiscal   agent.




                                   50
                                     CHAPTER 7

                APPLICATION       OF OUTPATIENT DEDUCTIBLE

             AND OTHER INSURANCE PROVISIONS OF CHAMPUS

         In making settlements        for medical care provided                to
beneficiaries,      CHAMPUS requires        that (1) a deductible                be
applied     against   claims submitted        for outpatient           care and
 (2) payments made on behalf            of certain     types of benefi-
ciaries,      under insurance      provided     by law or employment,               be
applied     against   related     medical bills       before CHAMPUS deter-
mines the amount it will           pay against      the balance of these
bills.      We found that the methods used for applying                      the
deductible      and the other-insurance          provisions       will     in cer-
tain circumstances         result   in physicians'        receiving        more,
in the aggregate,        than the reasonable          charge for the ser-
vices they have rendered,

       OCHAMPUS officials         stated that they had not applied
reasonable-charge        criteria      in processing  these cases be-
cause they wished to avoid the possibility               of a physician's
requesting     an additional       payment from the sponsor as a re-
sult of reducing      the aggregate        amount paid a physician      to
the reasonable     charge.

       However, when filing          a claim with a CHAMPUS fiscal
agent,   the physician       agrees to accept payment of the reason-
able charge as payment in full             for services      rendered.      The
reasonable-charge       criteria      are required       to be applied    in han-
dling the deductible         provisions      of the much larger        Govern-
ment medical program--Medicare.               Application      of reasonable-
charge criteria     under CHAMPUS to outpatient              deductible     cases,
as well as to cases where other insurance                  pays a portion      of
the claim,     will  result      in savings to the Government.

        The certification          on CHAMPUS claim forms regarding
other insurance         creates      a problem because the data requested
and the space provided             is inadequate   for ensuring  that the
fiscal    agent will       receive     sufficient data for prompt action
to ascertain       the amounts that the other insurance          have paid
and for applying          such payments, where appropriate,        against
physician    billings        before M&PUS benefits       are determined.
OUTPATIENT DEDUCTIBLE

         Under the Military    Medical      Benefits   Amendments of
1966, a deductible        was established       for outpatient      care
which must be met by sponsors each fiscal               year before the
Government shares in outpatient            costs.    Once the deductible
of $50 for one dependent          ($100 maximum deductible           for each
family)     has been met, CHAMPUS pays 80 percent              of the reason-                                                                   .
able charges for outpatient           care of dependents        of active
duty personnel      and 75 percent       of the reasonable       charges of
retirees     and the dependents       of retirees    and deceased mem-
bers.

         After    payment of the deductible,           charges for outpatient
services       are subject       to reasonable-charge        determinations
which limit        them to the customary charges of the provider
or the prevailing          charges of other providers            of care in the
locality.         No such limitation         is applied,    however,      to the
charges included         in the deductible         paid by the beneficiary.
CHAMPUS incurs additional               costs because of this policy.
When charges included              in the deductible      exceed the
reasonable-charge          limitation,       the deductible      is used up
more quickly        than if the limitation          were applied.

       The increased       costs to CHAMPUS stemming from failure
to apply reasonable-charge         criteria   before computing      the
deductible     are illustrated     below by a comparison     of the
amount the-fiscal        agent for California     would pay under the
present method with the amount it would pay if the
reasonable-charge        method were applied     to the deductible.

                                                                    Present        method                  Reasonable-charge           method
                                                                                   Amount pay-                                 Amount pay-
                                                                                      able by                  Amount of          able by
                                                            Amount of                 CHAMPUS                  deductible          CHAMFWS
                                            Reason-         deductible              after     the              applied    to    after     the
                       Amount                  able         applied    to          deductible                  reasonable      deductible
                       billed                charge              m                   (note    a)                  charge         (note    a)
       First
           bill             $50               $33               $50                   s     -                      $33               s-
       Second
           bill             x!                  22               L                        17.60b                    17                4=
                          $80                 $55               $50                   $17
                                                                                       A 60                        $50               $2

       %HAMFTS    share          is     80 percent     of     the     reasonable            charge       for     dependents     of   active
        duty personnel.

       b80 percent     of        $22.

       '80   percent   of        $5 ($22      "reasonable            charge"        less        $17 deductible)-



                                                                              52
In this     hypothetical      case CHAMPUS would pay $13.60 less
($17.60     - $41, if      the deductible were based upon the rea-
sonable     charge,
       Cur review of a sample of 50 claims paid during the
week of March 25, 1970, by the fiscal              agent for California
showed that for 22, or 44 percent,             the deductible       was ap-
plied against     billings        which exceeded the reasonable        charge
and that this increased            the amount paid on these claims by
an average of more than $7. On the basis of this sample,
the increased     costs to CHAMPUS in California             for the week
of March 25, 1970, were approximately               $2,700.     Prior to Feb-
ruary 1970 the fiscal           agent for California      applied
reasonable-charge        criteria      to the deductible.
         Cur review of another           fiscal      agent, the Mutual of cknaha
Insurance        Company, showed that claims involving                    outpatient
deductibles         were handled the same as they were handled by
the fiscal         agent for California           if the claims were submitted
by a beneficiary;           but, if a provider            of care submitted          the
claim,      the deductible       was applied         against    the amount of the
reasonable         charge.
         OCHAMPUS officials         have informed us that they believe
reasonable-charge           determinations          should not be used in ap-
plying     a sponsor's       deductible.          They believe       that benefits
of the program should apply to the beneficiary,                          whenever
possible.          They believe     that it is more equitable                to credit
the sponsor with the full              amount billed         rather     than the rea-
sonable charge, where this is lower, because using the
reasonable-charge           method may cause the sponsor to incur ad-
ditional        expense.     In their      opinion     many physicians           would
attempt       to collect     from the beneficiaries             the difference          be-
tween the amount billed             and the reasonable            charge allowed by
the fiscal         agent, even though physicians               had signed the
CHAMPUS claim form agreeing                to accept the CHAMPUS payment as
full     payment.        OCHAMPUS also expressed the opinion                   that pay-
ment of the deductible            was a private          matter between the ben-
eficiary        and the provider       of the service.
         Participation       in CHAMPUS by providers              of care is volun-
tary.      However, p roviders          of care who participate              in the
program, agree to accept the CHAMPUS payment, based on rea-
sonable charges,           as payment in full           for services       and/or
supplies        provided.      In signing       the claim forms, providers
agree to this,          and they should not require               the sponsors to
pay any charges beyond the deductibles.

                                           53
       The OC~PUS contracts      with fiscal agents, who are also
Medicare   carriers, p rovide   that CHAMPUS payments not exceed
those for the Medicare program.       Under Medicare, only reason-
able charges are required     to be applied  to the deductible.

Conclusions     and Recommendation                  )

       In our opinion       the reasonable-charge       limitation      should
apply to charges billed         to beneficiaries      for payment under
the deductible      provision     as well as those billed          to CHAMPUS,
We agree that the beneficiary           should not be required          to pay
the difference      between charges billed        by a physician        and his
reasonable     charge for the services         as determined       by the fis-
cal agent,

         In our opinion,  the principle    that the provider   of care
accept the reasonable       charge as full    payment should extend
to payments of billings       for the deductible     made by benefi-
ciaries.       This would be consistent    with procedures   of the
Medicare program and would lower the costs to CHAMPUS, and
beneficiaries      would pay only reasonable     charges for ser-
vices.

         We recommend that the Executive            Director,  OCHAMPUS,
consider      issuing     policy  guidance to      all fiscal  agents that
pay physician         claims to include     only    reasonable  charges
when computing         the deductible     amount    to be paid by the ben-
eficiaries,




                                       54
OTHER INSURANCE

        The Military     Medical Benefits       Amendments of 1966 pro-
vide that retirees         and their    dependents     and the dependents
of deceased members, having other insurance                 provided     by law
or through employment covering             medical benefits,       apply the
benefits    received     toward payment of medical bills             before
CHAMPUS determines         the amount it will       pay against      the bal-
ance of the bills.           Under this procedure,       'known as the last-
pay concept,       CHAMPUS will      pay the remaining      charges up to
the amount it would have paid had there been no other insur-
ance.     No requirement       exists   for dependents      of active      duty
members to declare         other insurance      provided    by law or
through employment.           When other insurance        is reported      by
dependents      of active     duty members, it is on a voluntary
basis.

      Where beneficiaries       have private     insurance--insurance
not provided     by law or through employment--and            payments are
made directly     to the beneficiaries,       the insurance        is not
considered     in making the CHAMPUS payment.            If, however,      pay-
ment for private      insurance    is made directly        to the source
of care, CHAMPUS will        pay the remaining      charges up to the
amount that it would have paid had there been no other in-
surance.      Even though CHAMRUS has adopted the reasonable
charges as the basis for paying physician              claims,     the
CHAMPUS regulations       permit physicians      to be paid,        in the
aggregate,     amounts greater     than the reasonable         charges when
other insurance      pays a portion     of the amount claimed.

       We reviewed    57 claims where other insurance             had paid
portions    of billed   charges.      We  found   that,    for  10   of these
claims,   the physicians     received     more than the reasonable
charges when the CHAMPUS payment was combined with the other
insurance    payment.    Seven claims paid by the California               fis-
cal agent exceeded the reasonable            charges by a total        of
$431.50.     The three remaining       claims paid by other fiscal
agents exceeded the reasonable           charges by a total         of $155.
Amounts paid on the remaining          47 claims did not exceed rea-
sonable charges because the physician             billings     did not ex-
ceed the reasonable      charges established           for the services
rendered.




                                       55
      We were informed      by OCJJMMPUSofficials        that the purpose
of the regulations,      which allowed payment in excess of rea-
sonable charges,     was to protect      the sponsor so that physi-
cians would not attempt       to collect     the difference     between
the amount billed     and the reasonable        charge from the sponsor.
We believe   that the full     payment concept used by CHAMpUS--
under which the physician,        in signing     his claim, agrees to
accept the CHAMPUS payment as full          payment for his services--
should be sufficient      to protect     the sponsor and that payment
of a portion     of a claim by other insurance          should not entitle
a physician    to more than the reasonable          charge.



        In making our review,       we noticed       that the law pertaining
to CHAMPUS is silent        with respect        to other insurance      that
might be held by dependents           of active     duty personnel.        Thus
 it is not necessary      for fiscal        agents to ascertain     whether
payments against     physician      billings      have been made by other
 insurance    or, if they have, to take such payments into ac-
count in processing       physician       claims against     dependents      of
active    duty personnel.

       Because of the absence of legal requirements                    concerning
the handling      of payments of physician          billings      by other in-
surance on behalf         of dependents     of active      duty personnel,
CHAMFUS pays more than it would pay if the statutory                       provi-
sions for retirees         and their    dependents      and dependents        of
deceased personnel         were applied     to dependents        of active      duty
personnel.       Further,     it is possible     at this time for depen-
dents of active       duty personnel      or their       sponsors to receive
payments from CHAMPUS for amounts billed                  by physicians       for
services    that have already        been paid in full         or in part by
other insurance       and for physicians       to be paid,         in the aggre-
gate s   more  than   the   reasonable    fee  for   such     services.

Recommendation

      We recommend that the Executive      Director,    OCUAMPUS, con-
sider limiting      CHAMRUS payments to physicians,    when payments
are to be combined with other insurance        payments,   to the
reasonable     charges for the services  rendered.




                                         56
         We recommend also that the Executive               Director    propose
legislation       that payments involving          dependents       of active
duty members not be authorized                when other insurance,         medical
service,      or health plan is provided           by law or through em-
ployment unless the person receiving                the benefit       under
CHAMPUS certifies          that the particular        benefit     he is claiming
is not payable under the other plan.                  This would result         in
(1) applying,        uniformly      to all beneficiaries,         the congres-
sional      concept against        double coverage and double payment
and (2) processing           physician    billings    for all CHAMPUS bene-
ficiaries       on a uniform       basis.

CERTIFICATION         OF OTHER INSURANCE

        We noted a significant      problem involving           the certifica-
tion on the CHAMPUS claim forms of other insurance                   provided
by law or through employment.              There is no space on the form
for the sponsor or beneficiary             to provide    sufficient      identi-
fying data on other insurance           that he has, which may pay a
portion    of the claim.       The certification       states only that
(1) there is no other insurance              or (2) other insurance          pos-
sessed does not cover the medical procedure                 on the claim.

       The form contains      the following    statements           and requests
that   the applicable    statement     be checked:

       'I**     (I   am not)    (the patient    is not) enrolled
        (neither      is sponsor)      in any insurance,   medical
       service,       or health     plan provided    by law or
       through       employment.
       “M-k   (I am> (the patient      is> enrolled      (so is
       sponsor)   in another    insurance,    medical service,
       or health    plan provided     by law or through      em-
       ployment;    however the particular       benefits
       claimed on this form are not payable under the
       other plan."

        Thus, if a retiree,    retiree's     dependents,        or dependents
of deceased members had other insurance               provided       by law or
through employment which provided           benefits,       insufficient      in-
formation    would be furnished       to the fiscal       agent for taking
action    to apply payments made by such insurance                 against  the
physician    bill  before CHAMPUS benefits          are determined.


                                        57
       An examination       of 104 claims of retirees,      their   depen-
dents, and dependents          of deceased personnel     at the office     of
one fiscal      agent showed that 18 claims did not indicate
whether the personnel          had other insurance.      We were informed
by officials       of the fiscal    agent that,    if the beneficiary
showed that he had other insurance           buF did not state the
name of the carrier,         the data was ignored by the fiscal         agent
in processing       the claim.     We found that about $18,100 was
refunded     during the first      quarter  of 1970 because claims
were paid by both other insurance           and this CHAMPUS fiscal
agent.      We believe    that this problem is due, in part,          to the
inadequate     wording on the claim form.

      We discussed  this matter with OCHAMPUS officials,        and
they stated that recommendations       for revising   the claim form
were being prepared     for submission    to the Surgeon General
of the Army.

Recommendation

       We recommend that the Executive    Director,    GCHAMPUS, con-
sider revising     the claim form so that it will     obtain a posi-
tive certification     as to whether the patient    has other health
insurance     and, if so, the name of the insurance      company, the
policy    number, and the nature of benefits     under the policy.
                                    CHAPTER8

                           REVIEWS AND AUDITS OF

                   PHYSICIAN     FISCAL AGENT ACTIVITIES

      The organizations       currently      responsible       for making re-
views and audits of fiscal          agents on a regular           basis are
(1) the OCHAMFUS Contract          Performance      Review Branch, which
makes continuing      analyses     of fiscal      agent operations       and
makes onsite visits       to evaluate      fiscal     agent performance,
(2) HEWAA, which h as audited           the fiscal     agents since Octo-
ber 1967, and (3) the Inspector            General,      Office of the Sur-
geon General,    Department      of the Army, which performs peri-
odic contract-compliance         inspections       of fiscal      agents and
also inspects    OCHAMEUS.

        Initially,       the Army Audit Agency had responsibility                  for
auditing        OCHAMPUS and its fiscal          agents.     The responsibility
for auditing        fiscal   agents was transferred            in July 1965 to
the Defense Contract           Audit Agency.         In October 1967, HEWAA
made an agreement with the Defense Contract                      Audit Agency to
perform the CHAMPUS contract               audits    for the Defense agency.
Since the Army Audit Agency and the Defense Contract                         Audit
Agency are not directly             involved     in evaluation       of fiscal
agents,       our comments on their          work and roles will        be in-
cluded in the final          report      in this series.

        Comments on our review of the compliance              inspections
made by the Inspector           General were included     in-our     interim
report     entitled   YChe Civilian        Health and Medical     Program of
the Uniformed       Services,"       B-133142 dated May 19, 1970.          We
stated that it appeared that the inspections                had been of
limited     value to management for improving           CHAMPUS due to the
limited     time spent on the inspections,          the failure      to iden-
tify    the program's      significant      problem areas, and the ab-
sence of significant          recommendations.

       The reviews of the Contract    Performance    Review Branch
and the audits     of HEWAA were also limited    by insufficient
time, which restricts     the depth of review and scope of work
performed.      The work of the review branch appears to be use-
ful for coping with problems on a limited        basis;    i.e.,

                                        59
peculiar      to one specific     fiscal    agent, but not for detecting
new or previously       existing     problems not known to the fiscal
agent.      It appears to us that HEWAA has devoted a large
amount of time to auditing           administrative       costs--which
amount    tc about 3.5 percent         of benefit     payments--of      the fis-
cal agents in relation          to other significant          problem areas in
the physician       component of CHAMPUS. On the basis of our
discussions      with HEWAA audit staffs           at locations      we visited,
however,      it appears that expanded audit coverage of CHAMPUS
is being planned.

REVIEWS BY CONTRACT PERFORMANCEREVIEW BRANCH

       The functions   of the Contract   Performance Review Branch,
Directorate    of Contract   Management, OCHAMPUS, are described
in the CHAMPUS Annual Report as follows.

      "Conducts a periodic   program of onsite  comprehen-
      sive reviews of contractor    operations and pre-
      pares reports.

      "Reviews,     on contractor site,   selected  materials
      to ascertain     degree of adherence to established
      policy     and adequacy of service   to program bene-
      ficiaries.

      'Evaluates  all areas of the contractors     operation
      which cannot be evaluated   without  an onsite    re-
      view.

      "Documents actions    taken by the contractor  to
      raise the level    of performance when such action
      is required.

      "Conducts  special non-scheduled         reviews as needed
      due to developing   operational       problems as deter-
      mined by the Contracting      Officer."

The branch was established         effective December 1, 1967, to
develop  the capability      of evaluating   contractor performance
on a regularly     scheduled basis and to ensure contract       com-
pliance  by civilian     contractors.




                                     60
        Plans provide   that reviews be completed      in about 7 days,
including     issuance of the report.       The reviews ordinarily
involve     about 3 days of fieldwork      at the site by two offi-
cials.      Before making field    visits,   members of review teams
obtain data concerning       known problem areas and operational
statistics      from OCHAMRUSfiles.

          The reviews ordinarily      cover administrative       costs, the
claims flow process,         the program for providing        information
about CRAMPUS to providers           of medical care, and some of the
claims for verification          of the correctness       of coding and de-
ductible      procedures,      The reviews also determined         whether
physician      profiles    had been developed,      checked for duplicate
payments, and determined          methods being used to detect over-
utilization        of medical care.      Team members hold a l- to
8-hour workshop with the fiscal            agent's   claims examiners,
during which procedures          are reviewed      and problem areas are
discussed.

Conclusion

        Although     the contract       performance    review teams have an
intimate      knowledge of CHAMPUS and of problem areas that are
common to all fiscal            agents and those that are unique to
specific      fiscal    agents, we believe        that their   effectiveness
is limited       by their     inability      to make adequate evaluations
of fiscal       agent activities        in the brief     time spent on each
review.

       We believe    that,   to more effectively     evaluate    fiscal
agent activities,       CHAMFVS should expand the scope of the
work performed     in the areas of benefit        payment reviews9
claim processing       procedures  and controls,     application      of
deductibles     and other insurance     benefits,    and other signifi-
cant aspects of the physician        component of the program.

HEWAA AUDITS

      Under the agreement with the Defense Contract          Audit
Agency, HEWAA has undertaken      audits  of prime contracts       and
subcontracts   for medical care provided       in the continental
United States,    Alaska, Hawaii,   and tierto    Rico,   HJZWAAhas
agreed to perform the audits      in accordance with the Defense



                                    61
Contract  Audit Agency Audit                    Manual.       This manual provides
that specific   consideration                   be given      in the audits  to:

         --selectively            testing   and evaluating     the contractor's
            internal          procedures    for determining      the validity,                ac-
            curacy,          and reasonableness     of individual     claims;

         --the   allowability,              reasonableness,        and allocability
             of administrative              costs;

         --reviewing      the proposed            administrative         claims       rate    for
             reasonableness;

         --reviewing      the contractor's  program for identification
             and correction    of the causes for delays in submitting
                claims;

         --examining           timeliness       of processing       and paying          the
            authorized           benefits     claimed;   and

         --reviewing     receipts     and disbursements    of the special
            bank account maintained         for advance payments for
             those contracts      which contain    an advance payment pro-
            vision.

     Our analysis       of the most recent audits performed      by
HEW&I at offices               of four
                               fiscal      agents included in our re-
view     shows the following   statistics.
                                          Review       of             Review      of benefit
      -Fiscal       agent-          administrative          COB    payments       and controls

                                                       (man-days   expended)
California           (note    a)                 50                               186
Colorado                                         14                                19
Georgia                                          34                                34
Ohio (note           b)                          58                                58

aThe audit of administrative                   costs    was in process      at the time         of
 our review,

b
    Audit coverage shown for Ohio applies     to Mutual of Omaha Insur-
    ance Company which also processes   claims from 5 other States and
    Puerto Rico.

                                                62
       Our analysis    of the audit programs used by the HEWAA
staffs   in performing     the above audits        shows also that the
audits generally     provide    sufficient      coverage of fiscal      agent
procedures.     We did note, however,         that in several     instances
the audit programs failed        to indicate      coverage of utiliza-
tion review procedures        or of procedures       to prevent dupli-
cate payments.      We noted also that the related           audit re-
ports failed    to mention some of the problem areas identified
in our reviews of fiscal        agents,    such as the payment of more
than reasonable     charges to physicians         where other insurance
and deductibles     were involved       and the need for guidelines
for dealing    with charges made for psychiatric            care.
Conclusion

      In the past a major portion           of the time allotted         in
most States for audit by HEWAA has been expended on review-
ing administrative        expenses.    We noted that the HEWM staff
in San Francisco       had recently    allocated    more time to examin-
ing into the manner in which the fiscal             agent is reviewing
and processing      claims and had identified        several    signifi-
cant problem areas.          Some of the HEWAA staffs       responsible
for auditing     the other fiscal      agents we reviewed       expect to
give considerably       more coverage to reviewing        benefit      pay-
ments in their      future    audits.    We believe   that the expanded
coverage should be beneficial          to the program.




                                     63
                                   CHAPTER 9

                               SCOPE OF REVIEW

      Our review was performed    during 1970 at OCUAMPUS, lo-
cated at Fitzsimons    General Hospital   near Denver, Colorado,
and at offices   of four of the 45 CHAMPUS fiscal     agents who
process and pay physician     and drug claims,  see below:

     California   Physicians'     Service
     San Francisco,    California

     Colorado Medical         Service,    Inc.
     Denver, Colorado

     Medical    Association       of Georgia
     Atlanta,    Georgia

     Mutual of Omaha Insurance            Company
     Omaha, Nebraska

       The California     Physicians      ' Service is a voluntary         medi-
cal service     plan sponsored by        the California       Medical Associ-
ation.    It was established       as    a nonprofit      corporation    in 1939
and is a charter      member of the        National   Association      of Blue
Shield Plans.       Colorado Medical        Service,    Inc.,    is the corpo-
rate name of the Colorado Blue             Shield plan.

        The Medical Association           of Georgia is an association           of
county medical      societies.         The stated purposes of the Asso-
ciation    are to promote the science and art of medicine                    and
the betterment      of public       health.      The Mutual of Omaha In-
surance Company is a mutual (not-for-profit)                 life     insurance
company organized       under the statutes          of the State of Ne-
braska to administer         prepaid medical and life           insurance     pro-
grams.     Our review of claims at Mutual of Omaha Insurance
Company was generally          limited      to those submitted      from the
State of Ohio.

        During our review we also contacted     medical   insurance
companies to obtain information       on amounts paid physicians
for selected    medical procedures    by the Social    Security   Ad-
ministration's    Medicare Program, by the Federal Employees
Program, and by private     insurance   plans.

                                         64
        Cur review of psychiatric          care included      work at the of-
fice of the fiscal        agent for Virginia--Blue           Cross/Blue
Shield of     Virginia--   as  well    as  offices     of the   fiscal     agents
for California        and Colorado.       Also, we visited        selected      mil-
itary,    Veterans Administration,           and civilian     hospitals       that
provide    psychiatric     care and held discussions           with individ-
ual psychiatrists        and officials       of a professional         psychiat-
ric organization.




                                        65
EXHIBITS




   67
EXHIBIT     A

                  METHODS BY WHICH FISCAL AGENTS FOR

    THE STATES OF CALIFORNIA,               COLORADO, GEORGIA, AND OHIO

                       PAY CHAMPUS PHYSICIAN             CLAIMS

CALIFORNIA

        The California       fiscal     agent has been developing         physi-
cian profiles       from Medicare,        CHAMPUS, Medicaid,        and its pri-
vate business       records      since November 1967.         These profiles
usually    reflect     the amount a physician          bills    under all pro-
grams administered         by the fiscal       agent for a particular         pro-
cedure (customary         charge),      as well as the charge most fre-
quently    and most widely          used in a locality       for a particular
medical procedure         (prevailing      charge).

         A physician's       customary charge (level-l                profile)      equals
the lowest fee accounting                 for more than 50 percent              of the
physician's       charges over the 6.previous                 months.        The prevail-
ing charge (level-2           profile)          is determined      at the 90th per-
centile     of all level-l          profiles        for a particular         service    in
that locality.           No level-l         profile     is established         unless a
physician     has submitted          at least five claims for a procedure.
A level-2     profile      is developed            when at least five level-l
profiles     exist     in a locality           for a particular        procedure.
There were 53 different              localities         in California        at the time
of our review.

        The reasonableness          of the amount billed               by a physician
for a procedure         is determined         by the fiscal          agent by com-
paring     the billed       amount with the level-l               and level-2       pro-
files    for a particular         procedure         and the lowest amount is
paid.      If no level-l       or level-2         profiles      exist,     the amount
is compared with a level-3               profile.          A level-3     profile      is
derived      by taking      the relative        value of a procedure,              as
stated in the 1964 California                 Relative       Value Scale,        times
a locality      coefficient       for one unit of service.

COLORADO

     The Colorado  fiscal    agent has used as a screen for pay-
ing CHAMPUS claims the greater      of a private plan fee sched-
ule or the result  of relative     values times specified dollar


                                            68
                                                                    EXI-IIBIT   A


values assigned by category    of service (surgery,  anesthesia,
medical services).    The method of payment used in Colorado
is classified   by OCHAMPUS as a schedule of allowance.

      A $5-per-unit     value has been assigned       to surgery      to be
*used in conjunction       with the relative   values.        The fiscal
agent considers      these schedules     to be the prevailing         medical
charges in Colorado,        but fiscal   agent officials       could not
provide   documentation       as to how the dollar      values being ap-
plied   to the relative       values were determined       or precisely
when use of these values was implemented.

       The fiscal    agent is currently           working   toward establish-
ment of physician         profiles.      Data     is being gathered     on the
25 most common procedures           of each       physician    in the State,
by specialty.        The contractor         is   developing    customary charges
for these physicians           and prevailing        charges for each of 5 lo-
calities.       Only Medicare data are            being used in the initial
development       of profiles.

GEORGIA

       The fiscal     agent adopted the California           Relative     Value
Scale in implementing            the reasonable-charge       concept.       For
convertingtherelative              values to fees, the fiscal         agent re-
ceived authorization           from the Social Security         Administration
to obtain      conversion      factors    purportedly    used by the Georgia
Medicare     carrier,        The factors     for surgery    consisted     of
three separate        ranges, varying        in amount according       to the
size of various         cities     within  the State.     For cities      with
the largest       population,       the range was from $5 to $7; for
cities    with lower populations,            the range was from $4 to $6;
and, for rural        areas, the range was from $3 to $5.

      As a corollary      means of evaluating        the reasonableness
of physicians'       charges,    the fiscal     agent developed      computer
printouts     of CHAMF'US claims paid during           a prior  period,    in-
cluding    all claims paid to individual            physicians   by the var-
ious medical      or surgical      procedures     and all claims paid to
physicians     practicing     within    a certain    area and considered
them to be the CHAMPUS profiles.

      According  to the fiscal    agent,   if an attending physi-
cian's    charge did not exceed the maximum computed by refer-
ence to the California     Relative    Value Scale, the charge was

                                       69
EXHIBIT    A


generally       allowed     as reasonable.         If the charge exceeded          the
maximum charge,          the claims      examiners    would refer       to the
printouts       developed     from CHAMPUS claim data.             They would
first     screen the claim against            the physician's        customary
charge.       If the charge exceeded his customary                 charge,     the
examiners       would compare the charge to charges made by other
specialists         in the same locality         or, if there were no other
specialists         in the locality,        to charges     submitted      from an
area of comparative           population      and/or    economic     level.      The
fiscal      agent would pay the physician's              actual    charge up to
the prevailing         charge in the locality           or in a comparable
locality.

OHIO

        Since implementation         of the reasonable-charge             concept
in August 1967, the fiscal            agent has used the 1964 California
Relative      Value Scale for determining          reasonable         charges.
The fiscal       agent multiplied       the appropriate        California      Rel-
ative    Value Scale units        by a $5 conversion         factor      until  Au-
gust 1968.        In August 1968 the contractor            increased        the units
for certain       procedure     codes and increased        the conversion
factor     for the Cincinnati        and Cleveland      areas to $7 and for
all other areas to $6.            The conversion      factors       were increased
to $8 and $7, respectively,            for services      performed        by special-
ists.

         The fiscal     agent did not develop                 or use customary        charge
profiles      but had developed             prevailing        charges    for determin-
ing conversion        factors       to be applied           to the California         Rel-
ative     Value Scale units.              OCHAMPUS had designated               10 areas
to be used by the contractor                   in developing         prevailing
charges.       Designated        localities          consisted     of the physical
limits     of 9 listed      cities        and the rest of the State.

        In March of 1970 the fiscal          agent began accumulating
charge data as a basis for establishing                customary    and pre-
vailing      charges,   using Social     Security    Administration       guide-
lines     for Medicare.      The contractor       began using these charges
in September        1970 in determining      the reasonableness        of
CHAMPUS charges.         Customary    charges were developed         from as
few as two charges provided           that only two charges had been
received      from the physician      and both charges were for the
same amount and for the same procedure.                 In all other       .


                                            70
                                                                       EXHIBIT     A

instances    at least three charges for the same procedure           are
needed to develop a valid       customary charge.      Conversion    fac-
tors are developed     for each practitioner       to be used when
insufficient    data is available     to establish    a valid   custom-
ary charge.

       Prevailing      charges are developed          from at least one
charge from five different            physicians      for the same procedure.
The prevailing       charge is computed from the mean charge plus
one standard      deviation.         Prevailing      charges are developed
for each county in the State.                Conversion      factors      are devel-
oped on a county and State basis and are used when insuffi-
cient data is available           to establish       a valid     prevailing
charge.     Specialists      receive     no more than the prevailing
charge for the area.


1Standard   deviation--a       basic statistical measure of the av-
 erage difference        of the amounts in a series measured from
 their   mean.




                                        71
                                 TREND IN AVERAGE PAYMENTS MADE TO PHYSICIANS


                                                                Code 2992-
                                                            tonsillectomy           and
                                                               adenoidectomv                            Code 3261-
                                                              (under age 183                           appendectomy
                                                                         Increase     or                    Increase       over
                                                                      decrease       over                     fee schedule
                                                     Average        fee schedule          and   Average         and prior
                                                      amount       prior      period    rates    amount       period     rates
                                                       paid                (percent)              paid          (percent)
COLORADO:
    Fee schedule        (note a)                     $ 58.00                                    $125.00
    After    initiating      reasonable-
        charge concept       (note b)                   69.75                20.3                150.50             20.4
    January      to June 1969                           71.17                 2.0                166.82             10.8
GEORGIA:
    Fee schedule       (note c)                         74.00                                    161.50
    After   initiating      reasonable-
       charge concept       (note b)                    77.00                 4.1                171.50
    January     to June 1969                            97.83                27.1                181.43
OHIO:
        Fee schedule       (notes    d and e)           91.00                                    177.50
        After   initiating       reasonable-
           charge concept (notes           b
           and f)                                       92.00                  1.1               177.50
        January     to June 1969                        84.00                -8.7                178.19                .4
CALIFORNIA:
     Fee schedule (note     )                          83.00                                     220.00
     January to March 19 'i 0 (note             h)    107.91                 30.0                291.36             32.4
a
 Period immediately prior to November 1, 1967. The fee schedule used was effective
 November 1, 1965.
b
 Period about 6 months after going off fee schedules.
C
    Period immediately        prior     to January     1, 1968.       The fee schedule used was effective
    July 1, 1966.
d
 Period immediately           prior     to August    10, 1967.        The fee schedule used was effective
 July 1, 1967.
e
 Paid amounts represent               the amounts that       would be allowable           under the
 fee schedules,
                                                                                                                                   1


                                                                                                                     EXHIBIT   B




                                             Code 4612 or 4650-
               Code 3515-                       dilation       and                       Code 4614 or 4617-
         cholecystectomy                           curettage                             total  hysterectomy
                  Increase       over                    Increase     or                             Increase      or
                    fee schedule                       decrease      over                         decrease        over
Aver     age          and prior         Average      fee schedule         and       Average     fee schedule           and
     amount         period     rates     amount    prior      period    rates        amount    prior       period    rates
      paid            (percent)           paid             (percent)                  paid             (percent)



$250.00                                 $ 40.00                                     $250.00

 297.50                    19.0            71.00              77.5                    330.00                32.0
 305.56                     2.7            70.33              -1.0                    345.55                 4.7


     262.00                                64.00                                      260.50

     298.50                13.9            81.50               27.3                   300.50               15.4
     322.83                  8.2           97.17               19,2                   309.17                 2.9


     290.00                                75.00                                      290.00


     295.00                  1.7           85.00               13.3                   344.00                18.6
     300.35                  1.8           88.39                4.0                   294.61              -14.4


     330.00                                83.00                                      330.00
     408.88                23.9           116.05               39.8                   460.90                39.7
 f
     There are some differences       between the averages,                      obtained   from OCHAMPUS,
     shown in the interim     report,    and these averages                     due to differences   in
     sampling methods.


     Period  immediately prior to July 1, 1967.                       The payments         were   based    on
     Medicare Manual and Schedule of Allowances.

 h
       January to March 1970 allowable                payments       used   for    Califo-rnia    were    based    on
       December 1968 "frozen" profiles.




                                                                              73
                                                           COMPARISON                OF PSYCHIATRIC                   BENEFLTS        AND RESTRICTIONS
                                                                                   FOR INPATIENT                  CARE DNDRR CHAMPUS

                                                                                        ANDOTHERSELECTEDPROGRAMS



                                     Criteria
                                     --                                                                                          CHAMPUS                                                Medicare
Covers      all          inpatient               expenses           except                                 Yes                                                            Yes
   convenience                  items
Unlimited              total         dollar            payment                                             Yes                                                            Yes

Unlimited              number          of       days     of      care                                      Yes, with authorization                                        No. limited          to 190 days
                                                                                                           required  after     90 days                                    in lifetime          (note  a)




Beneficiary                  considered     inpatient          for                   pe-                   Yes,       30 days before,                  120                NO
   riods            before        and after    hospitalization                                             days       after  (note    b)

Program             pays for services     without                            re-                           No, dependents       of active                                 No, patient       pays $52
   quiring             cost sharing   from patient                                                         duty members pay $1.75           per                           first    60 days;       $13 per
                                                                                                           day er $25 per stay,          which-                           day for next        30 deys;     $26
                                                                                                           ever is greater.         Other                                 per day for last           60 days
                                                                                                           beneficiary    types     pay 25%                                in a benefit       period
                                                                                                           of reasonable      charges                                      (note   cl

Availability                   of    supplemental                 benefits                                 Not      applicable                                            NO
    Plan



aDays          of    care       in     a nonpsychiatric                      hospital                for   mental        illness       are       not         counted     against    the      190       lifetime
 days.
bConsidering         these   periods      as inpatient        care.     charges    for psychiatric      and other       types     of care rendered
  to dependents         of active     duty personnel         are paid by CHAMPUS in their              entirety;      whereas,        if the periods
 are construed          as outpatient        care,      the sponsor      must pay 20% of the costs;              and, if the deductible          has not
 been met, pay the portion                needed      to pay the annual         deductible       of $50 for an individual            or $100 for a
 family.        For other      types    of beneficiaries            the savings      to the sponsor     would be less          because     cHAMPUS
 would       pay only 75% of the charges.

'Amounts             to be paid                 by the        patient          are         subject         to     adjustment          annually           by      the   Secretary        of   Health,          Edu-
  cation,            and Welfare.
                                                                                                                                                                EXHIBIT C




                                 Medicaid                                                    Federal    Buployees      Program
           California                               colorado                        High      option                    Low option                  Shield     program



Ye.5                                        Y&T                               NO                                NO                            NO
Yes. after        8 days au-                No, 18 days        each bene-     No, 365      days per             No,   30 days pr     haspi-   No, after        6 months    of
thorization         required                fit  period.        The State     hospital       confine-           tal   confinement             treatment,        physician
or removal        to a county               must approve         additional   merit                                                           must certify         that   pa-
or state      hospital          re-         care                                                                                               tient     has improved,        or
quired      if hospitalized                                                                                                                   will    improve.       or bene-
in a private           hospital                                                                                                                fits   cease
NO                                          NO                                NO                                NO                            NO

YS3                                         Yes                               NO                                NO                            NO




Not    applicable                           NO                                Yes, $100 deduct-                 Yes, $150 deductible,         Yes, $100 deductible,
                                                                              ible,    20% cost                 25% cost sharing,             20% cost   sharing,
                                                                              sharing,    lifetime              lifetime  maximum of          $10,000   maximum per
                                                                              maximum of $50,000                $20,000                       year,   or $25,000    life-
                                                                                                                                              time per beneficiary




                                                                                                        75
           COMPARISON OF PSYCHIATRIC         3ENEFITS AND RESTRICII0NS     FOR
                             OUTPATIENT CARE UNDER CHAMPUS

                              AND OTHER SELECTED PROGRAMS




             Criteria                        CHAMPUS                   Medicare
Program covers all services            Yes                       Yes
   of psychiatrists,         psy-
   chologists,      testing,     and
   related     specialists
Unlimited total dollar                 Yes                       No, limited
  amount paid by the                                             to $250 per
  program                                                        year


Unlimited      visits    by phy-       Yes                       Yes
   sicians     without    prior
   authorization


Program pays for services              No, deductible            No, deductible
   without  requiring   pay-           of $50 per in-            of $50 per in-
   ment of a deductible                dividual,   or            dividual   per
   from patient                        $100 per fam-             year
                                       ily,   per year
Program pays for services              N6, Dependents            No, 20% of cost
   without requiring    cost           of active-duty            paid by patient
   sharing from patient                members pay 20%.
                                       All other bene-
                                       ficiary    types
                                       pay 25%
                                                              EXHIBIT     D




                                                           Other programs
                                                           Colorado pri-
         Medicaid           Federal Employees Program        vate Blue
California       Colorado   High option     Low option     Shield program
No,, covers     Yes         Yes             Yes            Yes
psychiatric
services
only
Yes             Yes         No, $50,000     No, $Zil,OOO   No, $10,000
                            lifetime        lifetime       benefit     year
                            limitation      limitation     and $25,000
                                                           lifetime
                                                           limitations
No, lim-        No, lim-    Yes             Yes            Yes
ited to 6       ited to
visits   in     12 visits
a 6-month       per year
period
Yes             Yes         No, $100 de-    No, $150       No, $100 de-
                            ductible per    deductible     ductible per
                            person          per person     person


Yes             Yes         No, 20% of      No, 25% of     No, 50% of
                            cost paid by    cost paid      cost paid
                            patient         by patient     by patient




                                     77
APPENDIX




.

79
                                                                             APPENDIX I

          MA;-RITY          MEMBERS
‘GEORGE              H.   MAHON,      TEX.,
                                      cHAIRL1AN
WICHAEL 3. KIRwm.   onm
JAMlE I.. WM-tEH.  MISS.
GtoR06 VI. (INOREWS. ALA.




          Honorable Elmer 'El. Staats
          Comptroller  General of the
           United States
          U. S. General Accounting Office
          Washington, D. C. 20548

          Dear Eclr. Staats:

                In the last several years the cost to 'operate the military
          Medicare program has increased substantially,         The program was
          first   instituted      in fiscal year 1957 at a cost of about $2!,5OO,OOO.
          For fiscal      years 1966, 1967 and 1968 expenses were about $75,616,000,
          @08,6+76,000 and $162 ,3749000, respectively.        The preliminary  report
          of obligations       for fiscal   year 1969 shows @77,366,000, and the budget
          estimate for 1970 is in excess of $200 million.
                While testimony before the Committee indicates    that there has
          been an annual increase in the number of beneficiaries      and an
          increase in the cost, of benefits  received,  it appears that cost
          increases are greater   than might be exp$cted and not in proportion
          to benefits  derived.

                 The Committee is interested     in knowing whether the fees being
          paid participating   physicians,    hospitals,   or others for services
          rendered are in line with those which would be customarily            charged
          to non-subscribers   of medical-hospitalization         programs.   We would
          also like to know whether any substantial        profits     have been realized
          by anyone servicing    the program.

                We would appreciate   the General Accoun%ng Office making a
          comprehensive   review of the military    Medicare program and reporting
          to the Comtittee on its findings      as soon as possible.  If you so
:   APPENDIX I




        desire, various aspects may be reported      individually, with a smary
        report upon completion   of all work.    The review should include,  but
        not necessarily be limited   to the following      areas:

              1.   An evaluation     of the reasonableness     of total    cost incurred
                   by fiscal    years.

              2.   The reasonableness      of fees charged   and profits        realized   by
                   participating   individuals,    medical   facilities     or ot'ner
                   organizations.

              3.   The reasonableness       of expenses incurred    in the administration
                   of the program.

              4.   A determination      of the eligibility   of participants.

    -         5.   The adequacy of audits made by responsible    Government
                   agencies of the administration  and operation   of tne
                   program and benefit  payments made under the program.

                                                              Sincerely,
          .

                                                              Chair&n




                                                  82