case, on venezuela. and cuban independence day. >> thank you madam chair. on andrew tahmooressi's case, we will continue to do everything that we can for him. certainly everything that we can to get him home to his family to get him out of detention. i guess all i can say in this case is i hope that we will continue to work together on this one as actively each of us in our own way, because when these things happen all we want is to get these folks home as quickly as we can. so thank you for your efforts and we'll continue to do what we can along with ours consulate in tijuana and our embassy in mexico city. these are important cases and i appreciate congressman bringing this up and we'll continue to do everything we can. and just to say thank you for

mentioning the clarification on venezuela. i, too, was noticing this week the comments that dialogue cannot be -- what was the comment -- dialogue should not just be dialogue for dialogue's sake. it has to be dialogue with an end point of action. and those are the actions that we both want to see. so i certainly agree with you on that. not just dialogue for dialogue's sake. otherwise -- >> running out the clock. >> exactly. >> no resolution. we have 0 hold them accountable. >> -- to demonstrate our disapproval. and on cuban independence day,let me say we also agree that we look forward to a day when the cuban people can make their own decisions about their own future. >> amen. thank you so much. thank you to all of you. mr. connally is recognized. >> thank you, madam chairman.

let me ask assistant secretary jacobson and i understand in advance diplomatly what your answer is likely to be but there have been people who looked at northern mexico, and have felt, frankly, it falls within the rubric of a failed state. how would you react to that? >> congressman, that question came up fairly often early in the discussion the situation in mexico five or six years ago. and it was a serious question but i think there really is a serious negative answer to that question. that is to say, i do not think we have a failed state in any part of mexico. there are government structures still in place everywhere in mexico, which i believe are

exercising their function. they may be stronger or weaker, depending on where the drug trade is being flied. plied. they may be under siege in some places and need the support of the federal government, as has ban the case once again now where the federal government is sending in both security forces and prosecutors, as was the case obviously in mitch would can -- mitch waugh kahn, as has been in the same places where the criminal organizations come in. but i don't think we can say all state administration and power has been lost in places -- >> that's a fair point. would you agree, though -- obviously one of the challenge of the relatively new government, they have to re-establish authority in some places where the previous government clearly lost it. >> i think one of the challenges is how do you strengthen

government institutions against transnational criminal organizations which need them weak in order to either weak or nonexistent in order to carry out their business. and use violence as a tool to do that. so, absolutely. >> speaking of violence, when i was last in mexico we met with the previous attorney general of mexico. and when we asked him, what's the singlele most important thing we can do to help you with this outbreak of violence and challenge reassertion of state control in the more than part of the country. the single thing, without hesitation -- didn't think -- the single thing he cited was the united states should reauthorize the saul weapons ban. -- the assault weapons ban. do you understand why he would answer that way? >> i believe i do understand why he would answer that question. >> could you elaborate?

for the record? >> well -- >> why is that important? >> certainly i and my colleagues here can testify to the fact we have certainly heard from our mexican counterparts numerous times, their concern and frustration with the amount of weapons in mexico -- >> all of which are coming through the north -- or a lot of them. >> i don't know that the comp position is, but it is certainly their perception and seems to bell the reality that a great number of them do come from the united states, and it is obviously very, very difficult to own weapons in mexico so they have done, they believe what they can within the country, and are frustrated with the -- actually what they're frustrated with is the advanced weaponry that they face from these

more focus on crime prevention, particularly in the larger cities and perhaps less focus on targeting the specific criminal organizations. that said, it was this government that produced the successful chap o'guzman takedown which i noted in my opening statement was perhaps the most important law enforcement operation since

pablo escobar was perfect rated by the colombians some 20 years ago in medellin. they have focused on community development and support, well within the range of the pillars we agreed to. in other words i would say we have adjusted our cooperation but i would not -- in fact i'd be the last one to say this government has walked away from or decided not to support the efforts -- >> thank you so muff. thank you, mr. sherman. >> thank you. you're almost done. >> as long as you want, mr. sherman. >> i'd like to focus on the economics. we have a $60 billion trade deficit with mexico. part of that is because we import petroleum from mexico but, frankly, we should be able to pay for our petroleum with

the goods we export. in this committee often there's discussion of u.s. restrictions on the export of natural gas. ms. jacobson it's my understanding that because of nafta there is not a restriction on our export of natural gas to mexico. are there legal barriers imposessed by the federal government to exporting natural gas to mexico? >> i have to get back to you, mr. sherman. >> thank you. ms. jacobson, what could we do to increase american experts to mexico, excluding the natural gas issue? >> i think one of the things that we feel is critically important that the president i focusing on, is focusing on small and medium size businesses in the united states, which could export and don't right now. that's part of what the

president's national export initiative was about. there are opportunities that we think they could take advantage of, and that is what we're trying to do. there are small business -- >> does mexico have nontariff barriers to our experts? >> i don't know i can answer that in every -- in any sweeping sense. i imagine -- >> is there any -- >> there are trade cases underway in some areas root now -- right now certainly. >> what practices of the mexican government have we questioned or called to task or asked to be changed to allow our exports in? >> i have to get you a better rundown of this. i don't want to sort of seat of the pants answer the question. >> i understand the situation. one comment about the state department in general. when you deal with the foreign ministries of other countries,

the persons holding your position would be first, second, and third economics and pushing exports and everything else we have talk about would be fourth, fifth, and sixth, and the state department is of all the foreign ministries in the world the least focused on exports. i'm sure you do some things, but if you compare your efforts to the foreign ministries of other countries, it's not the culture over there. >> i would hate to have my weakness on this performance today speak for my colleagues -- >> i've been here for a 18 years. i had that opinion before i walked in the room. you have done nothing -- >> nothing to disspell it unfortunately. >> nothing to disspell it. one hearing couldn't increase or decrease it. it's built on 18 years of sitting in this room, and even if you'd given -- even if you

were up on all of that, i wouldn't erase 18 years. and it's hard to go back to our districts and talk about the need to be involved in foreign affairs when we're the world's -- involved in foreign affairs far more than other country and the biggest trade deficit of any country by far. >> can you comment on the economic reforms of the new president? he has been able to enact most of them. >> we talked earlier about the energy reform. i think the energy reform is

critical it's obviously critical for mexicans. i think it's very important for u.s. investor possibles -- this is for mexicans to decide. this is an issue of great sensitivity in mexico -- >> well, dramatically affects the entire world and if we can increase production in north america -- >> crucial. >> -- we can -- we just fought a war in iraq i've been told wasn't about oil, but oil supplies are critical national security interests. >> well, clearly north american energy production of all types is increasing, and that's very, very good for us in our energy security. but i also think the telecommunications reform is crucial, and the telecommunications market in mexico is one of great interest, i think, to u.s. investors and opportunities for the united states and our businesses. >> thank you so much. >> so in our second round i'll talk to ambassador brown feel.

>> thank you to the panelists. i hope that secretary kerri -- sac kerry brings up andrew's case in his trip to mexico, and as we wrap up we want to say happy birthday to ambassador brownfield. >> i'm 39 years old. >> and holding. >> committee is adjourned.

on american ambassador debbie jones speaking about the growing violence in libya since the fall of moammar gadhafi live coverage begins at 12:30 eastern. >> what i'm trying to say is that fraud kills. okay? and it's nonpartisan, fraud, and and we got to do something about it. we don't have unlimited budgets, and money that gets waisted on a building that is never going to be used is money that could have helped some other afghan, could help some people here in the united states, and you keep seeing this again and again and again. i'm very proud to work for this administration. i mean -- i think it's important that people realize i was

appointed by the president, and inspector generals are independent. and -- but it's important that the people see that the government does care, and there are lot of people -- people in aid and state and pentagon, who care about wasting money. >> john sopko how american taxpayer dollars are spent on reconstruction in afghanistan sunday night at 8:00 on c-span's c & a.

>> an independent audit has found that medicare may be overpaying hospitals and estimated $5 billion due to the 18-month suspension of a rule that tells hospitals when patients can be admitted. the american hospital association disputes that figure. that finding was discussed in this house ways and mean committee hearing on medicare payments to hospitals. witnesses include officials from the agencies that administer medicare, and hospital administrators. this is two hours and 50 minutes. >> good morning. thank you all for joining us this morning. every dollar spent on -- should have been used to care for seniors. we're here to discuss the problems facing hospitals today, but also to find solutions that bring sense to our medicare program and improve care for america's seniors.

today's hearing will examine hospital issues, including those related to cms's midnight policy, as well as audits and appeals. this is a bipartisan concern, shared by many stakeholders, medicare, and lawmakers on this committee in order to understand why cms chose to pursue two midnights policy we have to explore events leading up to the policy. after we review the events today, congress will be able to make an informed judgment about the merits of the policy and potentially pursue alternative solutions. our first panel with educate us on inpatient and outpatient payments for services and hospital. if we want behavior to change and improve outcome wes need to change the incentive. our second panel will feature national experts commenting our federal laws fable everyday medical practice. we'll be hearing perspectives from across the spectrum, providers, odd did temperatures, researchers, beneficiary

advocates. as i talked to stakeholders about current issues in the medicare program, the two midnights policy comes up over and over again. listening to a variety of different perspectives i've come to understand the following. there are miss aligned incentives and cms's inpatient outpatient payment system. hospitals are not doing anything wrong. just responding to incentives. no matter if a service instance patient or outpatient the hospitalstle use the same equipment and same medical staff to deliver care but there are two different payment names and the systems don't relate. they're based on different coding rubrics and pay for different things and this is provided after doctors provide care. take for example reimbursement fog medical education. so if you are large teaching

hospital and can bull under either payment system, why would you ever submit the bill for anything other than inpatient reimbursement? all about the underlying incentive. now let's examine the next piece of the puzzle. audits. i've heard from hospitals that audits are causing undo burden. i heard from recovery audits contractors that their simply responding to what cms has defind as improper payment. their emphasis on short hospital stays do to -- you guessed it -- the underlying incentive. keeping percentage officer any improper overpayments -- prior to the two midnight standards there were no definitive rules governing which payment system was check for short stay. they're focusing an legitimate discrepancy of medicare payment and they are responding to the intent. auditing causes unintended behavior changes. we'll larry from several of our

witnesses today that around the same time the short stay audits were the full swing, there was an unprecedented spike in outpatient observation services. observation is meant to be a temporary tool, allowing clinicians to monitor patients without using hospital resources. however, observation services we are now being used to avoid certain affects, including audits and avoiding re-admission penalties. the saga continues when we turn to the appeals process. hospitals disagree with audits and appeal the decisions. hospitals have found high level success in overturning the rulings at the alj level. same thing, responding to incentives, alj equals more likely to have an -- to appeal everytime. so much activity at the lj level has led to an extensive backlog

of appeals. this year the obama administration suspended the assignment of new appeals past the alj level. we see unintended consequences. denying providers their basic due process right occurring as a result of poor incentives. we intended to have a witness from the department of halve and human services here today to testify on behalf of medicare appeals process, unfarm chief lj nancy griswold was unable to join us, but hhs has committed to briefing the ways and means members on this important topic. at the conclusion of today's story lies the heart of the issue, the two midnights policy. response to the inpatient/outpatient payment prerickment. backlog of appeals, cms took its best shot at a solution two midnights. today we'll hear from all witnessed on whether the two midnight solution is solving all or any of various problems

identified in this tale. i commend any colleagues on the committee members on both sides of the aisle who introduced bills to pursue different alternatives to the two midnights policy. my colleague, mr. g lock, and mr. crowellie, mr. weed, mr. -- have offard sound proposal for our committee to work from. before i recognizing the ranking member for the purposes of opening statement i ask, also always, unanimous consent that all members' written statements be included in the record. without ox so ordered. i now recognize ranking member dr. mcdermott for his opening statement. >> thank you, mr. chairman. this hearing today is really about serving the greater good. when this rule was proposed, the two midnight rule, i submitted on the 22nd of july last year my comments about it, and much of what i thought was going to

happen is now here and we're going to hear about it today. i'm pleased you're having this hearing. i'd like to enter into the record that letter so that it gets in the record. >> without objection. >> in recent years hospitalized have been asked to do more with less. we have slowed the rate of growing of the payments and asked them to work harder to improve quality, and decrease unnecessary readmissions. furthermore, although congress just delayed yet again the transition to the icd10 classification system, hospitals have had to take steps to move to the new system while continuing to implement the meaningful use requirement and participate in delivery system reform efforts. many of these activities support the noble goal of improving care for patients that they serve, such as the accountable care organizations and the patients at medical home, while reducing

long-term costs but require upfront capital investments. hospitals are employing people and providing good and stable benefits for employee, something other sectors should emulate. hospitals are doing all of this in the face of a number of regulations and justifiable scrutiny. the administration recognizes the sacrifice this sector has put ford. as an example the administration has made efforts to reduce the unnecessary regulatory burden. just this month the administration released part two of the final rules to reduce unnecessary obsolete or excessively burdensome regulation on healthcare providers and suppliers. i comment cms for walking a fine line between regulating provider conduct and attempting to make these things easier from a burden standpoint. this is the agency's second foray into the ensuring that

regulations make sense and serve a purpose. unlike some of my republican court part believes some level of regulation is necessary to ensure that we protect medicare's finite resources for future generations. i think everyone in this room would agree that protecting medicare as a bedrock institution of american life, thereby serving the greater good, does require some sacrifice. this necessary sacrifice must be shared and proportional. to that end i'm among the first to call for reforms to the medicare recovery audit contractor program. and i mention the letter i put in. as a result i suggest cms reconsider the policy in this regard. now, of course, several stakeholders have raced concerns the recovery audit for contractors will be overzealous in pursuing recoveries related to this policy. people knew it when it was put in. it is not that i believe that

they should disappear. they perform a critical role but the program need reads form from a fairness and equity standpoint and i'm pleased cms has taken affirmative steps in this regard. i've also been among the loudest voices calling for -- to allow broad participation among privateers and suppliers to participate in innovative partnerships that promote care coordination such as gain-sharing, and other shared saving programs while ensuring protections under the fraud and abuse laws remain in place. i have also introduced hr4658 which would make a modification to the civil monetary penalty law to allow providers to more easily participate in care coordination programs. i've also introduced hr3144, the fairness for beneficiaries act, which recognizes that the three-day stay often has

negative ramifications for the medicare beneficiaries and would eliminate that requirement. finally, as the author of the self-referral disclosure protocol provision included in the affordable care act, i have been deeply involved with urging cms to make certain changes to ensure overpayment disclosures made pursuant to the protocol can be settled in a timely and efficient manner. all in all, hospitals are making shared sacrifices. they're going through a period of unprecedented change. they have demonstrated a willingness to work with us as we move to a new delivery system model and they have taken some financial hits. i appreciate the work that hospitals do. but also recognize that giving the improper payment rate on the medicare fee for service program, and the medicaid programs, they must be subject to some scrutiny by various contractors, including the recovery auditors. i think we should -- would like to ensure that going forward, we

will alleviate the regulatory burden where appropriate and ensure that medicare dollars are being used in a way that sustains the medicare program for future generations. hospitals have demonstrated a willingness to work with us as the pursuit of these goals and i think that we will hopefully from this hearing today be able to evolve some legislation. i yield back. >> today we'll hear from witness ons two panels. sean cavanaugh, deputy administrator and director over the center for medicare, the centers of medicare and medicaid services. jody noodlingman, the deputy inspector general of fraud and services from the office of inspector general, dhs. and on the second panel we'll have i'my -- the senior director of clinical resource management at johns hop consistent hospital. and dr. ellen evans, medical director, and decider an sheehey, faculty on behalf of

society of hospital medicine, ann toby, the single policy attorney, center for medicare advocacy. mr. cavanaugh, congratulations on your new position. both of those testifying and the members today we have two panels, we're tight on time and will hold fast on the five-minute rule. so are, mr. cavanaugh, welcome. >> gist became deputy administrator of cms a few weeks ago but i start mid career in health care in this commitee room working for a member of the halve subcommit yeah. i have great memories of working in this room to improve the medical program and i deeply respect the role played in setting medicare policy and appropriate oversight of the operations of the program.

so it's an honor to return here today to this committee room, representing representing the agency that administers medicare. when a patient arrives at hospital needing care one of the critical decisions physicians must make is whether to admit the patient for a inpatient care. this decision takes into account the patient's medical history and other factors. however, because of statutory requirements, medicare pays hospitals different rates for inpatient and outpatient services. so the conversation whether to admit a patient has implications for privateer reimbursement for beneficiary cost sharing and also for post acute care benefits the beneficiary may qualify for. two years ago hospital. s and stakeholders were ask cms provide calculator on inpatient care. hospitals were growing frustrated with the administrative and financial burden incurred when recovery auditors denied claim for services after chaired already been provided. at the same time cms is hearing from its contractors that met

dare was reimbursing hospitals for inpatient care that should have been provided in a less costly outpatient setting. some hospitals ranged to the scrutiny by treating more patients outpatient, a. in an observation status. some observation stays lasted three, four, even more days this. cause problems for beneficiary because it subjected them sometimes to higher cost share are in medicare part d and also disqualify them for the -- they wouldn't accruing the three inherent days needed for the benefit in 201 we solicited public feedback to determine when an inpatient admission is rome and necessary. we received a large number of responses but there was not a consensus around any single approach. last year cms finalized proposal known as the two mid-michigan rule. the rule sets a bench mark for when cms and the contractors will consider i inpatient

hospital and payment fremont. cms -- appropriate. we were seeking to balance several prisons that many of us share. we wanted criteria that were clear to providers. we wanted criteria that were consistent with good, sound medical practice and criteria that reflected the beneficiary's medical needs, and finally, criteria consistent with the efficient delivery of care to protect the trust fund. in november of last year, cms announced a probe and educate strategy around the new standard n which the macs are now conducting prepayment views on a sample of short patient stayses to determine compliance. admissioned that are not reasonable or necessary are denied and they work with the hospitals to educate them on the criteria. as part of the strategy we also prohibit the recovery auditors from conducting any post payment reviews of claimed for the medical necessity of the

inpatient status through march of 2014. we used this opportunity to engage in a dialogue with stakeholders on the two midnight rule. as we began hearing from stakeholders that more time was needed to understand the policy we extended the probe and educate strategy through september and congress subsequently extended it through march 31, 2015. we believe these extensions are allowing hospitals time to fully understand the benchmark and for cms to learn now about house policies being implemented and understood by hospitals. in fact, preliminary data suggests that as a result of the two rule the proportion of long outpatient stays is beginning to decline. however in recognition of the continued call from stake holders for additional clarity, this year cms is soliciting feed back. specifically we requested public comment on how to define short stays and how an appropriate payment might be designed.

these comments are due to the agency at the end of june. second we reminded the public we're inviting feedback on creating additional exceptions to the two-midnight rule. we look forward to reviewing stakeholders' suggestions on these subjects. mr. chairman, ranking member, i look forward to hearing this sub commute committee0s ideas regarding regarding regarding the two-midnight rule. we welcome this opportunity to hear from congress and stakeholders. with that i'd be happy to take questions. >> thank you. miss noodleman, you're recognized for five minutes. >> good morning, chairman brady, ranking member mcdermott, and other distinguished members of the subcommittee. thank you for the opportunity to discuss the office of inspector general's work to improve the medicare program. my testimony today has three key takeaways. one, the two midnight hospital policy must be carefully evaluated. two, cms should enhance its

oversight of the recovery audit contractors and, three, fundamental changes are needed in the medicare appeals system. i will begin with the two midnight rule. the new policy provides guidelines for when hospitals bill for inpatient stays and outpatient services such as observation. these decisions have significant impact. they affect much medicare pays the hospital, how much by-riz must pay, and by-riz' eligible for skilled nursing facility services. prior to the policy, oig evaluated hospitals use of observation stays and inpatient stays. our findings continue to be relevant. we found that beneficiaries were in observation and short inpatient stays for similar reasons but short inpatient stays were more costly. on average, medicare paid nearly three times more for short

inpatient stays than observation stays. beneficiaries paid almost two times more with also found that hospitals vary. some hospitals use short inpatient stays for less than ten percent of their stays. others use them for more than 70 percent. lastly we found that some beneficiaries spent three nights or more in the hospital but did not qualify for the skilled nursing facilities under medicare. that is because their stays did not include three inpatient nights. switching to our work on recovery audit contractors, orr ac, we found that these contractors play a critical role in protecting the fiscal integrity of medicare. in fact, in fiscal years 20 some '11, rac identified improper payments totallying $1.3 billion. most of the recovered improper payments came from hospital

inpatient claims. however, we also found that cms needs to enhance oversight of rac. finally, oig has found that the medicare appeals system needs fundamental changes. we reviewed the third level of appeals, which is handled by administrative law judges, or aljs. although the work predatedded the recent summer in appeals our find examination recommendations are relevant to the current challenges. we found that aljs decided fully in favor of appellants in over half of the case, and part a hospital stays were most likely to receive favorable decisions. several factors led to aljs reaching different decisions than the prior level. one is that some medicare policies are unclear. this leads to more favorable decisions for appellants and more variation among

adjudicators. in fact there's wide variation among aljs. their rate of favorable decisions range from 18 to 85%. we also found that improvements were needed such as aljs moving to electronic files, and cms increasing its participation at hearings in closing, clear payment policies, strong oversight, and effective appeals system are critical for medicare to work well. cms policy, the rac and the appeals system must each fulfill their important purposes. if they do not, beneficiaries, taxpayers, and the medicare program suffer. oig is committed to continuing our efforts to improve medicare. thank you for your interest and for the opportunity to discuss some of our work. i'd be happy to answer any questions. >> thank you. witnesses who made the point

that two midnight policies, inpatient, outpatient, audits and appeals work together, which is why we're doing this hearing all together. so starting, cavanaugh, i'm asked to hear your thought on the inpatient and outpatient services and we should be trying to find the best quality care at the right size with the most cost effective payment. so can you give me an example of reimbursement difference? for service that can be billed both inpatient and outfacial bay teaching hospital -- outpatient by a teaching hospital in a major city. >> well, mr. chairman, as you opinioned out in your opening statement, the outpatient payment system and the inpatient payment system are fundamentally different and start with different coding. so it's offer hard to compare payments because we can't put the same claims through the outpatient system and the inpatient statement. they're coded differently but union patient we tend to pay a fixed amount, a grg-based

payment. that payment will include adjustments for a possibly ime, for dish, could include a re-admissions penalty or hospital required condition penalty but tends to be a fixed payment for the type of patient and type of service being delivered. on the outpatient side it's more disaggregated where we tend to pay per service itch think you heard from the oig and i think it's similar to dat to we have that the magnitude of the difference in payment is quite substantial. the oig mentioned that the short stay inpatient pavements tended to be three times as costly to medicare as the short -- as the outpatient observation stays. that consistent with data we have seen at cms. that gives you a sense -- the tianimens for deriving the payments are different and the magnitudes are quite different. >> how do you address that and. >> i'm not entirely sure how we address it. one idea we received from stakeholders and that has some support in congress, is to create a payment system that

splits that difference. a short stay inpatient payment system, and as i messengered in my opening statement, we are soliciting comments how to create such a payment system. i would say there are challenges. one of the -- some of the cases that come in as short-stay inpatient payments already have very low helpings of stay. chest pains drg, has a two-day average length of stay. so, the question is, how would you create a short-stay payment around a type of case that is already fairly short? those are the sorts of technical questions we're asking for public input in the proposed rule this year. >> the. miss newedleman, do you think the two midnight standard will reduce observation stays or increase them? lengthen them? >> again, our analysis is prior to the two-midnight stay and it is difficult to predict how things will look. what we did find is that

hospitals extremely vary, and, therefore, it's important to look at all of the data because their starting point is very different and it may impact hospitals very differently. >> mr. cavanaugh, you made -- thank you for your fa si skrineing the different cost sharing implications affecting beneficiaries and the difference between inpatient and outairport. it's unfortunate the medicare program has such vastly different cost share rules for seniors, medicare by-riz between the two benefits this committee folked earlier on the advantages of combining medicare parts a and b with out of pocket costs, to make sure we protect seniors in part because we're concerned about what seniors pay for cost sharing. so, can you give us your thoughts on combining parts a and b and how that might be helpful in trying to contain

those cost, sharing which will florida seniors. >> one of the goal to speak to problems which is that it generates very different liabilities for the patient. i want to hear more about the proposal that subcommittee is considering and we have technical staff at cms who can provide assistance to you in the drafting of the bill if required. and if that would be beneficial -- >> you are taking a look at the proposed combining part a and b in the president's budget or in earlier healthcare proposal inside. >> we don't have a proposal on that at this time but if the committee has a proposal we would thereof see and it learn more about it. >> okay. -- love to see it and learn more about it. >> last question. cms doesn't have a direct roll in the alj level medicare

appeals. cms must be part of the solution to solve the backlog. does hhs have a working group to address medicare appeals and has hhs crafted recommendations to solve the backlog issues going forward? >> yes, mr. chairman. there is an hhs-wide work group to address the backlog. cms is part of that. i'd be glad -- we're in the process of coming up with recommendations. i don't believe their finalized yesterday. >> what's the timetable on that? >> i think we could brief the committee fairly shortly. >> thank you, mr. cavanaugh. now recognize rank member dr. mcdermott for five mints. >> thank you, mr. chairman. from a patient standpoint you walk into the emergency room or whatever, and you get put in one of these statuses or the other. does it make any difference to the patient to the by-we, which status they're put? as to how they're treated?

>> as to how they're treated front a benefit perspective? >> i'm talking how they're treated as a patient. i would hope not. >> i would hope not. i hope patients receive all treatments medically needed. >> so the difference is in the payments that is received by the hospital or that the patient has to make depending on which category their in. is that correct? >> certainly the statute creates a stark difference between inpatient and outpatient care. >> give us the amount of difference for a hospital, what they receive and what the patient has to pay? so we get some idea who is bearing the weight here. >> these will be -- the amounts both that the hospital receives and the beneficiary would be liable for would very tremendously on individual circumstances. so i can't give you a precise answer. i would say that when we did a rebilling initiative where we had hospitals take short

inpatient cases and rebill them as outpatient, which involves some work, we did find that the outpatient payment to the hospital was about 30% of what the inpatient payment would have been. 0. >> so they're getting 60're -- 70% more if they bill them as an inpatient. is that in medicare payment for the drg, the diagnosis related group, or is it the indirect medical education of the dish payment? what -- >> includes everything. >> what's the split -- you're saying you're including everything. >> yes, jo it's to the hospitals best interests to bring them in as an inpatient. >> certainly it generates more revenue. >> from a revenue standpoint. we said it doesn't make any difference how they're treated as people and as patients. so the only difference is how much money the hospital makes off of them. is that correct? >> again, its certainly makes a

significant financial difference. >> now, i've heard -- and i think almost every member on this committee has probably heard from their hospitals, the usual assumption is that the racs are overzealous and somehow when we take them up to appeal and we finally get to the appeal process, almost always it comes up to in our favor. could you give us the numbers of how many are overturned on appeal? >> certainly, congressman. we had a report to congress on the rac program in 2012, and we showed that when the rac denies a claim,, only seven percent of those are ultimately overturn at some level of review, all the way up to the alj. >> only seven% are overturned. where do the hospitals get the

figure that they say -- they're all overturned. when we finally go through this long, arduous problem that is backlogged and everything else always overturned. where do they come up with that. >> there are could be two sources of difference. the first is any individual hospital's experience may vary tremendously. some may have a better success rate. the other is some of the numbers i've seen quote bid the industry, they're using as the denominator only those they choose to appeal, not all those that were denied. which a lower denominator would generate a higher rate of success. >> does it get to more than half? >> in the numbers we have seen at cms, i haven't seen anything that would get that high, no, sir. >> the number i saw -- you're holding back on the numbers you have. the ones i've seen say 27% are the number that are overturned. >> again, don't mean to hold back the numbers. these are in a public report to

congress. ultimately -- i'll just state it as clearly as i can. all the ones the racs deny, only seven% are overturned you. tike the low number of the denials and the hospital chose to appeal it would generate a higher overturn number. i just don't happen to know that number. -- 14%. >> 14%. >> i'm being helped. i socially doubles the rate but not as high as numbers you may have heeder froms could individual hospitals may very. >> can you give us an explanation for why this problem -- i mean, generally congress doesn't run in and pass laws and you don't make rules and regulations without there having been something to generate them. what is it that drove this in the first place? >> i think it was a confluence of a number of factors. we heard from hospitals and beneficiaries who were really concerned about to long

observation stays. that was causing confusion for beneficiaries, and including they didn't understand their status and also thought they were qualifying for the skilled nursing facility benefit. we heard from hospitals who thought just dealing with the racs was what the hospitals would characterize as an unclear standard for inpatient care, was difficult situation to put them in. and all these forces came together and that's why cs solicited input. our goal is not have a successful rac program or to drive down the number of overturned appeals. our goal is to have hospitals understand the rules, agree with the rules rules and bill correct the outset. >> your dime is expired. mr. johnson. >> thank you marx chairman, mr. cav inaguration the value purchasing program enacted as part of obamacare is the government's effort to hold hospitals accountable for

patient outcomes. medicare compared hospitals how they followed basic standardded of care and how patients rated their experiences. in the first year of cms value based purchasing profit physicians and hospitals demonstrated they thrived and delivering high-quality, low-cost care. amiesingly nine of the top ten and 53 of the top 100 hospitals were physician-owned hospitals. cms also recently released data that summarizes the utilization in payments for procedures and services provided through medicare. based on this release of information we have now confirmed what many of us have nope for some time, and that is that physician-owned hospitals are costing medicare loss than hospitals without physician ownership, and that doesn't consider all the cost cans savings associated with the higher quality of care they provide. the irony of all this is the

very law that created the hospital value based purchasing program -- obamacare -- bans the same hospitals this new accountability measure, says they're some of the very best in the country. obamacare prohibits any new physician-owned hospitals from treating medicare and medicaid patients. this clearly discriminates some of the most vulnerable patients in our health system. while the law permitted those physician-owned hospitals that received medicare section to be grandfathered under the law, it preventses these same hospitals from being able to expand to meet the access and quality demands in their community. this makes no sense and it flies in the face of the administration's own benchmarks for quality of care and cost savings. are in cavanaugh do you stand by the result offed the value based purchasing program which validated the exalt of

physician-owned hospital inside. >> yes. the agency stands by the results of she value based program. >> do you stand by the dat released showing that cost differential between treating patients at physician owned hospital versus hospitals without any ownership by physicians? >> i apologize, congressman. i'm not familiar with the dat to but happy to review them. >> appreciate it if you would. i hoch you can support a bill i have out there which hr2027 which would establish a level playing field for physician-owned hospitals hospid ensure that patients continue have a choice where they receive their health care. >> certainly we look forward to reviewing that legislation. >> thank you, mr. chairman. >> thank you. mr. tom consistence is recognized. >> thank you for holding this hearing today. this is -- mr. cav -- cavanaugh

i'd like to revisit the issue of the reversed audited. you mentioned seven%. mr. mcdermott said he hears from this constituents that every one of them are overturned. i'm hearing its in the 40% from any hospitals 4 40% and can change. is there any way to qualify how these missed billing are done? are they intentional or mistakes? what is your experience? >> certainly my experience, which actually predates my time at cms -- is a mentioned in my opening statement i've only been the director of center for medicare for a few weaks but die have experience working in the hospital industry. my experience has been most of them are not fraudulent.

it is -- >> honest mistakes or they find the process is confusing, have trouble getting to where they need to be? >> certainly that's what i've heard from much of the industry. i would also say, by monitoring these very closely, the agency has at times found suggestions of fraud in some areas. but i don't think that's generally what is driving this. >> is it pretty easy to recognize the mistakes vis-a-vis the fraud? >> i would have to defer that question to my colleague, who runs the program integrity side of cms. >> i'd like know that if you can -- >> we'd be happy to circle back with you. >> whichever it is, when a hospital has to go through the process of defending their claim, there's a lot of expense associated with that. >> that is true. >> are you able to qualify that?

>> we don't collect data -- >> hire lawyers for consultants -- >> just the time and the -- gee costs to defend their billing practices, rather than providing health care to patients? >> yes, congressman. again, that's why we feel perfecting the appeal process is important but what is more important is having very clear guidelines how cases should be build at the outset. >> is there any way to minimize the constant to hospitals if their claim is reversed? >> -- they have to pay one way or the other. >> there are some things we're doing. the recovery audit for contractors being re-competed and we hope to award new

contracts this summer. in the process as we set new terms we are trying to take steps to make things less burdensome for the hospitals. we're trying to revise the requests the audit doors do for documents from the hospital to try to limit that burden somewhat. we're trying to ensure there's an exchange of information between the audit fors and the hospital, so the hospitals can make their case before the have to file a formal appeal they can work with the audit for to explain why they think it is appropriate. so we're always looking for ways to improve this and i think -- >> cost incentivize the audit fors to go after more than they should? >> i don't think it's -- i don't think there's an incentive to good after more than they should i think the very low overturn rate i quoted suggests that they're largely going after the right types of cases. but given, i would rather they have -- >> that's the overturn rate you quoted. seven percent. >> correct. >> if it's closer to what

mr. mcdermott said where they're all overturned or what my hospitals are experiencing, about 40-some odd percent, it's not quite as low. >> if i believed that claims -- >> there's lies, there's damn lies and there's statistics? >> i just wantededed to agree wh you if the overturn rates of 40, 50%, that would be indicative of larger problem than just the guidelines. >> what would that problem be? >> i think it would indicate that the recovery auditors were not going after cases that were -- >> auditors are what. >> the recovery auditors if they were getting overturn he would 40% of the time they were probably going after case that were properly build to start with. but that's not what we see in our data. ...

he said that he wanted to protect medicare is finite resources, and i agree with that and you agree with that. one of the challenges, i think, is there is a zero sum gain element to medicare reimbursement right now. want to draw your attention to an issue that i am sure is familiar with you, nantucket cottage hospital. as you know, that was part of the process by which the affordable care act was passed. i don't think any celebration and that it is a zero sum game proposition. i come from illinois, and my

home state is losing end of this equation. massachusetts based on this manipulation will essentially get three in the half billion dollars over ten years. q. you recognize that that is a problem? >> i am familiar with the provision you are talking about, and i would simply say cms is faithfully exercise in the law as written. >> you don't think that is a good allocation of resources, do you? >> again, i would just say that we are implementing the law has required. >> well, if it takes for my state and gives to another state and what it does is manipulates the definition of a liberal hospitals of that nantucket is now defined as for which booths everybody up because you know these rules better than i do. the entire state of massachusetts is the beneficiary of one hospital, and they

particularly leisure rias area is now redefined as ronald, and therefore poor. that is a manipulation, is that? >> congressman to my thinking have accurately describe the mechanism of what is happening. again, we are about to implement the law. >> what is not a good idea, is it? >> we are faithfully executing the law in this regard, sir. >> well, but, i mean, if you recognize that there is bipartisan support repeal this, this is one of these areas where a tremendous amount of bipartisan interest in trying to get back to this, senators the gaskell and cockburn have come along side with one another. there are dozens of members of the house of representatives who have recognized this, and this is a situation where one state, based on one statute, is getting a disproportionate benefit, and it is not getting a disproportionate esoteric benefit.

in other words, this is not just simply borrowing for a future generation. this is saying, oh, we are going to take from illinois, and we're going to give to massachusetts. that is a breakdown, isn't it? isn't that a failure? >> congressman, the provision does involve some of the technical aspects of medicare rate setting, and we have a lot of experts at cms who we would be happy to bring down from -- to provide the technical assistance of the have a legislative proposal. >> is a technicality when a luxurious vacation area is characterized as world, and thereby boosting every other hospital in the state and having an expert -- adverse impact on many other states. some massachusetts, according to our staff that but this together in 2013 and 2014 is going to be receiving a benefit of $425 million. my home state of illinois is down 62 million.

congressman prices home state of georgia is down 30 million. you know, you just go on and on through the list. congressman mcdermitt home state is 12 million. this is beyond just a technicality, wouldn't you say? >> what i was suggesting is it is a function of technical parts of the rate setting for medicare we're happy to look at it and provide -- >> is that an oversimplification to say it is just a technicality it is not just technically taking millions of dollars from my home state and these other states across the country to benefit one state from low boosting of this sort of hospital definition. and if that is a technicality when i shudder to think what is a big deal. it is more than a technicality, but do agree with that?

which it did not mean to suggest it was a technicality. what was saying is, it is a function of a technicality of the rate setting system. as you said, the provision has a meaningful impact of medicare rates. >> what you think it is a technically bad idea? >> congressman, we are faithfully executing the wall. if you have a provision to change it, we're happy to provide any technical assistance you might need. >> thank you, mr. peter roskam. >> thank you, mr. chairman. i think we can work together, really do, to find solutions that work for hospitals and for patients. i have been hearing from hospitals in my state, mr. sean cavanaugh, about the various reporting requirements and programs that impact the work that those hospitals do. i do not think anyone here will disagree that there is much room for improvement in the program and policies related to short-term as well as observation stays.

however, we need to a strike the right balance between ensuring that hospitals can comply and that medicare has the ability to in short program integrity. it sounds easy, but it is not. one area of particular increase to me is the increased use of observations based and how it impacts the beneficiary. so, i co-sponsored along with joe courtney and tom latham, bipartisan, the improving access to medicare coverage act which would allow observations days to be counted toward the three day mandatory inpatient stay for medicare coverage of skilled nursing facility services. so here is my question, mr. sean cavanaugh. in number of independent reports from net pack, the hhs inspector

general, brown university, very interesting study, indicated that there has been a substantial increase in the number of observation state claims and a decrease in the number of in-patient stays. according to med pac outpatient observations days to buy it 30% from 2006 to get to c-span. a brown university study found the average length of stay and observation increased by more than 20%. can you tell me what is contributing to this trend and a rise in observation states? >> certainly cms is aware of the growth and observations days as well. one of the things, we believe, is contributing to it is the behavior of some hospitals that want to avoid otters reviewing whether and inpatient stay was

appropriate. >> you want to lay that on the record, please? >> excuse me? >> with the me? >> again, this is anecdotal having talked to some hospital associations and some individual hospitals, that some hospitals have decided it would rather take the patient and observations status in an excess of caution rather than risk having an inpatient commission subsequently denied. >> what does that lead to? >> well, first of all, what i think is unfortunate is, as you point out, if the patient should be receiving in patient care, not approving the days that they need to qualify for the most acute skilled nursing facility >> that is pretty troubling. under the current law, under what exists right now, medicare requires that a patient be clarified -- classified as an inpatient during a hospital stay for three days in order to qualify for coverage in a

skilled nursing facility. after they leave the hospital. so a number of medicare beneficiaries have been cared for in the hospital on outpatient observation status rather than admitting them as inpatient, which has caused problems for medicare coverage. that is serious. mr. sean cavanaugh, do you believe that the three day inpatient requirement for medicare coverage of skilled nursing facility services is appropriate? >> congressman, i think cms shares your interest in trying to find ways to improve the use of skilled nursing facility benefit. i am pleased to tell you, other brick to examples of where we are exploring a very specific alternatives to this. the affordable care act the secretary and cms were given the authority to waive certain provisions of medicare in order to test new payment service delivery models.

in the pioneer ec will run by that innovation center and the bundled payments were care improvement also run by the innovation center we are running tests were participants in those models have waivers from the three day prior hospitalization will. we chose those environments in which detested it is the fill in those environments the providers out of the clinical and --- clinical and financial responsibility. we feel it is the best possible environment to waive the rule without having excess utilization. those tests are fairly new, and we are anxious -- we're going to evaluate them closely. when we have dated a share, would be happy to share with this committee. >> thank you. >> we will move to a 2-to 01 questions of the weakened balance. >> thank you for testifying this morning. on this to midnight rule issue in staying with the questions that my predecessors here have just post, i think a lot of this can be boiled down to some of

the information we get from hours of committee staff that summarizes the issues for the hearing today. and let me read, if i can, from that because, again, i think it crystallizes on the to midnight rule where we are. i am quoting, for fiscal year 2014 cms maintains 7501 diagnostic related group funneling coats for inpatient costs of -- hospital payment. the outpatient in the program is based on current procedural terminology or cp peacoats maintained by the american medical association. the cp tea codes map to ambulatory payment classifications for outpatient service reimbursement for calendar year 2014 cms maintains 8138 pc. there is no 1-to-1 matching of the argy to abc the lenore international classification of disease than to see peaty codes

hospitals are responsible for knowing too different coating systems and two different payment systems for medicare reimbursement. it seems to me, that is the problem, isn't it? the patient comes in to a hospital presents with certain symptoms and certain complaints, but there are two different coating systems that a hospital is then required to utilize in terms of reimbursement it will ultimately receive for whenever service is provided to the patient. so, does not the answer obviously to a new methodology that somehow blend's these codes or smoothes these two different payment systems, one outpatient, one inpatient, so there is a fair way to reimburse for the service provided, not the length of stay on an arbitrary basis? mr. sean cavanaugh. >> thank you for that question, congressman. i do think in this year's greuel flintridge we requested and put on a short stay inpatient payment system we were

suggesting that we are open to the kind of thing you are talking about, which is trying to see if the solution here is to minimize the damage differences. i don't want to prejudge the results. we are waiting to receive public comment. i think it is an openness to a step in the direction you are discussing. >> is that openness toward getting to a system where, again , the reimbursement to the hospital is based upon a more simplified methodology and a methodology that is tied to the nature of the service that is provided, not an arbitrary time frame for which that patient is in hospital? and i would also, if you would reply to that as well. >> i defer to cms and congress to make policy, but i think the overall objective is, going back to, you know, not paying the vastly different amounts for beneficiaries that receive

similar care. at the very least, a standardized across blocked the outpatients and inpatient procedures would be a useful tool. >> well, typically 89 reimbursement would be about three times what 87 reimbursement would be. there would be fundamentally unfair situation where somebody is discharged from hospital at 10:00 p.m. before the second midnight and therefore the hospital receives one-third of the reimbursement for the services that or otherwise provided work would have been provided if you just get the person three more hours and discharged him or her at 1:00 a.m. after the two big nights at passed by and did three times the reimbursement. isn't there a fundamental flaw in our charlie setting out a to midnight or any particular time for determining reimbursement verses just the nature of the service that seems to treat the

patient. that is the goal here. getting the patient properly cared for in a hospital setting based upon the symptoms and problems and then the diagnosis that is made to deal with that. >> i think, congressman, it's is fair to say cms shares durable. what i would caution is any time we create a new payment -- there is lot that goes into creating payment systems. what you articulating is a very seamless goal of a new payment system. it presents many new challenges. however, we have expressed openness in a proposed rule to the exploring payment solutions. we look forward to hearing any ideas this subcommittee has and look forward to working with you on this. >> thank you, both. >> mr. smith. >> thank you to our panelists. it would seem the more regulations we have the more difficult it becomes, at least to medical providers who tell me it is more difficult to do their

job and especially to -- it becomes more difficult to do the right thing. mr. sean cavanaugh, similar concerns were raised about the to midnight rule. there is another regulation cms announced it will begin enforcing this year with regard to the 90 or will. this regulation requires citizens to top positions to certify at the time of admission they don't believe a patient will be them within 96 hours or must transfer the patient or face non reimbursement. i understand cms has walked back this rule allowing more time to file the certification. is that true? >> that is true. we have provided guidance to some of the hospitals that we will allow the certification to occur anytime up to 24 hours before the bill is submitted, and i think that will be coming out more formally sometimes in. >> okay. i assume that you have received a good bit of feedback, as have my, from hospitals and physicians. can you reflect a little bit

briefly, if you might, the kind of feedback you receive that would have brought it walking the low back a bit? >> certainly we got a lot of input about the timing and the burden and whether the trade-off between what we were seeking and what the hospitals were requesting, whether there was a loss in the assurances we needed that the patient was seen the appropriate level of professional. the hospital made a convincing case that there was room for some adjustment in the policy. >> it would seem that the rule is unnecessary and even arbitrary. how did you arrive at the actual number of 96? >> sir, that part is in statute. the statute requires that the physician make certification that the expectation when the patient arrives was that they would need no more than 96 hours >> what is the background on that 96 number? >> i apologize. i don't know the story. i know it is statutory based.

>> and cms has not enforced it up until -- i mean, they finally decided to start enforcing that. is that accurate? they have not been previously. >> again, apologize. i have been on the job just a couple of weeks. i do know the requirement does trace back to the statute. >> okay. i have introduced a bill, h.r. 3093, which were blocked and repeal the regulation. i would certainly encourage the agency's support of that. i think it might even make a lot of folks jobs more easy to carry out, and i know that we have got other burdens on critical access hospitals such as the physician supervision, again arbitrary, hard to determine how that it never even came about in terms of rule or regulation. it is very discouraging, i think, for medical providers to be facing all of these regulations that, like i said

earlier, make it difficult for the good actor to do the right thing. i know we have seen advertising on television about addressing fraud in medicare and medicaid and other areas. yet i still find that all of these regulations are making it more difficult for the provider to do the right thing. i am not convinced that it is actually preventing fraud. i can appreciate the fact of there are limited resources, that even acknowledge that, and we are all trying to operate in a world of limited resources. yet, i think many of these regulations are accomplishing the exact opposite of what they were intending to accomplish. and it is a huge bird. i would hope that the agency would really reflect on that fact as we do move forward. i thank you, mr. chairman.

>> thank you. >> thank you. thank you for holding this hearing. want to thank the panelists for your testimony here today. just to maintain the momentum of some of my colleagues, especially my friend from pennsylvania, as i have been talking to a lot of our providers back home in wisconsin over the to midnight will, their sense is it is awfully arbitrary and are having definitional problems as far as what constitutes inpatient care verses observational status, outpatient care. as cms, mr. sean cavanaugh, been working with the provider community to provide better definition or clarity with regard to those type of services? what is the difference if they are and there under an observational status verses inpatient care? is there things you can point to that clearly distinguish that between the two types? >> first, on the first half of your question about whether we are working with providers, was

a reasonably are. it was a big part of our attitude going into this year, as you recall. we suspended the auditors looking at the cases for this purpose because we wanted to work with providers. we have, as i said, going into each hospital and taking a small sample of cases in seeing whether they are complying with the rule. in instances where hospitals are, and are left alone for the rest of this year. in instances where hospitals are having trouble understanding of implementing the new rule, they are working with them. i do feel like we have taken a pause looking at these types of cases with every reason you say, which is to work with hospitals. and, again, the origin of the rule was to respond to requests for clarity. one of the things we may be learning is that additional clarity is needed, or, as we discussed, perhaps additional payment solutions are needed. we will wait to see how these discussions go. but i do think you raise an

important point. this is a dialogue between us and the industry, and we do hope to learn quite a bit. >> are there clear distinctions that can be made between inpatient, outpatient, observational status within the hospital setting? >> certainly observational status is supposed be used for short time frames for the purposes of determining whether a patient needs inpatient level care, and during that time they're ought to be diagnostic and other monitoring conducted. i would hesitate to go any further into the distinction because i am not a question, but i think your point is well taken, which often times these are based on complex medical judgments that are difficult to translate into policy. >> you mention that cms is moving forward on the short state payment right now, and you are starting to get some feedback, some comments on that. one of the various factors, you know, just for the committee's benefit, that you are taking

under consideration and putting that rule together? >> the two questions we posed specifically in the proposed rule work, one, how would you define short stay cases? and there will are examples of this. there are other payment systems out there that jews used short stay payment. it is not unprecedented. it is a bit challenging, as i mentioned earlier, and that some of the cases that are inpatient that are subject to review are often already very short stay, you know when they are legitimately inpatient, meaning they have an average length of stay of today's. the cases are typically one, too , were three already. how do you carve out a short stay? and the second, the subject of several questions. the second question we post was, how would you construct this new payment. enough, things like that. i think these are important issues where we need public feedback before we move forward.

>> is it uncompensated care or under insured, will that be a factor in the short stay rule? >> the way that currently gets into medicare is typically through the adjustment, and i think that is a fair question as to whether it should be part of this as well. >> let me take you in a different direction. cms did their physician payment data which received a lot of focus, especially on those that were outside the norm. we hear from the doctors, and the follow-up question is that it was not just them. there were multiple doctors using the same code in order to submit the billing information. does that sound plausible to you that that is what, in fact, is taking place and why some doctors are being reimbursed 12 for $14 million in a single year >> it is true that in certain instances multiple providers can build a sense of identification. >> why are we allowing that? >> i think -- i will have to

look into that and get back to you, but i think there are legitimate reasons, quick follow-up. it seems like if we are trying to bring greater transparency, allow multiple providers to use the same code seems to work against that issue and is something that it will have to address. >> thank you. >> thank you, mr. chairman. want to thank the panelists as well. this is an incredibly important topic. as a physician for 20 years i know we oftentimes don't with the patient at the center of these discussions. it is sometimes hard to do, especially when we are talking about money. mr. sean cavanaugh, i was struck in the difference of the numbers we here recounted on the number of appeals that are either overturned or not commander number of 7% astounds me because it is one i have never heard before. i suspect that includes all rac audits that are done throughout the entire country? i don't want the into to that right now. i would like it in writing later. the question we really need to ask, of those cases that hospitals have appealed their

inpatient state denied due to medical necessity, what percent of those are overturned at the qaic level and then at the a l.j. numbers? >> i don't believe i have them handy, but we can get the. >> i would appreciate that. a hospital system in my area where 72 percent of overturned. 72 percent. i would urge you to look it your testimony which says, when you are over 40 percent or thereabout something is wrong with the system. i want to revisit that in a minute, but i want to touch on the to midnight rule. on a patients of nuts to the emergency room and is being admitted, when is there a position that has to sign that says that this admission is medically necessary? >> the it mission is medically necessary? >> and would qualify for the to midnight? >> the physician or other qualified professional and give the order verbally but has the

countersign it at some point which the order has to be given at the time of the admission. >> yes. for a patient to become officially a inpatient, a physician or other qualified personnel have to give an order. >> we are asking our doctors to predict what is going to happen to that patient over the next two midnights? the to midnight rule is based on the physician's expectation, the expectation based upon what they know at that time. if the physicians expectation is not fulfilled, meaning of the patient recovers or something else intervenes, the rule is not what happened but what the physician reasonably expected? would we just be better off if we said that doctors and patients and families out to be making this decision and not cms? >> well, again, we are trying to leave it largely to dr. discretion, but we are also, as i said in my opening statement, trying to balance many goals here. >> i got you, but many physicians out there will tell you that they don't feel that

you are trying to allow them to practice medicine. are there clinical studies and reports that back up the two midnight rule? >> i'm not sure i understand the question, sir. >> are there any clinical studies, scientists have done studies that say, yes, this two midnight rule makes sense from the patient perspective and being treated? any clinical studies? >> the two midnight rule is relatively new. i am not aware of any studies. >> if you are, of love to hear about it because i am not aware of any either. cms contract with these recovery on the groups to go get that money, right? cms contract with auditors to review improper payment? they pay them a%. >> the contingency fee, yes. >> and win the appeal is overturned do you go get that money back? >> yes, d. >> from the rac? , is that? >> on sorry. >> in total? i would happy to go back and find that number.

>> okay. can different rac have different criteria for what is medically necessary? >> they are all supposed to tie the medicare policy. and what is the clinical and put that rac are required to have to before -- define what is medically necessary >> they are required to have the medical director supervising all of the medical policies. >> and a medical specialist societies have an opportunity to review all of that ? >> the work of the rac? >> yes. >> not directly, sir. >> all of this money that is used to comply with all of these rules and regulations, it costs money, doesn't it? >> yes, sir. >> billions of dollars, maybe more. where does that come from? >> well, congressman, i think you are getting a point and i would concede right away, which is our goal is not to have a lot of these cases reviewed, not overturned. herbalist have their policies that hospitals can agree with and comply with which it comes from patient care. if osbourne aligns to put that money in from complying with the

rules at cms that get more and more laborious then that money is not going into cared for that patient. when we hear one of our colleagues say if this is really not affecting the patient, that is really not true, is it? it is not a productive use of money and why we are trying to reduce the need for this type of review. thank you very much. >> thank you. >> thank you, mr. chairman. want to thank the panel. mr. -- mr. cavanaugh, mr. mcdermitt talked a little bit above the people entering the hospital. i was interested in response. you said i would hope that the patient receives all the benefits they are entitled to. i want you to keep that in mind when we get to a couple questions i have for you. the increase in light of observation days more and more medical beneficiaries are losing out on skilled coverage. they found beneficiaries at over 600,000 hospital stays that lasted three nights or more but did not qualify them for sylmar

55 skilled nursing facility services. i spent the majority of my career. i have recognized the barrier to access that the current 3-day inpatient requirement has created for seniors. for this reason i actually introduced legislation, h.r. 3531, the care act, that not only removes this barrier, but also encourages hospitals and nursing facilities to communicate with each other before discharge. mr. cavanaugh, the seniors in my district are often unaware of the 3-day inpatient requirement. furthermore, seniors and their care givers are unaware of whether or not their hospital stay was billed as inpatient or observation. want to think about that patient that enters the hospital. they are entitled to long-term care under medicare, and they end up in this quagmire of observation day, not a inpatient day, and quite frankly probably

should go directly to a nursing home in many cases because the doctor is only some of the hospital because it is a requirement, and it is actually costing the medicare system dollars to send them through to the hospital just to get them the path to that nursing home. if you think about the patient -- and, again, going back to your comment, i would hope the patient receives all the benefits they are entitled to. a recent this patient at the hospital because it is a requirement. the doctor already says that the law in a nursing home. i was in the industry for 25 years. i can tell you, these patients belong in a nursing home. they get caught up in this observation day. here is the problem. and they are sent to the nursing home. when they are sent to the nursing home, for 2000 of a hospital stays medicare does not pay for in half as services, and a charge an average $11,000. now we have this patient who started in the hospital, and it

up and observation of privilege should have never went in hospital. if we had a different system that actually my bill would allow it would allow them to go directly into the nursing home because the doctor says that is the care that is needed. so has cms implemented in the policies that would decrease the instances in which seniors -- and, again, that is what i'm talking about. that person you talked about, the benefits they are entitled to, seniors who are caught off guard and left on the for thousands of billy -- thousands of dollars in medical expenses. >> i think you raise of very important issue and one that was one of the driving factors russ looking at the two midnight rule i'll tell you two things. one, one of the impact we are seeing at least preliminarily has an effect of the two midnight rule, we are seeing a decrease in these long observations days and i believe those are probably shifting to a inpatient status, potentially helping the beneficiaries you're talking about. you're also talking about a larger issue of whether these

patients need to go to the of the war should need to go through the hospital and ordered access the skilled nursing facility benefit. as i mentioned, we are interested in exploring alternatives. we currently have a subset of the pioneer a teal, several of whom have had the prior three day hospitalization will waves of the the contest with and there are safe and effective ways for patients to be admitted without the prior hospitalization, and we are this year also allowing some of the -- participants, both hospitals and post you care providers to do that as well and unbundled payment initiative. we're hoping we will plan clinical evaluation from that that we can share with the committee in the be applied to broader medicare policy. >> it sounds like the studies will give us some of those answers, but you would agree, sending someone to the hospital and having the cost, the burden of that person in that hospital when there really could go to a nursing home might be a way of saving dollars.

>> we do feel there is potential but we are testing it. i don't want to prejudge the results. >> thank you. i yield back. >> thank you. mr. crowley. >> thank you, mr. chairman. thank you for mr. mccready. i welcome mr. cavanaugh. good to have you here. i know we beat -- i speak for my colleagues when i say we look forward to working with you in your new capacity and will have cms. i represent parts of new york city, the queens and the bullocks. i know you are familiar with those areas quite well. we are fortunate to have a number of highly regarded of schools and medical institutions, many of which are also academic medical centers, and i know you are familiar with those as well. these hospitals and others across the country are struggling with the two midnight rule. while i appreciate cms efforts to try and clarify when a patient should be submitted as

and inpatient, have serious concerns about the overall policy. new york hospitals focus primarily on providing the best medical treatment with great efficiency rather than on what time a patient is admitted. the two midnight policies such an arbitrary standard that does not always reflect the clinical judgment of the treating physician. i introduce legislation to delay the enforcement of the two midnight policy. i am glad this delay was included in the most recent doctor spam and fixed, and i think the committee for all of its work in achieving that delayed. the problems with the underlying will remain, and they need to be addressed. that is why our bill, a new payment methodology for short, inpatient stays that don't fit neatly into the designs of the two midnight policy. i was very pleased to see that keep -- cms has proposed medicare inpatient greuel four x

-- next fiscal year including a proposal for feedback on short stay in patient methodology which would help of providers and beneficiaries. i hope that cms will continue to work closely with hospitals and patient in establishing this process and in taking into account the cost associated with up writing, teaching, and safety net hospitals. it is important, a new payment system protect graduate medical education and disproportionate share hospital payments. now, i know the rule making process is under way, but can you comment at all on how you see this issue being addressed as you move forward, if there are any possible methods you have considered or are willing to consider? >> thank you, congressman. thank you for your kind words. i do know new york in the hospital industry quite well, having worked there and one hospital and closely with many others. you are correct.

first of all, you are correct that congress extended based on your legislation the pause in the rac review of medical necessity of the inpatient stays until march of next year. i think it will give us all, both congress and the of ministration, some time to think about how the policy is working and whether there are additional steps needed to make it clear policy that we can all agree on. one of those areas we will spend a significant amount of time and resources on is exploring the possibility of a short stay a liar. i don't want to suggest how we would do this because we are soliciting public input. as i said in response to several other questions, it is an intriguing idea, but it also poses real conceptual challenges. we are up to those challenges, but i didn't want to underestimate them. if it is going to be a inpatient short stay thing, we will need a

definition of when inpatient care is necessary because you will still have a distinction between inpatient and outpatient. we will have the challenge of how to create charts date payment when certainty argie is already very short state. i know, as i said, there are some very great minds up and the new york hospital industry that i know working on this. they have been in touch with us. we eagerly await their input. >> thank you, mr. cavanaugh. we look forward to work with you in your capacity and help you have the same open mind approach when you are dealing with the committee and the chairman and the ranking member as well. thank you for being here today. >> thanks. >> thank you, mr. chairman. thank you for allowing a non committee member to be here to listen to the testimony and have an opportunity to ask a question . , ms. jodi nudelman, want to go to you. in written testimony you talked about how some hospitals use the

short state inpatient for less than 10 percent of their state and others use it over 70 percent. did you find in a trance when you were looking at these vast differences between how hospitals use these and whether there is any type of hospital in particular that uses them differently? >> thank you for your question. as you know, we did see a lot of variation. we did not look at whether there are certain types of hospitals that are more likely to use short inpatient stays. if the trend continues under the new policy -- and this is a really important question to look into further. >> i certainly think of that is one of to give us a lot of information. if you are using it for different types of hospitals, is in where they are looking at orthopedic? i think it would be interesting to take a look at the wide variances between ten and 70%. let me go to another area where seems to be a lot of variants.

in your testimony on page number five underneath the appeals, you know that about 72 percent of those who appeal are successful. yet we keep on hearing this number of 7%. they're is a real disparity there. can you break that down? here is something else there we're not exactly understand it. >> let me try to do that. we are seeing is, there is -- most of the appeals from rac or not appealed. most of the katie decisions are not appealed. according to our statistics about 6 percent of the rac decisions are appealed. no, once those reach a higher level, about half of those are overturned. that meet the how we can reconcile some of losing issues. with 72 percent comes into play

is when we looked up the third level of appeal, the alj level. the overturned about 72 percent of hospital plans. so that would include rac and other issues than just the inpatient. >> just to be clear, six or 7 percent, depending upon who is talking, but somewhere in that range, of those decisions that are made by rac or appealed, and of those that are appealed, in this case, are part a hospital's 72 percent of those prepaid, correct? >> add the alj novel. >> okay. that makes a lot more sense. they're is a lot of disparity between 6% and 70%. that helps me to understand a little bit better with those numbers are coming from. thank you very much. thank you, mr. chairman. >> thank you.

i am out confused. i don't mean to intervene here, but some 94 percent of the claims identified as overpayments on appeal, 6%, almost half were decided in favor of the appeal, is the right? the overpayments, 97 percent of them, at the end of the day, are considered accurate. >> complete -- repeat that last part. >> of the katie decisions on plans and of lennon's overpayments, 94 percent are not appealed to all but the 6 percent and are left, half are overturned. you are saying 97 percent of those overpayments are upheld. >> yes. and that is prior. in fiscal year 2010 and 2011. that could be part of the issue. >> is there a dollar figure

attached to that? for example, you may not appeal $18 overpayment, but you would the $10,000.1. does your analysis show of those appeals, higher dollar value? again, i don't mean to job. you were leading down the right road. what do you know about that? >> i don't have the dollar value in terms of what is appealed in terms of dollar amounts. >> can you try to figure that out? >> absolutely. >> of that 6 percent, what did they look like? and are the higher dollar values in a certain area? and than 72%, tell me about that. >> that is of the hospitals, the part a hospitals are 72%. so according to what i am reading your, had the alj level, most likely to receive favorable decisions for part a hospital

appeals at 72%. >> and if i may, mr. chairman, i just interject one other thing that i thought about that i keep hearing from these hospitals among the length of time it takes them to go from the original decision that is made by the rac to the time they reach the alj level. can you give some idea about how much time there is in a typically? >> sure. particularly now with the postponement of assigning appeals, which was just put into place, and they are protect -- projecting just from what is publicly available that cases moment be assigned for two years. >> they're is a cost in that time where they're trying to appeal it and the payments that have been taken back. >> thank you. ms. jenkins, you probably never

thought we would get to you. >> mr. chairman, i think you for allowing me to join you at today's subcommittee hearing. i appreciate this panel for being here. these issues affect hospitals all over the country, and i have heard countless stories from kansas hospitals about the difficulties they face around in the medicare program. lawrence memorial hospital has asked that i share their perspective on recovery audit contractors. the hospital currently has over four and a half million dollars being withheld because of rac what it. has appealed nearly all rac audits and so far has demonstrated a 96 percent success rate in the appeals process. lawrence memorial has brought to my attention. one of the valid concerns i am hoping you will take into consideration, hospital forced

to disallow medical days and discharges the currently held up in the rac audit process because of the massive backlog at the alj level of appeal. the hospital is concerned that these audits, which are likely to be resolved in their favor, will not be completed within this 3-year window during which it can reopen the cost report window and count toward the the h.r. meaningful user requirements. this is one of countless hospitals in kansas that are experiencing the immediate ancillary effects of the current flawed system. as we continue to discuss ways for more on this topic, please take this problem into account. secondly, would like to highlight a problem with the 80 the critical access hospitals and kansas and others around the country. i received a letter from the anderson county hospital in garnet, kansas. i would ask the chairman's

consent to answer the letter into the record. >> without objection. >> this letter details the hospitals problem with cms final of pbs will for 2014 regarding outpatient therapeutic services at critical access hospitals and supports legislation that i have introduced to delay enforcement of law until the end of 2014. this rule, while well-intentioned, is creating a regulatory hardship. the letter notes that cms has disallowed submissions at a hospital-based rural health clinics from being the direct supervision requirements which makes it difficult for anderson county hospital to be reimbursed by medicare for services rendered. the most troubling part of the record -- letter is that the hospital month with the physician's supervision requirements have no impact on the quality of care and the hospital will administer the an

outpatient therapy, even without the medicare reimbursement. this is a telltale sign of a misguided will that has missed the point. so mr. cavanaugh, is it your opinion and requirements of the vision supervision of the outpatient therapy services critical care hospitals are feasible? and would cms benefit from and billy and enforcement in order to revisit this rule? >> first of all, thank you for telling us about the experience. i don't have an opinion on the delay, when i am interested in the issue and into a further if you're willing to share that with me. >> we will follow up with you. we would like to work with you to get these folks some relief and better care. >> i am more than happy to look further into it. >> okay. thank you, mr. chairman. i yield back. >> thank you. before we dismiss the witnesses,

dr. mcdermitt and what looked out of the heat it was more perspective by letter of the 6 percent of our appealed for overpayment, the value of the relative lull which are related to the two midnight rule, any other insight that you can give pause on those. this seems very low compared to what we have heard anecdotally, and we would like to out more light shined on those areas. if you don't mind, we will follow up with you by letter. i think the members would love to have the perspective. thank you very much testimony. let's line up our second panel. [inaudible conversations]

>> thank you very much. i made the introductions are earlier, some for the sake of time we will go right into testimony. recognized for five minutes. welcome to all of the second panel. >> chairman, ranking member, distinguished members of the subcommittee, thank you for this opportunity to testify and share the johns hopkins experience on these important issues. i am in need in the kitchen door i am a nurse responsible for ensuring the appropriate utilization of clinical researchers of -- resources including care coordination and the real emissions reduction initiative. my remarks to the focus on to major changes, the cms definition of inpatient, the two midnight rule and also the public on a program, both of which are draining precious hospital resources which need to be redirected to quality patient care and delivery.

we know that the two midnight rule was bombed out of an attempt to limit link the observations days and that clarity to the definition of an inpatient, but unfortunately there will and the new layer of complexity that not only does not meet that objective that has created confusion and stress for our providers and patients and has been operational extremely difficult to implement. our operation right as an increased by 33 percent as a result of the two midnight rule. it does take away physician judgment and has instead required our physicians to become a soothsayers as they try to predict whether or not a patient to present to the energy -- emergency department with a married of symptoms and come morbidities' and determine if there will require greater than 82 midnight stake. more importantly, under the two midnight rule we have patients the required resources that only off broken provide, sometimes in the intensive care setting, yet we are calling and outpatients read this constant lies in

irrationality and thus created safety and quality of care concerns. medicare patients are being built differently than other patients for equivalent services there are subject to paying deductibles and copays associated with part b benefits which could be up to 20 percent of their hospitalization. think they're coming in for hospital care. we have had patients who actually laughed and refused important diagnostic studies and medications as a result of increased financial risk. the two midnight rule is especially devastating for academic and safety net hospitals there has been a reduction in inpatient volumes which was redirected dollars causing a loss of and for critical community programs and direct medical education, general medical education and disproportionate payments and a time when even the most. since its inception rac has created enormous financial and

administrative burden on hospitals as william kirk -- struggle to respond to the plethora of medical record requests and to the denial. rac has targeted short stays. the assumption that these days and medically unnecessary. in truth short hospital stays are good and reflect the efficient and appropriate management of care, some of which can be intensive. even though hopkins has our rigorous compliance process for which we review every day of medicare patients they, rac denies 50 percent of the medical records requested. we took 230 of these to discussion and immediately 135, almost 60 percent, were overturned that discussion. rest of our 92 percent are in the appeal process. the rac program is costing american hospitals billions of dollars in administrative burden to manage the denial and appeal

process season will as the financial hit revenue losses. there are a lot of smart and committed policymakers to put their heads around these issues to come up with workable solutions. unfortunately with each iteration and layer of new ideas come complexities and unintended consequences that seem to yield the opposite result. in the case of the two midnight rule, congress and cnn's should consider reverting to an earlier time bunker for october 1st 2013 and should reinstate the determination of inpatient hospital visions -- physician judgment with one caveat. the patients that are hospitalized for greater than two midnight, medically necessary hospital services should be presumed to be inpatient. if we are thoughtful about rac performed the surest the problem goes away and alternative policies become unnecessary.

should congress should consider the formation of a multistate culver collaborative working group to develop a sound alternative. we appreciate the congressman's as the lead sponsors of h.r. 3698 and chairman brady, thank you for your attention to this issue. having nearly half the members of this committee support this needed reform since an important message to your hospitals and cms that this issue must be addressed. the two midnight rule rule and the rac program are draining precious time, resources, and attention the need to be more effectively focused. johns hopkins and hospitals around the country stand ready to work with congress and cms to support these efforts. thank you so much for allowing me to testify. >> thank you. >> chairman, ranking member, members of the committee, thank you very much for this

opportunity to testify before you today. i am the physician with health the inside. i am a proud graduate of the university of texas medical school, residency trend, board certified licensed family physician with a certificate of added qualifications in geriatric medicine. i joined during the rac demonstration program. i oversee all of our medical and clerical recovery on an activity the recovery audit program is not focused on fraudulent payment. we review plans to ensure compliance with medicare practices and identified underpants that are returned to the provider. this program is a critical component of medicare operations because over $30 billion on improperly paid by medicare for your. since the recovery on the program was passed and implemented in a bipartisan

fashion in 2006, over a billion and properly paid medicare dollars have been recovered as well as over $700 million underpayments returned to providers. recovery of orders and unify the types of crimes and are most risk of improper payment by in playing fast under experience and using federal publications such as hhs, elijah, and served report to read every issue and auditors seeks to review it is submitted first to cms for rigorous evaluation and approval process. issues that are approved are posted to the recovery of auditors provider portal in advance of any activity. cms has limited the recovery on it medical record request to 2% of medicare claims for any different provider. all medical reviews are conducted by licensed and experienced clinicians to undergo extensive screening and comprehensive training.

when a provider disagrees with an audit findings, the provider can initiate a discussion time friend before formally appealing the denial. this is in addition to the usual cms appeals process. the program has proven to be cost-effective, recent constraint have caused a significant decrease in recovery audit reviews. first, as part of the implementation of the two midnight rule in moratorium was replaced on auditors preventing auditors of short state hospitals for 18 months. second, they announced the program would be suspended until new contracts were put in place. these two changes will result in over $5 billion of improper payment not being restored to the medicare trust fund. now, let me provide you facts. first, a recovery under is required to return its fee when a finding is reversed upon in the level of provider appeal. this means recovery auditors are

incentivize work accurately and precisely. second, according to the bones to recent cms report to congress, only 7 percent of all recovery audit determinations have been overturned. third, recovery auditors are accurate. an independent cms validation contractor gary recovery auditors a cumulative factories core of over 95 percent. finally, recovery otters target and properly pay claims of all types. yet medicare data have noted consistent high-$ errors for impatient short stays. ..