Peer Review Organization Reform Act of 1987

Peer Review Organization Reform Act of 1987 - Directs the Secretary of Health and Human Services to report to the Congress, within one year of this Act's enactment, on improved procedures for imposing sanctions against Medicare (title XVIII of the Social Security Act) providers which furnish items or services which are not medically necessary or do not meet professionally recognized health care standards.

Amends part B (Peer Review) of title XI of the Social Security Act to require peer review organizations (PROs) to give providers whose services are denied Medicare coverage an opportunity for discussion and review of the determination before patients and organizations responsible for paying claims are notified of such determination.

Amends the Medicare program to require that the Secretary's budget separately state the amount of budget authority for inpatient hospital services and the amount of budget authority for the PRO program. (Currently, PRO costs are included as costs incurred by hospitals in providing inpatient hospital services.)

Amends part B of title XI of the Act to require the Secretary to publish in the Federal Register: (1) any new policy or procedure affecting PRO performance of contract obligations within 45 days prior to the effective date of such policy or procedure; and (2) the general criteria and standards used in evaluating PRO performance of contract obligations. Directs the Secretary to: (1) regularly furnish each PRO with a report that documents its performance in relation to other PROs; and (2) negotiate necessary contractual modifications with PROs before requiring them to perform additional functions. Provides that the Secretary's contracts with PRO shall be renewable for a two-year period and for three-year periods thereafter.

Requires the Secretary to give preference to contract with PROs which have their primary place of business in the State in which review will be conducted when choosing from among proposed contracts for peer review.

Requires a PRO to perform 50 percent of its review activities each year on the sites where items or services are provided, including on-site review of each hospital in its area. Includes within PRO review the determination as to whether individuals enrolled with a health maintenance organization (HMO) have adequate access to services provided by or through such HMO. Requires a PRO to: (1) apprise HMO enrollees regarding the peer review system and the method of contacting the PRO; (2) conduct several educational sessions each year at hospitals to acquaint providers and hospital personnel with the criteria the PRO uses in making its determinations; (3) make arrangements for the initial review of psychiatric and physical rehabilitation services to be made by a physician who is trained in psychiatry or physiatry; and (4) consider, in developing norms of care, the special problems associated with delivering care in remote rural areas, the availability of service alternatives to inpatient hospitalization and social factors affecting the safety and efficacy of service delivery.

Directs the Secretary to establish a Quality of Care Research and Education Center to enhance the performance of PROs.