March 07,2006

Grassley Expresses Renewed Concern Over Medicare Quality Improvement Organizations

WASHINGTON – Sen. Chuck Grassley, chairman of the Senate Committee on Finance, is
expressing renewed concern regarding the seeming lack of effectiveness and accountability by
Medicare contractors known as Quality Improvement Organizations (QIOs). QIOs have a major
responsibility to investigate individual Medicare beneficiary complaints and appeals about the
quality of doctor and hospital care.

Grassley initiated his inquiry into the activities and operations of QIOs last summer. The
preliminary findings of his inquiry indicate problems related to expenditures, board member and
executive staff conflicts of interest, the beneficiary complaint process, and the effectiveness of QIO
activities in improving the quality of health care. To ensure accountability, Grassley is asking CMS
to consider changing the basis for funding QIOs to focus on results relative to improved quality of
care and instituting competition in the QIO contracting process. Grassley further emphas the
need for transparency in the Medicare beneficiary complaint process, a major function of the QIOs.

“Beneficiaries should never be left in the dark about the kind of care they or their loved ones
receive,” Grassley said. “The services of QIOs are intended for the protection of Medicare
beneficiaries and the improvement of the quality of care. Unfortunately, there is a lack of information
on the value of these services and whether or not QIOs are in fact meeting their mission. We need
greater accountability and rigorous oversight of the QIOs and an evaluation of their effectiveness.
Taxpayers and Medicare beneficiaries need to have faith that the dollars spent on their behalf by the
QIOs aren’t wasted and that they are deriving value from these expenditures.”

The text of Grassley’s March 3 letter to CMS Administrator Mark McClellan follows.

March 3, 2006

Via electronic transmission

The Honorable Mark McClellan
Centers for Medicare and Medicaid Services
Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201

Dear Administrator McClellan:

As Chairman of the Committee on Finance (Committee), I initiated a review of the Medicare Quality
Improvement Organization (QIO) program in August 2005. Specifically, I asked my Committee staff
to examine, among other things, the effectiveness of the program in improving quality of care, as
well as to assure that taxpayer dollars are being spent appropriately. As we know, taxpayer funds
make up more than 80 percent of the monies provided to the QIO community. Also, I want to take
this opportunity to thank you for providing the Committee with the information I requested through
correspondence dated August 11, 2005, and January 4, 2006.

My Committee staff have reviewed the documents provided by the Centers for Medicare and
Medicaid Services (CMS) and interviewed some of your staff as well as a number of physicians and
nurses and one hospital chief executive officer (CEO) with experience working with QIOs. This
preliminary review raises a number of concerns regarding questionable expenditures, board member
and executive staff conflicts of interest, and the quality and effectiveness of QIO services. I am
writing today to provide you with some of my concerns regarding the initial findings of that review.


According to the documents provided to the Committee, it appears that most, if not all, of the QIOs
provided some level of compensation to its board members. The total amount ranged from several
thousand to several hundred thousand dollars, some portion of which comes from Medicare funds.
For example, in FY 2003, one QIO compensated its board of directors a total of $526,976, averaging
about $25,000 per board member. According to acquisition and grants management staff at CMS,
most QIOs are 501(c)(3) not-for-profit organizations. The amounts paid to some of the board
members seem exorbitant considering the majority of national not-for-profit corporations do not
compensate their respective board members. (1)

The appropriateness of some travel expenses incurred by some of these non-profit QIOs is also
questionable. Documents from a QIO show that board members traveled to Colorado Springs, CO,
in FY 2005 for a leadership retreat, and to Brewster, MA, on Cape Cod in FY 2004 and Stowe, VT,
in FY 2003 for CEO retreats.

In addition to questionable travel expenses, the Defense Contract Audit Agency’s (DCAA) audits
of the QIOs reveal that some QIOs incurred questionable or unallowable costs that DCAA concluded
should not have been funded with taxpayer dollars. For example, one QIO spent $9,831 on
unallowable entertainment costs in FY 2003 to finance parties held at its offices and $5,202 in FY
2002 for a summer Hawaiian party and an employee retirement luncheon. Another DCAA QIO audit
reveals that a QIO incurred $33,292 in questionable and unallowable costs, such as $16,971 for
promotional items and exhibit booths, $3,311 for a welcome reception, and $500 for a social
membership to an airline club. It also appears a QIO paid $13,083 for promotional items to distribute
at various meetings, all of which are unallowable advertising and public relations costs.


There is also concern as to whether or not QIOs have the necessary controls in place to prevent
inappropriate business relationships. It is disconcerting that QIO board members may be overseeing
contracts, reviewing beneficiary satisfaction surveys, and assessing physician performance for the
same organizations where their profits will rise or fall based upon the boards’ decision. QIO boards
should be diverse and transparent, allowing all members to make clear decisions unhampered by
apparent or perceived conflicts of interest.

Based on my Committee staff’s review of documents, it appears that some QIOs have financial
arrangements or relationships that appear to pose conflicts of interest. For example, DCAA QIO
audits in FY 2002 and 2003 show that one QIO compensated its board chair $3,100 monthly
($37,200 annually) as a “consultant.” The DCAA concluded that this “compensation” arrangement
could “cause a loss of objectivity or impartiality or otherwise interfere with free exercise of his or
her judgment.” A review of the FY 2004 IRS Form 990 reveals that this same QIO made a $160,000
loan to a for-profit corporation of which the QIO’s CEO was also a board member.


There is sparse evidence to suggest that QIOs are effective. A recent Journal of the American
Medical Association article, “Do Quality Improvement Organizations Improve Quality of Hospital
Care for Medicare Beneficiary?” concluded that hospitals that participate with the QIO program are
not more likely to demonstrate improvements in quality than hospitals that don’t participate. [2]
CMS and others have raised methodological concerns about this particular study; however, even a
research study published two years prior did not find conclusive evidence about the degree to which
improvements in quality can be attributed to QIO efforts.[3] These research findings raise questions
about the effectiveness of QIOs.

The difficulty in isolating the effectiveness of the QIOs is not surprising given the number of public
and private entities, in addition to the QIOs, who share the same mission and similar activities to
improve the quality of health care. For example, the National Committee for Quality Assurance
(NCQA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the Agency
for Healthcare Research and Quality (AHRQ), and state survey agencies all participate in similar

Interviews with a number of physicians and nurses and a hospital CEO indicate a lack of measurable
objectives to determine the outcomes of QIO and provider efforts. This leads to lack of
accountability by the QIOs for the quality of the services they provide to, among others, hospitals
and nursing homes. This also makes it difficult to measure the success of the QIO program overall.
Some individuals interviewed by my Committee staff also complained that the data analyses the
QIOs conduct for the hospitals are of little value to them.

Discussions with the acquisition and grants management staff at CMS indicate that the contracting
process does not reward QIOs for performance. In the last contracting cycle, only 6 of the 53 QIO
contracts were subjected to a competitive bid process. Of these 6, only 1 QIO contract was not
renewed. While continuity arguably has the benefit of helping to establish long-term working
relationships, “presumptive renewal” of contracts also has disadvantages. One disadvantage is the
potential for “cozy” relationships leading to lax accountability. One physician interviewed by my
staff used that very word to describe the relationship that developed between QIOs and state hospital
associations, or with particular hospitals or providers. A hospital CEO said that the relationship
between the QIOs and the state medical association is a “good ol’ boys network.” He went on to say
that the QIO was a “pawn” of the hospital association. Others interviewed felt pressured to “play”
along with the QIOs or risk retaliation from the hospital association. To avoid these seemingly cozy
relationships and to ensure a culture of accountability, perhaps CMS should consider subjecting all
QIO contract renewals to competition in the future.

CMS’s payment/reimbursement system for QIOs is based primarily on QIO costs and deliverables,
not on outcomes relative to quality improvement. QIOs simply submit vouchers to CMS on a
monthly basis and CMS, by statute, is required to make payment within 15 days. Only 4 percent of
CMS payments to QIOs are based on individual QIO or overall QIO performance. Even these
payments are based on performance for meeting the contract terms, not necessarily for meeting
benchmarks of quality.

The effectiveness of QIOs in one major area of responsibility, beneficiary complaints, is also
questionable. The Committee’s preliminary conclusions, based on information from a number of
sources, including CMS, the Office of Inspector General, Department of Health and Human Services
(OIG), several physicians and nurses, and a hospital executive, indicate that the QIO beneficiary
complaint process is broken. One nurse interviewed by my Committee staff believes the complaint
review process is simply a “bureaucratic exercise” ending with an unsatisfactory resolution for the
patient/beneficiary and is of no benefit to improving the overall quality of healthcare. By law, QIOs
are prohibited from disclosing the information used as the basis for their determinations.

Additionally, this information, under most circumstances, is not subject to discovery in a criminal,
civil, or administrative proceeding. A review of the complaint case statistics CMS provided to the
Committee seems to indicate a small number of cases relative to the number of Medicare
beneficiaries overall. From August 1, 2004 to August 30, 2005, the 53 QIOs reviewed 2,891
beneficiary complaint cases. When you consider that there are over 43 million Medicare
beneficiaries, the number of complaint cases appears disproportionately low. Finally, a report issued
by the OIG in August of 2001, concluded that accessibility to the QIO complaint process is
questionable, it rarely triggers any intervention beyond a letter for substantiated complaints, and it
fails to provide a meaningful response to complainants.[4] Given these findings, CMS should
consider changes that would ensure greater transparency and increased responsiveness to
beneficiaries in the complaint process.

In closing, I recognize that there is potential value in the existing QIO infrastructure that has been
built over the last 20 years. Some critics of the QIOs who were interviewed by my Committee staff
support the concept of the QIO program as well. However, they also believe that resolving the issues
raised in this letter, among others, is necessary to increase the effectiveness of the QIOs and improve
the quality of health care. In light of the aforementioned problems and concerns, perhaps it is time
for CMS to consider redesigning the QIO program to maximize QIO effectiveness. Has CMS
determined or identified problems similar to the ones outlined in this letter? If so, please describe
in detail the extent of these problems and the actions that CMS has taken or plans to take to address
them. Has CMS considered re-competing all QIO contracts in the future or providing funding based
on outcomes?

As you are aware, I asked the OIG and the Government Accountability Office to evaluate the fiscal
integrity, beneficiary complaint process, and the effectiveness of the services provided to the nursing
home community by the QIOs. Next week, the Institute of Medicine is expected to release a report
on its study of the QIO program as mandated by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003. My Committee staff will continue their review and be in contact with
your office as additional questions and concerns arise.

Thank you for your attention to this important matter. I look forward to hearing from you regarding
the issues, concerns, and questions raised in this letter by March 24, 2006.


Charles E. Grassley

[1] See BoardSource web site at (accessed
March 2, 2006).
[2]Clare Snyder, G Anderson (2005). Do quality improvement organizations improve the quality of
hospital care for Medicare beneficiaries? Journal of the American Medical Association, June 15,
2005, Vol. 293, No. 23.
[3]Stephen F. Jencks, E. D. Huff, T. Cuerdon (2003). Change in the quality of care delivered to
Medicare beneficiaries, 1998-1999 to 2000-2001. Journal of the American Medical Association,
January 15, 2003, Vol. 289, No. 3.
[4]Department of Health and Human Services, Office of Inspector General (August 2001). The
Medicare Beneficiary Complaint Process: A Rusty Safety Valve. Washington, D.C.