Resolving The Tug-Of-War Between Medicare's National And Local Coverage Reforms are needed to...

At the Intersection of Health, Health Care and Policy

doi: 10.1377/hlthaff.23.4.108

, 23, no.4 (2004):108-123Health AffairsResolving The Tug-Of-War Between Medicare's National And Local CoverageSusan Bartlett Foote, Douglas Wholey, Todd Rockwood and Rachel Halpern

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Resolving The Tug-Of-WarBetweenMedicare’s NationalAnd Local CoverageReforms are needed to eliminate inappropriate variation in Medicare,offering improved equity and quality for all beneficiaries.

by Susan Bartlett Foote, Douglas Wholey, Todd Rockwood, and RachelHalpern

PROLOGUE: As a federal entitlement, Medicare theoretically offers equal benefitsto all forty million enrollees. But the program’s design subtly allows some benefi-ciaries better benefits than others. A clear example is the design of its managedcare program, under which differences in payment rates have allowed plans inhigher-spending regions to offer better benefit packages than those in lower-spending regions, while beneficiaries in regions with no managed care options atall have been unable to take advantage of any of the enhanced benefits offered tomanaged care enrollees.

Less well known, and potentially more damaging to the program’s credibility,are the differences in coverage under the fee-for-service program that result fromdifferences in local coverage policies developed by Medicare’s administrative con-tractors. Medicare makes only a few national medical technology decisions a year.Many policy experts argue in favor of national coverage policies as being more effi-cient and fair. Medicare, however, is supported by the medical technology indus-try in arguing against this policy change, believing that there is no proof of inequi-ties and that the current national process is too cumbersome.

In this paper Susan Foote, one of the nation’s foremost experts on these policies,and her colleagues analyze the current local medical review policies and surveycontractors to determine how many of such policies exist; what procedures theyaffect; whether the policies affect new technology or an extension of an existingtechnology, or are related to utilization management; and what data sources thecontractors used to support their policies. The authors provide some policy rec-ommendations to streamline the medical review process.

Foote is an associate professor and head of the Division of Health Services Re-search and Policy at the University of Minnesota’s School of Public Health in Min-neapolis. She wrote about the evolution of Medicare’s coverage policy in theJuly/August 2003 issue of Health Affairs. Joining her as coauthors are three col-leagues from the same division: Douglas Wholey, a professor; Todd Rockwood, anassistant professor; and Rachel Halpern, a research assistant.

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DOI 10.1377/hlthaff.23.4.108 ©2004 Project HOPE–The People-to-People Health Foundation, Inc.



ABSTRACT: Medicare’s decentralized local coverage policy process leads to policy varia-tion, raising serious equity and quality issues. The policy debate resembles a tug-of-war,with advocates favoring nationalization of all local policies or arguing for the status quo. Weextensively analyzed thousands of local policies and surveyed Medicare’s contractors. Wefound that all local policies are not the same. We classified them based on where they fallon the diffusion curve. The classification by type allows for reallocation to the national or lo-cal process to improve the decisions and satisfy Medicare’s equity and quality goals.

The medicare statute ent itle s all beneficiaries to the same benefitpackage, which encompasses all “reasonable and necessary” items and ser-vices. Medicare coverage decisions determine what qualifies as reasonable

and necessary, including state-of-the-art technologies. The Medicare coverageprocess is highly decentralized. The Centers for Medicare and Medicaid Services(CMS) issues ten to twelve national coverage decisions (NCDs) each year that ap-ply to all Medicare beneficiaries. More than forty private contracting organiza-tions develop the vast majority of coverage decisions, called local medical reviewpolicies (LMRPs), which are effective in their local jurisdictions only.1 The decen-tralized local coverage process can lead to different policies in different local areas.These policy variations raise the risk of potential inequities for beneficiaries. Pol-icy variation also has implications for quality, particularly if local policies lead tooveruse or misuse of services.2

The policy debate about local versus national coverage resembles a tug-of-war,with advocates lining up on either side. On one side, the Medicare Payment Advi-sory Commission (MedPAC) has called for the elimination of local policies, to re-duce “current complexity, inconsistency, and uncertainty.”3 A recent report fromthe U.S. General Accounting Office (GAO) criticized the divided authority andalso concluded that Medicare should not develop any new local coverage policies.4

On the other side, the Department of Health and Human Services (HHS) was notpersuaded by the GAO report, stating that there was an inadequate analytic baseto link inequities to the local process or to justify a new, centralized one.5

AdvaMed, the device industry association, also disputed the findings, declaredthat the national process was too slow, and urged preservation of the status quo.6

The Medicare Prescription Drug, Improvement, and Modernization Act(MMA) of 2003 calls for HHS to develop a plan to determine the need for greaterconsistency and less duplication among local Medicare contractors. MMA pro-vides an opportunity to resolve the tug-of-war. However, little systematic re-search exists to guide the process.

This paper presents the results of our analysis of local policies. We developed acomprehensive database of LMRPs, and we conducted a survey of contractormedical directors (CMDs) who administer local contracts. We found that policiesdiffer depending on where the technology or procedure falls on the diffusion curveat the time of evaluation.7 We identified three policy types: new technology (NT),

C o v e r a g e V a r i a t i o n

H E A LT H A F F A I R S ~ V o l u m e 2 3 , N u m b e r 4 1 0 9



extensions of covered technology (TE), and utilization management (UM). De-spite the nearly exclusive focus on new technology in the debate, we estimate thatthe vast majority of LMRPs deal with management of common procedures. Eachpolicy type requires different expertise, evidence, and evaluation, and each raisesdifferent considerations in terms of equity for beneficiaries and quality of care.

Research Design� LMRP database. We studied policies issued by Part A fiscal intermediaries

(FIs) and Part B carriers. We downloaded more than 8,000 carrier and FI LMRPsfrom the CMS-sponsored Web site on 31 May 2001, our snapshot date.8 We codedeleven data points for each LMRP.9 We excluded policies if they fell outside the timeframe of the study, focused on process rather than on technology, had no recordedprocedure codes, or were duplicates of existing policies.10 Our final data set of 6,900policies comprised 5,213 carrier LMRPs and 1,687 FI LMRPs.

� LMRP classification. We observed differences among policies and designed aclassification scheme. Two physician consultants (MD 1 and MD 2) reviewed thecarrier LMRP titles and classified each into one of our three categories (NT, TE, andUM). We provided the following definitional guidelines: (1) NT policies provideguidance for and limitations on the use of new clinical interventions; (2) TE policiesprovide guidance for and limitations on new uses of procedures or technologies al-ready covered for other uses; and (3) UM policies provide guidance for and limita-tions on widely diffused technologies or procedures to avoid misuse or overuse.

We classified the LMRPs based on the policies’ original effective dates to cap-ture their status at the time of implementation. The consultants first classified thecarrier LMRPs, then classified FI LMRPs based on the carrier classifications.11 Al-though the majority of FI policies were successfully classified, 264 FI policies con-tained procedure codes from multiple classes. Of those, 216 were matched withcarrier policies and assigned consistent categories. The consultants then classifiedthe remaining forty-eight policies.

MD 1 classified the LMRPs as 88.6 percent UM, 8.4 percent NT, and 3 percentTE. MD 2 classified LMRPs as 73.1 percent UM, 16.1 percent NT, and 10.8 percentTE. Where relevant in the analysis, we report the results based on MD 1 and MD 2classifications separately, with the upper and lower range for each category. Across-classification analysis revealed that the consultants agreed on classificationfor 83.8 percent of the policies in the database. We understood that the consul-tants might not agree on every classification because technology diffusion is dy-namic. However, their agreement on 83.8 percent of the policies underscores thefundamental validity of the classification scheme.

� CMD survey. We surveyed sixty-seven CMDs, the physicians who manage thecontracts. There were forty-eight participating organizations (twenty-eight carriersand twenty FIs), with sixty-seven CMDs administering one or more contracts. Wedeveloped the initial draft with external consultants and conducted cognitive inter-

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views to evaluate it.12 The final instrument contained sixty-six questions and wasadministered by mail with telephone follow-up. The overall response rate was 60percent (forty respondents). Sixteen of the twenty-eight FIs responded, for a 57 per-cent response rate; twenty-four of the thirty-nine carriers responded, for a 62 percentresponse rate.13 We investigated differences between respondents and nonrespon-dents by comparing them in size (claims processed), geography, and organizationalform (multiple-state or single-state contractors). Our respondents reflected theproportion of FIs and carriers in the total population. Additionally, 80 percent of FIsand 73 percent of carrier respondents reported that their organizations had multiplecontracts, which is also consistent with the population as a whole.

Study ResultsAll contractors must follow CMS mandates for the development of LMRPs. The

Medicare Program Integrity Manual, along with regularly updated program memo-randa, contains many provisions governing LMRP development. These includeidentification of services for which a new or revised LMRP is needed, when dis-cretion may be used to develop LMRPs, techniques for writing LMRPs, evidenceand coding requirements, process for public comment, and the format for postingpolicies. The CMS also governs the conduct of Carrier Advisory Committees(CACs). Carriers are required to have CACs; FIs have the option of creating simi-lar advisory bodies.14 Although all contractors must follow these directives, thereis considerable variation among them.

� Variation in resources. The size and organizational structure of contractorsvary.15 Many contractors service small, single-state contracts; others preside overlarge states or multistate networks.16 Size, as measured by volume of claims pro-cessed, also varies greatly (Exhibits 1 and 2). The largest carrier processed 82.6 mil-



EXHIBIT 1Carriers’ Fiscal Year 2001 Claims Volume And Posted Policies As Of 31 May 2001

ContractorFY 2001 claimsvolume (millions)

State(s)covered

Number ofeffective policies

Number of uniqueHCPCS codes

Wisconsin Physician Services Inc. 82.6 WIMNILMI

172952929

3,760404720720

Trailblazer Health Enterprises LLC 76.7 TXDCVADEMD

159149144143119

8591,6551,2251,217

775

National Heritage Insurance Co.a 74.1 MANHMES. CAN. CA

11211210810483

550464433497303



lion claims in 2001, while the smallest processed only 2.1 million. Because contrac-tors are paid based in large part on numbers of claims processed, one can infersizable resource differences among contractors.

Organizational size appears to influence CMDs’ perceptions about resources to

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EXHIBIT 1Carriers’ FY 2001 Claims Volume And Posted Policies As Of 31 May 2001 (cont.)


State(s)covered



First Coast Service Options Inc. 65.7 FLCT

25923

3,23199

Empire Medicare Services 63.7 NY (NYC)NJ

262216

1,3962,694

Noridian Administrative Services LLC 53.0 IAAK, AZ, HI,NV, OR, WACOND, SDWY

169

155134132131

1,295

613812721782

CIGNA Medicare 45.0 TNNCID

1108555

680645284

BCBS Arkansas 40.9 LANMOKE. MOAR

29315415415480

1,459641641

1,699537

Cahaba GBA 39.4 GAALMS

167113

4

72262224

Nationwide Medicare 36.7 OHWV

133132

1,2871,225

HGSAdministratorsAdminaStar Federal Inc.

35.629.9

PAKYIN

2449584

2,937705765

HealthNow NY Inc.BCBS Kansasb

Palmetto GBA

16.014.911.4

W. NYKS, W. MOSC

16597

140

1,024684940

Triple S 8.6 PRVI

5959

510510

Group Health Inc.Regence BCBS UtahBCBS Rhode IslandBCBS Montana

4.13.32.52.1

NY (Queens)UTRIMT

202965095

1,474697196

1,150

SOURCES: Local medical review policy (LMRP) Web site, www.lmrp.net/download.asp (31 May 2001 and 2 April 2002); andMedicare Administration Committee, “Medicare Carrier and Intermediary Workloads FY 2001.”

NOTES: HCPCS is Healthcare Common Procedure Coding System. Number of policies and HCPCS codes is based on the LMRPdata set, excluding out-of-scope policies and policies with no procedure codes. BCBS is Blue Cross Blue Shield. GBA isGovernment Benefits Administrator.a This organization also covers Vermont, whose policy set was posted after 2 April 2002, so it is not included as an individualentry. The claims volume for National Heritage Insurance Company includes claims processed from Vermont, however.b This organization also covers Nebraska, whose policy set was posted after 2 April 2002, so it is not included as an individualentry. The claims volume for BCBS Kansas includes claims from Nebraska, however.



develop LMRPs. Respondents all reported similar amounts of time devoted toLMRPs. When asked the percentage of time their organization devoted to sevenactivities, respondents reported that they spent approximately one-quarter oftheir time on LMRP development.17 These numbers were similar for carriers andFIs (23 percent and 30 percent, respectively) and for single- and multistate con-tract networks (24 percent and 27 percent, respectively).

However, respondents perceived variations in total available resources based onorganizational differences. For example, 59 percent of respondents reported thatorganizations with multiple-state networks, which are generally larger thansingle-state contractors, facilitated LMRP development. More than half also re-



EXHIBIT 2Fiscal Intermediaries’ (FIs’) Fiscal Year 2001 Claims Volume And Posted Policies AsOf 31 May 2001


State(s)covered



United Government Services 27.0 WIVA, WVMICA, NV, HI,GU, NorthMarianaIslands, AS

513426

7

916140649

56

AdminaStar Federal Inc. 25.1a INOHKYILMAMENH, VT

64646358434333

493490496457233233119

Mutual of Omaha Insurance Co.Empire Medicare ServicesPalmetto GBA

15.112.211.9b

All statesNY, CT, DENCSC

5156730

3751

394134

Riverbend GBATrailblazer Health Enterprises LLCCahaba GBA

9.48.97.8c

TN, NJTX, CO, NMIA, SDAL

671468880

437802539446

Veritus Medicare ServicesFirst Coast Service Options Inc.TriSpan Health Services

7.66.14.1

PAFLMS, LA, MO

5314738

196653156

BCBS GeorgiaNoridian Administrative Services LLCMedicare Northwest/Regence BCBS

of Utahd

3.53.1

2.7

GAND, MNOR, ID, UT,SW. WA

10273

58

590372

578

CareFirst of Maryland Inc.Premera Blue CrossBCBS Kansas

2.41.81.6

MD, DCWA, AKKS (+ W. MO)

361073

22823

426

BCBS ArkansasChisolm Administrative ServicesBCBS ArizonaCooperativa de Seguros de Vida de

Puerto Rico

1.41.31.0

0.7

AROKAZ

PR, VI

451519

44

2273686

370



ported that multiple-state contractors had more access to scientific or medical ex-pertise than single-state organizations had. Similarly, CMDs with single-statecontracts perceived themselves at a disadvantage relative to contractors who arepart of networks: 80 percent reported inadequate staffing, compared with only51.7 percent of CMDs in multistate organizations.

CMDs’ self-reported data supported these perceptions of the adequacy oftrained personnel to develop LMRPs. When we asked how many full-time equiva-lents (FTEs) worked on LMRP development under the contract, the mean was 3.1,median was 2, and mode was 1. The range was 0.5 FTE to 9 FTEs. Respondentswith single-state contracts frequently reported some fraction of their own timeplus that of a nurse reviewer as their sole LMRP development resource. Respon-dents from multistate networks reported the largest numbers of FTEs availablefor LMRP development, and many noted the support of corporatewide medicalpolicy committees to coordinate work on LMRPs.

CMDs supplement internal resources in several ways. Seventy-one percent re-ported that CACs were useful, and 26 percent reported that they were somewhatuseful, in LMRP development. Similarly, 65 percent reported that CACs had “alot” of impact on LMRPs, and 32 percent reported that they had “some” impact.Only 3 percent noted that CACs had “a little” impact.

Contractors also collaborate to overcome resource constraints. Seventy-threepercent of respondents reported almost always reviewing other LMRPs when de-ciding whether to draft a policy in their own jurisdiction. All respondents re-

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EXHIBIT 2Fiscal Intermediaries’ (FIs’) FY 2001 Claims Volume And Posted Policies As Of 31May 2001 (cont.)


State(s)covered



BCBS NebraskaBCBS MontanaBCBS Rhode Island

0.70.70.5

NEMTRI

353357

264304251

SOURCES: Local medical review policy (LMRP) Web site, www.lmrp.net/download.asp (31 May 2001 and 2 April 2002);Regence Group Web site, utmedicare.regence.com/tools/about_TRG_a.html (5 April 2004); Regence Group 2002 AnnualReport, www.regence.com/docs/2002AnnualReport.pdf (5 April 2004); and Medicare Administration Committee, “MedicareCarrier and Intermediary Workloads FY 2001.”

NOTES: HCPCS is Healthcare Common Procedure Coding System. Number of policies and HCPCS procedure codes is based onthe LMRP data set, excluding out-of-scope policies and policies with no procedure codes. AS is American Samoa. GBA isGovernment Benefits Administrator. BCBS is Blue Cross Blue Shield.a Includes claims for home health services in six states this organization serves as Regional Home Health Intermediary (RHHI).b Includes claims for home health services in fifteen states this organization serves as RHHI.c Includes claims for home health services in sixteen states this organization serves as RHHI.d Medicare Northwest is a division of Regence BCBS of Oregon. Both Regence BCBS of Oregon and Regence BCBS of Utah areaffiliates of the larger “Regence Group,” which also includes Regence Blue Shield of Idaho and Regence Blue Shield ofWashington. Until some point in 2001, Medicare Northwest (Regence BCBS of Oregon) and Regence BCBS of Utah were bothFIs. Regence BCBS of Utah ceased operating as an FI sometime in 2001. It appears that Medicare Northwest is now the sole FIfor the states of Oregon, Washington, Idaho, and Utah. Although there were two FIs for these four states until 2001, it appearsthat there were not rigid jurisdictional boundaries. Many of the Medicare Northwest policies explicitly applied to Utah as well asto Oregon, southwest Washington, and Idaho. Moreover, the same person served as medical director for these two FIs.



ported some level of communication with other contractors in developing LMRPs.Contractors do not have extensive access to external assessment expertise. In

the private sector, insurers have internal assessment capacity and often purchasetechnology assessments performed by private organizations, such as ECRI or theBlue Cross/Blue Shield TEC.18 One former contractor commented publicly thather large multistate organization lacked the resources to purchase formal assess-ments and had no internal capacity to replicate these studies.19

� Variation in productivity. Policy productivity among contractors differs (Ex-hibits 1 and 2). Contractors are listed in descending order by size, as measured byclaims processed. For each contract, we show the number of policies effective in thejurisdiction. The data show variation in the number of policies within organizationsand across organizations. It does not appear that size is closely correlated to numberof policies. We also measured the number of unique Healthcare Common ProcedureCoding System (HCPCS) codes to determine if the differences in the number of pol-icies might obscure policy-writing styles. Because contractors have discretionwhether or when to issue LMRPs, it is not surprising that there is variation in theirstyle. For example, some contractors may issue policies that are narrow in scope,with each policy containing relatively few HCPCS codes. Others may bundle manyHCPCS in one policy. The far right columns in Exhibits 1 and 2 show total HCPCScodes, indicating that there is extensive variation in the number of procedures sub-ject to policy limitations or specifications.

� Variation in use of evidence. One measure of rigorous evaluation of technolo-gies is citation of evidence. The CMS requires contractors to cite the evidence usedto support their coverage decisions. CMDs demonstrated familiarity with the hier-archy of evidence. They reported that scientific journals and research in the publicsector had the highest credibility and found information from manufacturers theleast credible. Seventy-two percent also reported that they almost always relied onscientific journals in developing LMRPs.

Despite reported knowledge of evidence and assertions about frequency of use,our findings reveal that evidence citations vary. Exhibit 3 shows the percentage ofpolicies in a local jurisdiction citing an evidence source at least once. Policies maycite more than one type of evidence. Our coders classified as “journal articles” cita-tions to peer-reviewed professional and academic publications; “texts” are medi-cal textbooks, and “references,” other professional sources. “Workgroups” refer toinformal collaborations among contractors to draft policies.20

The frequency of citations of types of evidence varies widely. Many contractorscite existing policies rather than peer-reviewed scientific references. However,these results should be interpreted with caution. Some contractors may use butfail to cite sources of evidence, and some may cite but not carefully review scien-tific sources. Nevertheless, citation frequency is one indicator of evidence use. Thewide variation in citations allows us to infer that contractors differ in their reli-ance on credible scientific evidence.





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EXHIBIT 3Percentage Of A Contractor’s Effective Policies Citing An Evidence Source At LeastOnce, 2001

Reference source (%)

Fiscal intermediaries (FIs)Journalarticle

Medicaltext Reference Workgroup

Other FILMRP

OthercarrierLMRP

All FIs 26 17 40 15 9 38

AdminaStar Federal Inc.BCBS ArizonaBCBS ArkansasBCBS Georgia

3326362

161620

38321357

142141

12002

38117

98

BCBS KansasBCBS MontanaBCBS NebraskaBCBS Rhode Island

603

1126

110

1723

279

2335

836

23

1052170

18273728

Cahaba GBACareFirst of Maryland Inc.Chisolm Administrative ServicesCooperativa de Seguros de Vida de

Puerto Rico

2967

23

2460

45

7967

80

2330

27

13170

11

38330

23

Empire Medicare ServicesFirst Coast Service Options Inc.Medicare NorthwestMutual of Omaha Insurance Co.

13402420

40481420

73636

60

8706

20

002

40

270

4840

Noridian Administrative Services LLCPalmetto GBAPremera Blue CrossRiverbend GBA

26112025

16193015

38569030

2524909

42309

10571055

Trailblazer Health Enterprises LLCTriSpan Health ServicesUnited Government ServicesVeritus Medicare Services

27321745

224109

7612526

23535

19

111148

86457

42

Carriers

All carriers 27 12 36 16 0 27

AdminaStar Federal Inc.BCBS ArkansasBCBS KansasBCBS Montana

41255419

109

108

35413159

579

20

4005

409

2571

BCBS Rhode IslandCIGNA MedicareCahaba GBAEmpire Medicare Services

24242521

16143311

22324922

18281713

0010

26333127

First Coast Service Options Inc.Group Health, Inc.HGSAdministratorsHealthNow NY, Inc.

28351932

26112

15

63341833

1151526

0000

5432727

National Heritage Insurance CompanyNationwide MedicareNoridian Administrative Services LLCPalmetto GBA

26522731

128

184

50263936

307

199

0100

458

3729



Exhibit 4 shows citations based on policy type. NT policies focus on undiffusednew technologies. To get approval from the Food and Drug Administration (FDA),



EXHIBIT 3Percentage Of A Contractor’s Effective Policies Citing An Evidence Source At LeastOnce, 2001 (cont.)




Other FILMRP

OthercarrierLMRP

Regence BCBS UtahTrailblazer Health Enterprises LLCTriple SWisconsin Physicians Services Inc.

20251220

106

178

26272529

47191314

0000

27242524

SOURCE: Local medical review policy (LMRP) Web site, www.lmrp.net/download.asp (31 May 2001 and 2 April 2002).

NOTES: Chi-square tests for differences in evicence use across contractors were conducted for both FIs and carriers. P valuesfor all chi-square statistics were less than .01. Percentages are rounded to the nearest whole number. BCBS is Blue Cross BlueShield. GBA is Government Benefits Administrator.

EXHIBIT 4Percentage Of Policies, By Policy Type, In Which Evidence Source Is Cited At LeastOnce, 2001




Other FILMRP

OthercarrierLMRP

MD 1New technologyTechnology extensionUtilization managementP value

483524p < .05

161317NS

241642p < .05

183

15NS

31010p < .05

272939p < .05


483920p < .05

121119p < .05

263943p < .05

157

17p < .05

41010p < .05

313839NS

Carriers


464024p < .05

91413NS

191838p < .05

151216NS

000

NS

232127p < .05


473621p < .05

71014p < .05

233738p < .05

151217p < .05

000

p < .05

212628p < .05


NOTES: Percentages are rounded to the nearest whole numbers. NS is not significant at the .05 level.



these technologies must be supported by rigorous, peer-reviewed scientific evi-dence. By contrast, UM policies focus on commonly used procedures. Support fora UM policy is likely to be based on information in textbooks or practice guide-lines. TE policies may use one or both types of evidence. NT and TE policies morefrequently cite journal articles, while UM policies rely more heavily on differentsources of evidence. Also, fewer than half of all NT policies cited at least one jour-nal article. We infer from this that local contractors do not conduct extensive as-sessments but instead appear to rely on other LMRPs.

� Variation in timeliness. Are local coverage decisions more timely than na-tional ones? A recent HHS report looked at nine recent NCDs. The days to decisionranged from a low of one day to a high of 426 days.21 How do local policies compare?

Timing comparisons are challenging because of the decentralized local system.Do we count only the first local policy covering a specific technology, or do wewait until all local jurisdictions have a policy in place, or until a majority does?Whatever the measure, the multiple processes take time. Each jurisdiction mustfollow CMS-prescribed steps. One contractor reported that expeditious develop-ment time for a noncontroversial LMRP is six to nine months, with additionaltime required for publication, comment, and promulgation. More complicated orcontroversial policies can take much longer.22 A policy diffusion curve plots thespread of LMRPs across jurisdictions (Exhibits 5 and 6).

For each NT example, policy diffusion continued over a three-year period, andnot all jurisdictions enacted policies within our time frame. The UM policy diffu-sion curve (Exhibit 6) is flatter than that of the NT cases (Exhibit 5). NT policiesare generated by external events—the advent of a new procedure or technol-ogy—often following FDA approval. By contrast, UM policies emerge from localconcerns about use. These differences explain the variations in slope. But, regard-less of type, LMRP development is not speedy if measured by the total number ofjurisdictions promulgating a policy.

Some contractors appear more likely to lead in developing NT policies. We

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EXHIBIT 5Diffusion Of New Technology (NT) And Technology Extension (TE) Policies, 1989–2001



identified all NT HCPCS codes by whether they were typically mentioned in NTpolicies. Then, for every contractor, we determined the earliest data on which anLMRP was initiated for an NT HCPCS code. Clear leaders emerged (Exhibit 7).We found that contractor size and NT policy leadership were positively corre-



EXHIBIT 7New Technology (NT) Adoption Leaders, 2001

Number of NT HCPCS codes for whichorganization was among first three with a policy

Fiscal intermediaries (FIs) Frequency Rank

First Coast Service Options Inc.Cahaba GBAAdministar Federal Inc.United Government Services

31231814

1234

Trailblazer Health Enterprises LLCBCBS ArkansasBCBS KansasBCBS Georgia

13876

5678

BCBS Rhode IslandPremera Blue CrossTriSpan Health ServicesNoridian Administrative Services LLC

4443

9101112

Medicare NorthwestPalmetto GBARiverbend GBABCBS Montana

2221

13141516

BCBS NebraskaVeritus Medicare ServicesBCBS ArizonaCareFirst of Maryland Inc.

1100

17181920

EXHIBIT 6Diffusion Of Utilization Management (UM) Policies, 1989–2001



lated. The top five FIs shown in Exhibit 7 have the largest claims volume. Whilethe correlation between claims volume and LMRP leadership is somewhat lessstrong with carriers, three carrier leaders are also in the top five in claims volume.Size appears to be related to leadership in new technology policy development.

DiscussionWe recognize that there is considerable variation in health care practice pat-

terns across the country, including existing regional variations that were not nec-essarily caused by Medicare.23 The issue presented here, however, is whetherLMRP variations raise implications for equity or quality in Medicare, and whatpolicy changes might mitigate those concerns. We also recognize the limitationsof the self-reported survey data and the potential bias introduced by the charac-

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EXHIBIT 7New Technology (NT) Adoption Leaders, 2001 (cont.)

Number of NT HCPCS codes for whichorganization was among first three with a policy

Fiscal intermediaries (FIs) Frequency Rank

Chisolm Administrative Services Inc.Cooperativa de Seguros de Vida de Puerta RicoEmpire Medicare ServicesMutual of Omaha Insurance Co.

0000

21222324

Carriers

Empire Medicare ServicesWisconsin Physicians Services Inc.BCBS ArkansasFirst Coast Service Options Inc.

69635237

1234

Nationwide MedicareHGSAdministratorsNoridian Administrative Services LLCBCBS Montana

36252421

5678

Trailblazer Health Enterprises LLCGroup Health, Inc.Palmetto GBACahaba GBA

14765

9101112

BCBS KansasAdminastar Federal Inc.BCBS Rhode IslandCIGNA Medicare

3222

13141516

Regence BCBS UtahHealthNow NY Inc.National Heritage Insurance CompanyTriple S

2111

17181920


NOTES: A Healthcare Common Procedure Coding System (HCPCS) code is classified as new technology (NT) if it appears in anNT policy more than 50 percent of the time. Ranks are based on the policy classification of the MD 1 physician consultant.



teristics of nonrespondents. We have used the data, however, to gauge contrac-tors’ perceptions and have tested them against the objective data in the LMRP da-tabase. We believe that analysis of the data by policy type points the way to reform.

� Quality is affected by policy type. High-quality care depends on rigorousevaluation of new procedures, including new technology and new uses of approvedtechnology.24 There is a well-articulated hierarchy of evidence based on the credibil-ity and integrity of research designs.25 Comprehensive technology assessment drawsupon formal methods such as meta-analysis and decision analysis and is subject tohigh standards of evaluation.26 We found that local contractors do not have sophisti-cated technology assessment expertise and fail to consistently cite evidence to sup-port NT and TE policies. While larger contractors have more resources, even theylack resources to acquire commercially available technology assessments.

Local contractors are more likely to have adequate resources to manage utiliza-tion. Contractors uncover utilization issues by reviewing claims data. There is lit-tle formal evidence for many commonly used procedures, although there is a grow-ing body of data on best practices. CACs include representatives from statewidemedical specialty societies familiar with clinical practice guidelines.27 Variationsin UM policies may reflect differences in underlying practice patterns. When con-tractors perceive problems through claims review, their local policy interventionsclarify appropriate use. Ironically, the use of different policies may actually reducevariation in care, not exacerbate it, by bringing regional practitioners more in linewith accepted practice. However, some UM policies may accommodate inappro-priate practice patterns, raising the need for some oversight and review.

� Equity is affected by policy type. Although contractors can approve claimscase by case, access to a new technology generally requires a coverage policy becauseproviders are reluctant to perform services if payment is uncertain. Access for bene-ficiaries will be affected by failure to issue a policy or delays in doing so. UM policiesdo not raise the same access issues because UM LMRPs address services that are al-ready widely diffused. The issues are less about access and more about appropriateuse of an available intervention.

Policy RecommendationsIn MMA Congress directs HHS to address the allocation of local and national

decisions. The recommendations that follow provide a framework for that task.� The CMS should classify all policies. Because of the importance of Medicare

coverage, the CMS should take a proactive role to triage coverage decisions. Clas-sifying policies into NT, TE, and UM provides a critical first step in appropriate allo-cation of responsibility. Classification is a commonly used technique in approachingthe wide range of medical technologies.28

� NT and TE policies should be national. Quality and equity require nationalcoverage policies for new technologies. It is more efficient to have one national as-sessment than thirty to forty local ones, and local resources and expertise are lim-





ited. Our findings also suggest that local decisions are not necessarily timely. MMAincludes provisions to speed up the national coverage process, addressing concernsexpressed by device manufacturers.

HHS has expressed concerns over workload if all policy making were central-ized. However, only a small percentage of policies are NT or TE, and many of thoseaddress the same technologies. The CMS could defer a TE national decision, al-lowing for some flexibility at the local level for a limited period of time. Any TE de-cision, however, should be based on empirical studies of effectiveness.

� The CMS should oversee and assist local UM policy development. UMpolicies raise fewer issues about equity than about quality. Local contractors oftendiscover utilization issues when they review claims. It is logical that they retain thismanagement function to administer policies, pay claims, and educate providers onappropriate utilization issues. However, local UM policies would benefit fromgreater CMS oversight and guidance. HHS should convene an expert panel to evalu-ate all existing UM policies. Using clear criteria such as program cost, safety, andquality, the experts could recommend consistent national UM policies where thereare reliable data on appropriate parameters for use. The expert body could be avail-able for consultations with local contractors, as well as periodic reviews of futureUM policies to ensure consistency where appropriate.

� Redesign contracts to ensure equitable allocation. We have found thatmuch variation in contractors’ performance is tied to differences in contractors’ sizeand resources. MMA contains provisions for contracting reform and indicates amovement toward regional management of health plans. We recommend that re-gional contractor jurisdictions be redrawn so there are reasonably equivalent re-sources for LMRP development. The CMS should also provide greater assistanceand oversight, including facilitating access to data on best practices and technologyassessment where available.

MMA opens an opportunity to resolve the tug-of-war between local and na-tional coverage policy. Our research provides the analytic base needed to accom-plish the task. These reforms can eliminate inappropriate variation in Medicare,offering improvements in equity and quality for all beneficiaries.

This study was funded by the Robert Wood Johnson Foundation through its Changes in Health Care Financing andOrganization (HCFO) initiative.

NOTES1. S.B. Foote, “Focus on Locus: Evolution of Medicare’s Local Coverage Policy,” Health Affairs 22, no. 4 (2003):

137–146.

2. L. Baker et al., “The Relationship between Technology Availability and Health Care Spending,” Health Af-fairs, 5 November 2003, content.healthaffairs.org/cgi/content/abstract/hlthaff.w3.537 (16 March 2004).

3. Medicare Payment Advisory Commission, Reducing Medicare Complexity and Regulatory Burden (Washington:MedPAC, 2001).

4. U.S. General Accounting Office, Medicare: Divided Authority for Policies on Coverage of Procedures and Devices Re-sults in Inequities, Pub. no. GAO-03-175 (Washington: GAO, 2003).

1 2 2 J u l y / A u g u s t 2 0 0 4

M e d i c a r e



5. Ibid., Appendix VI.

6. AdvaMed, “AdvaMed Rejects GAO Findings on Medicare Local Coverage; Process Remains Key Avenuefor Patient Access to New Medical Technologies,” Press Release, 13 May 2003.

7. Institute of Medicine, Assessing Medical Technologies (Washington: National Academies Press, 1985).

8. At the time we downloaded the information for our study, the LMRP Web site was www.lmrp.net; thesite is now www.cms.hhs.gov/mcd. Our description relates to the old Web site. The date is important be-cause contracts may be transferred from one carrier organization to another as these organizations mergeor leave the program. There were contractors either not listed on the LMRP Web site or whose policy setswere empty on our “snapshot” date. We revisited the Web site and found that most policy sets previouslymissing on 31 May 2001 were posted. We downloaded these “missing” policy sets on 2 April 2002. We in-cluded only those policies with original effective dates on or before 31 May 2001, and we excluded two car-riers (Nebraska and Vermont) and one FI (Wyoming) that were posted after the second download.

9. Data points in our coding process included policy title; description; focus (drug, surgery, medicine); startdate of comment period; start date of notice period; original effective date; Healthcare Common Proce-dure Coding System (HCPCS) or Current Procedural Terminology (CPT) codes covered; evidence cited; revi-sion dates and reasons; states covered; and dates and locations of CAC meetings.

10. Excluded categories were anesthesia; ambulance and transportation; professional service components;psychological services “incident to” provision; psychiatric partial hospitalization programs; evaluationand management; consultations; observation care; care plan oversight; discharge planning; concurrentcare; emergency room; nursing home; hospice; independent laboratory and diagnostic testing facilities;x-ray supplier; collection of specimens; and payment and facility administration.

11. Medicare’s automated payment systems rely on codes to identify procedures used. Contractors use theHCPCS codes. There are miscellaneous codes if no established codes exist. The HCPCS contains threesets of codes. Level I codes include CPT codes used to identify medical services and procedures furnishedby physicians. Level II codes include products, supplies, and services not included in CPT codes, and LevelIII codes are “local” codes developed by contractors for local use (eliminated in December 2003 pursuantto the Health Insurance Portability and Accountability Act, or HIPAA).

12. S. Sudman, N.M. Bradburn, and N. Schwarz, Thinking about Answers: The Application of Cognitive Processes to Sur-vey Methodology (San Francisco: Jossey-Bass, 1996).

13. Eight CMDs (12 percent) provided written refusals, citing time and resource constraints; two also wantedwritten approval from the CMS. Others refused to participate when called or did not return calls.

14. CMS, Medicare Program Integrity Manual (Manual Transmittals through Transmittal Number 52, 10 October2003), www.cms.hhs.gov/manuals/108_pim/pim83toc.asp (16 March 2004).

15. W.R. Scott, Organizations: Rational, Natural, and Open Systems, 5th ed. (Upper Saddle River, N.J.: Prentice Hall,2003), 263–267.

16. Foote, “Focus on Locus.”

17. The activities were LMRP development; provider relations; claims processing, payment, and recovery; ad-ministrative; fraud; beneficiary inquiries/appeals; and other.

18. A.M. Garber, “Evidence-Based Coverage Policy,” Health Affairs 20, no. 5 (2001): 62–82.

19. Statement of Charlotte Yeh, former contractor for National Heritage Insurance (New England), MedicalTechnology Leadership Forum, 29 January 2003.

20. Contractor workgroups develop model policies that are shared with other contractors. See “DeviceMakers Ask HCFA to Scrap ‘Clandestine’ Policymaking Process,” Reuters Health, 4 January 2001.

21. T.G. Thompson, Report to the Congress on National Coverage Determinations (Washington: DHHS, 2002).

22. National Heritage Insurance Company, “Local Medical Review Policy Strategy FY 2002” (Mimeo, 2002).

23. J.E. Wennberg, E.S. Fisher, and J.S. Skinner, “Geography and the Debate over Medicare Reform,” Health Af-fairs, 13 February 2002, content.healthaffairs.org/cgi/content/abstract/hlthaff.w2.96 (16 March 2004).

24. MedPAC, Report to the Congress, Medicare Payment Policy (Washington: MedPAC, March 2004).

25. S.D. Ramsey et al., “The Limited State of Technology Assessment for Medical Devices: Facing the Issues,”American Journal of Managed Care 4 (Special Issue, September 1998): SP188–SP199.

26. Garber, “Evidence-Based Coverage Policy.”

27. R.A. Rettig, Health Care in Transition: Technology Assessment in the Private Sector (Washington: RAND, 1997), 11.

28. 21 U.S. Code, sec. 321. See the 1976 Medical Device Amendments to the Food, Drug, and Cosmetic Act.





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