Medicare Is Reviewing Its Murky Rules

Doctors at Sequoia Hospital in Redwood City, Calif., thought the government would be grateful five years ago when they cleared the clogged artery of Medicare recipient Bernard Jameson by using a new balloon catheter device instead of an $18,000 bypass surgery. After all, the procedure cost a mere $2,643.

But Medicare, terming the operation “experimental,” refused to pay, even though the catheter was approved as safe and effective by the Food and Drug Administration and had been used on dozens of other patients since it was invented in 1977. In response, Jameson, now 70 and a furniture salesman in Modesto, filed a lawsuit. The agency settled out of court this spring, agreeing to clarify its rules and pay Jameson’s legal and medical costs.

Spurred by Jameson’s legal challenge, the Health Care Financing Administration last week began reviewing proposals to clarify its murky but influential Medicare coverage rules, which critics claim prevent the nation’s 31 million Medicare recipients from getting state-of-the-art medical treatment and frustrate innovation by the medical equipment manufacturers.

Change in Philosophy

The move marks an important change in the increasingly cost-conscious, $425-billion-a-year health-care industry, experts say. The 21-year-old Medicare program, which began imposing economy measures on physicians and hospitals in 1983 after years of fully reimbursing them for taking even heroic measures to save patients, is now moving to a new era of rationing health care.

The clarified Medicare rules will make the government a more important arbiter of what technology will be encouraged in the medical marketplace--and what will not. And because many state Medicaid programs and private insurers follow the government’s lead, the rules will be of concern to more than just those elderly and disabled Americans covered by Medicare.

“The government has a unique opportunity to clean up its act so that Medicare beneficiaries like Mr. Jameson won’t be denied access to care,” said Gordon B. Schatz, general counsel for the Health Industry Manufacturers Assn. in Washington. “When the government gets behind the technology, then everyone else gets behind the technology.”

Susan Gleeson, executive director of technology management of Blue Cross/Blue Shield, said: “There was a time in this country when health-care costs were not a predominant concern. New techniques were adopted and paid for by insurers without much critical review. Now health-care costs are a major issue. And insurers are finding that the costs associated with new medical technology are significant.”

HCFA officials say their coverage rules don’t deny Medicare recipients access to new technology.

“I don’t think it’s a fair charge that Medicare beneficiaries are denied access to new technology,” said Kathleen Buto, deputy director of the HCFA’s Bureau of Eligibility, Reimbursement and Coverage. “If it’s an effective technology, we cover it; it’s just a matter of time. But we have to always be aware of the opposite concern--that the minute you approve something, you run the risk of making an instant market for medicine that may not be proven and effective.”

Some experts, including the physician who treated Jameson, agree.

“I think you have to be fairly careful and cautious with new technology,” said John Simpson, a widely respected staff surgeon at Sequoia Hospital who has done pioneering work in the field of catheter technology.

Though viewed variously as the propellant or retardant of medical inflation, technology is drawing increased scrutiny these days. That’s because after three years of relative stability, medical costs are threatening to explode again despite efforts to economize, including shortening hospital stays and trimming medical payments, said Rita Ricardo Campbell, an expert on health-care economics and a fellow at the Hoover Institute at Stanford University.

Campbell cited three main culprits: expensive new technology that can run as much as $75,000 for a liver transplant or $15,000 for an artificial-ear operation, the aging of baby boomers and the escalating costs of treating new diseases such as acquired immune deficiency syndrome and Alzheimer’s disease.

HCFA’s review of comments from physicians, patient advocacy groups and equipment manufacturers will result this summer in the agency publishing its rules for Medicare coverage, said William L. Roper, who heads HCFA. The revision will deal with such new and sometimes controversial technology and procedures as catheters to clear clogged arteries, liver transplants and artificial ears to restore hearing.

Under federal law, the agency has the authority to withhold payment for devices or services that “are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.” But patient groups say decisions on Medicare coverage are often based on the potential cost of the technology. They also say decisions can vary from region to region because HCFA’s procedural rules are buried in 1,800-page manuals that aren’t available to those outside the agency.

The Medicare review comes as some other health insurers have begun to look more closely at medical technology coverage issues.

For example, after a federal judge on Nov. 16, 1985, ordered Illinois’ Medicaid program to pay for a liver transplant for then 19-year-old Maritza Rivera, the state changed its policy and began paying for such operations. More recently, Illinois stopped making blanket prohibitions of new procedures and now reviews them on a case-by-case basis, said Daniel Pittmen, a spokesman for the Illinois Department of Public Aid in Springfield.

Those changes, however, came too late for Rivera, who died 10 days after the court order and before a Chicago hospital could find her a replacement liver, according to her lawyer, Phillip Snelling, who works for the Legal Assistance Foundation of Chicago.

Changes at Blue Shield

Like Illinois, Blue Shield of California has become more aggressive in paying for promising new technology. Its technology assessment committee, which holds open meetings throughout California about four times a year to solicit public and scientific comment, has been cited as a model by patient groups and equipment makers.

Last month, Blue Shield’s board approved an unusual plan aimed at making promising new technology more quickly available to patients. Blue Shield said it has decided to pay for some experimental procedures “when the clinical outcome (is) successful.” If not successful, the doctor “and the hospital would absorb the cost and charge neither Blue Shield nor the subscriber for any of the services related to the procedure.”

“We want to ensure that Blue Shield subscribers have access to valuable services and technologies as quickly as possible,” explained Ralph Schaffarzick, medical director of Blue Shield of California. “Let’s face it, there are some new technologies that promote the quality of care and there are others that contribute nothing except money to the pockets of its promoters.”

In this era of budget constraints and staff cutbacks, some argue that it may be prudent that HCFA is taking its time and looking over the shoulder of the FDA, which reviews products, and the myriad of federal agencies that make recommendations on the effectiveness of medical techniques and procedures.

For example, the Cochlear artificial ear implant that HCFA only began paying for in October, 1986--nearly two years after it was approved by the FDA--had to be recalled by Minnesota Mining & Manufacturing Co. because the electrode in the device broke, said John C. Villforth, FDA director of the Center for Devices and Radiological Health.

Villforth also said there was an FDA recall of the Dornier Lithotripter kidney stone crusher device. And he said the “gastric bubble,” which is inserted into a patient’s intestines to promote weight loss, has been found to deflate prematurely.

But others believe that the lengthy HCFA review process can be as flawed as the FDA’s.

“We delegate authority to the Health Care Financing Administration and the FDA to make some of these decisions,” said Rep. Henry A. Waxman (D-Los Angeles), chairman of the health and environment subcommittee of the House Energy and Commerce Committee. “It’s one source of constant frustration to us . . . that the decisions (by HCFA) are so slow and so clearly biased.”

Others on Capitol Hill have also expressed displeasure with HCFA.

In its April, 1986, passage of the Consolidated Omnibus Budget Reconciliation Act, the Senate chided HCFA for continuing to classify liver transplants as experimental.

“There are 4,000 to 4,700 potential candidates in the United States each year who require a liver transplant, but only a small percentage would be eligible for Medicare coverage,” the Senate said, noting that the National Institutes of Health and several other groups had endorsed the procedure.

“Based upon the findings, it is the sense of the Senate that . . . (HCFA) immediately reconsider the Medicare liver transplant coverage decision and implement a policy under which a liver transplant shall not be considered to be an experimental procedure for Medicare beneficiaries.”

How Delays Can Hurt

More than a year after that directive, HCFA is still in the process of reviewing liver transplants along with 21 other procedures that the agency has declined to pay for, including bone-marrow transplants and some kinds of heart monitors, said Robert Wren, director of HCFA’s office of coverage policy.

Wren argues that the industry complains about HCFA’s lengthy review process only because “manufacturers . . . want to make a quick profit to cover their research costs.”

But some companies argue that it’s not just manufacturers’ profits that HCFA policy may be hurting. The agency may be slowing the development of new medical technology.

In a study of venture capital financing for health-care technology, the yearly amount of such funds was found to have declined to $467 million in 1985 from $567 million in 1983, even though overall venture financing remained stable at $2.8 billion, said the author of the study, Vincent Bucci, vice president of government and regulatory affairs for Shiley-Infusaid Inc., a Boston-based manufacturer of pharmaceutical delivery systems.

Although Bucci said he can’t draw any firm conclusions until 1986 data is available later this year, he said: “I believe (health) technology assessment tends to inhibit the dissemination of new technology.”

The number of new technologies submitted for evaluation by HCFA to the National Center for Health Services Research and Health Care Technology Assessment has declined to about 12 to 15 a year now from about 25 to 30 annually before Medicare’s economy measures began in 1983, said John E. Marshall, a health-care consultant who, until last February, was director of the federally run National Center.

Patient Is a Believer

But Marshall said the reason for the drop is because “HCFA is approving more new technologies, not because there is less technological development.” Still, Marshall agrees that there has been a policy shift at the agency to ration health care.

For his part, catheter recipient Jameson said he is a believer in the benefits of new technology. “After all, this thing saved my life,” he said, referring to his catheter.

He added that as long as a device has been approved by the FDA, he believes that patients, in consultation with competent doctors, can best decide what is the most effective treatment.

“It’s not like I went to some quack somewhere,” Jameson said. “This was not . . . medicine that had never been done before. It was incomprehensible to me that a bunch of government bureaucrats could decide that my doctor and I weren’t doing the right thing.”

But experts say the power of bureaucrats will grow in the future as they attempt to employ medical technology assessment to slow down rising health-care costs.

Although California now pays for expensive procedures such as liver and bone-marrow transplants, the head of the state Medi-Cal program is, nevertheless, not optimistic that such beneficence can last.

“Medical rationing is inevitable,” said George Wilson, chief of medical policy at the California Department of Health Services. “The days of medicine without limits are over.”