July 27, 2001

The Honorable Tommy G. Thompson
Secretary of the Department of Health and Human Services
Room 615-F
200 Independence Ave., S.W.
Washington DC 20201

Dear Tommy:

Before the Senate Finance Committee considers modernizing and reforming Medicare and adding a prescription drug benefit as a feature of the program, I have several factual and policy related questions concerning the relationship between the former Health Care Financing Administration (HCFA) – now called the Centers for Medicare and Medicaid Services (CMS) – and the American Medical Association (AMA) concerning the use of the Current Procedural Terminology (CPT) coding system and the impact of that agreement on the future of our nation’s health information system.

It is my understanding that HCFA in1983 granted the AMA what has been characterized as a “statutory monopoly” by agreeing to exclusively use and promote the AMA’s copyrighted CPT code for the purposes of reimbursing Medicare and Medicaid bills from doctors for outpatient services. As a result of HCFA’s and the federal government’s endorsement of the AMA’s copyrighted outpatient code -- to the exclusion of all competitors -- private insurance companies and others were also forced to adopt the CPT as their billing standard as well. The CPT code has thus become a fixture in doctor offices around the country. This predictably led to a financial windfall for the AMA in the form of CPT-related book sales and royalties approaching $71 million a year according to a report by the Wall Street Journal.

By using its CPT copyright aggressively in court, the AMA has also been able to control who uses the codes and who knows what about the cost of doctor services. For instance, the AMA has been able to impose on the entire nation the AMA’s obviously self-interested policy against consumers comparison shopping for medical care based on price by suing web sites and others to prohibit them from posting comparisons of doctor and other medical fees on the Internet using the CPT code. Without this ubiquitous code, such comparisons are impossible even though they are important to uninsured Americans and will become increasingly important in the future as more employers explore defined benefit plans -- such as Medical Savings Accounts -- where workers get to keep any savings they achieve in their health insurance or medical costs. The AMA’s proprietary interest in the CPT has also reportedly hampered efforts to educate doctors about proper practices in billing Medicaid, Medicare, and insurance companies. Of course, comparison shopping and proper billing to avoid mistakes and fraud are two of the most potent weapons we have to combat the routine double digit increases in health care costs that help keep millions of Americans uninsured.

For public policy purposes, it is noteworthy that the Ninth U.S. Circuit Court of Appeals held in 1997 that the AMA’s exclusivity agreement with HCFA for using CPT “gave the AMA a substantial and unfair advantage over its competitors” and “constituted a misuse of the copyright by the AMA.” Since the Court found against the AMA on these grounds, it did not feel it necessary to go on to address whether or not the AMA’s conditions and high prices for a licensee’s use of the CPT code constituted violations of anti-trust law as well. I have been informed that subsequent to this case the AMA and HCFA eliminated the exclusivity clause in their agreement -- thereby providing the AMA a legal defense in similar lawsuits in the future. Obviously, the change in the agreement came far too late to prevent the AMA’s code from becoming a de facto public law monopoly owned by the AMA.

The costs, controversy, and legal pitfalls surrounding the CPT’s exclusive use by HCFA for outpatient service bills stand in stark contrast to the code controlled and owned by HCFA itself which is used by hospitals and others to bill Medicare and Medicaid for inpatient services. Since that code is copyrighted by the government, it is free to everyone. As a result, web sites and others are currently able to post hospital comparison prices and publishers can write books educating doctors and the general public on the proper use and meaning of the inpatient codes. And no one is being hauled into court for doing so.

As you know, Congress as part of the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191) charged the Department of Health and Human Services to help develop a uniform health information system. I have some questions below regarding progress in developing such a uniform system and the role, if any, that the AMA’s CPT code and other procedure codes are meant to play -- and have played -- in our nation’s health information system.

As a result of the 1996 law, HCFA – now CMS -- reportedly contracted with 3M Corporation to update HCFA’s inpatient codes and that that effort is complete or nearly complete.

1. What is the status of the update and how much did it cost?

2. Will CMS retain the proprietary rights to this procedural coding system once the update is complete? If so, does CMS intend to make the system freely available to private entities on the same basis as the current inpatient coding system is? If not, why?

3. Is it possible to integrate an outpatient, infectious disease, and other procedure coding systems into 3M’s inpatient update system in order to provide a universal coding system for all of the federal government’s health information needs? If so, how difficult would it be to do so and what would be the approximate cost?

4. What level of discrepancy reduction and administrative savings could Medicare, Medicaid, and private sector health care companies expect to achieve once a single universal code system for billing and other information purposes was established?

5. What is the estimated cost of keeping the new 3M update current from year to year?

6. The AMA reportedly employs just 12 full time staff and 75 advisors to keep its CPT outpatient code updated annually. What has been the AMA’s average annual cost to keep the CPT current?

7. Does the federal government or any state or local government provide any financial compensation directly or indirectly to the AMA for using the CPT code? How much in royalties, book sales, and other revenue did the AMA receive in each of the last 3 years directly or indirectly as a result of its copyright in the CPT code? How much in royalties, book sales, and other revenue has the AMA received in aggregate directly or indirectly as a result of its copyright in the CPT code since it entered the exclusivity agreement with HCFA in 1983?

8. Does CMS still have an exclusivity agreement with the AMA concerning the use of the CPT code? If not, does CMS have any plans to integrate other code systems into its outpatient code system?

9. Is the CMS or any other branch of the federal government considering any agreement with the AMA concerning updates or expansions of the CPT code? If so, what are the terms of the agreement and what is the proposed arrangement regarding the proprietary ownership of the copyright in the CPT update or expansion?

I thank you for your attention to this matter and hope that a response can be provided by August 20, in time to prepare for our deliberations on reforming and modernizing the Medicare system in the Finance Committee sometime in September when Congress returns from the August recess.

Sincerely yours,

Trent Lott

cc: The Honorable Thomas A. Scully
The Honorable Chuck Grassley
The Honorable Max Baucus