DR. WOOD: Good morning, everyone. Welcome to the second day of our regional hearing in Phoenix.

    Our major topic today is Medicare+Choice but before we begin, I would like to recognize Leslie Norwalk for an announcement.

    MS. NORWALK: Just in case someone here might be interested in something called the HIPAA privacy regulations, I am told that they will be on display at the Federal Register in two hours. So for those of you who are interested and want to take a look, the proposed regs will be out in a couple of hours. Thanks.

    DR. WOOD: So that means we'll get our work done, we'll have a break and we'll figure out how long the break needs to be to read the regulations. Do you have any idea how many pages it is?

    MS. NORWALK: No, I do not. Not my regulations.

    DR. WOOD: What was that?

    MS. MARGULIS: It's good advertisement for the committee.

    DR. WOOD: All right. We'll we're going to begin with a special today. Actually again with the format we've used before on the major issues area with an overview provided by CMS and I'm particularly pleased to welcome Mr. Gary Bailey and Mr. Robert Donnelly to the discussion today.

    Gary is the director for Health Plan Benefits Group at the Center for Beneficiary Choices and Robert is in the Health Plan Policy Group, also at Center for Beneficiary Choices. They both work out of Baltimore and Gary, are you going to go first? Or --

    MR. BAILEY: Bob's -- no.

    DR. WOOD: Bob's going to go first? Okay.

    MR. DONNELLY: Good morning. I appreciate the opportunity to come and speak to you all today about Medicare+Choice and when Gary and I sat down trying to figure out how to cover all the ground we have to cover in Medicare+Choice, we recognized a couple of things.

    I think the first thing was that this is a very broad issue area and it's not clear to us how many of the members of the committee really have a good background in Medicare+Choice so it seemed that we needed to do a little contact setting.

    The second piece was that we've already done a lot in terms of trying to reduce the burden of Medicare+Choice although there are still opportunities available. So that's the two things really that we tried to build our presentation around.

    I'll speak to you about kind of the background of Medicare+Choice, where it came from, what it's supposed to be doing and kind of a program status and then Gary will get up and talk to you all about what we've done so far to try to reduce burden and some of the opportunities that may exist to go forward.

    So I guess we have a long way to go and not that much time to get there. So let me start out. What is Medicare+Choice? The Balanced Budget Act created Medicare+Choice as an attempted expansion on the successful Medicare Risk program that existed before the BBA. In the BBA, they created the Medicare+Choice program. It was named that way because one of the main goals of it was to try to increase beneficiary's choices of private sector options, not just HMO's but to broaden their opportunities to enroll in different types of plans.

    The BBA also added new elements to Medicare Managed Care. For example, it changed the payment system. There were new beneficiary education requirements. There were new enrollment requirements. It also further extended some existing managed care requirements by adding such provisions as some quality assurance provisions and some marketing review things that were tightened up a bit.

    Congress also came back into the program a couple of times in the Balanced Budget Refinement Act in 1998 and the Benefits Improvement and Protection Act in 2000. So there's been a lot of changes going on in this program from a legislative point of view as well.

    What are some of the goals of the Balanced Budget Act? What was Congress trying to do when they set this up? One of the first things is to expand the types of organizations available to participate in Medicare+Choice. Prior to the BBA, we generally had coordinated care plans which were the traditional HMO type plans. The BBA was attempting to provide other options, PSO's, PPO's, private fee for service, MSA's, things like that.

    It also expanded our beneficiary education effort. The BBA required CMS to provide more information to beneficiaries to compare their choices. For example, beneficiaries were to be given information comparing the supplemental benefits offer by plans. The call sharing amount, the limits on out of pocket costs, if any, plan rules, plan service areas, things like that, so beneficiaries can make a better choice of the plans available to them.

    And then finally on this side at least, they expanded quality assurance and quality improvement requirements.

    More of the goals of the BBA, one of the things that was major from my perspective of what the BBA did was redesign a payment system. And the goal of redesigning the payment system, one of the first goals was bluntly to reduce payments. This was a Balanced Budget Act after all. Another thing it was trying to do is create stability in rate changes from year to year. The prior system, prior to the BBA, the payment rates were based on fee for service county level pay level costs and if the county level costs went down, the Medicare Managed Care rates could go down. And so there was some fluctuation there and the plans really needed some way to better plan what they were going to get in terms of revenue streams.

    We also -- the BBA also tried to reduce the substantial geographic variation in payment rates. Prior to the BBA, the rates ranged from a low of about $227 I think in Nebraska to in the high $600, $700 range in South Florida and in New York. And through the payment structure, they were trying to reduce that variation.

    In addition, there was an addition of risk adjustment in an attempt to provide more accurate payments to provide higher payments for beneficiaries who were predictably sicker and lower payments for beneficiaries who were more likely to be well. So that's just the goals.

    The next question I think is how does the program actually work? And this part I have a little more detail about the guts of the program under the BBA.

    First question, who can enroll? This is pretty straightforward. A beneficiary has to live in the service area of the Medicare+Choice Plan, they must have both Parts A and Parts B of Medicare and if they have in stage renal disease, they've not eligible to enroll. Although if a beneficiary develops in stage renal disease as a member of the plan, then they may continue.

    So now that we can enroll, how do beneficiaries learn about their options? After the BBA, the BBA required us to establish a certain amount of communication channels for beneficiaries. The first one is the Medicare 1-800 Medicare number. This is the help line and in the past year we've taken this number to be 24 hours a day, seven days a week and we're trying to really expand the information available to beneficiaries through that avenue.

    In addition, we had an Internet site that was required which is the medicare.gov. This site includes a tool that beneficiaries can use called Medicare Compare that lines up for each county a beneficiary go or anybody can go in and put in their county and determine what plans are available in their areas and compare some of the benefits so they can make a better choice.

    In addition, we're required to give beneficiaries general information, all beneficiaries, by October 15 of every year. And this also has to include comparison of plan options by October 15 of every year. And so we did this through the Medicare new handbook and we try to provide as much information so beneficiaries can make the best choice possible.

    So beneficiaries -- we know who can enroll. We know how they find out about the plans. What kind of plans are available is the next question?

    As I mentioned earlier, the BBA expanded on the previous program that HMO and HMO like plans, coordinated care plans, and tried to broaden the offerings available. For example, it included provider sponsor organizations which are essentially HMO or HMO like plans owned and/or operated by provider groups, physician groups, hospitals.

    And then beyond the kind of tightly managed programs that might be represented by HMO's and PSO's, the BBA sought to increase the availability of more loosely managed networks like PPO's, like private fee for service plans and like MSA's. As I'll mention a little bit later in the presentation, these haven't really taken off in the way that Congress had hoped.

    What kind of benefits are available under M+C? Well there are two real categories of benefits. The first is basic benefits and you can break the basic benefits down into two subcategories. The first category is Medicare's basic benefits, the Medicare fee for service benefits. Medicare Managed Care has to cover everything that Medicare fee for service covers.

    In addition, there are called additional benefits and these are funded through federal payments. This basically -- the requirement here is that plans have to take whatever money is left over after providing the Medicare basic benefit and then they need to provide other benefits with that money. And so some options that they use are reducing premiums, reducing cost sharing, enriching benefits, adding things like drugs for example.

    Now one thing I want to mention specifically about this slide and about this relationship between basic -- this relationship inside of basic benefits is that while it's important for us to reduce burden just to be good business partners and that's obviously an important point, this slide makes it clear I think that it's also important for us to do this because the dollars that we're able to work with the plans to save in terms of administrative costs flow to beneficiaries because the additional benefits are where that money would go. And so if we reduce -- if we can work with the plans and reduce the amount of money they have to spend to provide Medicare's basic coverage, then Medicare beneficiaries get more drugs, get lower cost sharing, get lower premiums. So it's really important not just to be good business partners but to help the beneficiaries get everything they can under this program.

    The next slide -- there's more benefits available though. The next set of benefits that are available are called supplemental benefits and these again have two subcategories. The first is mandatory supplementals and these are benefits that the beneficiary has to purchase to be part of the plan. And these basically, if the plan determines for example that without a good drug benefit, they can't appropriately manage care, they might put that into a package like this to require the beneficiary to buy it if they want to be part of the plan.

    Another kind of supplemental benefit are optional supplementals. These are basically benefits that beneficiaries can choose to take. Once they get the basic benefit and the mandatory supplemental benefit that they have to purchase, they have the opportunity if the plan chooses to offer them to choose from optional supplementals and these could be, you know, anything from a long range of possible benefits.

    One thing that should be made clear here is just as in the basic benefits, we have a requirement to make sure that the savings is actually spent on additional revenue -- additional benefits. Here the law requires CMS to price these benefits as well. And there's a limitation on the cost for beneficiaries to the cost of the benefit essentially and so, you know, our ACR process, these also come through and we look at these benefits as well.

    Now how do benefits -- how do we pay for Medicare+Choice is really the next step I think. And this is going to be complicated and we have a short period of time but I think it's important to understand a little bit about how the payments are made.

    First, on kind of a theoretical level with -- and one of the things that Congress tried to do is break the link between fee for service and managed care. As I mentioned earlier, prior to the BBA, managed care payments were based on local fee for service spending in each county and basically it was 95 percent of the local fee for service spending was the payment amount, the payment rate, for a managed care plan in each county.

    The BBA, however, required us to calculate the rates much differently. The starting point for all of the stuff I'm going to show you now is the 1997 rates that were actually in effect at the time of the BBA. And then we jump off with how to grow them.

    What we have is the highest of three rates method. What this method does is basically say it imposes a floor. In 1998, there was a floor set and in 2000, BIPA also created new floors and no county can have a rate that's below the floor.

    The next step is a blend amount. This is basically a combination of local rate and national average rate. Now taken together, the floor amount and the blend rate are really efforts to reduce the geographic variation in payment rates. It's trying to compress -- not only supposed to bring up the bottom end but if we look at it also, if you look at the blend rate, it also brings down the top end and that brings in the third piece of this which is a two percent minimum update. And Congress didn't want to actually bring down any payment rates and so they included a minimum payment increase, minimum rate increase.

    Now the last piece of this is a bunch of neutrality which makes it really difficult and what this says is that payments under this system shouldn't be anymore than payments under a completely locally based system. And what that does, because the floors have been pushed up, and because spending and fee for service hasn't grown that fast, although recently it's starting to move up again. What it's meant is that there's money left over that has to be taken out of the system. Now the law is pretty explicit about what the floor is and the law is very explicit about what the minimum update is. You know, they give us actual numbers for that. The blend is less explicit. So the only place we have the really ability to take the money out to make the program budget neutral is through the blends. And the effect that that's had over the last few years is that in only year I think has there been any blend and most places where we have blends, have experienced the minimum update every year. And I'm sure they'll tell us about their cost trends and probably not being two percent.

    The next piece of payments -- so we know how the rates are set. How do we apply the rates? What this slide starts to tell you is we take the rates and make a per person per month prospective payment. There are separate rates set for aging and disabled as a group and beneficiaries with ESRD. Now the aged disabled rates are set in the geographic unit of the county and the ESRD's are for a state.

    Now the rates then are adjusted at the present level for demographic factors, age, sex, Medicaid institutional status, things like this. And then beginning in 2002, a portion of the rates have been adjusted for risk as through a risk adjustment system.

    Now I know that was quick. I know that nobody can pass a test now on how the payment rate system works but it's a complex system and it gets through at the end of the day with 3,000 counties, lots of adjustments to those counties.

    For this adjustment, I'll be brief on this. There may be more discussion later I'm sure. By law, the current payment model of risk adjustment is based on inpatient and counter data only. But really the way the law worked is that it -- the law only authorized CMS to collect inpatient and counter data at the beginning of the payment process. And so right now until 2004 when the law requires us to start using outpatient data or other sites data actually, it's all based on inpatient data. Now one thing that we've done as a recognition that this is inpatient data only is we're including add-on payments in 2002 and 2003 for plans that have folks with congestive heart failure and this money only is going to go to plans that meet certain thresholds in terms of quality and their performance. The idea here is that the underlying payment system that uses, the risk adjustment system that uses only inpatient encounters doesn't take into account the effects of plans that are doing really good work to keep CHF patients out of the hospital and so the idea here is if the plans are doing a really job there, we can put some extra money into the system this way.

    And as I mentioned in 2004, the payment model is going to start adding diagnostic data from ambulatory settings.

    Really here most of the stuff in this program is a balance and this is another balance of the more data we have, the more accurate our adjustments can be. But the higher burden we're putting on the plan. So we're doing it to balance the question of how much data is enough.

    I'll speak briefly about the adjusted community rate proposals because I think Gary's going to get into it as well. But this is just the piece that ties the payment system together somewhat. This provides justification for the plans benefit and charge structure. This ACRP, the Adjusted Community Rate Proposal, prices the plan and we have to review it to make sure that the plan is offering the minimal benefits required by law so that they're offering the Medicare covered benefits and that they're using the savings to buy additional benefits for beneficiaries. And we also need to make sure that the premiums and the cost sharing don't exceed the amounts that are required under law. And that's for the Medicare covered benefits, the basic benefits and the additionals, as well as the amounts that are charged for the supplemental benefits as I mentioned before.

    Okay. Now where are we now? This is the current program status and this is pretty brief. The BBA's vision

    has really not been realized. There are about five million Medicare beneficiaries currently enrolled in M+C plans, it's about 12 percent. This is down from the peak of 6.3 million beneficiaries in 1999 and this is just the same point graphically. A lot of the charts that you might see about Medicare+Choice have this kind of distribution or this kind of trend where things were really increasing in terms of enrollment. There was really rapid growth up until 1999 and then it starts to tail off after that.

    The issue -- the question of broader choice really also hasn't materialized. There's only a couple of PSO's and PPO's and private fee for service plans and we have no MSA's. And so that also hasn't happened. And instead of increasing the participation by plans, actually plans have had to withdraw and/or reduce their service areas. And pretty much going out on a limb, pretty much all benefit packages have had to be cut based on the payment rates that are going to the plans.

    And a couple of other just statistics I'll throw out. You know, in 1999, we had 309 contracts with M+C organizations. We now have 155. Over the three year period from 1999 to 2001, 1.6 million Medicare beneficiaries were affected by withdrawals so they lost their plan and a lot of them had the opportunity to enroll in other plans but at the minimum it was a severe disruption. And then in 2002, this is the point made on this, about 60.5 percent of Medicare beneficiaries have access to at least one Medicare coordinated care type plan where they live. This is down from 74 percent in 1998 I think and so you can see again the kind of tailing off of the program after the BBA.

    Now we are addressing these issues and Gary's going to get through a lot of it. The first thing that I'll mention just briefly is that we have the permission to study, we've worked on trying to figure out where the burden is in this program. We contracted with Price Waterhouse Coopers to conduct a study on the burden of complying with our requirements. I think an interim report from this study has been included in your package. The interim report that you have really compiles or partners the plans and other folks' concerns about the program and none of these preliminary findings frankly were very unexpected for us. We had met with the industry a lot and we knew where a lot of these problems were and I think we've made a lot of progress on a lot of them but I'll get very briefly into the preliminary findings. One question -- one issue that was raised was our business relationship with the industry. We needed to be more proactive in reaching out and working with the industry to solve problems. And I think we've made some progress there.

    We need to improve communication internally with partners and that has to do with coordinating the efforts of our central and our regional offices to make sure that we're all singing from the same songbook and also to provide better and clearer guidance to the organizations who contract with us so they know what the rules are and how to comply.

    The next question was about regulatory style. Were we being too restrictive and I think we've tried to make some progress there as well and then finally there's discussion about the impact of our requirements on our managed care plans on the downstream providers who actually have to provide the care. And we also made some progress there.

    And on that note, I think it's time to pass it off to Gary. I don't know how much time I've used up. Thanks.

    MR. BAILEY: Thank you. Technology's great if you conquer it.

    Okay. Anyway, good morning. Thank you for inviting me and providing the opportunity to talk to you all today about what we've done in the area of burden reduction and simplification of the program and what's some of our additional ideas have been.

    In terms of what Bob did, I think he's given a good background of the legislative and policy history of the program. I think it was somewhat uncomplicated so I think you did a good job on that because I understood some of it. And he took it up to the time of the significant non-renewals where to summarize I believe over the last four years over 300 plans have left the program. All either have left the program in terms of all of their service area or a partial county reductions affecting over 2.2 million Medicare beneficiaries and I believe out of those 2.2 million, there was around 250,000 to 300,000 of those beneficiaries did not have any other alternatives other than fee for service. So I'd like to pick it up at that point.

    But first I'd like to talk about some other background information before I go into more detail about some of the things we've done and some of the things that are planned. I think as Bob said, a lot has been accomplished but there's certainly a lot more opportunities for collaboration with the industry and other partners in terms of making the program work a little easier. But before I go into that, I thought as background for the committee members, I'd like to speak quite briefly about who does what in CMS with regard to the administration of the M+C program. What roles do the regions have? What roles do central office have? I'd like to summarize the industry concerns in one slide that we've heard from all those plans that have left plus some of the plans you'll probably hear from today. And I also want to take some time to talk about the extensive communications that we have with the industry and then I'll pick up with the burden reduction.

    And in discussing this with Bob, we felt that what I'd do would I'm going to identify four areas of program interaction between CMS and the managed care industry, briefly describe the nature of that interaction for about a minute or two, talk briefly about some of the accomplishments that have occurred to date but probably more important, we also have a list of additional opportunities for burden reduction.

    I also want to highlight the recent Tom Scully demonstration issue that started last summer. And I also will wrap it up with a list of some other areas of interaction with the plans that didn't fit neatly into one of the four areas and talk about some other things we've done as well as some additional areas of opportunity.

    On a personal note, I've been with the Medicare program almost -- well almost 28 years, 16 of which have been in managed care. I think the only other person in this room that probably has as much as managed care experience as I do is probably Heidi because we both came to the program right about the time that the TEFRA risk contracts were signed which I think was April 1, 1985 and I think you came in 1986. So but certainly I've seen a lot in here.

    I'm going to move a little more quickly through the slides than I initially thought. I went over this late last night and I realized after 15 or 20 minutes, a lot of this may lose its luster and I also noticed a disproportionate share of people sitting near the door versus spread out evenly. So I'm going to take -- I just saw that this morning. And also on a personal note, usually when a speaker talks before lunch, they say the only thing between this presentation and lunch is me. Well in this case, the only challenge I have between now and tomorrow morning is this presentation because tomorrow at 5:00 in the morning, the airport shuttle picks up the whole family and we're going to Orlando. So I have an incentive to move through this rather rapidly.

    Okay. The CMS administration of the Medicare+Choice program. CMS recently completed a reorganization, not only structural but we took a look at the way we did business. Up until the reorganization, responsibility for M+C was basically fragmented throughout the agency. A lot of different people were involved in a lot of different aspects of the program. It was certainly a challenge for us to administer it and I think it was a challenge for the industry to find a single focal point within the agency in terms of resolution of problems.

    In response to the industry concerns that there be a single focal point, and in response to our concerns that it was very difficult to manage and coordinate a program consistently across the country when responsibility was diffused throughout CMS, we reorganized. And basically we've consolidated all of the M+C responsibility into one center called the Center for Beneficiary Choices within CMS. I believe at your Miami hearing, you met Michael McMullen who is the acting director of CBC and the acting deputy director, Jennifer Bolinger. In terms of what we do in Baltimore which is where CBC is located, the group is primarily responsible for all of the M+C policy, that's Bob and his group, in terms of the regulation, the manuals and other type of guidance. And the majority of operations is lodged in CBC, the majority of the operations are in fact my responsibility and I'll go into them in several more minutes but it's basically the submission of the adjusted community rate proposals to us. It's the applications, all applications for any type of M+C product roll into CBC in Baltimore. It's also the PM management or contract administration and also the payments are made out of our office, too.

    The staff that work in risk adjustment, the staff that work with demonstrations, are also within CBC under Michael and Jennifer and the beneficiary information activities, not only for M+C but for fee for service are also lodged in the same unit in terms of the Medicare Compare website, Medicare and You, and we do a significant outreach with the SHIPS with volunteer stations across the United States and serving and counseling the beneficiaries. So the good news is it's all consolidated into one group now in Baltimore, Maryland.

    Across the ten regional offices and you probably recognize these because a lot of the people that are in this room deal with the regional offices extensively. There are M+C staff dedicated in each regional office. And they're primarily responsible for the day to day contract administration, the day to day phone calls and interaction between the plans. Once a contract's been signed, it actually goes into a contract administration in a monitoring their performance and assessment mode and 99 percent of that monitoring is actually done in the regional offices by the regional office staff. I'll go over that in a little bit more. The marketing materials are actually reviewed by the regional office staff and I'll go into that somewhat. And they also perform the reviews of the applications and the application comes into central office, it's a joint review between my staff and the CBC as well as the staff in the appropriate regional office. And they spend a lot of time in terms of resolution of enrollee problems.

    The M+C program challenge. I think there's a lot of challenge but the primary one is to react to the industry concerns. Bob went over the non-renewal information. We probably know at this point we can see a mess after several years of this and gee, we're having studies and a lot of interaction with the industry. There's two primary reasons for the non-renewals and that is the payments are too low and the administrative burden is too high or as they tell me, they're underpaid and overregulated. Since payments to the MCA's are really statutorily based, I'm not going -- and therefore within the purview of Congress, I'm really not going to spend too much or in fact any time talking about that. I'd rather talk about things that I think we can do within CMS.

    Now this is some background. The Price Waterhouse Coopers study that Bob referred to did have a number of recommendations, a lot of them were unexpected. It was good to have an outside neutral third party so as to document this for us into one place that it had not been done up till then. But they did make two recommendations. They did say the quality of the business relationship needs to change. I'm assuming they meant to improve between the CMS and the industry. And they also said that we need to improve communication with the partners. Now while I think a lot has happened over the last year or 18 months since that report was issued, there certainly is significant room for improvement. But I think it is well worth noting some of the collaboration that we do have with their partners.

    For example, recently Tom Scully has recently instituted these -- the two hour open door meetings where anyone can call in on any topic once a month for two hours and we basically -- although the callers don't see it, we have around 30 people in various offices in Baltimore available to answer any questions, our ears are perked up to hear if there's any issues that we haven't heard about and we take these things seriously. There's action items in the meeting from them. And Leslie Norwalk is all over us every week saying have you completed the action items. So the open door meetings are available.

    We've also participated in the Managed Care Trade Association meetings for years. I was invited to the sometimes quarterly meetings of the American Association of Health Plans, Blue Cross Blue Shield Association and Health Insurance Association of America meetings where they bring in the member plans and we're invited to participate in them in a collegial discussion that can last anywhere from two hours to six hours where we go over a jointly developed agenda. What's working and what isn't working and what's coming down the road. And I think they've been pretty successful.

    We have quarterly calls with our multi-region plans. We've just started this. The problem in administering a program as complex as M+C across the country is making sure that it's consistent. So for our large partners that have HMO's or other types of managed care products and multiple sites across the country, we now have calls with them and we invite the managers of the CMS regional offices in all of those regions where the site is located as well as the management of the plan and we sit down once a quarter, rather it's a conference call and we go over anything. Anything that's on their mind, anything that's on our mind. I have found them to be very productive and I personally participate in each one.

    We also have calls from selected M+C topics. Where the capability is probably you do two where we'll set up a two or three hour call and we'll have hundreds of callers on the line, everything from these instructions are coming out and here's what they're about to the instructions that have been out for several weeks. Do you have any questions and they seem to work pretty well.

    And we also have solicitation of early industry input on most of our program issuances. And it's mostly to make sure that the people in the industry, they're responsible for implementing our instructions. Actually that what we put out as responsive as possible to the people implementing it so I think it's a very valuable insight to us. I think talking with them points out any problems.

    And I think this is a good example, a classic example, I'm certainly not going to give you an example of one that didn't work, but was BIPA. December 21, 2000, BIPA was signed into law and it basically said that within the next 69 days, CMS had to put out new payment rates, ACR's had to come in from the plans, plans that wanted to return to the program could and marketing material had to be approved so the whole process was up and running by March 1st and literally within 69 days, the industry and CMS figured out a way to do this and received over 650 ACR's from almost 200 plans. Everything went well. We had several phone calls and meetings with the industry saying we think we're going to do this. They countered with this and we basically said what do you think is the least burdensome way to implement BIPA from your perspective and ours to make sure that the beneficiaries had what they needed March 1st and I think it worked very well. So I wanted to just point that out as an example.

    Now as I said before, I want to talk about four primary areas of interaction. I want to talk a little bit about what is the nature of the interaction for a minute or two and then what we've done to date but I'm probably going to spend a little less time on that and more time on what I think are some of the ideas in terms of improving it.

    Okay. The adjusted community rate proposals. As required by law, the M+C organization must submit an ACR to CBC, I don't think the law actually says CBC, but must submit to the agency by July 1st an ACR. On July 1st, I usually receive one of two documents. Either a contract showing that the plan is going to participate for the upcoming contract year and an ACR or I receive a letter of non-renewal. The ACRP submission includes primarily three packages of information. There's the ACR itself, there's a fee and benefit package, and there's supporting documentation.

    In terms of the goal of the ACRP, if the plan benefit package basically describes in great detail all the benefits the plan proposes to make available for the upcoming contract year while the ACR actually prices out the benefits. The ACR as Bob said insures that the cost sharing for the beneficiary doesn't exceed in the aggregate the Medicare fee for service equivalent which I think is about $105.61 or $106. That's one of the primary purposes of the ACR. The PBP however which has to be in sync with the ACR is actually a document filled out by the plan on site listing all of the benefits and it flows into (indiscernible) electronically, into CMS electronically, and it actually feeds into the Medicare Compare website and it also feeds into a document called a summary of benefits which is a document that the plans provide to their beneficiaries showing what changes are going to be coming up for the upcoming year.

    We've done a lot of work in terms of improvements but I think I'm going to reduce it to the fact that we've automated as much of the process as possible in terms of the submission of the ACR and submission of the PBP. I think we're doing pretty well on the ACR submissions. The PBP is an evolutionary tool. There are instances where the benefit the plan wants to offer don't fit neatly into the standardized language required by the PBP so we have lessons learned conferences where we invite the plans in and talk to the people that know the most about the PBP from their perspective and try to make these changes. But we've tried to alternate as much as possible.

    In terms of additional possibilities for burden reduction to the ACR PBP process, there's some of them that move the ACR submission date from July 1st to September but of course that is legislative but it's worth mentioning. We could eliminate the one-third ACR audit requirement which is legislative. In the BBA I believe it was, CMS was charged with auditing one-third of the plans each year in terms of the assumptions and data use to back up their ACR submission. It's a very labor intensive process and basically we have to audit one-third of the plans every year. Perhaps there could be some flexibility there that we really just want to use data and just visit those plans that we think there's a problem versus every plan whether we think there's a problem or not. So I think there's some flexibility there legislatively.

    We could also eliminate the requirement for the actuarial review of the ACR's. I believe it was in BIPA that said that the CMS actuaries had to review the actuarial assumptions in the ACR document. That is virtually impossible to accomplish given the time frame so we've talked about a retrospective actuarial review of the assumptions in the ACR. Perhaps that could be folded into the PBA audits which perhaps would be -- we'd have more flexibility in just one site to those plans that we want and consolidate it. That's certainly one of the top priorities of the industry.

    And there is something we can do and we're looking into that right now which is actually reduce the amount of documentation that comes in with the ACR and perhaps just indicate to the plans, keep it on site if we need to see it, we'll look at it then but don't send it in.

    One of my favorite topics. Marketing. You'll probably hear a lot about marketing today. Marketing by law, CMS must review marketing materials within 45 days of submission by the plan or in effect they're deemed approved where we only have ten days to review them or if not, they're deemed approved if it's model language. The entire purpose of the marketing review that's conducted by CMS staff is to make sure that the information is accurate. We try to be as consistent and timely as possible. The marketing review is carried out by the regional offices and the guidance -- in fact I actually think there's a manual chapter on marketing now up on the web and it was actually prepared by the folks in central office in close collaboration with the regional offices.

    In terms of marketing, there's several improvements that I think are worth mentioning that we've already used and I'll just mention three of them. Use and file. To a limited extent, we've been using use and file in regions nine and ten which is the San Francisco and Seattle regional offices. And basically based on the good performance of a particular plan and our review of their previous submissions if they're 95 percent accurate over "x" amount of time, we'll allow them to use certain materials. They can actually release it to the beneficiaries and provide us a copy at the same time. So it's an incentive for the plans to do a good job first time and it's an incentive for us to work with them in that area. And we're actually working on that now.

    We've also implemented a systems module for the first time this past summer which I think contributed to a better marketing review process where basically we've opened up the system, the CMS system, so the plans as well as the managers can see how long it's taking to review the marketing materials. And it's like anything else, if you're going to measure something, chances are the performance is going to improve. So the plan can actually go in the system and find out who's got what and it's helped me manage the process somewhat better. At least the agency because now if we see bottlenecks occurring and things aren't being approved timely, we can move resources around. So I think that's helped a lot and we just began to scratch the surface in terms of what we can do with that data.

    And we've also implemented the lead region concept. If you were a national plan dealing with five or six different regional offices in CMS, it was very much of a challenge to have any of your materials approved consistently. So we basically set up a lead region so one national plan deals with one lead region and that lead region speaks for the other ones and it just avoids a situation where a plan has to negotiate changes or improvements with five or six different regional offices.

    Additional possibilities. Expand use and file. We think we actually need legislation to expand this on a permanent basis although we are testing it and have been testing it in several regions. I think it's an incentive for the plans to know that they don't have to have CMS review if the information is accurate. I think it's a win-win situation, certainly something I'm very much involved in and support. We want to continue our use of the model language wherever possible. We have beneficiary focus tested model language and we make it available to the plans and it shortens the review time. We think a lot of the plans do a good job in marketing material reviews. A lot of them don't. A lot of the regions do a good job in reviewing the materials, a lot of them don't. We'd like to come together with the industry and come out with some best practices based on the things that are working the best and we'd like to see some plan quality control to reduce some of the errors as well as in the regional office.

    We've had some GA studies and one was several years ago where basically the GA staff said HCFA's review, HCFA at the time, HCFA's review didn't pick up two-thirds of the errors that had been submitted or whatever so. The marketing material -- the marketing process is very labor intensive for the industry and for us. But ultimately the goal is to provide clear and accurate information so we're very interested in pursuing this. It's going to be a challenging area but it's something we have to be involved in.

    Performance assessment goals. Basically, this is the MCO monitoring program that I referred to earlier that once a contract's been signed, the responsibility or rather the focus then shifts to the contract administration. One of the primary purposes is just to enforce beneficiary consumer protections. We want to make sure in fact if -- that the appeals are timely delivered, that the language in the appeals is accurate. So we look at that. We want to make sure and this is the challenges in marketing material, that the reviews which are conducted across the country are consistent and accurate and timely. We want to make sure that come May when we have an opportunity to not renew a contract if CMS so desired that we would actually have some information on which to base that decision but that has not happened. And also just to promote program integrity.

    Now, how does CMS perform the monitoring? Basically, it's accomplished through two processes. One are routine and special audits and that is where a federal team of three to five auditors will spend perhaps a week on site at a plan at least once every two years. And they basically go through every aspect of contract administration. At least that's how it's done now. We may we have a special audit. We had a situation down in South Florida where we did a focus marketing review of all the plans involved in South Florida because there were some alleged marketing abuses. So we actually sent a team out and we each did each one of the plans and we documented what we found and issued reports to them or letters closing out the appeals. But generally speaking, it's once every two years unless something else comes up.

    We're also, and I'll go into this in several more minutes, we look at a lot of data. There's a lot of data that emanates from the plans. Data the plans have available to them, it's available to us, and we look at that and we'll see if there's anything that would trigger it. If for example, we saw that claims were not being timely paid by an HMO, by a particular plan, or the appeal rate was high, chances are there's a problem and we're probably going to send someone on site or at least we're going to talk to the plan.

    We work closely with our other partners, the plans, the states. In fact, yesterday the staff from the San Francisco region office met with the regulators in the State of Arizona to see how can we work together on this and avoid some duplication of effort. We're also working with the advocacy groups and the private purchasers, the VA group. We want to see how some of the employers evaluate the performance of their plans. They're talking to us. We're talking to them to see if there any best practices we can share.

    And we're also excited because we're now going to be working through some private accreditation organizations through (indiscernible).

    Performance assessment. Probably just one or two improvements before I go to the additional possibility. We have come up with a new streamlined monitoring protocol. We basically took the previous protocol we had and we went through it with the help of a consultant and we eliminated as much duplication as possible. We're also tracking it the way that the manual that Bob puts out is organized. It's not perfect but I think it's a lot less labor intensive than the one that we had. The number of elements has probably been cut by 60 percent but again it's not -- we're not at the data driven aspect of it yet but I think this is a lot better than it was.

    And we just started conducting pilots of the multi-team plans again. Again, if you're an HMO and you're national, rather than have three or four different regions monitor you, we've actually pulled together a team. One person form each region where you have a site and that team and that team alone will monitor you. It's certainly better from the plan's perspective and I think it's more consistent from our perspective.

    We're also looking into the use of consolidated audits. CMS alone has at least four audit requirements that I'm aware of. We do the special or focused audits. We do the BBA audits. We have HEDIS data audits and we have ENCOUNTER data audits. So we've got a team working in CMS that will be working with the industry also saying is there any way we can consolidate this. Instead of having four sets of auditors, teams of auditors going on site, can we consolidate our needs and perhaps do less frequent auditing. I've got a preliminary report back yet that I'll be talking to the industry about. It seemed like the greatest area for eliminating duplication of effort in terms of consolidation was probably with the states. The number of recommendations have come out which is only audit when you have to, work with the states to avoid duplication and better train your auditors. That's some of the findings so far. But we're going to be doing a lot more work in that area.

    Additional possibilities. We're now in the process of moving to a much more data driven monitoring program. We have a lot of data from appeals, HEDIS, CAMPS, disenrollment data and we'd like to reduce the reviews for the high performing plans. We'll see them less often if the data coming in shows that there doesn't seem to be any problems there. It's a significant effort and there's going to be a lot of industry collaboration on this.

    We're also talking about the use of pilots. If a particular organization and a lot of the plans do have very extensive and complete internal audit programs. They're in compliance programs. Maybe we'll tap into that if we're convinced that the plan has a good compliance program, perhaps we don't go inside as often. We basically rely on their program.

    And we're going to also -- I guess you could also legislatively expand the use of dealing. I believe right now dealing is only in six areas but it's been suggested by folks perhaps you would expand it more.

    So when I look at the areas that operationally that I think that we're focusing most of our effort on this year, I've talked about two of them so far. One more at the end. There's basically marketing, monitoring and reconciliations which I'll go to in several minutes.

    Quality. By law, the M+C organizations must have a quality assessment performance improvement program. And of course you know they all do. M+C organizations have for quite a while been collecting HEDIS data and CAMPS data and of course M+C organizations have to perform a quality assessment performance improvement project. I believe that there used to be two or three of those required. Now it's just one a year.

    So in terms of improvements, I'd like to maybe skip over them and look and really focus into probably some exciting additional possibilities. We'd like to explore, the agency would like to explore opportunities to recognize and publicize high quality performance plans, plans that have done well in a number of indicators. For example, if you did well in HEDIS in 2001, you didn't have to do the required QAPI project. Some of the employers are working with their plans to do this and we'd like to do the same thing. And we'd like to continue to work with industry to identify the appropriate quality assessment performance improvement project that we've selected over the next several years.

    Let me reduce -- I have two slides on the M+C payment demonstrations and I'm going to move through rather rapidly. I think the point is that this past summer in numerous meetings with the administrator, Mr. Scully made it clear to us that he was looking for innovative ways for plans to participate in the M+C product outside of the traditional M+C program. And we went through a very accelerated time frame to identify certain demonstrations. Especially focusing on those plans that were just not having much success at administering the M+C program for a variety of reasons. They had basically just said it's not something we want to participate in and as a result of a lot of activity with the industry and with CMS, we were actually awarded five or six M+C demonstrations. They mostly were centered around different ways of paying the plans in terms of risk corridors, paying in a certain percentage of fee for service, changing the M+C payment. Most of these were transparent to the beneficiary. The one -- probably the one demonstration that comes to my mind is Humana in DuPage County, Illinois switched from an M+C product to a private fee for service product. But most of them were in fact transparent to the beneficiary.

    I think that was the first phase of really a two-phase process that the agency is very interested in. The second phase is actually going to be rolling out now. We're going to encourage more innovative models in M+C especially PPO's and HMO's with point of service to give people the same broad -- Medicare beneficiaries, the same broad choices that they have now as commercial enrollees. The target is for solicitation some time this spring and I believe we're on track for that. A solicitation will go out to the industry. We'd like to make the awards by summer and actually begin to enroll the people January 1st, 2003. So it's an ambitious schedule but the administrator basically has told us to pull out all the plugs.

    There needs to be a significant amount of outreach in terms of CMS to the industry to find out from your perspective what do you think would work for the Medicare beneficiary so I just want to stress that as opposed to perhaps previous efforts. I think this will be a significant amount of outreach.

    And also in terms of demonstrations, we also provide some flexibility with regard to the current M+C requirements. Now we're almost in the home stretch.

    Improvements. Well there primarily were four categories I talked about. The ACR, marketing, monitoring and quality. But there's some other things we've been doing that didn't fit neatly into any one of those and on this particular one, I think I just want to focus on the resources on reducing inventory with special status retroactive actions in terms of what we've done and then on the next level, go in terms of what we're doing.

    For a variety of reasons, a backlog of retroactive actions has built up in the plans and in the regional offices. As Bob said, you're actually paid, the HMO's are paid on -- based on a demographic rate so people can move from one rate cell to another for a variety of reasons. Those changes need to be recognized so the payment to the plans is accurate and there's some cumbersome processes that the plan and the regional offices have to do to make that correct. We've been spending a lot of time on that.

    We discovered there was actually a backlog. A lot of the regional offices weren't working these because of other higher priority items that they had to work on plus a lot of the plans basically had just -- had allowed an inventory to develop. So we sent a letter out to all of the industry and we said give us all of your materials and all the backlog cases and we've actually contracted out with a company to take care of those. The backlog is pretty much reduced. I think for some of the larger organizations, we're still working with it. But we've processed thousands and thousands of these on retroactive actions and millions of additional dollars have gone out to the plans so I think we're proud of what we've done in that.

    But I think moving on to the additional possibilities, right in the first one. A lot more has to be done. I think the ultimate goal with the retroactivity issue as we call the reconciliation is to allow as much direct input by the MCA's as possible into the CMS system that's going to reflect that change. For example, in the state and county code, this summer the plans will actually input that directly into a CMS system rather than going to a contractor who goes through a different process to do that. I think that's a long term goal. In the interim, we're also going to make an award this spring to another contractor. It may or may not be the same one that's doing it now to basically take over responsibility for all the retroactive actions. So they will not flow into my office anymore and I actually had a lot in there. They won't flow into the regional offices anymore. WE'LL have one organization doing them. I think it will increase the consistency, the timeliness and the accuracy of the review and probably for the first time ever, we'll actually get a handle on what different types of actions are flowing through the system which might help us figure out what is the root cause of this.

    But again, long term, I think I'd like to see -- I'd like to get out of the handling the reconciliation business and move on to some other areas.

    We've also talked with several plans and I don't think -- I'm not sure if this would be -- I don't think we need legislation for the first thing about the improving reconciliation process. I don't think we need legislation for the second one. Right now, as Bob said, there are 140 rate cells per county and there's 3,250 counties so we're in a -- and managed care organization. What if someone in that payment rate could be one of a half a million payment rates.

    What we'd like to do is simplify that and make one payment rate per person throughout the contract year and have some type of reconciliation at the end of the year, put in a dipstick, pull it out, say this is what we agree on, maybe even a third party does it and either -- and just at that point reconcile and be done with it because it's a very labor intensive process.

    And last, I know we spend a lot of our time in terms of retroactive adjustments and working in aged. I think there's a lot of different ways we can go and work in aged. I think legislation is going to be involved but one way that I think makes a lot of sense is actually incorporate the work in aged adjustment at the -- by the actuaries and have it flow through the payment rates and really get out of this process where the MCA's have to track down every Medicare beneficiary and report them in a cell by a cell process.

    So, I'm sorry I may have gone over. I see a red light there. I thank you for the opportunity to present this to you and as I say, this is not the entire list of what we've done or what we plan to do but I think it's a good starting point. Thank you.

    DR. WOOD: Very good. Pretty soon your alarm will be set for tomorrow for Orlando without the red light. We do have a little bit of time for questions from committee members before we invite our panelists for a view from the fields so are there any specific questions that committee members have? Eric?

    DR. OLSEN: You mentioned that you were doing some demonstration projects and you're getting industry input, et cetera. Is there any avenue for beneficiary input into the construction of those demonstration projects?

    MR. BAILEY: The answer is yes. We have a focal point within the agency and I will give you the name of that person. David Crites is actually the person that works out of the office of Tom Scully, our administrator, along with Leslie. And he's working in close conjunction with the staff and CBC, Sid Treedman (phonetic) and Sharon Arnold. So I think they can provide you a lot more information on that. But we're really looking for innovation here. Good products for the beneficiaries.

    MR. FAY: Thank you, Mr. Chairman. My question is administratively is there anything CMS can do to increase enrollment opportunities in rural areas. I think I've read a lot of material where the rural areas are particularly the under served by Medicare+Choice because of the unwillingness of plans to go into those areas.

    MR. DONNELLY: That's a tough one. I think that some of this may be -- I'm not involved too intimately with the demonstration possibilities. There may be something that could happen there. The difficulty there is a couple things. The first is payment and the payment rates have been increased but the question is whether the increases are enough to have the providers in those areas be willing to play with managed care. And so it's not clear that it's a tremendously viable option in those areas to have a really strongly tightened managed care product. There are private fee for service options that are moving into a lot of those areas but it's not clear that there's really a strong ability and maybe the folks from the industry can talk about it later. But it seems like it may be -- it's kind of not an administrative issue so much as a market issue. And so hopefully there may be some way to do stuff related to the demos where we can try to mitigate the risk of going into those areas for some plans. But I think it's a broader issue than our administrative requirements.

    DR. WOOD: Thank you.

    MR. FAY: I'm trying to follow up. We had a presentation yesterday from Senator Kyl's health person relative to making it mandatory if you're in a state to have the whole state -- without getting into that issue, is that a legislative thing that it goes county by county or is that a regulatory requirement?

    MR. DONNELLY: The payment rates are county by county under statute. They could be broader. Provisions to allow a state's governor to choose -- to ask for a broader service area or for a payment -- I mean for plans. Ultimately that has never been requested by any of governor because really what you're talking about then is it has to be budget neutral so you're taking money out of the places where there are higher rate and you're putting it into places where there are lower rates so it gets down to a difficult decision at that point.

    The service area is not statutory. But the general process, thought process has been if the payment they're going to be at a county level and you know, we have a lot of plans that can cover only, you know, certain counties, certain areas. They can't cover much, you know, tremendously broad areas, that the logic has been to tie as much as possible the payment area concept to the service area concept so that's at county level.

    I hope that answers your question.

    DR. WOOD: Bill.

    MR. TOBY: First, Gary and Bob, I'd like to thank you for a splendid presentation on this complicated topic. I have two questions. One deals with an issue I have a very keen interest in and I wondered if you, Bob, or you, Gary, can comment on. It has to do with the lock-in requirement which I know is -- which is legislatively imposed. But to me it seems as though it put beneficiaries at a much higher risk of higher copays and the reason that they have higher copays is because plans are facing rising costs and CMS cannot pay. As you said, Congress sets the payment rate. So consequently, beneficiaries now do not have the freedom to shop in the market place for a plan which is going to have a lower copay.

    So it seems to me that this is utterly unfair and I just wondered if you could just comment on that for me. And then I have another question to follow up.

    MR. BAILEY: I was just –- we're very aware of the lock-in requirement because a lot of the responsibility for how we're going to do that from an assistance point of view falls in my shop. The only thing I could say at this point about the lock-in requirement is that it's currently the law. It went into effect January 1st and that we'll implement it and really until we hear anything different. But I'm well aware of the pros and the cons associated with it because a lot of the operational issues or challenges that the plans will have to face also I have to face but we're aware of that.

    MR. TOBY: Okay. Well, good. I'd just like to have some hope that eventually this will change but it's up to Congress and I know that. The second question I have deals with my time in CMS which used to be HCFA. One of the great pains I had was whenever a new plan would apply for -- enroll in the program and I'm talking about the application process, it would take up to six months for a plan to be approved and I'm sure you've made improvements since then. I just wonder if you can comment on what has been done or what is being done within CMS to kind of reengineer the application process in terms of the standards you use for evaluating contracts and that sort of thing. It used to take forever. I'm sure you've made improvements.

    MR. BAILEY: Yes, thank you. Yes, we've made improvements. Quite frankly we haven't had a lot of applications recently. The inventory of applications is not as it was in the --

    MR. TOBY: They may not apply because they know it takes forever.

    MR. BAILEY: I don't think that's the case. What we did, we found a lot of the applications for example are service area expansions. And in other words, they're requests from contractors we've dealt with over the years, we know them, we know their healthcare network. It's just to expand into another county or another part of the state. In those cases, we actually have something called the accelerated service area review process. It doesn't take anywhere near the 19 weeks. We've done them rather quickly. Basically if you can convince us, you're just going to take what you already do and move it to another county, the only thing we're going to focus on is anything different that you may be doing. And with many plans, they're not doing any different.

    In terms of available application. Some of the delays may have been around a while back but they're really not there anymore. The ones that have come in recently have been rather quickly. Now -- have been processed quickly. Some though have "dragged on" because we've gone back to the plan and it's a new contractor and they just -- they need to get consultant help or think about what it is. So it used to be the benchmark was 19 weeks, worst case scenario. But if a particular plan just needed to provide us more information or think about what they wanted to say, it could take more time. But right now, I can assure you if an application comes in, it will be promptly processed. I can assure anyone of that. So if you have any applications now, we'll start the process right now.

    MR. TOBY: Thank you.

    DR. WOOD: Good. Heidi.

    MS. MARGULIS: Thank you, Mr. Chairman. As one of CMS's largest contractors, I would say we've forgotten how to apply for a new plan. So with that in mind, I have a couple of questions. The first has to do with lock-in, Gary and this may I think go to Bob if I'm not mistaken. I had heard that in one of the manual revisions that with regard to a Medicare+Choice organization that has two plans in an area, that if one plan is a zero premium plan, soon to go into extinction but they still do exist out there, and they have one that has a premium and a beneficiary fails to pay the premium and wishes or wishes to change to a zero premium plan, that that would not -- that would be considered a special enrollment period and not subject to lock-in provisions. Is that true?

    MR. DONNELLY: Well let me just provide a little background about what special election periods are just to make sure everybody understands. The law has a lock-in provision which says the beneficiaries can make one decision to leave their plan between January and July of this year. And then after July 1st, they're locked in. They can't make an election until the beginning of next year.

    But the law also provides the Secretary authority to account for exceptional conditions that would allow a beneficiary to -- should allow a beneficiary to make a choice outside of those time frames. And this is one of the questions that -- this is what the question is about. And the problem specifically about this is that the law specifically talks about the lock-in at a plan level. And what we have in our program is we have organizations that offer plans. So if you unite as an organization and they have a bunch of plans. And the plan is the benefit package in the service area. And so basically the law said that the beneficiary is locked into a plan whether that was intended or not but that's what the law says.

    And so how we interpreted it up till now is that if a beneficiary is in a benefit package in a service area, they are locked in under the current rules. The specific question though is, you know, the beneficiary doesn't pay their premium in a plan that has a premium and there's one available in the service area from the same organization that has a zero premium. Could we consider that an exceptional circumstance under the special election period rules to allow the beneficiary to move within the organization to that other plan? And that is under evaluation. I think we're likely to move in that direction. That's something that will come out in the next week or two. The kind of thought process behind that could have been that a move like that would be that if a beneficiary doesn't pay their premium, they could be disenrolled without their consent because they didn't pay their premium which would trigger the ability to make another election and so they could move into another plan. So you could argue that that's an exceptional condition that we shouldn't go through that administrative hassle of dumping them out like that. So I can't answer it for you specifically but in the next few weeks, we'll have something that addresses that.

    MS. MARGULIS: Gary, what are the top three priorities from your department's standpoint? You have a list of areas of possibilities but what is CBC's healthplan's areas top three?

    MR. BAILEY: In terms of where I sit, it's the three that I mentioned. I think it's monitoring, marketing and reconciliations. Bob may say something a little different policywise but from where I sit in terms of my dealings with the MCA's, most of the contention -- those issues rise in those three and that is to make sure that we are more consistent and less burdensome for both of us in the marketing review, to find better more focused data driven ways to monitor the plans and assess their performance in conjunction with other entities and thirdly, to basically move the backlog out, make the payments to the organizations, contract out in the interim and look for ways beginning this summer for direct plan input. So I tend to think of marketing, monitoring and reconciliation but it's not the only three but that's the top three.

    MS. MARGULIS: Okay. I have one more. I have several more but I'll take one.

    DR. WOOD: Well let's do one more, then we'll start looking at others.

    MS. MARGULIS: Just then as feedback to you in terms of -- from this organization's standpoint that in order to reduce enough administrative burden for plans to stay in the program, from a plan perspective, we look at it in terms of savings because the savings to us go back to beneficiaries in terms of additional benefits or to providers in terms of network stability. So that to use our corporate term, we would score each of the improvements in terms of savings as you well know. And so from where this person -- this relic of 16 years sits, those might be reducing the amount of data that is required for (indiscernible) collection for the payments beginning in 2004 in terms of risk adjustment from the perceived 25 diagnoses groups to between 25 and 100 down to between 6 and 15 saving the industry as a whole around $200 to $300 million which I would think that beneficiaries would like to see in continuing prescription drug benefits and providers in terms of payment.

    Secondly, that the agency followed kind of Congressional intent in terms of how risk adjustment was to be administered in terms of budget neutrality for the risk adjustment payment.

    And thirdly, as you mentioned in terms of special status, on our ability to input all special status, not just state and county code but all of those as a whole. Thanks.

    DR. WOOD: Thank you. Kristin, we'll take yours as the and I would like to start on our panel. So go ahead.

    DR. CROSBY: Thank you, Mr. Chairman. A comment and perhaps a response. As somebody who works for one of the new applications for a Medicare+Choice organization that is not an HMO, I would comment it took much longer than 19 weeks or six months and much of the difficulty and lengthening of the time seemed to be related to the fact that there was very little familiarity with private fee for service plans and because we are outside the HMO template, there was little preparation. And so perhaps the reason there had been few applicants for PSO's private fee for service point of service plans is because as was implied earlier, it is known that it'll take a really long time if you fall outside the template. Anything you can do for that?

    MR. BAILEY: Well, that's interesting. The first private fee for service product that came across our desk was the Sterman (phonetic). It took probably a year at the time between us working with them and just working with the (indiscernible) because we had never seen this. This was a hybrid between fee for service and managed care. And it really pointed out to CMS that we needed to be talking to a lot of other people within the agency.

    Once we got over that hurdle, for example, we had another private fee for service application come in from another organization that moved along rather rapidly. But what we've done to address what you just said is we pulled together a cross cutting team called the product consistency team.

    DR. CROSBY: Called what?

    MR. BAILEY: It's called a product consistency team. In effect it will work within CMS and it has members of Bob's shop, the assistant's shop, our fee for service colleagues, members of my shop and all the regional offices. And if an application comes in, it's going to go to this particular team. I think that the first one we had to write and working with it, basically my staff was snowed with HMO's. We did move through a PSO application pretty quickly but quite frankly we haven't had a lot PSO applications and I don't think it's because they think it may or may not take a long time within CMS. I think there's a lot of other industry concerns of that just being a PSO.

    But with regard to private fee for services, that was one of the demonstrations in DuPage County and we basically had an organization that also had to go from thinking about a closed panel agent with a private fee for services. And I think we went through that rather, very rapidly. So I would hope that it's not because someone thinks it's going to take a long time because it won't. But again, that was a complicated product and we've set up a mechanism that was not in place before to handle that.

    DR. WOOD: Gary and Bob, we appreciate your opening discussion. If I might ask you to take a seat in the audience or around the end of the table so we'll have enough room for the next group of people that I would like to invite to the table for perspective from the field. We have four people who have been so kind to help us this morning. And as they are coming up, I'd like to introduce them to the audience.

    Ms. Pam MacEwan is the Vice President of Public Affairs for Group Health Cooperative in Seattle, Washington. We have Mr. Steve Tucker, the Vice President of Regulatory Compliance for Pacificare Health Systems in Santa Ana, California. We have Dr. Joseph Johnson, who is the Chief Medical Officer of Sun Health here in Sun City, Arizona. And we have Mr. Donovan Ayres who is the Director of Medicare Compliance for Blue Shield of California from Woodland Hills. And in the order of affairs here, I would like to ask Ms. MacEwan to lead off unless you have made previous arrangements between the four of you. Okay. Pam, you can go ahead. If you want to stand you can, otherwise you can just go from right where you are.

    MS. MACEWAN: I would prefer to sit if it's all right.

    DR. WOOD: You're welcome.

    MS. MACEWAN: Thank you.

    DR. WOOD: Go ahead.

    MS. MACEWAN: And I'm going to read some of my testimony which is against all of my principles but this topic is so complicated and detailed, it's hard to do it any other way.

    Good morning, members of the Commission. I'm Pam MacEwan, Vice President for Public Affairs for Group Health Cooperative in Seattle, Washington. We were founded in 1947. Group Health is a not for profit with over 600,000 members, it's the nation's largest consumer government healthcare organization.

    Group Health has a national reputation for it's commitment to providing high quality care and to developing innovative programs to improve our members health.

    Recently both our commercial Medicare plans were reaccredited and received the highest ranking from NCQA. Group Health has more than 25 years experience in serving Medicare beneficiaries. Shortly after Medicare's creation, we began working with the government to design a program that would allow Medicare to work with prepaid healthcare organizations like Group Health. In 1976, we were the first organization to partner with the government under the Medicare Risk Program. Today we serve 60,000 Washington state beneficiaries under Medicare+Choice. We appreciate this opportunity to participate in the Commission's work to address regulatory requirements that Medicare providers face and that in many cases have led to unintended consequences for beneficiaries.

    In recent months, CMS has taken steps to improve the M+C regulatory environment which I think you just heard about. Aside from the program level changes, such as those related to Quizmik (phonetic), we at Group Health have noticed other improvements particularly in a more collaborative approach on site review. According to our staff, the CMS region ten reviewers demonstrated a collaborative approach as they assessed our compliance with Medicare+Choice rules and regulations. Even when they found something not quite right with us, they worked with us to solve these problems.

    Without question, Medicare+Choice plans must be held accountable to CMS and to the beneficiaries they serve. The current oversight approach, however, often results in plans expending substantial resources on activities and in our view brings CMS and beneficiaries very little value. Group Health supports the Commission's interest in making requirements more effective and efficient for CMS plans, providers and beneficiaries.

    With that in mind, we offer two specific areas in which we believe the current requirements and approaches could be improved in ways that squarely align with the Commission's goals. The first area relates to the on site review process which is the primary approach used by CMS to assess compliance. The second relates to the linkage between adjusted community rate proposals in the plan benefit package and the summary of benefits.

    In October 2001, CMS notified Group Health that it would conduct an on site review of our Medicare operations in December. Approximately 50 staff members contributed to preparing for the review which entailed compiling information that filled 79 three ring binders. Stacked on top of each other, the binders would reach a height of 20 feet. The information documented Group Health's policies and procedures to meet the broad ranging and very detailed requirements set forth in the monitoring guide, CMS's primary tool for assessing compliance.

    We recognized that CMS has initiated work to reduce administrative burden by streamlining the monitoring guide. In addition to this work, we would also like to suggest that CMS re-examine a fundamental aspect of the current monitoring approach, namely that each requirement seemingly receives equal weight. This approach contributes to the administrative burden and in many cases the resources necessary to comply far outweigh the value gained for CMS or for beneficiaries.

    We also would encourage CMS to work and develop tools that may reduce a need to submit such a large volume of information and use data such as CAMPS and HEDIS data in ways that could better pinpoint compliance issues that warrant closer scrutiny. By no means are we suggesting that CMS not examine compliance issues. But rather we urge CMS to consider an approach that would recognize consistent good performance and focus a review more closely on areas identified as problematic. Such an approach would result in more efficient use of resources for both CMS and plans and enable plans to concentrate their efforts on improving areas that have greater impact and beneficiaries.

    To illustrate, CMS staff during our review requested that we change some of the language used in the explanation of benefits which is sent to beneficiaries. While this may sound straightforward, Group Health will need to make many systems changes to accommodate the new language. We felt that this new system not even seem to be an issue. We had not received any complaints from our members about the language. We should not have had to make the change.

    Aside from financial implications, we are also concerned that the language change could cause concern or confusion among members.

    Our recommendations are consistent with decisions recently made by CMS regarding monitoring of clinical quality. Specifically, CMS will recognize plans that have achieved high level clinical performance as measured by HEDIS data. Plans that meet certain parameters will be exempt from conducting the project to redemonstrate the performance. This decision is very much appreciated and embodies the goals of efficiency and effectiveness that Group Health is suggesting with respect to the on site review process.

    The Balanced Budget Act of 1997 established an information campaign program to insure that beneficiaries received timely and easily comparable information about Medicare coverage options. Group Health without question supports the goal of this project. To help accomplish the program's objectives, CMS developed electronic links between our ACR proposal and a worksheet known as the plan benefit package which in essence translates information from the ACR into a description of benefits.

    The PBP in turn issues to generate a summary benefits for distribution to beneficiaries. In order to correspond to the high level of detail in PBP, CMS modified the ACR so that it now requires much more detail than it previously did. Reporting this information in the ACR requires plans to develop systems for capturing the data at this level of detail and expend time and resources to analyze the data.

    For example, plans must describe the copayment information for 12 types of healthcare professionals in the PBP. As a result, the copayment information previously summarized on one line in the ACR for all types of healthcare professionals now must be apportioned across all 12 types of healthcare professionals in the ACR. If a plan has 12 different copayments, that flexibility could be valuable. However, for the many plans like ours that have only one outpatient visit copayment for all types of healthcare professionals, reporting this additional detail is time consuming and costly. The additional data in the ACR does not add value for beneficiaries nor is it relevant to insure the appropriate use of federal funds or computation of beneficiary premiums.

    In many cases, the computed number is so small to the fourth decimal place that it does not have any actuarial or statistical significance.

    To facilitate generation of the summary of benefits to link in the ACR and PBP, CMS standardized the format and language used in the document. However, we have found that CMS affords plans no flexibility in deviating from the standard language and then in some cases, the standard language does not best describe our benefit. As a result, language can become more confusing to our members. In one case, a member after reading the summary of benefits called because he was unsure whether a particular benefit would still be covered. The standardization project also affected the length of our summary of benefits which grew a link from two pages a few years ago to 19 pages this year. This important document became overwhelming in length and in our view actually less helpful to the beneficiaries.

    In summary, there is no doubt that the current regulatory framework has contributed to instability in the Medicare+Choice program. In our comments, we have not described the current Medicare+Choice regulatory environment in a very positive light. Our goal is by no means to assign blame but rather to offer constructive information for improvement to benefit CMS beneficiaries, providers and healthplans. Achieving improvements will not be easy but our recent experience shows that it can be done. Group Health is pleased to have the chance to offer a few recommendations here today and committed to working with CMS and other stakeholders in achieving the Commission's objective of regulatory efficiency and effectiveness. Thank you very much.

    DR. WOOD: Thank you, Pam. Mr. Tucker.

    MR. TUCKER: Thank you, Mr. Chairman, and I'm very happy to be here to talk to this Commission. And I'd like to commend the Secretary for establishing this. I really look forward to seeing some of the fruits of the recommendations that I'm sure you'll be providing.

    My name is Steve Tucker and I'm the Vice President of Regulatory Affairs for Pacificate Health Systems which is currently the country's largest M+C organization. We have about 850,000 members. A couple of years ago I was able to say we had over a million members which was the case but we have seen our membership decline which is largely attributable we think to inadequate federal reimbursement relative to our healthcare costs.

    But in addition to the funding problem, there are administrative burden issues that we think CMS can solve and we certainly heard some of those this morning. I have prepared a written testimony. I'd be happy to share that with folks where I hit on about ten or 11 of those issues, a couple of which Gary mentioned and if I was able to talk as quickly as Gary is, I could probably get those in this oral testimony but I'm just going to hit on two of them in the oral testimony.

    And one of them is one that Gary hit on, the other one is not. But I want to talk about reconciliation in particular because it is a big problem with plans. You know we're prepaid organizations but in reality we just spend a lot of time on the back end making sure that our payment is correct. Of course, our payments are adjusted for things like institutional members, working aged, people who are entitled to both Medicare and Medicaid as well as when people move to a different state or county or for folks who have ESRD. CMS uses a lot of different processes and systems to track these sorts of changes and adjust our payments accordingly and some of them work well but most of them don't work that well. Institutional probably is the exception. It works pretty well where plans report the data and then it's subject to back end review by CMS.

    The trends or the problems I think that underlie the other areas include the data that CMS uses to adjust the payments is not that credible. Secondly, once plans identify payment errors, it just takes too long to get it fixed. In many cases, we have identified things and two years later, we still can't get the record corrected even though eventually it may get corrected.

    CMS system glitches occur that increase the prevalence of the problem. You know, I could probably have developed charts to show all the different systems that have to touch other systems in order to get the correct payment outcome but suffice it to say there are breakdowns along the way. And as a result of that, plans just spend too much time chasing these payments. Let me give you an example. Last year, for two of these categories alone during the calendar year 2001, we recovered almost $30 million in ESRD underpayments based on a 1,000 records, a little over a 1,000 records that were incorrect in the systems and for the same period on the working aged category, we recovered a little over $11 million in underpayments based on almost 6,000 incorrect records in the systems. So the point I guess here that I'd like to make is, you know, we had to chase $40 million in underpayments and we're supposed to be a prepaid organization and have those monies on the front end.

    So I guess what I would propose as a solution is that for ESRD, working aged, and state and county codes, the plans be able to directly input that data onto the systems and then be held accountable for its accuracy by signing payment attestations and subject to back end audits, you know, if we were making claims under the false claims act that it proved to be incorrect. I think you'd find we would take that process very seriously.

    For Medicaid, I'm not sure if direct input's the answer although I think that needs to be explored but I would certainly encourage this committee to ask CMS to move very quickly and establish a task group to look at that and make recommendations. Gary alluded that this was the long term goal and I would suggest it should be a shorter term or intermediate goal to move to this because it's a serious problem. And CMS should also immediately eliminate the 36 month retroactivity adjustment policy that they have in place currently.

    The second issue I want to talk about I guess falls in the category and I would underscore what Pam said in terms of, you know, the agency has done a lot to work with us and we have good relationships with the agency. It's just that in some instances, it's from a plan's perspective, it seems like the agency does put more emphasis on following the rules than doing what's right for beneficiaries and I want to give an example of something we're living through now.

    Increasingly in our markets, we're finding that the medical groups that we contract with want to have differentiation in the market. These medical groups used managed care techniques to manage their costs, quality and service outcomes and they'd like to sort of be differentiated according to, you know, their costs or their quality, their service levels and so forth. So at Pacificare, we have been looking at ways to develop more provider specific plans. Gary mentioned that weren't a lot of PSO's coming into the organization. I would say it's more of a risk issue as opposed to, you know, how long it takes to process an application or something else. But in any case, CMS does allow us to offer these provider specific plans but they have overly strict and counterintuitive requirements when we elect to do that. So let me give an example.

    Last year in one large county, we went from a single benefit plan in the county to two provider specific plans. They were two large delivery systems that covered the whole county and they each wanted to have their own plan. So in having to decide how we would map members to those continuation plans, CMS required us, the organization, to pick one plan and map all of the members to that single plan and of course from our perspective that was very problematic because the plan you didn't pick wasn't going to be very happy with it. And it creates capacity issues when you have to load all of the members onto that single plan so there could be access and availability issues. There's discontinuity of care because, you know, whenever we talked to consumers about why they pick one plan over another plan, choice of doctors is always at the top of their list.

    So we propose that we would map members to the plan that was associated with their current primary care physician. We weren't allowed to do that and as a result, we had to go through a lot of expense to communicate to members as to why this made sense because members didn't think it made sense. And at the end of the day, just to tell you, we disrupted 12,000 people from their current primary care physician and by the end of January, 10,000 of those people had to reenroll in the plan that was affiliated with their original primary care physician. So at the end of the day, the data suggested that members did want to stay with their primary care physician when that was an option.

    So in this regard, we would strongly recommend that in the immediate term, the Committee recommend to fix this issue. And with that, I've got several other issues, but maybe they'll come up in the questioning. I'll turn it over to Donovan.

    MR. AYRES: Okay. Great. Hi, I'm Donovan Ayres. I'm the Compliance Director with Blue Shield. I wanted to thank you for letting me testify today. Blue Shield of California just to clarify.

    Blue Shield of California is a not for profit organization. We represent about 72,000 Medicare beneficiaries in Los Angeles, Orange, Riverside and San Bernardino Counties. In my role as Compliance Director, I work with all areas of the organization and am familiar with a lot of the challenges that have been presented by the burden, the regulatory burdens that we have.

    I'm going to hit on two areas in my testimony and I will also provide written testimony that's a little more detailed than what I'm going to hit on here orally due to the time issues. But the first item I wanted to talk about which is one that Gary already touched on is the marketing review process and the issue that CMS has a 45 day review for marketing and member materials for their normal review cycle. BIPA created a review where model documents are used verbatim which is a critical issue.

    And some of the challenges we've had are that minor changes to model documents to make them more accurate moves them from a ten day to a 45 day review. Language in the summary of benefits chart is not allowed to be changed and it doesn't always accurately reflect the best description of the plan benefit structure. And it also creates issues where the description of a benefit that we can modify in the evidence of coverage is not the same description as the member gets in their summary of benefits.

    The CMS model documents that are released need to be released with sufficient advance notice for compliance with implementation or mailing requirements to occur without additional burdens of increased administrative expenses for rush production and overtime. And again, if the model is not followed and changes are made which we have found we have followed the model, we have some small changes that we have to make, it falls into the longer review cycle.

    And situations arise such as unforeseen issues like provider bankruptcies where member communication about this type of an event falls under a 45 day review cycle. So there are delays in the process that impact beneficiary communication that should be occurring.

    Proposed solutions are to have minor changes to the model documents still quality for a ten day review cycle, to also allow minor changes to the summary of benefits chart so that language can match more precisely an give an accurate description of the plan benefits and that that should also fall under an expedited ten day review process, and that the model document should be released with sufficient advance notice to allow plans to integrate implementation according to the new models that are released. And we recommend that the 45 day review process be shortened around this whole cycle. It's just too long of a time frame.

    We would also like to recommend that with the release of the model documents, by releasing those with sufficient advance notice, that that can actually reduce the administrative burden that we have.

    And on the fourth item that critical member communication about plan benefit changes can follow what Gary talked about a use and file system. We have been able to be part of the pilot in California around some of the use and file materials, however, there are critical situations such as, you know, providers that go under where filing a letter to really clearly explain to the beneficiary what occurred, waiting for approval is really delaying getting a critical notice out when the provider has disappeared.

    The second major topic that I'd just like to touch on is around claims and encounter data and clean claims have a requirement that clean claims from non-contracted providers have to be paid within a 30 day time frame. All other claims need to be paid or denied within a 60 day time frame. The related issue is under original Medicare, carriers and intermediaries are able to reject claims back to the billing provider if the claim is incomplete and does not contain all of the elements required by Medicare for the claim to be a valid claim.

    Plans are being held to a different standard by being required to develop the claim and at the end of 60 days, plans must make a decision to pay or deny the claim based upon the information available. And this can create real challenges. For example, if you have an ER service, it comes in, there's a prudent lay person diagnosis that it is a reasonable claim for a prudent lay person to have received, but it doesn't have all of the coding that would be required for that claim to be submitted as an encounter, we've been told we still have to pay that claim because we have enough information and try to chase down the additional data elements from the non-contracted provider after payment which is a challenge. So the proposed solution is to create authority for plans to be able to reject incomplete claims to the billing provider the same way as carriers and intermediaries do and requesting the billing provider be submitted or the claim be resubmitted as a new claim with complete information. And it's also in the situation where that type of a claim is denied, you're now denying a claim to a member telling them they have appeal rights but their appeal rights are the description of why it's being denied is the provider didn't provide complete information for us to pay the claim. So it's a little odd to have that type of an issue be triggered into an appeal process. So thank you.

    The one thing I'd like to say in closing is that, you know, as with other plans, we are, you know, struggling to provide the Medicare beneficiaries with enhanced benefits. And the funding issue is really a critical issue for us to continue to have viable options and choices for the beneficiaries. Without changes to the funding, the beneficiaries will be impacted by continued benefit reductions and less choice in the coming years. So thank you for allowing me to testify.

    DR. WOOD: Thank you. Dr. Johnson.

    DR. JOHNSON: Thank you, Mr. Chairman. Mr. Chairman and members of the Advisory Committee, I'm Dr. Joseph Johnson, Chief Medical Officer with Sun Health MediSun. I appreciate the opportunity to testify regarding opportunities for improving the administration and decreasing the regulatory burden placed on the Medicare+Choice program.

    I have practiced general surgery in this community for over 20 years and have worked part time and now full time as a medical director and chief medical officer. So I have seen it from many sides of the coin.

    Sun Health MediSun serves 14,000 Medicare beneficiaries in the Sun City communities of Arizona. In addition, MediSun's parent hospital organization, Sun Health Corporation and its affiliated physicians, serve approximately 30,000 Medicare+Choice members represented by several plans.

    We applaud the Committee for exploring options for improving program performance for beneficiaries while reducing administrative burdens in Medicare+Choice and other programs administered by the U.S. Department of Health and Human Services. Today we're pleased to contribute to this effort by outlining a series of recommendations for improving regulatory requirements and procedures that affect Medicare+Choice organizations and their members. And I'm also happy that Gary Bailey has indicated a lot of things that I'm going to discuss are currently on their radar screen.

    While we appreciate the efforts of Senators for Medicare and Medicaid services has made to date, additional action is obviously needed as has been demonstrated to improve benefits for our members.

    Broadly speaking, our goal is to insure that the regulatory environment and the Medicare+Choice program allows us to fulfill our mission of providing high quality affordable patient centered health coverage to the beneficiaries we serve.

    To advance this goal, our recommendation focuses on issues relating to the following. The adjusted community rate, ACR filing process; the ongoing administration and management of the Medicare+Choice program; the monitoring process that is used for the Centers for Medicare and Medicaid services to insure that Medicare+Choice organizations are meeting their contractual and regulatory obligations. The agency's review of Medicare+Choice plan's marketing materials and the quality assessment and performance and improvement programs.

    First, the ACR process. I'd like to begin by discussing the process by which Medicare+Choice organizations are required to submit the ACR proposal that describes their benefit package and premiums for their coming contract year. This is an unnecessarily burdensome process, of course, as health plans spend considerable time and resources on a broad scope of activities, many of which provide little or no value to the beneficiaries. In 2001, Sun Health MediSun spent more than $37,000 for a 137 hours of actuarial work to crunch the numbers in the form and the detail demanded by the current ACR process. It was necessary to break utilization, copayments and cost allocation into more than 2,900 fields and variables for each Medicare+Choice plan we offered or a total of 5,800 variables for the two plans we offer.

    In addition, our staff spent approximately 170 hours working on the ACR proposal and related benefit proposal.

    To relieve this administrative burden, we recommend that CMS streamline its ACR submission requirements in two important ways. One, by reducing the number of required benefit categories in the rate proposal. And two, by allowing Medicare+Choice organizations to file a single ACR proposal for all Medicare+Choice plans in different regions of their service areas with appropriate documentation to support benefit design and premium variations.

    This does not directly impact nor affect the Sun Health MediSun as we serve only one geographic area but it's an issue for the national plans.

    We also recommend that in consultation with Medicare+Choice organizations, the agency re-examine all the submission requirements to identify an approach that meets oversight goals in a way that is more compatible with Medicare+Choice organization rate setting practices, less wasteful and more focused on key reporting elements.

    Under administration and management, Medicare+Choice organizations face many challenges and unnecessary costs in complying with the constantly changing regulatory requirements that CMS issues on a seemingly continuous basis. In numerous instances, we have moved forward to implement CMS requirements and policies at considerable cost and staff time only to have the agency issue a subsequent modification that required rework and incurred additional unplanned expenses.

    For example, Sun Health MediSun was issued a policy interpretation that directly contraindicated an earlier interpretation of the same policy which caused confusion among members and caused MediSun to incur unplanned pharmacy losses. While I appreciate that the agency is making meaningful efforts to adjust program requirements in ways that are beneficial to our Medicare+Choice members and our organization, it's critical for CMS to adopt a more efficient and consistent approach to policy interpretation and overall program administration.

    To address this concern, we recommend that CMS establish (a) a reliable mechanism for issuing consistent interpretation of policies across and within regional offices; and (b) a system for strategically selecting a multi-year plan that specifically identifies annual program priorities in setting specific goals and time frames for their approach in order to stabilize the regulatory environment.

    We would prefer taking a specific rifle approach to administration and modifications as posed to the often shotgun approach of addressing multiple regulatory areas which then creates confusion and rework and unnecessary expenditure of scarce resources.

    Payment reconciliation of special statuses has also been discussed here today. It's another important area which deserves immediate attention. The process of correction of beneficiary status information, it affects payments, because the current system frequently results in significant delays in making retroactive payments to Medicare+Choice organizations. I'd like to highlight several issues of particular concern.

    Until recently, state and county codes have been updated manually by regional offices when beneficiaries move to a new location or errors are identified. This inefficient process has resulted in the huge backlog of codes that are waiting to be updated which in turn has resulted in a significant delay in determining accurate payments to Medicare+Choice organizations who serve these beneficiaries. We appreciate the effort CMS has made to engage a contractor to address this backlog but believe that the solution lies in CMS plans to allow Medicare+Choice organizations to make these coding changes themselves.

    We recommend the agency accelerate implementation of the necessary system changes.

    There are a number of other areas in which inefficient procedures need to be improved. Medicare+Choice organizations need to have a more effective way of obtaining accurate information and which beneficiaries are duly eligible for both Medicare and Medicaid and we recommend that CMS improve the flow of this information from states to CMS and from CMS to Medicare+Choice organizations.

    CMS also needs to establish more effective ways of communicating with the Social Security Administration about beneficiaries who have been erroneously identified as deceased. Correction of these records is currently the responsibility of the affected beneficiary who often experiences significant difficulties navigating the Social Security bureaucracy.

    The agency should establish a streamlined mechanism for these corrections to be made to insure the beneficiaries will not continue to be disadvantaged.

    Under the monitoring process, I'd also want to raise concerns about the monitoring process CMS uses to insure that Medicare+Choice plans are meeting their contractual and regulatory obligations. Mr. Bailey has really addressed this I think pretty well today.

    As currently structured, this process uses a monitoring guide that places equal weight on a broad spectrum of detailed requirements addressing every aspect of program participation. Although some requirements are more important than others and some provide no value at all to beneficiaries, all requirements are assigned equal value under the agency's monitoring guide. As a result in some cases, the healthplan may be forced to implement a corrective action plan at considerable expense when it has failed to meet a relatively small number of requirements that have nothing to do with patient care. There are currently 258 Medicare+Choice standards in the monitoring guide and at our last audit, we met 240 of them.

    Unfortunately, the 14 standards that did not meet the 95 percent elevated threshold for acceptability resulted in considerable focus of administrative resources to validate future compliance.

    Additionally, although many of the 14 standards did not directly impact beneficiary services or protections and were administrative in nature or were in the 90 plus percent category of performance. Results had to be expended to meet -- resources had to be expended to meet this artificially high level of standards and equal (indiscernible).

    Other problems that are raised by the agency's approach in conducting multiple site visits that are often duplicative and overlapping. Specifically the bi-annual audit, the ACR audit, and county reporting audit and others. These site visits are time consuming and too wide ranging to be of optimal value because they do not focus on specific areas of organizations that are most deserving of close scrutiny.

    We recommend that CMS move quickly to complete work on a streamlined monitoring guide that provides -- that prioritizes requirements based on the value they provide to the beneficiaries. The quality of care and service received by Medicare+Choice organizations members rather than the details of its administrative process should be the focal point of these requirements. We also recommend that site visitors should concentrate in the areas that are identified as potentially problematic rather than assigning equally to all areas of review.

    In addition, the frequency of audit should be reduced for plans that meet specified performance standards that are modified through the substantial flow of data the agency already receives on an ongoing basis.

    We note that for a small organization such as ours that serves only Medicare members, the requirement for HEDIS reporting is particularly burdensome. One frustrating and costly aspect of reporting is it is not required to report on measures for which the sample size is too small. Last year, we had 6,000 members unlike a Pacificare which has 850,000 members and it cost us $300,000 to comply with this. I would have loved to have had that money to provide better benefits.

    However, we have to invest significant resources in preparing data submission. For example, contracting with a source code vendor and an experienced consultant in order to document that reporting is not necessary. We recommend that CMS provide appropriate opportunities for small organizations to demonstrate the value of their quality improvement programs for their members as an alternative to meeting requirements that are costly but of very limited value.

    Review of marketing materials. Another serious concern is that all written communications we send to beneficiaries are treated as marketing materials that are subject to the rigorous approval process established by CMS. This policy is harmful to beneficiaries because it often delays the distribution of information they need to understand their covered benefits and how to access services. We recommend that CMS be more selective in applying this review process to only a limited range of beneficiary communications focused on marketing to potential members. This approach would enable beneficiaries to receive information about their coverage on a more timely basis.

    The quality assessment and performance improvement program. We also believe it's important to insure that resources devoted to quality improvement projects are used in a way that provides meaningful value to the enrollee population served by each particular Medicare+Choice organization. In many geographic areas for example, beneficiaries will be well served by programs that provide culturally and linguistic appropriate services. However, in the Sun City areas, this type of program is not relevant because the beneficiaries do not face significant cultural or linguistic challenges. Our beneficiaries are better served by quality improvement programs that focus on conditions such as congestive heart failure and diabetes that are also topics that have been selected for the national improvement study.

    Accordingly, we recommend that the quality improvement program should give Medicare+Choice plans greater flexibility in determining the topics of the quality improvement projects we implement on behalf of all beneficiaries. CMS should allow us to tailor these programs to meet the unique needs and circumstances of the beneficiaries we serve.

    In conclusion, I strongly urge the Advisory Committee to give serious consideration to these recommendations. By supporting the implementation of these changes, you take important steps toward improving the administration of the Medicare+Choice program. While Medicare+Choice organizations will welcome these improvements, I want to emphasize that our members are the ones who would benefit most from a stable regulatory environment. Recognizing the progress that CMS has already made, if you succeed in your mission to further reduce the regulatory burden and eliminate the inefficient practices that are still present in the Medicare+Choice program, you will make an important contribution to fostering availability of expanded healthcare choices and high quality health coverage for Medicare beneficiaries in the future. Thank you.

    DR. WOOD: Thank you. We have a few minutes for specific questions for this group of panelists from the members committee. Jack.

    MR. ROVNER: I just have one quick question. And as you mentioned about the point of submission, will the transaction standards when they go into effect, solve this problem for you?

    MR. AYRES: The counter data you're asking?

    MR. ROVNER: Yes, there -- is an electronic claim and then counter data standard transaction that will go into effect under HIPAA which as I understand it will designate the required and situational fields that must be filled in on an electronic claim by the provider to you or the provider will have violated HIPAA. I'd like to know whether that solves your claim and counter problem?

    MR. TUCKER: It -- yeah, it would.

    MR. AYRES: Some providers can revert to paper though.

    MR. ROVNER: I understand that. But that's a different issue. I mean getting on the electronic claim aspect, will that at least solve the problem?

    MR. AYRES: If -- we get very few electronic claims now, however, if that is going to require electronic claims to be submitted to plans, it would help address the issue.

    MR. ROVNER: As I understand it, the law will not require the submission of electronic claims although it's an interesting question since you're a Medicare+Choice plan. The extension statute does require the submission of electronic claim to Medicare. I don't know if that's going to cover over the Medicare+Choice but thank you.

    MR. AYRES: Okay.

    DR. WOOD: Mr. Toby.

    MR. TOBY: Thank you, Mr. Chairman. My question goes to Mr. Tucker and I suspect it will require a response from Mr. Bailey as well. It relates to the whole payment reconciliation process. To his credit, Mr. Bailey did say it was one of his top three management priorities and Mr. Tucker I think eloquently defined the problem as seen from the plan perspective. I know a little bit about how this works. The reconciliation workload actually falls primarily on the regional offices. They're the work horses in the operational setting. And in terms of looking for solution, I'm wondering whether the process itself which is resulting in long delays in payment, lots of money involved, I'm aware