skip navigational links
HHS Eagle graphic US Capitol Building Search
HHS Home
Contact Us
ASL Header
Mission Button Division Button Grants Button Testimony Button Other Links Button ASL Home Button


    This is an archive page. The links are no longer being updated.

    Statement by
    Thomas A. Scully
    Administrator, Centers for Medicare & Medicaid Services
    Responding to the Needs of Small Business Health Care Providers
    before the
    House Committee on Small Business

    May 16, 2002

    Chairman Manzullo, Congresswoman Velázquez, distinguished Committee members, thank you for inviting me to discuss the Centers for Medicare & Medicaid Services' (CMS) efforts to be more responsive to small business health care providers. I want to apologize to you, Mr. Chairman, and members of the Committee, as well as the others who participated in your hearing last month, for the events of April 10. These events had the unfortunate effect of shifting the focus away from what you and I care about-small business providers. The President, the Secretary, and I strongly believe small businesses are critical to the future of our country. As the President noted earlier this spring, when he announced his initiative to assist small business, "Small businesses create jobs, and this is incredibly important for our economy at this time. Small businesses embody the American values of hard work, risk-taking, and independence." This is true of small businesses everywhere, and in all sectors of our economy, including those in health care. That's why it is important that we continue to tear down regulatory burdens for small businesses and ensure we listen closely as they voice concerns in our regulatory process.

    Small businesses provide a variety of health care services. They include individual physicians, small group practices, and providers of durable medical equipment, orthotics, and other supplies and services. They help to ensure that Medicare beneficiaries receive the care they need and play a vital role in the Medicare program. I recognize the importance of helping small businesses continue to fill this need. Since I took over as CMS Administrator, my number one priority has been to improve the Agency's responsiveness and make it a better business partner. At CMS, we are committed to simplifying our rules, making them easier to understand and less burdensome. We also are committed to opening up CMS and creating more ways for the entities we regulate - including small business - to interact with us. This helps all sectors of the health care industry, of course, but we are paying particular attention to small business providers.

    In addition to reducing unnecessary regulatory and paperwork burden stemming from the Medicare rules already on the books, we review the new regulations we issue to see if there are ways we can reduce burden on small businesses, and ensure compliance with the Regulatory Flexibility Act (RFA). We include an analysis of the regulations' impact on small businesses so that we understand how these entities will be affected by the regulation in question, and whether there are alternative ways for us to accomplish the same policy goals. Moreover, in accord with the President's recent initiative to assist small business, we are strengthening our commitment to analyze the impact of our regulations under the RFA.

    As part of this commitment, we intend to work more closely with our colleagues in the Small Business Administration's (SBA) Office of Advocacy to ensure that our regulations sufficiently consider the special needs of small businesses. We have met with SBA representatives on a number of recent occasions, including lengthy meetings in the last two weeks. We look forward to continuing our constructive dialogue with them. More than 100 of our staff have spent more than 600 combined hours being educated on their statutory responsibilities under RFA. And we plan to redouble our efforts to raise awareness of small business concerns, and to ensure that all of Medicare's rules and requirements take into account the unique challenges faced by small businesses.

    As someone who has worked on health care issues in both Bush Administrations, as well as in the private sector, I know how frustrating Medicare's complex regulations can be. Simplifying the requirements and generally making Medicare a better business partner has been a top priority of mine for years. This Administration takes very seriously the importance of assessing the impact of its decisions on all Americans, including small business owners, and I look forward to working with you to further improve the system. One of the President's principles of Medicare reform is regulatory relief for all providers. We support contracting reform and other ways to relieve burden that are under active consideration by Congress. The President's effort to improve and strengthen Medicare will also move the program away from detailed price regulation required by the current statute. In the meantime, we are pursuing a host of administrative efforts to provide as much relief as possible within current law.


    Secretary Thompson and I are already taking action that is in accord with the President's small business initiative by making the Department, and CMS in particular, more open and accessible to our partners and beneficiaries, including small businesses. Last summer the Secretary created an Advisory Committee on Regulatory Reform, which includes patient advocates, providers, and other health care professionals from across the nation. This Commission is helping to guide the Secretary's efforts to streamline unnecessarily burdensome regulations and to eliminate inefficient regulations that interfere with the quality of health care for Americans. Providers should focus on patients, not on paperwork. We recognize that these requirements can have a disproportionate impact on small providers who often do not have the resources that larger providers use to mitigate the effects of such burdens. Today, the Advisory Committee on Regulatory Reform is holding a field hearing in Denver, Colorado to gather insights from consumers, doctors, health care providers, and businesses. Similar hearings were held in Miami, Pittsburgh, Phoenix, and Denver. The Secretary is reaching outside the beltway to hear from patients and the providers who care for them. The input gathered at these hearings is helping the Committee develop recommendations both to change specific regulatory requirements and to develop broader reforms, even as we speak today. This group is determining what rules need to be better explained, what rules need to be streamlined, and what rules need to be dropped altogether, without increasing costs or compromising the quality of health care services.

    To support this initiative, we have developed a program at CMS, focusing on listening and learning, to get us on the right track. For example, I personally travel around the country, meeting with and listening to literally thousands of providers, suppliers, physicians, beneficiaries, and others who live and work with the regulations we create, so I can hear their concerns and better understand the changes we need to make. So far I have had 21 of these town hall meetings with CMS constituents, most of them with their Members of Congress. I have two more meetings scheduled this month. My Deputy and Chief Operating Officer, Ruben King-Shaw, and other senior leaders have similarly participated in outreach efforts around the country. Additionally, health care providers across the nation have been working with members of my staff, who spend several days with providers in their offices, learning about their practices, understanding their daily challenges, and seeing how Medicare's rules and regulations impact their ability to serve patients.

    We also have created 11 "Open Door Policy Forums" to interact directly with beneficiary groups, providers, suppliers, physicians, and health plans to strengthen communication and information sharing between stakeholders and the Agency. These regular forums are open to all providers - rural, urban, small, large, for-profit, and nonprofit - and to the public. Many of these groups include small business providers. One group in particular - our home health, hospice, and DME open door group - specifically includes providers like portable X-ray and EKG suppliers. In fact, the first "Open Door" meeting, for long term care providers, took place last summer. Over half the meeting was spent discussing portable X-ray and EKG issues. Outside groups meet with senior CMS staff on a regular basis, most of them monthly, to bring to our attention those nagging little problems that they encounter when dealing with the Medicare and Medicaid programs. I personally chair three groups: long-term care, rural health, and diversity; and I regularly attend the meetings of the others. As you can see in the attached chart, we have had overwhelming success with well over 3,700 attendees participating in person or calling in to more than 50 of these meetings since late last year. In fact, just last week we had 4 meetings involving more than 300 public participants. Importantly, our open door forums have aided small businesses by prompting us to take steps to ease regulatory burdens on small business health care providers.

    Let me give you a specific example of how we have responded to the concerns of small businesses. Recently, a physician assistant in rural Montana raised a concern with our implementation of the statutory prohibition on paying physician assistants directly. Some of our contractors found our guidance on this issue confusing and were denying payment to any physician practice or practice management group that had a physician assistant as an owner. Because of that confusion, this physician assistant was unable to have an ownership interest in the physician group with which he practiced. We understood and agreed with his concern, and we agreed to look into it. As a result of this review, we issued a program memorandum to our Medicare carriers, effective April 1, 2002, clarifying our policy. Now, if state law permits a physician assistant to have an ownership interest in a medical practice or practice group, our policy is to reimburse the practice notwithstanding the physician assistant's ownership.

    In another example, at one of our open door meetings, a group of durable medical equipment (DME) suppliers aired their concerns about paperwork burden. After reviewing their concerns, we put together a high-level group of DME suppliers, CMS policy staff, and the private contractor DME carrier medical directors, to work through their concerns. We are in the process of doing the same thing for small home health agencies and orthotic and prosthetic suppliers. We have a meeting scheduled for the end of the month with DME suppliers, suppliers of prosthetics and orthotics, DME Regional Carrier medical directors, and CMS staff to hammer out a solution to their concerns. Is it helping? We know that it is, at least, a start. In fact, after a recent DME open door meeting one gentleman, who owns a small DME supply company in South Carolina, stood up and said he wanted to thank us for all that we were doing to try to improve our partnership with small businesses.

    We are making headway, but we know we have much more to do. So in addition to working with small business health care providers, we want to enhance our relationship with small businesses. We have a designated liaison with the SBA, Tony Mazzarella, who maintains an ongoing relationship with the SBA's Office of the National Ombudsman and serves on the National Ombudsman's Interagency Task Force. Among other duties, the Liaison is responsible for ensuring that, when possible and within our resources, CMS staff attend the regularly scheduled SBA "RegFair" field hearings when CMS issues are on the agenda. Most recently, on April 29, the Deputy Assistant Regional Administrator for Health Plans and Providers in our Kansas City Regional Office attended the SBA field hearing in Wichita, Kansas. Consequently, we are working with the SBA's national ombudsman to better inform the SBA of our efforts to reduce burden for small business and rural health care providers. CMS staff have attended two out of three of these field hearings since February, and we plan to participate in the upcoming field hearing in Richmond, Virginia.

    Additionally, CMS' SBA Liaison is responsible for ensuring that comments filed with the SBA concerning CMS' programs are assigned to the appropriate CMS staff and addressed in a timely manner. Moreover, the Liaison currently is working to ensure that when CMS conducts a compliance audit on a small business, the owner is informed of his appeal rights under the Small Business Regulatory Enforcement Fairness Act.

    We also are working directly with physicians and other health care providers to improve our communications with them and ensure that CMS is responsive to their needs. We are providing free information, educational courses, and other services through a variety of advanced technologies. In particular, we have a broad selection of training materials available on our Medicare provider education website, This site provides timely, accurate, and relevant information about Medicare coverage and payment policies, and serves as an efficient, convenient education tool for all providers, including small businesses.

    Secretary Thompson and I have been clear: we need to be more responsive to the people who participate in our programs, and our efforts to reduce paperwork burdens on small business health care providers is just one way that we are trying to do that. In the months ahead, I am confident that the Secretary's regulatory reform task force, the Open Door initiative, and our other, similar administrative initiatives we have ongoing will accomplish much, much more. Through these efforts, we are taking administrative action where we are able, and we want to work with you and Congress to make appropriate modifications in other areas.


    Mr. Chairman, in recent correspondence you have raised a number of very specific concerns with CMS policies and their impact on small businesses. I have addressed these concerns in a letter to you earlier this week, and I want to reiterate a few of those points now. For instance, you expressed concern about updates to our payment systems. As a general matter, we make the periodic updates to our payment systems using notice-and-comment rulemaking in accord with the Administrative Procedure Act (APA). We use interim rules with comment only when justified by particular circumstances, such as the need to implement a change in law quickly, and even in these cases we include appropriate impact analyses.

    Each year, we use the APA rulemaking process to develop the Medicare physician fee schedule that will apply to payments for the following year. We publish a notice of proposed rulemaking, provide a 60-day comment period, and, as required by statute, publish a final rule by November 1 of each year. For 2002, we published the final rule in the Federal Register on November 1, 2001. Pages 55321 to 55328 of the November 1, 2001, Federal Register present the regulatory impact analyses, including the analysis required by the RFA, for this rule.

    You also raised concerns with documentation guidelines for evaluation and management (E&M) services. The current documentation guidelines were developed in 1995 and 1997 to supplement the definitions of E&M codes contained in the American Medical Association's (AMA) Current Procedural Terminology (CPT) coding system, the system used for coding physicians' services. The guidelines were developed with the active involvement of the AMA and specialty societies. The guidelines were designed to assist physicians and medical reviewers to determine which of five coding levels would be appropriate for an E&M service and what documentation would be appropriate to document that choice. In annual financial audits required by the Chief Financial Officers Act, CMS frequently has been criticized for inadequate documentation on claims Medicare paid for E&M visits by physicians. The guidelines attempted to strike a balance so that physicians could accurately report the services they furnish without undue burden.

    Practicing physicians, however, have criticized the existing guidelines. We agree that the current guidelines can be burdensome, and one of our highest priorities is to find ways to reduce these burdens. The Secretary has asked the AMA to consider possibilities for simplifying the CPT E&M codes as we pursue ways to reduce the burden of the documentation guidelines. A resolution of this issue could be facilitated greatly if the E&M codes were simplified, since there would be less need for supplemental documentation. The AMA's CPT Editorial Committee subsequently established a work group to consider possible revisions. This group is expected to make recommendations to the CPT committee shortly.

    Furthermore, concerns have been expressed regarding the Minimum Data Set (MDS) for long-term care facilities. We use the data from the MDS as a part of the assessment and care planning process required by law, and the MDS was established through rulemaking. The current version of the MDS was developed in 1995 with considerable input from countless individuals representing associations, beneficiary groups, and State governments with which we have worked in partnership in implementing the MDS nationally. We recognize the value of including different perspectives and areas of expertise in establishing clinical guidelines and plan to continue this open and inclusive approach with refinements to the MDS to streamline it and get nursing staff back to the bedside and caring for patients, not filling out paperwork.

    We are very focused on ensuring regulatory flexibility for small businesses, and believe our regulations meet the requirements of the RFA. We are committed to opening up the Agency to be responsive to the concerns of all our stakeholders, and we are happy to work with this Committee, small businesses, and others to ensure that we continue to improve.


    There has been some confusion surrounding Medicare EKG reimbursement, and I would like to take a few moments to explain this issue for the Committee. It is worth describing this complex system in detail because it illustrates the limitations of relying on price regulation in a government-run health plan, rather than giving seniors reliable options to get innovative private coverage that pays for innovative medical services. Medicare pays for EKGs, including those provided by portable EKG suppliers. An EKG service consists of two components: first, a nurse or a technician performs the test, called the technical component. Second, a physician or other qualified clinician interprets the test results. This interpretation is called the professional component. In traditional Medicare, Part B pays separately for the professional component, regardless of where the service is performed. However, under the Medicare fee schedule, payment for the technical component depends on where the service is provided. The law does not allow Medicare to make a separate payment to either a portable EKG supplier or a physician for transportation of the EKG equipment to a skilled nursing facility (SNF). Some of the confusion about paying for EKGs may be related to the complexity of the statutory Medicare benefit for patients in a nursing facility. Let me try to clarify the situation.

    The Medicare statute has a very specific SNF benefit. During the time that a beneficiary is in a SNF and covered under Part A, Medicare's prospective payment system (PPS) makes a per diem payment to the SNF. That payment is bundled, meaning it includes payment for EKG tests as well as other diagnostic tests provided to the beneficiary. The SNF cannot submit a separate bill to either Part A or Part B of Medicare for the technical component of the EKG. Because payment for the EKG test is bundled into the SNF PPS rate, Medicare does not receive separate billing data on the number of EKG tests furnished to beneficiaries in Part A-covered SNF stays. We do know, however, that in 2000, Medicare paid for approximately 47 million Part A-covered SNF days for beneficiaries.

    Once the beneficiary has resided in the SNF for 100 days, thus exhausting his Medicare Part A benefit, Part A will no longer make a per diem payment to the SNF. However, Medicare Part B will pay the SNF for certain services and tests that would otherwise be covered for the beneficiary under Part B if the beneficiary was not in a nursing facility. So, if a beneficiary in a SNF is no longer covered under Part A, and needs an EKG test, Medicare Part B would cover the EKG test just like Part B would cover the EKG test if the beneficiary received the EKG test in a physician's office.

    The situation is further complicated by the fact that a variety of providers can furnish an EKG to a SNF beneficiary who has exhausted the Part A benefit and be reimbursed for the technical component by Part B of Medicare. The SNF itself can furnish an EKG test, using its own EKG machine in its facility, to a Medicare SNF beneficiary who has exhausted his Part A benefit. In this case, the SNF would be paid by Part B of Medicare for the technical component. This payment was previously based on reasonable cost, but since January 1, 2002, it has been based on the physician fee schedule as required by law. An outside supplier also can furnish an EKG test using portable equipment. In this case, the portable EKG supplier would bill Medicare Part B for the EKG test. Medicare would pay the same amount for the technical component of an EKG to the portable supplier as Medicare would pay to a physician who furnishes the test.

    A physician also can bring an EKG machine to the facility to provide an EKG test to the beneficiary. In this case, the physician would bill Medicare Part B for the technical component. Additionally, as in any other case where the physician interprets the EKG test, the physician in this case would bill Medicare Part B for the professional component of the EKG test. The "place of service" code on the physician's bill should then reflect that the test was performed in the nursing facility. However, because the place of service code does not affect payment, physicians might not be accurately reporting the place of service as a SNF. Unfortunately, that means EKG data that considered only billings for SNFs as the place of service would likely undercount EKGs furnished to Medicare SNF beneficiaries.

    Payment for EKGs in traditional Medicare is made under the physician fee schedule. The Medicare statute specifies a formula to determine physician fee schedule payments based on the relative values, that is, the relative resources involved with furnishing a service. These relative values are adjusted for differences among geographic areas, and then converted to a dollar figure by a conversion factor, which is updated annually. The statute also specifies a precise formula to update physician fee schedule payments by comparing actual spending for a year to target spending for that year. If spending in a certain year is greater than allowed by the formula, payments are reduced in future years, and if spending is less than allowed by the formula, payments are increased in future years. This year, physician fee schedule payment levels for all services paid under the national physician fee schedule, including EKGs, have been reduced by 5.4 percent. We recognize that the 2002 rates may be difficult for some providers, but the Medicare law governing the physician update formula is extremely prescriptive and does not give CMS any administrative flexibility to provide different payments or updates to the physician fee schedule.

    Moreover, Medicare law does not allow administrative flexibility to treat one type of provider who furnishes a service differently from another provider who furnishes the same service. In fact, the Medicare statute explicitly prohibits such differential treatment. One of the fundamental elements of the physician fee schedule since it was originally legislated is the statutory prohibition against variation in the amount of payment among different physician specialties for the same service. Whether an EKG or X-ray test is furnished by a physician, a portable supplier, or an independent facility, the statute requires that the Medicare relative value, conversion factor, and payment in a geographic area be the same.

    The RFA requires agencies to consider alternatives to their rules to ease the burden on small businesses, but it does not override the Medicare statute or allow us to violate the very precise payment provisions in Medicare law. To comply with the RFA, we examined the physician payment regulation, including its impact on small businesses and all providers affected by the rule. Our November 1, 2001 final physician fee schedule rule discusses our review to ensure compliance with the RFA. Medicare law requires us to annually adjust Medicare payments for all physicians' services, including EKGs and X-rays, using a statutorily specified formula. The law does not allow us, for example, to suspend the adjustments in the physician fee schedule, or to establish temporary payment rates or increase rates for specific provider types or particular services. We recognize that the size of the payment reductions this year may be difficult for some providers, but we do not have any administrative authority under the law to adjust payment levels for specific provider types or particular services. The Administration is willing to work with you to find a way to ensure that physicians receive appropriate payment for Medicare services, this year and in the future, as part of an overall budget-neutral package. The Administration also hopes to work with you to enact legislation that does not leave health care providers, including small businesses, so dependent on complex medical price regulations that are micro-managed.


    Through both legislation to strengthen and improve Medicare and administrative actions, this Administration is strongly committed to easing regulatory burden on small businesses, including small business health care providers. We are working hard to make Medicare a better business partner for all health care providers, including small businesses, and reducing burden administratively where we can. I appreciate the Committee's dedication to protecting small businesses, and I am happy to work cooperatively with you to find appropriate ways that we can make Medicare a better business partner for them. Thank you for the opportunity to discuss these issues with you today.

HHS Home ( | ASL Home ( | Disclaimers ( | Privacy Notice ( | FOIA ( | Accessibility ( | Contact Us (
Last revised: July 3, 2002