[Comments on HCFA Medicare Integrity Program Operating Plans]

Published by the Government Accountability Office on 1999-09-02.

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

United States General Accounting Office                               Office of the General Counsel
Washington, DC 20548


          September 2, 1999

          The Honorable Pete Stark
          Ranking Minority Member
          Subcommittee on Health
          Committee on Ways and Means
          House of Representatives

          Subject: Use of Program Safeguard Contractors (PSC) Under the Medicare Integrity
                  Program (MIP) to Establish Local Coverage Policy

          Dear Mr. Stark:

          This responds to your May 11, 1999, letter regarding the Health Care Financing
          Administration’s (HCFA’s) plans for operating the Medicare Integrity Program (MIP).
          Essentially, you asked if the law authorizing the MIP permits HCFA to assign
          responsibility for local Medicare coverage policy to the payment safeguard
          contractors (PSCs) who will run MIP under contract to HCFA. You also asked if
          HCFA's proposed MIP regulations would provide an adequate legal basis for HCFA
          to conduct local coverage policy-making through the PSCs.

          Whether a particular service or product is reimbursable under Medicare is currently
          determined through a combination of decision-making by HCFA and its contractors.
          HCFA sets broad coverage policy on a national level. Within the limits established
          by statute and HCFA guidance, however, local policies are permitted to vary based
          on local variations in clinical practice. At present, the medical directors of the
          Medicare carriers, which are the contractors that administer Medicare for HCFA, set
          local coverage policy. HCFA has said that it is possible that in the future, the setting
          of local coverage policy will be done through a unit within the PSC, although the
          carrier medical directors will remain involved.

          In our view, while the law establishing the MIP and its legislative history are silent
          concerning the responsibility for local coverage policy-making under Medicare, the
          law can reasonably be read, as HCFA does, to make this a legitimate function under
          MIP. Section 1893 of the Social Security Act makes “medical review” of provider
          activity a function of the PSCs, and “medical review” has been consistently
          interpreted by HCFA to include determination of local coverage policy. Similarly, we
          believe that the proposed MIP regulations provide an adequate basis for HCFA’s
          action. A more detailed discussion follows.
The MIP was authorized by section 1893 of the Social Security Act, as added by the
Health Insurance Portability and Accountability Act of 1996, to prevent and combat
Medicare fraud and abuse.1 Under this law, HCFA is authorized (as designee of the
Secretary of Health and Human Services) to enter into contracts with eligible private
entities, which HCFA calls PSCs, to carry out specified activities promoting the
integrity of the Medicare program. One of these activities is “medical review.”2

Although neither HIPAA nor its legislative history expressly mentions local Medicare
coverage policy-making in the context of the MIP, the authority for PSCs to conduct
medical review of provider activity provides a reasonable basis for HCFA’s position
that local coverage decisions may be made within the MIP framework. “Medical
review” involves ensuring that medical services provided to beneficiaries are
necessary and appropriate, which in turn describes setting local coverage policy. As
the HCFA Administrator said in her April 20, 1999, letter responding to your inquiry
to her about this issue, HCFA defines “medical review” as “the processes necessary
to ensure both the appropriate utilization of services and that services meet
professionally recognized standards of care . . . .” HCFA says further that “[i]ssuing
local medical review policies is an integral part of medical review” that “has always
been paid for and developed . . . as part of the program safeguard budget . . . .”

HCFA’s interpretation is reasonable even though we found no evidence in the law or
its history that, in providing for the PSCs to conduct medical review, Members of
Congress expected or were aware that the effect would be to allow HCFA to give the
PSCs a major role in setting local coverage policy. HCFA’s use of the term “medical
review” to include local coverage determinations has been consistent; it was not
adopted solely to support its current interpretation of the MIP authority. For
example, HCFA said in December 1996 (after enactment of HIPAA but before
implementation of the MIP program) that managed care plans must abide by both
national coverage decisions and “specific written policies made by the Medicare
carrier or intermediary with jurisdiction for claims in the geographic area served by
the plan . . . sometimes called ‘local medical review determinations.’”3

 Pub. L. No. 104-191, § 202, 110 Stat. 1936, 1996-98 (classified as 42 U.S.C.
§ 1395ddd).
 Specifically, MIP contractors are authorized to conduct “[r]eview of activities of
providers of services or other individuals and entities furnishing items and services
[under Medicare] including medical and utilization review and fraud
review . . . .” Section 1893(b)(1).
 HCFA Operational Policy Letter No. 46, December 19, 1996. In the same vein, this
document goes on to use the term “medical review policies” as a synonym for “local
coverage policies”: “the plan must apply the medical review policies of the
contractor in the area where the beneficiary lives.”

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By the same token, HCFA's proposed rule is broad enough to permit local coverage
policy-making to be conducted through the PSCs. On March 20, 1998, HCFA
published a proposed rule4 to implement section 1893 of the Social Security Act, as
added by HIPAA. Under the rule, contracts between HCFA and the PSCs would set
forth generally what functions a PSC is to perform, with specifics to be spelled out in
task orders. As authorized by section 1893,5 the proposed rule includes medical and
utilization reviews among the functions that may be included in such a contract.
Moreover, the preamble to the rule indicates that the PSC may perform some or all
of the functions currently performed by fiscal intermediaries or carriers.6

If you or your staff have any questions, please contact me at (202) 512-5400 or Craig
Winslow, Assistant General Counsel, at (202) 512-8225.

Sincerely yours,

Robert Murphy
General Counsel

    63 Fed. Reg. 13,590.
    See supra, note 2.
 We understand that thirteen eligible entities were recently selected to serve as PSCs
and six task orders were issued at that time. None of these task orders provides for
PSCs to engage in local coverage policy-making, and HCFA officials said that they
have no plans at this time to issue such task orders.

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