ness may increase. For example, focused review and prospective budgeting of PSROS' and hospitals' review costs-mentioned earlier-may have a substantial impact. CBO's report and testimony stressed the need to implement and evaluate changes of this sort carefully.

We do not agree with Dr. Smits' comment on the relative costs and effectiveness of "new" utilization review and PSRO concurrent review. Some of the basic data Dr. Smits used are unreliable, and moreover, there are several major problems in the way those data were used. For example, one important problem is that Dr. Smits' comparison used an estimate of hospital utilization review costs that assumed no budgetary constraints, while her corresponding estimate of PSRO review costs was based on the current, fairly stringent budgetary constraints on that program. All in all, we believe that the comparison as Dr. Smits has drawn it is seriously misleading.

There are many alternatives to PSRO review as it is currently carried out. If utilization review activities are to be continued, one alternative is to experiment with refinements of the PSRO system, such as focusing; another alternative is to substitute claims review by intermediaries for peer review. With or without utilization review, there are many options of other sorts; among them are revenue constraints (for example hospital cost containment an increased role for planning, and encouragement of prepaid health plans such as Health Maintenance Organizations.

Question 5. Please provide the Subcommittee with any data you may have that indicate individual states' PSRO programs are cost-effective.

Answer. CBO is not aware of any data which convincingly demonstrated the cost-effectiveness of an individual state's PSRO. There are studies which do reach such conclusions but all of which we are aware are too seriously flawed to be reliable. Our report contains as an appendix that reviews studies of programs in Colorado and Massachusetts and illustrates the types of programs involved in analyzing the effectiveness of individual PSROS.

Mr. GIBBONS. Our next witness is Mr. Thomas P. McCormick, Associate Director, Human Resources Division, U.S. General Accounting Office.

We will put your full statement in the record and you may proceed. STATEMENT OF THOMAS P. McCORMICK, ASSOCIATE DIRECTOR OF THE HUMAN RESOURCES DIVISION, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY ROBERT IFFERT, DONALD BAIARDO, AND NICHOLAS DeMINICO

Mr. MCCORMICK. I would like to introduce my colleagues.

On my right is Mr. Robert Iffert, an Assistant Director with the Human Resources Division and on my left Don Baiardo with the Human Resources Division and to his left is Nicholas DeMinico with our Boston regional office.

If it is all right with you Mr. Chairman, I will try to highlight the salient features of my statement.

Mr. Chairman and members of the subcommittee, we are pleased to be here today to discuss, the work we have done with respect to HEW's 1978 evaluation of the PSRO program, and our ongoing review of HEW's program for monitoring PSRO determinations of the necessity for inpatient hospital admissions and lengths of stay.

In June 1978 we testified before this subcommittee on two reviews of the PSRO program. As part of our testimony, we discussed HEW's 1977 evaluation of the cost effectiveness of the PSRO program. We pointed out that we visited five PSRO areas and their non-PSRO comparison areas, and found that the data used by HEW in its evaluation included statistics on 20 hospitals that should not have been included in the evaluation and excluded statistics on three hospitals

which should have been included. The inclusion of inappropriate hospitals had a significant impact on the evaluation results with respect to one of the PSRO's.

Another problem we noted with the data was that it limited the identification of the medicare eligibles to residents within the boundaries of the PSRO and comparison areas when in fact many hospitals reported that their medicare patients reside outside of these areas.

HEW officials informed us that steps were being taken to assure that these problems were resolved prior to the use of this data in HEW's 1978 follow-on study. The follow-on study was released in January 1979.

We reviewed the data used for the cost analysis part of the study and found that the data appears to have been corrected for the problem of medicare patients receiving care in a PSRO area other than the one in which they reside.

However, when we reviewed the treatment of the 23 hospitals we found that all 23 were handled the same in the 1978 follow-on study as they were in the 1977 study.

Regarding our review of HEW's post payment monitoring program we reviewed the activities of the Health Standards and Quality Bureau and the Medicare Bureau and six PSRO's in Massachusetts, South Carolina, Ohio, California, and Nevada.

In addition we visited seven hospitals in Massachusetts and two hospitals in California.

Under HEW's post payment monitoring program, medicare fiscal intermediaries, such as Blue Cross and Aetna, sample PSRO determinations of the necessity of inpatient hospital care. The monitoring program has two objectives: One, to insure the flow of information among intermediaries and PSRO's with respect to new techniques of concurrent review, medical management, and quality assurance, and two, to develop information to assist the Secretary of HEW in determining the efficiency, effectiveness, and progress of each PSRO conducting concurrent review.

Medicare fiscal intermediaries are required to review a 20-percent sample of all inpatient hospital claims reviewed by a PSRO.

Our analysis of medicare intermediary post payment monitoring reports showed that the intermediaries' physicians were questioning PSRO determinations in the areas of: One, hospital admissions for diagnostic tests which could have been performed on an outpatient basis; and two, delays in discharging patients. Most postpayment monitoring reports also indicate the extent to which the PSRO's agreed with the fiscal intermediary physicians.

For the six PSRO's included in our review, we attempted to estimate the total number of days the intermediaries would have questioned had they reviewed all claims-rather than just 20 percent of the claims by using the intermediary sampling data and multiplying the number of days sampled and the sampling results by 5.

We did this for only three of the six PSRO's included in our review the fiscal intermediary for the Nevada PSRO did not have information readily available on the number of days in the sample; and the other two fiscal intermediaries did not use random sampling techniques; therefore, their sampling results could not be projected.

As shown in the chart to my left, the fiscal intermediaries questioned from 1.1 to 5.5 percent of the days of care that the PSRO's had certified as necessary. Moreover, the PSRO's agreed that between 0.2 and 4.2 percent of the days that they certified as necessary, were unnecessary.

A 1- or 2-percent reduction in hospital utilization can be an important factor. HEW has said that 96 PSRO's that reduced medicare hospital utilization by an average of 1.5 percent were cost effective. On the other hand, we were told by a Congressional Budget Office official that information reviewed by CBO indicates that a PSRO becomes cost effective when hospital utilization is reduced by 2.9 percent.

1 This PSRO did not indicate the extent to which it agreed with the intermediary's determinations. We had PSRO physician advisers review a 20-percent sample of the days questioned by the fiscal intermediary to project this number.

Mr. MCCORMICK. Although we were unable to determine the extent. to which unnecessary diagnostic admissions and delayed discharges exist in the two other PSRO areas we were able to confirm that these problems also occurred in these areas.

We discussed the possible causes for these unnecessary diagnostic admissions and delays in discharges with PSRO officials, and were informed of several factors which appear to have contributed to the problem.

Five of the six PSRO's had, in most instances, delegated their patient review authority to the hospitals in their respective areas. The executive directors of three of the five PSRO's said that utilization review personnel at delegated hospitals had not been adequately monitored by the PSRO's. In addition, one of the three PSRO's did not make regular visits to the hospitals.

Reluctance of PSRO personnel to enforce guidelines is another factor given as a cause for unnecessary diagnostic admissions and delays in discharges. Officials at all six PSRO's said that that hospital utilization review personnel are sometimes reluctant to challenge an admitting or attending physician's judgment on medical necessity.

We were also informed that because PSRO review is performed at the admittance of medicare patients to a hospital is generally reviewed certain times during a patient's stay, patients may needlessly remain in the hospital from the date that they are ready for discharge until the next date PSRO review is performed. Under the PSRO review system, by a PSRO coordinator, and if necessary a physician adviser.

If the admission is certified as necessary, the coordinator assigns the patient a length of stay. In addition to the initial review, the patient is reviewed at the end of the assigned length of stay and periodi

cally thereafter. Officials at two PSRO's said that many of the unnecessary days were certified as necessary between the initial review and the assigned length of stay checkpoint, that is, some people are ready for discharge before the second review takes place but are not discharged until the coordinator reviews the case.

I have summarized the efforts of HEW's fiscal intermediaries in monitoring certain PSRO's and some of the factors which appear to have contributed to PSRO's certifying unnecessary days of care. I would like now to discuss some areas where we believe HCFA could improve its oversight of the PSRO post payment programs.

HCFA officials informed us that the postpayment monitoring program should, among other things, serve as an educational experience for PSRO review coordinators, PSRO physician advisors, and for admitting and attending physicians. By reviewing and discussing the cases questioned by the fiscal intermediaries, PSRO review coordinators and physicians should be able to learn additional techniques for identifying days of care that are not necessary.

In addition, admitting and attending physicians should be made aware of cases where their decisions to admit or to keep patients in the hospital were being questioned, and the reasons why they were questioned. The admitting and attending physicians are supposed to consider this information when making future decisions.

HCFA has prepared instructions on how fiscal intermediaries are to develop and prepare their post-payment monitoring reports. However, no guidelines or instructions have been issued regarding how the reports are to be used in meeting the objectives of the postpayment monitoring program.

HSQB officials told us that no formal guidelines or instructions were issued because they believed oral instructions were sufficient. HCFA officials informed us that they have not issued instructions requiring PSRO's to respond to the fiscal intermediaries reports. They did however, expect that the PSRO's would respond. During the early stages of our review, we learned that many PSRO's were not responding to these reports.

In May 1978, we contacted HEW's 10 regional medicare offices and learned that 46 of the then 154 PSRO's were not responding to intermediary reports. During the past year many of these 46 PSRO's have started to respond. In May 1979 we again contacted HEW's regional medicare offices and were informed that only six of the 183 PSRO's were not responding to the reports.

At three of the six PSRO's we visited we learned that the PSRO's did not routinely discuss fiscal intermediary monitoring results with their physician advisors, with the delegated hospital utilization review committees or with the attending or admitting physicians in the questioned cases.

Medicare officials informed us that the system for collecting and reporting postpayment monitoring data was designed before it was fully known what type of data could be produced or how the data would be used. As a result, certain data which is needed by the program in order to meet its objectives is not being collected, and certain data is being collected which, at present, is not being used by HSQB. Post payment monitoring reports deal primarily with claims data. For example, the reports indicate the number of patient days in the

questioned claims. However, the guidelines for preparing the reports do not indicate that the total number of patient days in the sample should be reported. Thus, the data is sufficient to indicate if a problem exists, but is insufficient to define the magnitude of the problem.

We also found certain cases where data was being collected but not used. For example, in South Carolina, PSRO physicians disagreed with fiscal intermediary physicians on 67 percent of the patient days questioned for diagnostic admission or delayed discharge.

Statistics on these disagreements are collected by the fiscal intermediaries and the medicare bureau and provided to HSQB. HSQB officials advised us that they have yet to determine how to use this information.

In conclusion, we believe that if effectively used, the postpayment monitoring program could be a helpful tool to HEW and PSRO management in obtaining reductions in unnecessary medicare utilization by identifying areas where PSRO review activities can be improved.

At the four PSRO's where we were able to relate intermediary findings to total medicare days, we determined that fiscal intermediaries questioned from 1 to over 5 percent of the medicare days that they reviewed as being unnecessary, and the days questioned were days that the PSRO had certified as necessary.

Further officials at two of the four PSRO's, agreed that they had inappropriately certified about 2.6 and 4.2 percent of the total days sampled. Thus, it appears that if effectively used, the post-payment monitoring program offers the potential to improve the overall performance of individual PSRO's by identifying areas where unnecessary utilization can be eliminated.

We believe, however, that the effectiveness of the post-payment monitoring program could be enhanced if HCFA one, provided specific instructions to PSRO program personnel, PSRO's, and physicians on how the fiscal intermediary reports are to be used and, two, insured that the data collected and reported by the fiscal intermediaries were appropriate to meet program needs.

Mr. Chairman, this concludes our statement.

We would be pleased to answer any questions you or any other members of the subcommittee may have.

[The prepared statement follows:]

STATEMENT OF THOMAS P. MCCORMICK, ASSOCIATE DIRECTOR, HUMAN RESOURCES DIVISION, U.S. GENERAL ACCOUNTING OFFICE

Mr. Chairman and Members of the Subcommittee, we are pleased to be here today to discuss (1) the work we have done with respect to HEW's 1978 evaluation of the Professional Standards Review Organization (PSRO) program, and (2) our ongoing review of HEW's program for monitoring PSRO determinations of the necessity for inpatient hospital admissions and lengths of stay.

BACKGROUND

The 1972 amendments to the Social Security Act mandated the establishment of PSROS. PSROS are groups of local practicing physicians who organize and operate peer review mechanisms to assure that health care services provided under three Federal health care programs-Medicare, Medicaid, and Maternal and Child Health-conform to appropriate standards and are delivered efficiently, effectively, and economically. In addition to local groups of physicians, the Secretary of HEW can designate other suitable groups to perform PSRO review.