You would think hospitals would gladly embrace any change to the way Medicare pays them.
When dealing with fiscal intermediaries-the private companies the government contracts with to process Medicare Part A fee-for-service claims-hospitals tell of customer service you'd expect from a Soviet bread line, not from vendors who handle 30% to 40% of their revenue.
Phone calls and e-mails aren't returned while hospitals end up dealing with a merry-go-round of different intermediary representatives, some of whom lack the expertise to advise medical centers on issues in which millions of dollars are at stake. Hospitals say they often end up with inconsistent or clearly incorrect advice and refusals by the intermediaries to put anything in writing. Then there are the horror stories of hospitals being out millions of dollars because they acted on the fiscal intermediary's guidance that Medicare later determined to be wrong.
This year, sweeping reform of Medicare's contracting rules appears likely, but hospitals are surprisingly cautious.
"Sometimes the devil you know is better than the one you don't," says one hospital billing consultant.
Hospitals have scratched and clawed to get some rapport and leverage with fiscal intermediaries. Sometimes they have discovered the one person in the intermediary's bureaucracy with the competence and willingness to finally fix lingering problems. Sometimes they have banded together in statewide associations to muscle the intermediaries into addressing their most pressing needs. Sometimes they have learned to cover themselves by writing their own letters back to the intermediary so at least a one-sided paper trail exists.
Although hospitals are technically allowed to switch intermediaries, it isn't a realistic option unless driven by a state hospital association or a large provider network. Even if they can switch, there is no way of telling if another intermediary is any better. There isn't a database of fiscal intermediary performance measures that hospitals can access.
Centers for Medicare and Medicaid Services Administrator Thomas Scully says the changes he wants to make in the Medicare contracting rules have a 75% likelihood of being approved by Congress this year. If Scully is right, Medicare will work in the next five years to shrink the number of intermediaries, offer them a chance to make a profit, and explore the possibility of using new types of businesses, such as consumer credit card companies, to perform specific pieces of the claims payment process.
Some of this scares the hell out of hospitals.
The problems and their roots
In 1965, the unique rules set up for the Medicare program let the American Hospital Association pick who it wanted to process hospital claims for the new government insurance program. Lawmakers worried that if the federal government was allowed get involved with claims paying, it might lead the nation into a single-payer health system. The AHA turned the chore over to the Blue Cross and Blue Shield Association, which doled out the work to its state-based plans.
A few other health insurers, such as Mutual of Omaha, also have entered the Medicare-contracting business through the years and today make up the small cadre of fiscal intermediaries.
In the mid-1960s, Blue Cross plans were all not-for-profit health insurers, driven by a mission to serve their communities, even if it meant processing claims for the government with just enough payment to cover costs. But those incentives don't always hold for Blue Cross plans today, many of which are for-profit and need to make money for investors.
Funding for processing Medicare claims hasn't kept up with the private sector. Fiscal intermediaries have administrative costs that are less than 1% of the total claims they pay. Blue Cross' private-sector plans spend 12% on administration; the U.S. military healthcare program spends 2.7%.
A result of this shortfall is that plans have gotten out of the intermediary business. The number of intermediaries has dropped from 53 in 1985 to 29 in 2001. While the government has said it wants to shrink the pool, the volatility has been disruptive for hospitals.
Also disruptive has been the fact that Medicare contractors have been rocked by corruption. Since 1993, 14 contractors have reached settlements with the government for a total of more than $350 million for various types of fraud. In addition, the HHS inspector general's office is presently investigating 24 former or current contractors.
"Contracting reform has been needed for decades, but nothing has changed," Scully said before a House of Representatives subcommittee hearing on Medicare reform in June. Scully served as president and chief executive officer of the Federation of American Hospitals for six years before becoming head of the CMS in May.
With less money to work with, intermediaries say they can't provide hospitals with the customer service and education they would like.
In a business relationship through which millions of dollars are processed, some hospitals say they no longer have a specific representative assigned to them and are left to leave their name and number on voice mail so someone from the intermediary eventually can call them back.
"I can't find anyone, so I wouldn't know if I get any customer service," says a reimbursement specialist for a 400-bed hospital in the Midwest.
Like other hospital representatives and billing consultants, the reimbursement specialist declined to be identified in this article because of fear that the intermediary could make matters worse for the hospital.
Hospitals say when the intermediary does call back, they are often forced to deal with staff whom they aren't familiar with and who don't seem to have the expertise to handle their questions.
"There are some days when I am getting somebody on the phone and they are telling me something that is the opposite of everything I know," says a billing supervisor for a 300-bed hospital in the Chicago area.
Intermediaries generally refuse to put their guidance or interpretations in writing, say hospitals and consultants. Hospitals must rely on the intermediary's advice to develop operational policies and make decisions about how to submit claims. Some have taken to writing their own letters back to the intermediary, stating what they understand the payers' guidance to be and how they are going to act on it, as a way of creating a paper trail.
As plans have voluntarily or involuntarily left the fiscal intermediary pool and hospitals have been made to switch plans, hospitals have been burned by the lack of consistency in how different intermediaries interpret Medicare regulations.
One hospital, which was forced to switch intermediaries three times over six years, had to pay back $10 million to Medicare when its new intermediary and the CMS decided that the advice given by the first two intermediaries was wrong.
In their defense, fiscal intermediaries say they are challenged not only by the lack of money to properly service their customers but also by the unrelenting stream of policy changes from the CMS. In testimony to a House committee earlier this year, BCBSA President and Chief Executive Officer Scott Serota said Medicare contractors receive on average a new instruction from the CMS every five hours of every dayof the year.
"It has not been uncommon in the past for contractors to be forced to abandon projects or reallocate staff midyear in order to adapt to the CMS' suddenly revised priorities or modified funding levels," Serota said at the June hearing.
In doling out more than $175 billion a year in its fee-for-service Medicare program, the CMS says it wants to pick who processes its claims and not have to rely on the "nomination" of hospitals or Blue Cross. Neither the AHA or BCBSA necessarily want to keep control, but they have some concerns with what is being proposed.
The CMS wants to be able to offer contractors a profit incentive, which it says will improve customer service and efficiency, rather than rely on paying them only for their costs. These changes require Congress' approval.
The goal, according to Scully, is to shrink down the pool of contractors, which now includes about 30 that do claims processing for Part A, Part B or both, to about 18 to 20 contractors that are "really committed to providing good service."
In testimony before a House subcommittee in June, Scully also said he wants to expand the type of businesses the CMS is eligible to contract with to include those that can perform specific functions, such as program integrity and claims coordination. This would expand on a 1996 law change that allows the CMS to contract with vendors given the specific task of detecting and preventing fraud.
Scully has suggested the possibility of using credit card companies to process claims.
The CMS has asked Congress to make changes in Medicare contractor rules for eight years running and the issue hasn't been taken up for a vote, but this year Scully thinks the stars are aligned to make it happen.
In the past, the BCBSA and the AHA have dragged their feet on such a change. Also, members of Congress have equated the disruption of Medicare's relationships with local health plans, which each employ hundreds of people, to carry political risks similar to closing military bases. But now, as a clearly stated top priority for both HHS Secretary Tommy Thompson and Scully, it appears that Medicare-contracting reform faces few obstacles.
The AHA and the BCBSA both have offered conditional support to Scully's reforms. Also, the Medicare-contracting reform proposals have few, if any, opponents in Congress. "I haven't had anyone on the Hill tell me they didn't want to do this," Scully says.
Congressional leaders, however, say they are concerned about granting expanded contracting authority to the CMS because of the agency's "limited aptitude for strategic planning." House Energy and Commerce Committee Chairman Rep. Bill Tauzin (R-La.), health subcommittee Chairman Rep. Michael Bilirakis (R-Fla.) and oversight and investigations subcommittee Chairman Rep. Jim Greenwood (R-Pa.), in their Medicare reform recommendations released in late July, called on the CMS to first develop a strategic plan for Medicare contractor reforms.
The BCBSA says its main concern with the Medicare contracting process is the funding. In June, Serota asked Congress to increase the budget for contractors by about 15% next yearto $1.567 billion
The current contracting system offers virtually no accountability of intermediaries to hospitals. The CMS' annual four-page review summaries of each fiscal intermediary are not made available to hospitals. Except for state association surveys, such as one recently completed by the Illinois Hospital & HealthSystems Association, which measure hospitals' satisfaction with their intermediaries, there is a dearth of objective information available about the performance of fiscal intermediaries in meeting the needs of hospitals.
The AHA is calling for changes that would allow providers to evaluate the performance of their intermediary and for the CMS to use that feedback to improve service. Scully confirms that greater accountability of fiscal intermediaries to hospitals is "a key thing" he wants to bring about.
Hospitals rail against the idea of functional contracting, breaking up the various tasks that fiscal intermediaries currently provide so that vendors are used for specific tasks such as claims processing or medical review. They say this could increase the number of interactions needed to get claims paid and reduce the accountability of any one contractor.
"My fear is that I will have someone on the local level that I can call that has absolutely no authority to affect an outcome," says Charles Cataline, director of health policy for the Ohio Hospital Association. Cataline works with hospitals in Ohio to negotiate service improvements from their intermediary.
Scully now says that the CMS is undecided about functional contracting. "I have some of the same concerns that some of the hospitals do."
Hospitals also raise concerns about introducing a profit incentive into contracting, worrying that it will only exacerbate fiscal intermediaries' focus on putting through as many claims as they can without taking time to handle hospitals' needs and questions. Some envision giant regional intermediaries that are less responsive to customers than they are today.
"If they make a profit I don't think that is going to be to my advantage, I think I'll get crushed," says the reimbursement specialist from a Michigan hospital.
A billing specialist from a Chicago hospital says she is concerned with the possibility of having credit card companies, with no experience in the medical industry, processing their claims.
Scully says the profit motive is key to retaining and attracting the contractors that want to pursue the intermediary job as a core business. He assures hospitals that any change made will be done to make things better for them, not because the CMS is looking for a way to save money.
"I understand that change scares everybody, but this is a nutty program the way it is," Scully says.