Good morning, my name is Stan Rosenstein. I am the assistant deputy director of medical care services for the California Department of Health Services. I have been asked by the National Association of State Medicaid Directors to provide the subcommittee with information on the local codes issue from a state Medicaid agency perspective. As you are aware, the proposed elimination of local codes under HIPAA will have a tremendous impact on the Medicaid program's ability to perform our business functions. I appreciate having the opportunity to share with you our concerns about this issue.
First, I will provide an overview of the use of Level III local codes in the Medicaid program. Second, I will discuss the potential problems the elimination of local codes will have in California. Finally, I will offer some more global comments on the problems associated with forcing the use of standard codes in all instances.
Medicaid is the predominant payer of health care services for the country's most vulnerable populations. In order to meet the needs of those individuals who experience some of the most persistent and debilitating conditions, Medicaid provides services generally not recognized by other payers whether they be commercial insurance or publicly supported programs. As the Medicaid program has matured, the scope of services and products covered has expanded greatly. As a result, our coding needs have become even more of a mismatch to those of the commercial insurance world of CPT and Level II HCPCS.
Perhaps the most obvious example is in the case of Home and Community Based Waivers created under federal law to enable persons who would otherwise be in a medical institution to remain in their home or community, often when there are no family supports available. This requires services and supports that are not currently identified in Level I or Level II of HCPCS because they are not customarily provided by payers other than Medicaid. They are non-traditional services designed to avoid more costly and less desirable traditional services and allow for payment of services that might otherwise be provided by family members in a non-Medicaid population.
In addition to creating codes for non-traditional services, state Medicaid agencies rely on local codes to support our unique business needs. Such codes assist in a state's ability to manage the care provided to patients by including numerous types of case management and care coordination fees. They also provide the ability to bundle together services that are appropriate for an entity to provide in a single visit such as a well-child exam. Local codes provide very specific information about the items requested, such as individual parts for DME equipment, thus enabling prior authorization to be automated. Detailed information is necessary to implement the appropriate fraud and abuse edits and audits in the system. The level of detail afforded by local codes simplifies fee calculation by eliminating the need to implement numerous steps in the MMIS to calculate the payment for a service.
As a joint federal-state public program, Medicaid has special responsibilities and business needs that are greatly facilitated by the use of local codes. Services provided under Medicaid may have multiple funding sources and varying levels of federal reimbursement. Local codes allow states to easily link payments to funding sources and determine the percentage of federal reimbursement for individual services. States must also be able to meet requirements imposed by both the federal government and state legislatures. HCFA requires states to submit numerous federal reports that can be easily generated only if specific levels of detail are available in the MMIS. State legislatures commonly mandate coverage of special services, which often have no corollary in the commercial market, for the Medicaid population that need to be tracked and reimbursed differently. When state laws are passed, there needs to be a responsive mechanism to provide a coding structure for these services. Absent a comprehensive and timely national solution, state Medicaid agencies have had to rely on local codes to perform their business. Attachment A contains a complete listing of the categories of local codes utilized by state Medicaid programs.
Greatest Benefit of Local Codes:
The proposed code set standards do not adequately support the current business needs of the Medicaid program. Prohibiting Medicaid agencies from using local codes will preclude our ability to respond to providers and consumers as well as hamper our ability to process claims and data efficiently. First, existing services that are being provided and reimbursed would cease to be billable in the absence of appropriate alternative codes. Secondly, states will not be able to adopt new services or program developments if there is no way to acknowledge that service or product in the EDI world. Finally, major changes to the claims processing system will be needed. To implement many of the codes, additional processing steps must be added to accomplish what the local code accomplished in one step. Besides being costly in terms of both implementation and operation, these changes could affect the performance of the claims processing system and cause delays in final adjudication of claims.
Of particular concern to states is the impact that the elimination of local codes will have on "closed-loop transactions." The closed-looped transactions are business arrangements created and operated by the state Medicaid agencies that are specifically designed to pay for the provision of services to certain limited populations by certain limited provider categories. When Medicaid programs are the only source of payment for these specialized services and supports, we see little value in operating these "closed-loop businesses" under a national standard format. Standardization may create barriers for designing systems best suited for the state and undermine the states' authority to administer the Medicaid program.
When HCPCS was created and states were given the authority to develop local codes, they proceeded to broadly use that authority to meet the needs of fifty-plus state Medicaid programs. There has been no need to use a lengthy and cumbersome process as long as the authority for local codes exists. Their elimination will require substantial systems changes and have the potential to negatively impact the business of Medicaid. If such changes are to take place, it will create a need for an education process that we can only begin to appreciate at this point.
Thank you again for the opportunity to testify on this very important issue.
Utilization of local level codes (level III HCPCs) for state Medicaid programs have been identified to fit the following categories:
1) Codes to support the various waiver programs (home and community based programs) operated by the state Medicaid agencies or by other state agencies through arrangements with the state Medicaid agencies;
100% of the coding is local level codes and each waiver program within the state needs their own unique coding structure to support the waiver program. For example, the state may operate four waiver programs where the established payment rates for covered services vary in accordance with the funding and budgetary structure developed for the different programs. All four programs may offer personal care services but must pay different rates in order to meet varying budgetary limitations established for each of the waiver programs.
2) Codes to support private duty nursing services offered as an optional benefit under the state Medicaid program;
Billing and reimbursement is 100% local coding.
3) Codes to support cost-based clinic payment systems (e.g., FQHCs and rural health centers);
Billing and reimbursement is 100% local coding.
4) Codes to support special services provided to meet the special needs of individuals with mental retardation and developmental disabilities;
Many state Medicaid agencies have arrangements with other state agencies to administer these services/programs. Billing and reimbursement is 100% local coding, and some states use this only as the mechanism for transferring funds and drawing the FFP.
5) Codes to support special services provided to meet the special needs of individuals with mental health and emotional disorders;
Many states have arrangements with other state agencies to administer these services/programs. Billing and reimbursement is 100% local coding, and some states used this as a mechanism for transferring funds and drawing down the FFP.
6) Codes to support the special services provided for drug and alcohol detoxification and rehabilitation services;
Many state Medicaid agencies have arrangements with other state agencies to administer these services/programs. Billing and reimbursement is 100% local coding and is sometimes used as the mechanism for the transfer of funds and to draw down FFP.
7) Codes to support the coverage and reimbursement of eyewear (lenses and glasses) and hearing aides;
Level II HCPCS only has two general codes for frames and lenses. Billing and reimbursement is 100% local coding for specific products covered by the state Medicaid programs.
8) Codes to enable Medicaid program to distinguish between immunizations provided free through the vaccine for children program and those same immunizations not covered under the vaccine for children program (e.g., rubella or DT shots provided to adults);
Local level coding only for overlapping immunizations. Small percentage of billing and reimbursement is through local level coding (4-5 codes).
9) Codes that could be billed under the miscellaneous procedure or other generally defined level I and II procedure codes but have a high enough volume to justify the development of a code specific for the service for the purpose of expediting the payment of claims;
For example, when Norplant was new, some states developed local level codes to cover the service prior to the development of the CPT codes. There are general hyperimmune globulin codes, but some states have developed codes which are specific for some hyperimmune globulin codes that are most frequently provide (e.g., zoster immune globulin, hepatitis B hyperimmune globulin, rabies hyperimmune globulin). Many of the local level codes for DME and supply services are developed for the purpose of expediting the payment process for covered services by reducing the need for manual review and pricing when items have a wide variability in price and quality. States utilize a varying array of local level codes to support their DME programs (0%-30% of the coding structure is local level coding).
10) Codes that could be billed under another generally defined level I and II procedure codes, but some of the services included in the code description are beyond the scope of coverage of the Medicaid program;
For example, prior to the 1998 development the code 99436 for physician attendance at delivery, the most appropriate code available was the code for physician standby which included operative standby. Since most Medicaid/Medicare programs do not cover operative standby services, it was better from a programmatic standpoint for states to use a local level code for physician attendance for a delivery (prior to CPT 1998), than to use a code that was only partially covered as defined. Another example would be Medicare’s usage of Qcodes for pap smear services, because they cover pap smears only if certain conditions are met. Small percentage of the billing and reimbursement is done through local level coding.
11) Codes to support special programs operated by or services covered by state Medicaid programs, or codes to support policy decisions for the purchase of special service arrangements;
Some of these specialized programs may be state legislated/mandated programs imposed on the state Medicaid agencies. Many states cover special prenatal services (e.g., childbirth and other prenatal educational sessions), prenatal incentive programs (e.g., bonus payments for providing prenatal care early in the pregnancy or for providing a certain proportion of the recommended number of prenatal visits), specialized genetic services, transportation services. Some states still choose to cover and reimburse prenatal services on a single visit basis and pay a higher rate than would be allowed if the service was billed using the regular evaluation and management code by using a local level code (or the obsoleted 59420 code). Each of the states have between 1-100 local level codes falling into this category.
(12) Codes to support targeted case management programs;
Each state’s case management program is unique and 100% of the billing and reimbursement is through local level coding.
(13) Codes to support the coverage of enhanced services to children which are not normally covered under the state plan benefit, but are covered under the EPSDT referral mandate for children;
For many states, 100% of the billing and reimbursement is though local level coding.
(14) Codes to support school-based programs;
These programs involve the provision of services in the schools and may include an array of support services for special education or developmentally or physically disabled populations attending schools and the coverage of operational clinic programs for the purpose of providing well child or primary care services in the school setting. For the states that cover these services or have special arrangements with the schools to provide these services, 100% of the billing and reimbursement is through local level coding.
(15) Codes to support children’s rehabilitation services;
For state Medicaid programs that cover these services, 100% of the billing and reimbursement is through local level coding.
(20) Local Codes for Physician Services
(21) Local Codes for Practitioner Services – This category includes services such as those provided by Speech Pathologists, Physical and Occupational Therapists, Clinical Psychologists, Nurse Midwives, etc.
(22) Local Codes for Dental Services
(23) Local Codes DME and Supply Items
(24) Local Codes for Laboratory Services
(25) Local Codes for OTC’s and Drugs
(26) Local Codes for Transportation Services