[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
MEDICARE BALANCED BUDGET ACT REFINEMENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
OCTOBER 1, 1999
__________
Serial 106-66
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
65-699 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC
20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of September 24, 1999, announcing the hearing........... 2
WITNESSES
Health Care Financing Administration, Michael Hash, Deputy
Administrator.................................................. 9
Medicare Payment Advisory Commission, Hon. Gail R. Wilensky,
Ph.D., Chair................................................... 49
U.S. General Accounting Office, William J. Scanlon, Ph.D.,
Director, Health Financing and Public Health Issues............ 58
______
American Association of Health Plans, and Group Health
Cooperative of Puget Sound, Maribeth Capeloto.................. 103
American Health Care Association, and Legacy Health Care, Blaine
Hendrickson.................................................... 112
American Hospital Association, and Providence Hospital, Sister
Carol Keehan................................................... 87
American Medical Association House of Delegates, Richard F.
Corlin......................................................... 95
American Speech-Language-Hearing Association, and Swigert and
Associates, Nancy B. Swigert................................... 124
Visiting Nurse Associations of America, and Visiting Nurse
Association of the Midlands, Pamela Bataillon.................. 119
SUBMISSIONS FOR THE RECORD
American Academy of Family Physicians, statement................. 132
American Association of Diabetes Educators, Chicago, IL, David S.
Holtzman, letter............................................... 134
American Association of Homes and Services for the Aging, Len
Fishman, statement............................................. 136
American Clinical Laboratory Association, statement.............. 141
American College of Physicians-American Society of Internal
Medicine, statement............................................ 143
American Medical Group Association, Alexandria, VA, statement and
attachments.................................................... 148
American Medical Rehabilitation Providers Association, Englewood,
CO, Dennis O'Malley, statement................................. 152
American Nurses Association, statement........................... 155
American Osteopathic Association, statement and attachments...... 156
American Physical Therapy Association, Alexandria, VA, statement. 157
American Society for Gastrointestinal Endoscopy, Manchester, MA,
statement...................................................... 164
Association of American Medical Colleges, statement and
attachments.................................................... 168
Association of Community Cancer Centers, Rockville, MD, statement 178
Boulter, Beau, United Seniors Association, Fairfax, VA, joint
letter and attachment (see listing for Seniors Coalition)...... 215
Center for Patient Advocacy, McLean, VA, statement............... 180
Christian Senior Alliance, Robert C. Conover, joint letter and
attachment (see listing for Seniors Coalition)................. 215
Council for Affordable Health Insurance, Alexandria, VA, Nona
Bear Wegner, joint letter and attachment (see listing for
Seniors Coalition)............................................. 215
Elderplan, Inc., Brooklyn, NY, SCAN, Long Beach, CA, and Sierra
Health Services/Health Plan of Nevada, Las Vegas, NV, joint
statement and attachments...................................... 181
Exact Laboratories, Inc., Maynard, MA, Stanley N. Lapidus,
statement...................................................... 186
Fishmen, Len, American Association for Homes and Services for the
Aging, statement............................................... 136
Holtzman, David S., American Association of Diabetes Educators,
Chicago, IL, letter............................................ 134
Home Health Services & Staffing Association, statement........... 188
House Rural Health Care Coalition, et al, joint statement and
attachment..................................................... 191
Lapidus, Stanley N., Exact Laboratories, Inc., Maynard, MA,
statement...................................................... 186
Martin, Jim, 60 Plus Association, Inc., Arlington, VA, joint
letter and attachment (see listing for Seniors Coalition)...... 215
Mayo Foundation, Rochester, MN, Michael B. Wood, letter
(forwarded by the Hon. Gil Gutknecht, a Representative in
Congress from the State of Minnesota).......................... 195
Medical Device Manufacturers Association, statement.............. 196
Murray, Major General Richard D., National Association for
Uniformed Services, Springfield, VA, joint letter and
attachment (see listing for Seniors Coalition)................. 215
National Association for Home Care, statement.................... 197
National Association for Uniformed Services, Springfield, VA,
Major General Richard D. Murray, joint letter and attachment
(see listing for Seniors Coalition)............................ 215
National Association of Psychiatric Health Systems, statement.... 202
National Grange, Kermit N. Richardson, joint letter and
attachment (see listing for Seniors Coalition)................. 215
National Rural Health Association, statement..................... 203
O'Malley, Dennis, American Medical Rehabilitation Providers
Association, Englewood, CO, statement.......................... 152
Organizations of Academic Family Medicine, statement............. 209
Powell, John J., Seniors Coalition, Fairfax, VA, joint letter and
attachment (see listing for Seniors Coalition)................. 215
Richardson, Kermit N., National Grange, joint letter and
attachment (see listing for Seniors Coalition)................. 215
Riley, Hon. Bob, a Representatives in Congress from the State of
Alabama, letter and attachment................................. 211
SCAN, Long Beach, CA, joint statement and attachments (see
listing for Elderplan, Inc.)................................... 181
Seniors Coalition, Fairfax, VA, John J. Powell; Council for
Affordable Health Insurance, Alexandria, VA, Nona Bear Wegner;
Christian Senior Alliance, Robert C. Conover; 60 Plus
Association, Inc., Arlington, VA, Jim Martin; National
Association for Uniformed Services, Springfield, VA, Major
General Richard D. Murray; TREA Senior Citizens, League,
Alexandria, VA, Mike Zabco; United Seniors Association,
Fairfax, VA, Beau Boulter; and National Grange, Kermit N.
Richardson, joint letter and attachment........................ 215
Sierra Health Services/Health Plan of Nevada, joint statement and
attachments (see listing for Elderplan, Inc.).................. 181
60 Plus Association, Inc., Arlington, VA, Jim Martin, joint
letter and attachment (see listing for Seniors Coalition)...... 215
TREA Senior Citizens League, Alexandria, VA, Mike Zabco, joint
letter and attachment (see listing for Seniors Coalition)...... 215
United Seniors Association, Fairfax, VA, Beau Boulter, joint
letter and attachment (see listing for Seniors Coalition)...... 215
Wegner, Nona Bear, Council for Affordable Health Insurance,
Alexandria, VA, joint letter and attachment (see listing for
Seniors Coalition)............................................. 215
Wood, Michael B., Mayo Foundation, Rochester, MN, letter
(forwarded by the Hon. Gil Gutknecht, a Representative in
Congress from the State of Minnesota).......................... 195
Zabco, Mike, TREA Senior Citizens League, Alexandria, VA, joint
letter and attachment (see listing for Seniors Coalition)...... 215
MEDICARE BALANCED BUDGET ACT REFINEMENTS
----------
FRIDAY, OCTOBER 1, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:05 a.m., in
room 1100, Longworth House Office Building, Hon. Bill Thomas
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
September 24, 1999
No. HL-10
Thomas Announces Hearing on
Medicare Balanced Budget Act Refinements
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing on refinements to the Medicare provisions included
in the Balanced Budget Act of 1997 (P.L. 105-33). The hearing will take
place on Friday, October 1, 1999, in the main Committee hearing room,
1100 Longworth House Office Building, beginning at 10 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
The Medicare provisions in the Balanced Budget Act of 1997 (BBA)
contained more than 300 provisions related to the programs administered
by the Health Care Financing Administration (HCFA), and represented the
most extensive Medicare reforms since the enactment of the program in
1965. Among the positive changes were Medicare's expanded coverage of
preventive benefits, additional choices for seniors through the new
Medicare+Choice program, new tools to combat health care waste, fraud
and abuse, and many initiatives to modernize and strengthen Medicare's
fee-for-service payment systems. New payment methodologies were
established affecting virtually every segment of the health care
industry including managed care plans, hospitals, skilled nursing
facilities, and home health agencies.
In many cases, however, HCFA has missed deadlines for implementing
policies or developed policies in need of refinement. In addition,
meeting the year 2000 computer challenges has continued to create a
series of delays for HCFA in implementing the remaining major payment
systems and changes required by the BBA.
In announcing the hearing, Chairman Thomas stated: ``When this
landmark legislation was adopted in 1997, Congress relied on the data
and estimates available at the time, and expected the Administration to
provide us with the necessary monitoring and feedback on the operation
of these reforms. Not unexpectedly, with sweeping legislation that
makes major revisions in Medicare payment policies, some refinements
are needed. This refinement process should be a shared responsibility
between the Administration and Congress. Where changes can be made
through administrative action, the Administration should make them.
Where it is necessary to make legislative changes, Congress should
certainly do its part to make sure beneficiaries receive the health
care services they depend on.''
FOCUS OF THE HEARING:
The hearing will provide the opportunity to hear from the
Administration, Congressional advisory bodies, and providers about the
implementation, impact, and proposed refinements to BBA policies.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Friday,
October 15, 1999, to A.L. Singleton, Chief of Staff, Committee on Ways
and Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Health office, room 1136 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1
format, typed in single space and may not exceed a total of 10 pages
including attachments. Witnesses are advised that the Committee will
rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the Members, the press
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at `HTTP://WWW.HOUSE.GOV/WAYS__MEANS/'.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman Thomas. Good morning. A little over 2 years ago,
the Congress and the Administration reached agreement on the
most extensive changes to the Medicare program since its
inception in 1965. Among the improvements were Medicare's
expanded coverage of preventative benefits, additional choices
for seniors through the new Medicare+Choice program, new tools
to combat healthcare waste, fraud, and abuse and initiatives to
modernize the future of the fee-for-service portion of the
program.
When we crafted this legislation, Congress relied on the
data in the estimates available at the time. We expected the
administration to provide us with the necessary monitoring and
feedback on the operation of these reforms and the measuring
tools that were to be provided. Since August 1997, the
administration has implemented many of the more than 300
changes to the Medicare program. In some cases, however, the
Health Care Financing Administration has missed deadlines for
implementation or has developed policies, but some of those
policies we now are coming to realize lack the necessary
refinement.
In addition, their stated Year 2000 computer problem has
produced a series of delays for HCFA in implementing the
remaining major payment systems and changes that we agreed upon
in the Balanced Budget Act. Not surprisingly, when legislation
makes sweeping changes in payment policy, we need to go back
and make corrections and refinements.
Today we are going to explore the impact to date of the
Balanced Budget Act on health care providers and, ultimately,
beneficiaries in an attempt to identify any refinements that
need to be made to the Balanced Budget Act so that seniors
continue to receive the highest quality health care and
taxpayers get value for their tax dollars.
The goal of this hearing is to examine reforms, not repeal
of the landmark Balanced Budget Act of 1997. The adjustment and
refinement process should be, in my opinion, a shared
responsibility between the administration and Congress. After
all, both Congress and the President worked together to enact
this historic legislation. It is only right that we now work
together to perfect, to refine it and modify it. Where changes
can be made through administrative action, we would hope that
the administration would make them. Where it is necessary to
make legislative changes, then Congress should certainly do its
part.
This morning I am anxious to hear what steps the Health
Care Financing Administration specifically has in mind to
address those Medicare payment areas where they can act
administratively. Today, I want to hear what the administration
can do, and probably more importantly, what it is willing to
do. Hopefully, they are one and the same so that we can ensure
a vibrant health care system for all of our Medicare
beneficiaries. Clearly, our Nation's seniors should get no
less.
This morning we have witnesses from the administration, our
policy experts from the Medicare Payment Advisory Commission,
the General Accounting Office, and we will hear from a group of
providers who wish to discuss from their particular point of
view the Balanced Budget Act and how it has had an impact on
their particular area of the health care delivery service to
seniors. I look forward to a full and spirited exchange on
suggested refinements. And prior to that, I would call on my
colleague from California, the Ranking Minority Member, Mr.
Stark.
Mr. Stark. Well, thank you, Mr. Chairman, thank you for
holding this hearing. You are quite correct, there is much to
be actually proud of in the Balanced Budget Act. It did away
with a lot of fraud, it extended the life of the medicare trust
fund to 2015 from 2001--the second longest extension of
solvency in the program's history--and it showed that HCFA (or
Medicare) could be a good purchaser.
Now, while it did a lot to stop unfettered growth in
certain areas, there are places--I think we all agree--where
there were excessive or unwise cuts. The $1,500 cap for
rehabilitation has resulted in patients' care being underpaid.
That is one of the problems I think we all agree need to be
fixed.
On the other hand, I think we have to be careful about
give-backs and not get panicked into trying to douse this
conflagration with buckets of money. Every dollar that we give
back raises the Part B premiums on seniors or reduces the
solvency of the trust fund. And unless we pay for the Part B
give-backs, we are dipping into the Social Security surplus. So
we just don't have a lot of funds available to us and we have
to be very careful to see that this package is paid for.
Over the next 30 years, as the Chair knows, we are going to
need to make a combination of providers' cuts, beneficiary
cuts, and/or increased taxes. There is no other way. So I hope
that we will be prepared as we go along in making our
corrections to the Balanced Budget Act to suggest how we
anticipate paying for them, either now or in the future.
Now, finally, we as legislators always have to get grumpy
with the executive, whether it is our executive or it is the
opposition's executive department. But a lot of Members today
are blaming HCFA for basically enforcing laws that we wrote.
And I don't think we can say, ``Hey, I wrote the law, but you
guys ignore it''. I think that we have to be willing to not
play Pontius Pilate and pretend that we had nothing to do with
this. I would like to go back to my old school of goose and
gander, what-is-sauce-for-one-is-sauce-for-the-other school of
politics, and say I too would like to hear from the
administration exactly what they intend to do and what they
recommend be done: No. 1, what they are going to do
administratively, what they think they can do? No. 2, what they
would like us to do in the way of making legislative changes?
But I would also ask the Chair if he would care to inform
us about the upcoming schedule. I understand we are going to
mark up something, sometime next week, and I wonder if the
Chair could give us some idea of when that is scheduled. The
rumors are coming that we are going to markup on Monday. When
we might expect to see what our part of the bargain is going to
be? If we get the administration to come up today with what
they want, when are we going to do our part and what are we
going to do? I yield to the Chair.
[The opening statements of the Hon. Fortney Pete Stark and
Hon. Jim Ramstad follow:]
Statement of Hon. Fortney Pete Stark, a Representative in Congress from
the State of California
Mr. Chairman: Thank you for holding this hearing. There is
much to be proud of in the Balanced Budget Act. It created new
prospective payment systems, fought fraud, and helped extend
the life of the Part A Trust Fund from 2001 to 2015--the second
longest extension of solvency in the program's history. The BBA
showed that Medicare could be a good buyer.
Pre-BBA, costs were clearly out of control and everyone was
saying ``what a terrible buyer Medicare is compared to the
private sector.'' Home health spending was going up $2 billion
a year, even though the number of Medicare beneficiaries was
fairly flat. CBO predicted that between 1996 and 2003, home
health spending would double from about $16 billion to about
$32 billion. Between 1994 and 1997, 883 new home health
agencies opened in the State of Texas alone--an 85% increase--
and those receiving home health care were getting an average of
134 visits, compared to a national average of 69 and 30 in the
State of Washington.
Same in nursing homes. Payments were going up $2 billion a
year, quadrupling from about $3 billion in 1990 to $12 billion
in 1997--and predicted to double to $24 billion by 2007.
These growth rates were simply unsustainable--especially
since we have not even begun to deal with the impact of the
retirement of the Baby Boomers.
We cannot return to those rates of inflation--and even with
the new, March, 1999 CBO baseline, Medicare spending will
double over the next ten years, although there will be little
growth in the number of beneficiaries.
As for hospitals, many of them are losing money on managed
care contracts and are asking Medicare to bail them out of bad
contracts. Is it Medicare and the taxpayers' job to make
hospitals whole on below cost private sector deals driven by
the excess bed capacity in most markets?
While BBA did much to stem unfettered growth in certain
sectors, there are places where the BBA made excessive or
unwise cuts. The $1500 cap on rehab comes to mind. Care for
some of the sickest SNF patients is underpaid. These problems
need to be fixed.
But we need to be careful about the give-backs. The GAO and
MedPAC will report that there is little hard evidence that the
sky is falling or that we should be panicked into dousing
providers with new buckets of money.
Every dollar we give back will raise Part B premiums on
seniors or reduce the solvency of the Part A Trust Fund. And
unless we pay for the Part B give-backs, we will hurt the
Social Security surplus, that we are all pledging not to spend.
In the next 30 years the number of people on Medicare will
double. To fund the program, we will need to make a combination
of provider cuts, beneficiary cuts, and increased taxes. There
is no other way. So, Mr. Chairman, as we proceed to ``give
back'' some of the BBA, we make meeting the future challenges
more difficult. Therefore, I hope the Members will be prepared
to suggest ways to pay for the future of the program.
Finally, as legislators, we are often grumpy when Executive
Branch agencies do not follow the laws we write. There are a
lot of Members blaming HCFA for enforcing the laws we have
written--and that's kind of strange: Members are saying ``I
didn't mean it; please ignore the law.'' If we don't like what
HCFA is doing, let's change the law, and be willing to pay for
it. But let's don't play Pontius Pilate and pretend we had
nothing to do with the BBA and extending the life of Medicare
Part A to 2015.
Statement of Hon. Jim Ramstad, a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing
to discuss changes to the Medicare provisions in the Balanced
Budget Act.
As I stated on the House floor on Wednesday, I am really
looking forward to this hearing today so that we might flush
out some of the problems currently facing Medicare providers
and beneficiaries.
As we all know, whenever you pass legislation of the
historic magnitude of the Balanced Budget Act, there are bound
to be unintended problems that will need to be addressed.
Certainly, any problematic situations that have arisen due to
the actual bill language we passed should be addressed with
new, better bill language.
But Mr. Chairman, complications that are a result of the
way in which the Administration has chosen to implement the
laws we passed should and must be fixed by the Administration.
I consider myself a reasonable Minnesotan, and I can
understand that HCFA may have trouble dealing with the massive
legislation we passed. But that really isn't the major concern
I have today. Today, I am frustrated with the way in which HCFA
bureaucrats are handling things--the way in which they
obfuscate the laws we pass and slough off responsibility on
Congress whenever they feel like it.
Mr. Chairman, I plan to ask HCFA some tough questions today
on behalf of all the Medicare beneficiaries in my State. I
don't want to hear excuses about ``prescriptive'' bill language
or evasive responses.
Thanks again, Mr. Chairman, for calling this important
hearing. I invite the Administration to join me and the Members
of this Subcommittee, for the sake of seniors across our great
nation, in seriously and responsibly addressing the concerns
and problems that are occurring in the Medicare program.
Chairman Thomas. I thank the gentleman. Operative word in
all of this is ``if.'' clearly, as I indicated in my opening
statement, that we went into this together, I think positively,
and we ought to continue to work together. What the
administration can do means it is something that Congress
doesn't have to do. There may be a difference between what the
administration can do and what the administration will do. To
the degree that they believe that there is any statutory
provision which is unclear and which they wish clarified in
terms of their responsibilities, I think it is also incumbent
upon us to perhaps indicate that we think they have the
ability, that congressional intent can be conveyed so they
could again make adjustments.
One of the key abilities that the administration would have
would be to soften the impact of some policies which in the
abstract we believe to be appropriate, but perhaps the time
lines are not appropriate, and you could stretch out some time
lines, you could make some adjustments. You could take some
payments that would otherwise be removal of money from a
particular area and create a budget-neutral payment structure.
I believe the administration in their testimony will
indicate that they believe they can do in this particular
areas. We probably believe they can do it in more areas than
they indicate, and where we need to clarify that we would
clarify it.
Let me explain to the gentleman and others what I consider
to be our basic rules in approaching what are to be adjustments
in the Balanced Budget Act of 1997. So when you say
adjustments, what we really mean are refinements, not repeal. I
am frankly interested in our MedPAC testimony and our GAO
testimony which continues, as did the Inspector General of the
General Accounting Office last week in essence, to pat us on
the back for sticking to the program that we think as we make
these refinements is a significant improvement over the old
Medicare system. So we are not looking for repeals, we are
looking for refinements.
In addition to that, although anecdotes are useful to
illustrate some difficulties in particular areas, data is much
better. We do think if you are going to get adjustments in
particular areas you need to show costs, that there is a need.
Pleading this probably isn't sufficient for us to make
adjustments.
And then finally, we do need to look at this in terms of
the immediacy of some of the changes that are necessary. A lot
of times Congress looks at 5-year windows, the Senate and the
administration sometimes looks at 10-year windows. I am more
concerned with the impact over the next 6 to 9 to 12 months
than I am over some indication that there may be an adjustment
in the 2003, 2004 outyear period. So time lines that matter, I
think, are critical as we make refinements; not repealing BBA
1997 based upon showing cost. Those will be the kinds of
principles that we will be operating on.
I will tell the gentleman that I have asked the
Congressional Budget Office to ``score,'' as we say, a number
of adjustments. There have been no lack of suggestions from
this room and beyond as to changes that might be made. It is no
secret, not difficult to compile a list of suggested changes.
We are trying to get dollar amounts as best we are able and
impact circumstances for those. We then kind of lay them out
and look at what appears to be those changes that fit the
criteria here, principles that I outlined.
I know that time is short. But the longer we have waited,
the better information we have available, the better decision
that we can make. The dollar amounts that the Congress would be
responsible for will be in large part based upon the
administrative adjustments the administration believes it can
make. As we look at the burden between the both of us, I think
we can make some useful and significant changes without a
significant burden on the Congress in terms of actual dollars.
Let me also say to the gentleman that he mentioned the
Social Security fund, or dipping into it. It seems to me that
most people and the congressional statements that have been
passed in regard to retirement security mentioned both Social
Security and Medicare. I think most people believe that in
making adjustments to these long-term security interests of
seniors, that if it is necessary to spend some money in the
adjustments of the Balanced Budget Act of 1997 in the area of
Medicare, utilizing surplus monies for retirement security has
a higher calling than most of the other demands that we have
heard recently on those funds. That will be a decision that we
will perhaps face. Our hope is that we would not have to face
that decision, but it ought to be laid on the table at this
time.
Mr. Kleczka. Will the Chairman yield further?
Chairman Thomas. Very briefly.
Mr. Kleczka. The question from Mr. Stark was whether or not
we were going to have a markup on some type of refinement bill
next week.
Chairman Thomas. I indicated I am waiting for the
Congressional Budget Office to supply us with some numbers so
we can actually have a decision matrix in front of us. I am not
interested in making decisions on anecdotes; I am interested in
making decisions on data. I cannot tell you when the markup
will be because the Congressional Budget Office hasn't given me
the information yet. I would have preferred to have done it
last week, I would have preferred to do it this week, I prefer
to do it next week.
Mr. Kleczka. Is there a dollar amount that the House is
working under or--the administration is talking about a $7
billion refinement; the Senate's Minority talk about 20. Do we
have some type of a ballpark figure?
Chairman Thomas. I would tell the gentleman the
administration's number, as I understand it, is $7\1/2\ billion
over 10 years. The Minority leader, since he isn't responsible
for any of that, 20 billion over 5. I would tell the gentleman
that somewhere between those two numbers is an appropriate
amount and we will arrive at that in due time.
Mr. Kleczka. Super. Thank you.
Chairman Thomas. I thank the gentleman. As is usually the
case, if any member has written testimony, it will be made a
part of the record.
And with that, Mr. Hash, the Acting Administrator of the
Health Care Financing Administration, at the request of both
the Chairman and the Ranking Member, and your testimony--if at
all possible you could outline for us what the administration
can do and what the administration will do, your written
testimony will be made a part of the record. You may address us
in any way you see fit in the time you have.
STATEMENT OF HON. MICHAEL HASH, DEPUTY ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION
Mr. Hash. Thank you, Mr. Chairman. Chairman Thomas,
Congressman Stark and other distinguished members of the Health
Subcommittee, we want to thank you for inviting us today to
discuss refinements to the Balanced Budget Act. The BBA reforms
are critical to strengthening and protecting Medicare for the
future. The Medicare Trust Fund, which was projected to be
insolvent by 1999 when President Clinton took office in 1993,
is now projected to be solvent through 2015.
It is clear that the BBA is succeeding in promoting
efficiency and slowing the growth of Medicare expenditures and
extending the life of the Medicare Trust Fund. We view that
when we worked to develop the BBA, that we were partners with
you, Mr. Chairman, and the rest of the committee. And as we
observe any unintended consequences that require changes to the
BBA, we want to call on and work together with you as partners.
We believe that it is important to recognize that the BBA
is only one factor contributing to changes in Medicare
spending. The Congressional Budget Office and our own actuaries
have stated that substantial strides in fighting fraud, waste,
and abuse in the Medicare program have reduced significantly
the growth in outlays. In addition, low inflation from a strong
economy is having an effect on Medicare spending rates. And
slower claims processing during the transition to new payment
systems is contributing to what we believe is a temporary
slowdown in spending.
We are concerned about reports of the financial condition
of some providers. But it is essential, I think, as we look at
these reports to distinguish the BBA's impact from the effects
of things like excess capacity in the system, discounted rates
to other payers, aggressive competition in the health care
system, in some cases imprudent business decisions and other
factors not caused by the BBA.
And it is essential that we focus the impact on
beneficiaries, ensuring that they continue to enjoy access to
high-quality health care services.
Changes of the magnitude included in the Balanced Budget
Act always require adjustments. We have been proactively
monitoring the impact of the BBA on beneficiaries to determine
what changes may need to be made to ensure continued access to
high-quality services. Thus far, our monitoring reveals
evidence of isolated but significant problems. Although our
analysis is not yet complete, we are concerned, for example,
that some beneficiaries are not getting necessary care because
of the Balanced Budget Act's $1,500 annual caps on certain
rehabilitation therapeutic services.
We will continue working with beneficiaries, providers, the
Congress, and other interested parties to closely monitor the
performance of providers to evaluate the evidence of problems
and access to quality care and to develop appropriate and
fiscally responsible solutions.
Because of our concerns, as many of you know, the
President's comprehensive Medicare reform plan sets aside a
quality assurance fund of $7.5 billion over the next 10 years
to smooth out the implementation of the Balanced budget payment
reforms that may be adversely affecting beneficiary access to
quality care. We would like to work with the Congress to make
appropriate adjustments where there is evidence that
adjustments are needed. The President's plan also includes
administrative actions to assure a smooth implementation
process that we have already taken, or that we are considering
currently, in the context of pending rules.
We are working with Congress to identify appropriate and
prudent legislative solutions. We are also taking several
initiatives in our administrative discretion to help hospitals
and home health agencies and other providers adjust to the
changes in the BBA. For example, we are delaying the extension
of hospital inpatient transfer policies to other diagnoses for
a 2-year period.
We are considering, in the context of our rule on the
outpatient hospital PPS system, delaying the volume control
mechanism for the first few years of the new outpatient
protective payment system. We are also considering a 3-year
transition to the new hospital outpatient payment system by
making budget-neutral adjustments to increase payments to
hospitals that would otherwise receive large reductions, such
as low-volume rural and urban hospitals, teaching hospitals,
and cancer hospitals.
We are proposing to use the same wage index for calculating
hospital outpatient PPS payments that is used for the inpatient
protective payment system. And finally we are trying to make it
easier for rural hospitals whose patients now are based on
lower rural average wages to be reclassified and receive
payments based on higher average wages in nearby urban areas
and thus receive higher PPS payments.
To help home health agencies, we are increasing the time
for repayment of overpayments related to the interim payment
system from 1 year to 3 years, with 1 year interest free. We
are also following the recommendations of the General
Accounting Office by requiring all home health agencies to
obtain surety bonds of only $50,000, not 15 percent of their
annual Medicare revenues as was proposed earlier.
We have eliminated the sequential billing requirement that
many home health agencies indicated was contributing to cash
flow problems, and we are phasing in our instructions to
implement the requirement for home health agencies to report
their services in 15-minute increments. We are also phasing in
risk-adjustment for Medicare+Choice plans. And we have made
several other refinements to the Medicare+Choice regulations
that strengthen protections for beneficiaries while making it
easier for plans to participate. We are actively looking to see
where we might be able to make additional accommodations to
help plans and providers adjust to the BBA.
Let me say again, Mr. Chairman, that when we worked to
develop the BBA, we viewed ourselves as partners with you and
this committee. As issues arise that need to be addressed, we
want to work together with you again as partners and we look
forward to going forward to that task together.
I thank you for inviting us today and for holding this
hearing. I would be happy to respond to questions that you or
other Members of the Subcommittee may have. Thank you.
Chairman Thomas. Thank you very much, Mike. I appreciate
the spirit with which we are approaching this effort. I hope it
remains through the entire process.
[The prepared statement follows:]
Statement of Hon. Michael Hash, Deputy Administrator, Health Care
Financing Administration
Chairman Thomas, Congressman Stark, distinguished
Subcommittee Members, thank you for inviting us to discuss
refinements to the Balanced Budget Act. The BBA includes
important new preventive benefits and payment system reforms
that promote access, efficiency, and prudent use of taxpayer
dollars. These reforms are critical to strengthening and
protecting Medicare for the future. The Medicare Trust Fund,
which was projected to be insolvent by 1999 when President
Clinton took office, is now projected to be solvent until 2015.
The BBA made substantial changes to the way Medicare
reimburses providers in the fee-for-service program by:
modifying inpatient hospital payment rules;
establishing a prospective per diem payment system
for skilled nursing facilities to encourage facilities to
provide care that is both efficient and appropriate;
refining the physician payment system to more
accurately reflect practice expenses;
initiating development of prospective payment
systems for home health agencies, outpatient hospital care, and
rehabilitation hospitals that will be implemented once the Year
2000 computer challenge has been addressed; and,
authorizing an important test of whether market
competition can help Medicare and its beneficiaries save money
on durable medical equipment and supplies.
And the BBA created the Medicare+Choice program, which
allows private plans to offer beneficiaries a wide range of
options, similar to what is available in the private sector
today. It has initiated a new beneficiary education campaign to
inform beneficiaries about these options. It includes important
new protections for patients and providers, as well as
statutory requirements for quality assessment and improvement.
And it initiates a transition to risk adjustment, which will
make the payment system fairer and more accurate.
We have fully implemented the majority of the BBA's more
than 300 provisions affecting our programs and made substantial
progress on the remainder. While the statute generally
prescribes in detail the changes we are required to make, we
are committed to exercising the maximum flexibility within our
limited discretion in the implementation of these provisions.
It is clear that the BBA is succeeding in promoting
efficiency, slowing growth of Medicare expenditures, and
extending the life of the Medicare Trust Fund. However,
according to both the HCFA actuaries and the Congressional
Budget Office (CBO), the BBA is only one factor contributing to
changes in Medicare spending. We have made substantial strides
in fighting fraud, waste and abuse that have significantly
decreased improper payments. For the first time ever, the
hospital case mix index declined last year due to efforts to
stop ``upcoding,'' or billing for more serious diagnoses than
patients actually have. Low inflation from a strong economy is
having an impact on total spending. And slower claims
processing during the transition to new payment systems is
contributing to a temporary slow-down in spending. Backlogged
claims are expected to be paid by fiscal 2000.
Change of this magnitude always requires adjustment. It is
not surprising that some market corrections would result from
such significant legislation. We are proactively monitoring the
impact of the BBA to ensure that beneficiary access to covered
services is not compromised. We are evaluating this information
to assess the impact of BBA changes on beneficiaries and to
determine what changes may need to be made to ensure continued
access to quality care.
It is important to note that the BBA is only one factor
contributing to challenges providers face in the rapidly
evolving health care market place. Efforts to pay correctly and
promote efficiency may mean that Medicare no longer makes up
for losses or inefficiencies elsewhere. We are concerned about
reports on the financial conditions of some individual and
chain providers. But it is essential that we try to delineate
the BBA's impact from the effects of excess capacity,
discounted rates to other payers, aggressive competition,
imprudent business decisions, and other factors not caused by
the BBA. And it is essential that we focus on the impact on
beneficiary access to high quality patient care.
Thus far, our monitoring reveals evidence of isolated but
significant problems. Although our analysis is not yet
complete, we are concerned, for example, that some
beneficiaries are not getting necessary care because of the
BBA's $1500 caps on certain outpatient rehabilitation
therapies. We will continue working with beneficiaries,
providers, Congress, and other interested parties to closely
monitor the situation, evaluate evidence of problems in access
to quality care, and develop appropriate, fiscally responsible
solutions.
Because of our concerns, the President's Medicare reform
plan sets aside $7.5 billion from fiscal 2000 to fiscal 2009 to
smooth out implementation of BBA payment reforms that may be
adversely affecting beneficiary access to quality care. We want
to work with the Congress to make appropriate adjustments where
there is evidence that adjustments are needed. The President's
reform plan also dedicates a portion of the budget surplus to
Medicare. This will help prevent excessive cuts in provider
payment that otherwise would be necessary in the future as
Medicare enrollment doubles over the next 30 years, since
increased efficiencies alone will not be able to cover the
increased costs.
The President's plan also includes administrative actions
to assure a smooth implementation process, and we are
continuing to explore other actions. Those already underway
address several key areas of concern:
Inpatient hospital transfers. The BBA requires the
Secretary to reduce payments to hospitals when they transfer
patients to another hospital or unit, skilled nursing facility
or home health agency for care that is supposed to be included
in acute care payment rates for ten diagnoses. It also
authorizes HCFA to extend this ``transfer policy'' to
additional diagnoses after October 1, 2000. To minimize the
impact on hospitals, we are delaying extension of the transfer
policy to additional diagnoses for two years.
Hospital outpatient payments. The BBA requires
Medicare to begin paying for hospital outpatient care under a
prospective payment system (PPS), similar to what is used to
pay for hospital inpatient care. This new system is schedule to
go into effect in July 2000. To help all hospitals with the
transition to outpatient prospective payment, we are
considering delaying a ``volume control mechanism'' for the
first few years of the new payment system. The law requires
Medicare to develop such a mechanism because prospective
payment includes incentives that can lead to unnecessary
increases in the volume of covered services. The proposed
prospective payment rule presented a variety of options for
controlling volume and solicited comments on these options.
Delaying their implementation would provide an adjustment
period for providers as they become accustomed to the new
system. We also are considering implementing a three-year
transition to this new PPS by making budget-neutral adjustments
to increase payments to hospitals that would otherwise receive
large payment reductions such as low-volume rural and urban
hospitals, teaching hospitals, and cancer hospitals. Without
these budget-neutral adjustments, these hospitals could
experience large reductions in payment under the outpatient
prospective payment system. And, to help hospitals under the
outpatient prospective payment system, we included a provision
in the proposed rule to use the same wage index for calculating
rates that is used to calculate inpatient prospective payment
rates. This index would take into account the effect of
hospital reclassifications and redesignations. For all of these
outpatient department reform options, the rulemaking process
precludes any definitive statement on administrative actions
until after the implementing rule is published.
Rural hospital reclassification. Hospital payments
are based in part on average wages where the hospital is
located. We are making it easier for rural hospitals whose
payments now are based on lower, rural area average wages to be
reclassified and receive payments based on higher average wages
in nearby urban areas and thus get higher reimbursement. Right
now, facilities can get such reclassifications if the wages
they pay their employees are at least 108 percent of average
wages in their rural area, and at least 84 percent of average
wages in a nearby urban area. We are changing those average
wage threshold percentages so more hospitals can be
reclassified.
Home health agencies. The BBA significantly
reformed payment and other rules for home health agencies. We
are taking several new steps to help agencies adapt to these
changes. We are increasing the time for repayment of
overpayments related to the interim payment system from one
year to three years, with one year interest free. Currently,
home health agencies are provided one year of interest free
extended repayment schedules. We are postponing the requirement
for surety bonds until October 1, 2000, when we will implement
the new home health prospective payment system. This will help
ensure that overpayments related to the interim payment system
will not be an obstacle to agencies obtaining surety bonds. We
also are following the recommendation of the General Accounting
Office (GAO) by requiring all agencies to obtain bonds of only
$50,000, not 15 percent of annual agency Medicare revenues as
was proposed earlier. We also have eliminated the sequential
billing rule that some agencies said was adversely affecting
cash flow. And we are phasing-in our instructions implementing
the requirement that home health agencies report their services
in 15-minute increments.
Monitoring Access
We are proactively monitoring the impact of the BBA to ensure that
beneficiary access to covered services is not compromised. We are
systematically gathering data from several sources to look for
objective information and evidence of the impact of BBA changes on
access to quality care. These data sources include:
beneficiary advocacy groups;
health plans and providers;
Area Agencies on Aging;
State Health Insurance Assistance Programs;
claims processing contractors;
State health officials; and
media reports.
We also are examining information from the Securities and Exchange
Commission and Wall Street analysts on leading publicly traded health
care corporations. This can help us understand trends and Medicare's
role in net income, revenues and expenses, as well as provide
indicators of liquidity and leverage, occupancy rates, states-of-
operation, continuing lines of business as well as those exited or sold
by the company, and other costs which may be related to discontinued
operations.
We are examining Census Bureau data, which allow us to gauge the
importance of Medicare in each health service industry, looking at
financial trends in revenue sources by major service sectors, and
tracking margin trends for tax-exempt providers.
We are monitoring the Bureau of Labor Statistics monthly employment
statistics for employment trends in different parts of the health care
industry. Such data show, for example, that the total number of hours
worked by employees of independent home health agencies is at about the
same level as in 1996. That provides a more useful indicator of actual
home health care usage after the BBA than statistics on the number of
agency closures and mergers. The data also show that nursing homes may
be slightly reducing the number of employees and the hours that they
work.
The HHS Inspector General's (IG) office has interviewed hospital
discharge planners and nursing home administrators about the BBA's
impact on patient care. The IG also has agreed to interview discharge
planners about access to home health care following BBA payment reforms
and the impact of the $1500 caps on outpatient therapy.
Specific BBA Provisions
Outpatient Rehabilitation Therapy. The BBA imposed $1500 caps on
the amount of outpatient rehabilitation therapy services that can be
reimbursed, except in hospital outpatient clinics. However, these caps
are not based on severity of illness or care needs, and they appear to
be insufficient to cover necessary care for many beneficiaries. We have
several industry-sponsored analyses from different sources of 1996
claims data indicated that approximately 12 to 13 percent of therapy
patients will exceed the caps. Beneficiary groups are reporting many
instances of problems with this cap, and we are very concerned about
their adverse impact, particularly on individuals in nursing homes. As
mentioned above, our IG colleagues have agreed to study this problem.
We are providing data to the Medicare Payment Advisory Commission so it
can analyze patterns of therapy service usage. And we will continue to
work with Congress and others to determine what adjustments to the cap
should be made.
Skilled Nursing Facilities. We implemented the new prospective
payment system (PPS) called for in the BBA on July 1, 1998. The old
payment system was based on actual costs, subject to certain limits,
and included no incentives to provide care efficiently. The new system
uses average prices adjusted for each patient's clinical condition and
care needs, as well as geographic variation in wages. It creates
incentives to provide care more efficiently by relating payments to
patient need, and enables Medicare to be a more prudent purchaser of
these services.
The BBA mandated a per diem PPS covering all routine, ancillary,
and capital costs related to covered services provided to beneficiaries
under Medicare Part A. The law requires use of 1995 costs as the base
year, and implementation by July 1, 1998 with a three-year transition
blending facility-specific costs and prospective rates. It did not
allow for exceptions to the transition, carving out of any service, or
creation of an outlier policy. We are carefully reviewing the
possibility of making budget neutral administrative changes to the PPS.
We held a town hall meeting earlier this year to hear a broad range
of skilled nursing facility concerns, and we continue to meet with
provider and beneficiary representatives. There are concerns that the
prospective payment system does not adequately reflect the costs of
non-therapy ancillaries such as drugs for high acuity patients. The
Inspector General found in its interviews of hospital discharge
planners and nursing home administrators that less than 1 percent of
nursing home administrators say the prospective payment system is
causing access to care problems. The proportion of beneficiaries
discharged to skilled nursing facilities is unchanged from 1998, and
hospital lengths of stay have not increased. However, about one in five
discharge planners say it takes more time to place Medicare patients in
nursing homes. The IG also found that both nursing home administrators
and hospital discharge planners say nursing facilities are requesting
more information before accepting patients. About half of the nursing
home administrators say they are less likely to accept patients
requiring expensive supplies or services such as ventilators or
expensive medications, about half also say they are more likely to
admit patients who require special rehabilitation services such as
physical therapy following joint replacement surgery.
We are therefore conducting research that will serve as the basis
for refinements to the resource utilization groups that we expect to
implement next year. We expect to have the research completed by the
end of the year and to then develop refinements that we will be able to
implement next October. Under the statute, we have the authority to
refine these groups and redistribute money across categories in a
budget neutral manner. We do not have discretion under the law to
increase the overall level of payments to skilled nursing facilities.
We fully expect that we will need to periodically evaluate the system
to ensure that it appropriately reflects changes in both care practice
and the Medicare population.
Home Health Agencies. The BBA closed loopholes that had invited
fraud, waste and abuse. For example, it stopped the practice of billing
for care delivered in low cost, rural areas from urban offices at high
urban-area rates. It tightened eligibility rules so patients who only
need blood drawn no longer qualify for the entire range of home health
services. And it created an interim payment system to be used while we
develop a prospective payment system. We expect to publish a proposed
regulation this fall and to have the prospective payment system in
place by the October 1, 2000 statutory deadline.
The interim payment system is a first step toward giving home
health agencies incentives to provide care efficiently. Before the BBA,
reimbursement was based on the costs they incurred in providing care,
subject to a per visit limit, and this encouraged agencies to provide
more visits and to increase costs up to the limits. The interim system
includes a new, aggregate per beneficiary limit designed to provide
incentives for efficiency that will be continued under the episode-
based prospective payment system. Last year Congress increased the cost
limits in an effort to help agencies during the transition to
prospective payment. We are also taking the steps discussed above to
help agencies adjust to these changes, and in March we held a town hall
meeting to hear directly from home health providers about their
concerns.
To date, evaluations by the GAO and HHS have not found that BBA
changes are causing significant quality or access problems. Our
monitoring of employment data shows that free standing home health
agencies have made small reductions in their workforce, back to the
level seen in 1996. However, we have heard reports from beneficiary
groups, our regional offices, and others regarding home health agencies
that have inappropriately denied or curtailed care, and incorrectly
told beneficiaries that they are not eligible for services. We are also
hearing reports from beneficiary advocates and others that some high
cost patients are having trouble finding home health agencies to
provide the care they need. This may result from a misunderstanding of
the new incentives to provide care efficiently, or from efforts to
``cherry pick'' low cost patients and game the system. The CBO
attributes some of the lower health spending to the fact that agencies
are incorrectly treating the new aggregate per beneficiary limit as
though it applies to each individual patient.
We have therefore provided home health agencies with guidance on
the new incentives and their obligation to serve all beneficiaries
equitably. We have instructed our claims processing contractors to work
with agencies to further help them understand how the limits work. And,
because home health beneficiaries are among the most vulnerable, we are
continuing ongoing detailed monitoring of beneficiary access and agency
closures.
Hospitals. We have implemented the bulk of the inpatient hospital-
related changes included in the BBA in updated regulations. We have
implemented substantial refinements to hospital Graduate Medical
Education payments and policy to encourage training of primary care
physicians, promote training in ambulatory and managed care settings
where beneficiaries are receiving more and more services, curtail
increases in the number of residents, and slow the rate of increase in
spending. We have implemented provisions designed to strengthen rural
health care systems. We have carved out graduate medical education
payments from payments to managed care plans and instead are paying
them directly to teaching hospitals (and are proposing in the
President's Medicare reform plan to similarly carve out
disproportionate share hospital payments).
We expect to implement the prospective payment system for
outpatient care next year. The outpatient prospective payment system
will include a gradual correction to the old payment system in which
beneficiaries were paying their 20 percent copayment based on hospital
charges, rather than on Medicare payment rates. Regrettably,
implementation of the prospective payment system as originally
scheduled would have required numerous complex systems changes that
would have substantially jeopardized our Year 2000 efforts. We are
working to implement this system as quickly as the Year 2000 challenge
allows. We issued a Notice of Proposed Rule Making in September 1998
outlining plans for the new system so that hospitals and others can
begin providing comments and suggestions. We are actively reviewing all
of the comments from the industry and other interested parties that we
received during the comment period, which we extended until July 30. We
are focusing most of our continuing work on rural, inner city, cancer,
and teaching hospitals because our analysis suggests that the
outpatient prospective payment system will have a disproportionate
impact on these facilities. And we are continuing to develop
modifications to the system for inclusion in the final rule.
The hospital industry has submitted data projecting significant
decreases in total Medicare margins. Our actuaries believe the
methodology used to develop these projections understates base year
total margins by approximately 7 percent. And, according to the
Medicare Payment Advisory Commission (MedPAC), Medicare costs per case
have declined for an unprecedented fifth year in a row. However, MedPAC
also notes that while rural hospitals have generally posted healthy
margins, many small rural hospitals appear to be in especially poor
financial condition.
We continue to hear reports of financial distress, and we
understand the challenge hospitals are facing in today's changing
health care marketplace. We are reviewing the data as it comes in, and
we will continue to monitor this situation closely.
Physicians. As directed by the BBA, we are on track in implementing
the resource-based system for practice expenses under the physician fee
schedule, with a transition to full implementation by 2002 in a budget-
neutral fashion that will raise payment for some physicians and lower
it for others. The methodology we used addresses many concerns raised
by physicians and meets the BBA requirements. We fully expect to update
and refine the practice expense relative value units in our annual
regulations revising the Medicare fee schedule. We included the BBA-
mandated resource-based system for malpractice relative value units in
this year's proposed rule. We welcome and encourage the ongoing
contributions of the medical community to this process, and we will
continue to monitor beneficiary access to care and utilization of
services as the new system is fully implemented.
The President's fiscal 2000 budget contains a legislative proposal
for a budget-neutral technical fix to ensure the BBA's sustainable
growth rate (SGR) for physician payment is stable. Medicare payments
for physician services are annually updated for inflation and adjusted
by comparing actual physician spending to a national target for
physician spending. The BBA replaced the former physician spending
target rate of growth, the Medicare Volume Performance Standard, with
the SGR. The SGR takes into account price changes, fee-for-service
enrollment changes, real gross domestic product per capita, and changes
in law or regulation affecting the baseline. After BBA was enacted,
HCFA actuaries discovered that the SGR system would result in
unreasonable year-to-year fluctuations. Also, the SGR target cannot be
revised to account for new data. The President's budget proposal
addresses both of these concerns.
Medicare+Choice. Successfully implementing this program is a high
priority for us. Medicare managed care enrollment has tripled under the
Clinton Administration, and there are now 6.48 million beneficiaries
enrolled in Medicare+Choice plans. We meet regularly with beneficiary
advocates, industry representatives, and others to discuss ways to
improve the program. We launched a national education campaign and
participated in more than 1,000 events around the country to help
beneficiaries understand it. And we are establishing a federal advisory
committee to help us better inform beneficiaries.
We have taken steps to assist plans and encourage plan
participation in Medicare+Choice. We worked with Congress to give plans
two more months to file the information used to approve benefit and
premium structures so plans were able to use more current experience
when designing benefit packages and setting cost sharing levels. We
also published refinements to Medicare+Choice regulation that improve
beneficiary protections and access to information while making it
easier for health plans to offer more options. The new rule:
clarifies that beneficiaries in a plan that leaves the
program are entitled to enroll in remaining locally available plans;
specifies that changes in plan rules must be made by
October 15 so beneficiaries have information they need to make an
informed choice during the November open enrollment;
allows plans to choose how to conduct the initial health
assessment;
waives the mandatory health assessment within 90 days of
enrollment for commercial enrollees who choose the same insurer's
Medicare+Choice plan when they turn 65, and for enrollees who keep the
same primary care provider when switching plans;
stipulates that the coordination of care function can be
performed by a range of qualified health care professionals, and is not
limited to primary care providers;
limits the applicability of provider participation
requirements to physicians; and,
allows plans to terminate specialists with the same
process for terminating other providers.
We intend to publish a comprehensive final rule with further
refinements this fall.
We have also undertaken a comprehensive beneficiary education
program. We launched the National Medicare Education Program to make
sure beneficiaries receive accurate, unbiased information about their
benefits, rights, and options. The campaign includes:
mailing a Medicare & You handbook to explain health plan
options;
a toll-free ``1-800-MEDICARE'' [1-800-633-4227] call
center with live operators to answer questions, and provide detailed
plan-level information;
a consumer-friendly Internet site, www.medicare.gov, which
includes comparisons of benefits, costs, quality, and satisfaction
ratings for plans available in each zip code;
working with more than 120 national aging, consumer,
provider, employer, union, and other organizations who help disseminate
information to their constituencies;
beneficiary counseling from State Health Insurance
Assistance Programs;
a national publicity campaign;
a Regional Education About Choices in Healthcare (REACH)
campaign that will conduct State and local outreach activities
nationwide; and,
a comprehensive assessment of these efforts.
We tested the system in five States in 1998 and learned how to
improve efforts for this November's open enrollment period. For
example, we have made the Medicare & You handbook easier to use and
improve the accuracy of information about plans that are withdrawing.
We have added new links on our Medicare Compare website at
www.medicare.gov to help users find information faster. We are
standardizing plan marketing materials that summarize benefits so
beneficiaries can more easily make apples-to-apples comparisons among
plans in this November's open enrollment period. And we have added
information on managed care plan withdrawals to the Important Notes
section of the 1999 plan information on our Medicare Compare website.
To help us continually improve our education efforts, we are
establishing the Citizens' Advisory Panel on Medicare Education, under
the Federal Advisory Committee Act. The panel will help enhance our
effectiveness in informing beneficiaries through use of public-private
partnerships, expand outreach to vulnerable and underserved
communities, and assemble an information base of ``best practices'' for
helping beneficiaries evaluate plan options and strengthening community
assistance infrastructure. Panel members will include representatives
from the general public, older Americans, specific disease and
disability groups, minority communities, health communicators,
researchers, plans, providers, and other groups.
The BBA also initiated important payment reforms that begin to
correct for historical overpayment. It established a competitive
pricing demonstration in which plan payment rates will be set through a
bidding process, similar to what most employers and unions use to
decide how much to pay plans. And, starting in January, the BBA
mandates that we ``risk adjust'' payments to account for the health
status of each enrollee. Studies by the Congressional Budget Office,
Physician Payment Review Commission, and many others have shown that we
overpay plans in part because Medicare fails to adjust payments for the
health of enrollees.
That is why risk adjustment cannot be budget neutral. The vast
majority of beneficiaries enrolled in Medicare+Choice cost far less
than what Medicare pays plans for each enrollee. Budget neutral risk
adjustment would mean Medicare and the taxpayers who fund it would
continue to lose billions of dollars each year on Medicare+Choice.
Budget neutral risk adjustment would cost taxpayers an estimated $11.2
billion over the five years that we are phasing it in if health plans
maintain their current, mostly healthy beneficiary mix.
We are concerned about disruptions to beneficiaries caused by plan
decisions to trim participation in Medicare+Choice. The GAO reported in
April that many factors contribute to such decisions. For instance,
plans may have trouble establishing adequate provider networks,
enrolling enough beneficiaries to support fixed costs, or otherwise
competing in a given market.
However, inadequate reimbursement to plans does not fully explain
these plan decisions. Payment is rising in all counties this coming
year by an average of 5 percent. In fact, despite BBA reforms,
aggregate payment to plans continues to be excessive, according to
another GAO report released in June, because of a forecasting error
that the BBA locked into the statutory payment formula. The result is
that plans are being paid an additional excess amount that totaled $1.3
billion in 1998 and will increase each year.
BBA reforms may, however, mean that payments in some counties no
longer include enough excess to cover losses in other areas or to
subsidize extra benefits that fee-for-service Medicare does not
currently cover, such as prescription drugs.
Clearly all beneficiaries need a more stable and reliable source of
prescription drug coverage. And, if plans' primary problem is paying
for benefits beyond the Medicare benefit package, the best solution is
to improve the benefit package by providing all beneficiaries with
access to an affordable prescription drug benefit, and paying plans
explicitly for providing it.
The President's Medicare reform plan gives all beneficiaries the
option to pay a modest premium for a prescription drug benefit that
will cover half of all prescription drug costs up to $5,000 when fully
phased in, with no deductible. Medicare+Choice plans would be
explicitly paid for providing a drug benefit, and would no longer have
to depend on what the rate is in a given area to determine whether they
can afford to do so.
The President's plan also will modernize the way Medicare pays
managed care plans. Rates would be set through competition among plans
rather than through a complicated statutory formula. All plans would be
paid their full price through a combination of government and
beneficiary payments. The lower the price, the less beneficiaries pay.
And the President's plan also includes several provisions to preserve
beneficiary options and strengthen protections when plans withdraw from
Medicare.
Conclusion
The BBA made important changes to the Medicare program to
strengthen and protect it for the future. These changes, along with a
strong economy and our increased efforts to combat fraud, waste, and
abuse, have extended the life of the Trust Fund until 2015. With
changes of the magnitude encompassed in the BBA, some issues have
arisen that may require adjustment and fine tuning. The President's
Medicare reform plan sets aside $7.5 billion to smooth out
implementation of BBA reforms. The President's plan also includes
administrative adjustments to help in the transition to new payment
systems. It dedicates a portion of the budget surplus to Medicare,
which will help protect against excessive provider payment reductions
in the future as Medicare enrollment doubles over the next 30 years,
and increased efficiencies alone will not be able to cover the
increased costs.
It is not surprising that necessary market corrections would result
from such significant legislation. As always, we remain concerned about
the effect of policy changes on beneficiaries' access to affordable,
quality health care. We are proactively monitoring the impact of the
BBA to ensure that beneficiary access to covered services is not
compromised. We welcome the opportunity to look at any new information
regarding beneficiary access to quality care. We are committed to
continuing to look at refinements to the BBA that are within our
administrative authority.
We also are committed to working with Congress to enact bipartisan
Medicare reform this year that makes a prescription drug benefit
available and affordable for all beneficiaries, dedicates a significant
portion of the budget surplus to Medicare, and sets aside funding
specifically for smoothing out BBA payment reforms.
I thank you for holding this hearing, and I am happy to answer your
questions.
Chairman Thomas. In reading the testimony there are some
concerns, and I know that you could not be as explicit as you
might want to be, but you have clearly pointed out some areas
that we need to address. There is no question that, for
example, on page 7 of your testimony, we need to deal with the
therapy caps, whether we decouple the speech and physical and
the dollar amounts themselves or whether we talk about focusing
on extremely high-cost activities, although relatively few,
that would be very damaging to any structure of the total cost.
We believe that that would require legislative action, and
are ready and willing, I think you will find this committee, to
address that.
Additionally on page 8, although you did move forward with
the prospective payment system for skilled nursing facilities,
the so-called resource utilization groups, they are clearly not
sophisticated enough to deal with acuity questions, and those
are some of the data that Congress is interested in. And
although you suggest you can make some adjustments on a budget-
neutral basis, I believe we are going to have to sit down and
talk about providing some additional dollars. Given your Y2K
problems you are not going to be able refigure the RUGs, I
understand, but we could at least use some surrogates for
acuity in replacing some appropriate additional amounts in
appropriate categories. I think you will find this committee
will be willing to work with you in that area.
One of the questions that is constantly asked: How much
money are we talking about? Everybody wants to know the bottom
line before you get there. I do have some concern about your
statement in terms of the President's willingness to commit to
$7\1/2\ billion over 10 years to making some of these
adjustments. I believe on page 3, you indicate that the
President has set aside those kinds of funds. Is it not
accurate that in the President's budget, had he had his way
beyond the adjustments in the Balanced Budget Act, over a 5-
year period there would have been more than $12 billion in
additional Medicare reductions, more than $28 billion over 10
years? Is that accurate or approximately accurate? Did the
President's budget plan additional reductions in the Medicare
area?
Mr. Hash. The President's budget for 2000 did include
proposed reductions in Medicare outlays; that is correct, Mr.
Chairman. I do believe that in the context of the reform plan
that he announced this summer, the assumption is that the
proposals in the reform plan relating to Medicare are the ones
which are in place and the ones we are trying to talk about
together today.
Chairman Thomas. I understand. But that leads me to another
concern on that same page 3; for example, the final sentence in
the third paragraph that said in terms of the adjustments that
you have offered on the President's reform plan this will help
prevent, ``excessive cuts in provider payments that otherwise
would be necessary in the future as Medicare enrollment doubles
over the next 30 years.''
To some people, that says volumes about where you are
suggesting reforms would be coming from, just as the $28
billion over 10-year additional reductions in the President's
plan indicated, that the adjustments probably should come from
additional ratcheting down of providers. You show no indication
in this sentence or paragraph, or to my ability to find it
anywhere else, a discussion of whether or not millionaires are
going to continue to receive benefits across the board or other
suggested changes that the Medicare commission spent more than
a year examining and offered up as suggested proposals. My
assumption is that you--this was simply one of those lines that
you placed in there and that you are not opposing, looking at
additional changes other than cuts in provider payments.
Mr. Hash. No, Mr. Chairman, we are not opposed to looking
at other things. And in fact in the President's proposal, there
are details that involve not only changes in Medicare payment
policies but importantly, as we all know, if we are going to
extend the life of the Medicare program beyond 2015, given the
increase in the number of beneficiaries, it is going to take
additional revenues. And a significant portion of the
President's proposal is the dedication of 15 percent of the on-
budget surplus over the next 10 years to extend the life of the
program and to mitigate the need for additional provider and
beneficiary cost-sharing changes.
Chairman Thomas. Did the President's plan include an
income-relating provision?
Mr. Hash. No, Mr. Chairman, it does not. It does include
changes in the Part B deductible and in cost sharing for
beneficiaries.
Chairman Thomas. Thank you. On page 10, again as I
indicated in my opening statement, that there have been some
difficulties because of the Y2K computer adjustment. You have
not been able to meet some of the deadlines that we thought
were appropriate. One of the areas that I am most concerned
about is in adjustments for the outpatient prospective payment
system, because for some time now, beneficiaries have because
of the way in which the payment structure is determined, have
been paying more than their fair share, is the way I think you
could state it. Now, when we had the administrator--and I
understand she is still on maternity leave and things are going
well with Nicholas and we are all very pleased for her.
Mr. Hash. Yes, sir.
Chairman Thomas. The delay from January to April, a 3-month
delay, was going to cost about $570 million. Is that roughly
the correct amount?
Mr. Hash. I believe that is the figure that has been put
forth by the CBO.
Chairman Thomas. Do you have a quarrel with that figure?
Mr. Hash. I do not, Mr. Chairman.
Chairman Thomas. So that is additional overcharge to the
beneficiaries. If we are going to extend that now from April,
if you are not going to be able to make that time line, when do
you think you are now going to be able to have it still up and
running?
Mr. Hash. Mr. Chairman, our intention is as soon as we pass
the Y2K window at the end of March, we will bring up the
hospital prospective payment system as soon as possible, after
giving providers sufficient notice and contractors sufficient
notice to prepare for it, and I think that would be by the
middle of the summer.
Chairman Thomas. Middle of summer. July sound good?
Mr. Hash. Yes, sir.
Chairman Thomas. From January to April was 3 months; from
April to July is 3 months. That is 6 months. And if, in fact,
the first 3 months was 570 million and the second 3 months is
somewhere in that same ballpark, there is $1 billion. And I
counted more than a dozen specific areas that we need to look
at and make adjustments in the Balanced Budget Act, and in this
one minor area under the general category of hospitals--and I
have 3 or 4 additional suggestions for hospitals--that 6-month
delay is costing $1 billion. And yet the President has decided
that he is going to set aside $7-\1/2\ billion for 10 years.
Obviously the point I am underscoring is when we make mistakes,
when we miss deadlines and when we have to make adjustments,
dollar amounts, although they may seem significant, looking at
them in making a balanced structure for beneficiaries, here is
$1 billion that they are going to be overcharged in just a 6-
month period, which I have some concern about and need to talk
to some folks about how we make sure that they don't continue
to carry more than their fair share.
Mr. Hash. If I may, Mr. Chairman, comment on that. We share
your concern about the impact of this delay on the
beneficiaries' out-of-pocket expenses. And one of the aspects
of this, which we have tried to address in the implementation
plan, is when the cost sharing begins in July 1 of next year,
it will begin at a point that it would have been had the
payment system been put into place on January 1, 1999.
Chairman Thomas. And I would just tell you, Michael, that
that is the kind of cooperation and thinking we need, because
some of these adjustments that are overdue need to be done in a
budget-neutral way, so that time lines can pick up from the
time that we begin. Where you think you can do it, I would like
to know. Where you are unwilling to do it, we absolutely need
to know. And where you are willing to do it but don't believe
you have the ability, I believe you will find Congress more
than willing to clarify when you are going to stretch out, make
adjustments, and appropriately soften deadlines. I appreciate
working with you.
Does the gentleman from California wish to inquire?
Mr. Stark. Thank you, Mr. Chairman. Just two issues Mike,
on the outpatient prospective payment. It is my understanding
that you do not have the authority to offset those payment
reductions. There are some advertisements being run hither and
yon that it was the legislative intent that those payments did
not cause reductions to the hospitals. Now, CBO did not score
that as a cost of Medicare as they would of had to do. They
didn't accidentally overlook the $2 billion of cost. I just
wanted to set the record straight that the law was not intended
to offset the costs to hospitals of the reduction in the
outpatient prospective payment; is that correct?
Mr. Hash. I believe you are correct, Mr. Stark. Bringing
into line the co-insurance amounts by beneficiaries to equal 20
percent of the outpatient charge is a cost that is being borne
by the hospitals in the form of payments that would otherwise
have been made.
Mr. Stark. Just to set the record straight, our intention
was to save the beneficiaries that excessive out-of-pocket
cost. We did not intend to charge it to the taxpayers, but
indeed to see that it came out--as easy as we could make it--
out of the hospitals.
The other issue that you raise in your testimony deals with
reimbursement for managed care. You suggest that inadequate
reimbursement to those plans does not explain the decisions for
plans to stop providing service. I think that you indicate that
in many areas the plans just couldn't find a big enough patient
base to make them viable at any cost. In other words, you need
a certain minimum number of people to sign up to be able to
keep surgeons and other providers on call. Second, you also
suggest that we are for the most part overpaying the managed
care plans, absent any risk adjustment. Is that a fair
assessment of your testimony?
Mr. Hash. I believe it is, Mr. Stark, and it I believe has
been the testimony of others, GAO and the Congressional Budget
Office and the Prospective Payment Assessment Commission, the
predecessor to MedPAC.
Mr. Stark. Now, I have often suggested the following to
hospitals and laid down a challenge to them, but to my
knowledge I haven't heard back from one hospital. Medicare is
no longer the lowest payer for any particular DRG that a
particular hospital is receiving. Aetna or Pacific Care or
other of the managed care plans have negotiated contracts with
those hospitals and indeed are paying far less than the
Medicare system pays them. There is no question that the
hospitals were good sports in previous years and cost-shifted
onto these private insurance companies when Medicare was a
lower payer.
But what is your assessment--and I know we don't have a
database, so absent the hospital saying anything, and you can
figure if they had the figures they would show them to us? My
sense is they are silent because they know very well that what
they are attempting to do is get the taxpayers to raise the
payments to the hospitals in order to make up for poor
management decisions in underpricing the services to managed
care plans. I can't find any reason why I should go back to my
taxpayers and say you guys should bail out these hospitals.
They should go back and raise the prices to the managed care
plans and then come back. Can you comment on that and do you
have any statistics that would support my theory or prove or
disprove it?
Mr. Hash. What we have seen in looking at the data over the
last 5 years is that hospitals have been under significant
pressure to discount for purposes of contracts with organized
delivery systems. And that is pretty well established in the
literature. I think what has happened is that as the rate of
growth in Medicare payments, particularly as a result of the
BBA, has slowed compared to what it was in the past, that has
put increased pressure on hospitals because of their inability
to subsidize those losses on the private side with Medicare
payments.
Mr. Stark. But just if I could repeat, would it be your
opinion that on average, or for the most part, that Medicare is
paying a higher DRG rate than managed care plans?
Mr. Hash. You know, as you said, Mr. Stark, I don't have an
empirical basis to make that statement. I am sure it varies
across the country, but I do believe that in some areas the DRG
payments under Medicare would be higher than comparable private
sector payers.
Mr. Stark. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. Thank you. The gentlewoman from
Connecticut wish to inquire?
Mrs. Johnson of Connecticut. Thank you very much. It is a
pleasure to have you here at this hearing. I consider this one
of the most important hearings we have had in the whole year in
this session.
There are many, many areas that need to have our attention
as well as yours. Let me just go to one in the area of nursing
homes. You do say in your testimony that the Inspector General
found in its interviews of possible discharge planners or
nursing home administrators, that less than 1 percent of
nursing home administrators say the prospective payment system
is causing access problems. You do go on then to other data
that suggests the problem is much more serious than that.
I would suggest to you that in testimony today that we are
going to hear that the problem is really much more serious than
that: that 58 percent of discharge planners identified patients
who required excessive services have become more difficult to
place in SNF since Medicare cuts. This is a very serious
problem. The only reason beneficiaries aren't feeling it more
keenly in my estimation is that nursing homes are compelled by
law, at least in Connecticut, to participate in both Medicare
and Medicaid. Most of them in Connecticut at least are
nonprofits and they care a lot about their patients and they
are not about to not take them even though they lose money on
them. So I don't think whether they are getting placed should
be our concern. Whether they are having a harder time to get
placed, whether the nursing homes are asking for more
information, which they clearly are, should very much be our
concern. And I know it is the Chairman's and I know it is
yours. I hope that we can accelerate your timetable a good
deal, because I think a year from now is much too late to be
able to implement something that will do something about this.
But as important as the RUGs are, you have by
administrative action excluded a number of things that you
considered not common nursing home responsibilities from the
RUGs. And I would ask you, I have been asking for months for
you to look at exclusion of prosthetic devices, because if you
bill prosthetic devices into RUGs and you reimburse every
nursing home across the country a little tiny bit, and they
never have anyone who needs a $7,000 prosthetic device, then
the small nursing home, especially a very little one, can't
absorb that $7,000 cost on a reimbursement rate of $200.
So are you looking at excluding prosthetic devices and are
you looking at excluding ambulance services for dialysis? In my
district, rural hospitals, those ambulance costs are $800 a
time. If you get someone who needs then dialysis, you simply
can't do this. We can't impose on these institutions automatic
losses for things that are clearly a public responsibility to
pay for. So on exclusion of those issues which I think we need
to do in addition to adjusting the RUGs, where is the
administration?
Mr. Hash. Mrs. Johnson, we too are concerned not only about
admission and access to nursing facilities, but also that
patients who are residents in nursing facilities are getting
the care that they need. That is why, as you noted, we have
identified a number of services that we think don't fall within
the responsibilities of the nursing home to provide to their
patients. In other words, it is not in the plan of care--for
example, they have a heart attack or they have some need for a
hospital-based service that was clearly not anticipated and for
which the nursing home is not able to provide. Those are the
kinds of things that we carved out.
When it comes to issues that are actually part of the
nursing home plan of care, I think our reading is that the
statute is very clear about not unbundling things from the PPS
rate in SNFs that are normally associated with care provided in
that organization. But it doesn't mean that we aren't looking,
as you know, at those RUGs that involve care for patients with
high----.
Mrs. Johnson of Connecticut. So am I to conclude from your
answer that you are not considering any further exclusions?
Mr. Hash. I think there are various ways to deal with the
specific problem that you brought up.
Mrs. Johnson of Connecticut. I have had no response to my
letter from Dr. Berenson. I mean through the staff we have, but
no final response. I need to know before this markup. Are you
willing to deal with--we deal with transportation for dialysis
in certain situations and not in others. This definitely has to
affect a nursing home's consideration because they have a
fiduciary responsibility to stay alive to serve the rest of
their patients.
So prosthetic devices, transportation for dialysis,
transportation for radiation therapy, and clearing up who pays
for chemotherapy are just fringe issues that we have got to
deal with before we get to this markup, because it is
imperative that we remove the threat of high--of some of the
definable high cost. Medication is more difficult. But at least
some of these are clear, succinct. We got to act.
Mr. Hash. We definitely want to work with you in the
context of the legislation, and I will get a response to you
prior to your markup, and I apologize.
Mrs. Johnson of Connecticut. Would you also update me at
the same time as to where the administration's thinking is on a
small provider exception? Because the little small nursing
homes with 60 beds and 2 Medicare patients cannot carry the
administrative burden. They only have bookkeepers, they don't
have Arthur Andersen people.
Mr. Hash. I want to make a point about the dialysis
example, because we too are concerned about that, and what we
are trying to do is to work with nursing homes and State
licensing authorities to make sure that nursing homes can
provide the dialysis service on the premises, making an
ambulance trip unnecessary.
Mrs. Johnson of Connecticut. We will discuss that. Thank
you.
Chairman Thomas. The gentleman from Wisconsin wish to
inquire?
Mr. Kleczka. Thank you, Mr. Chairman.
Mr. Hash, if, in fact, HCFA would go forward and
administratively make some of the changes necessary to provide
some refinements, how would that be treated for budget
purposes?
Mr. Hash. I don't believe for your purposes here in the
Congress that those are considered, that Congress is scored for
those, and those are considered to be program expenditures
under the existing law and therefore not counted as new
spending.
Mr. Kleczka. Will it come out of trust fund?
Mr. Hash. Yes.
Mr. Kleczka. So it would be like emergency spending in
Congress. If we term it emergency spending, be it the census or
whatever, then it is a free pass for us. So it is incumbent
upon us in Congress to try to have you do it, but the fiscal
effect is still there.
Mr. Hash. The fiscal effect is still there but the
rationale, if you will, Mr. Kleczka, is this is what was
intended in the law and therefore it obligates those
expenditures appropriately from the trust funds.
Mr. Kleczka. But a readjustment of the trust fund would
have to happen at some point. We have all heard from various
interests who have been adversely affected by the Balanced
Budget Act of 1997.
Let me just broach two areas real quickly. The family
medicine training programs have been affected adversely by the
changes. There is a fear there that some of these programs will
be forced to close and there will be a shortage of family
physicians. I am assuming that HCFA has tracked this and other
areas. What is your reaction to that contention?
Mr. Hash. We definitely recognize that the BBA provisions
for graduate medical education limit, by capping, the number of
new residencies, and they do not allow for any growth unless
institutions actually reduce training programs, say, in
speciality areas in order to allow for increases in things like
family medicine. The statute is very explicit in this area. But
we would certainly be willing to work with you with respect to
legislative considerations on that issue.
Mr. Kleczka. Do you have any fear if we do not address this
area we could be facing shortages in this area in the future?
Mr. Hash. I am not aware of any data yet. That is not to
say it may not turn out that we are facing a shortage in that
regard. But again, I think we should look into this and work
with you to identify if some modification of those limits on
residents in training should be made.
Mr. Kleczka. Also, yesterday I had the occasion to meet
with some cardiologists from my district. And they have voiced
concern about the way the practice expense components were
developed and they said that if you continue the phase-in, the
problems will only be exacerbated. Is there any interest on the
part of HCFA either to delay the phase-in or to provide some
adjustments in that area?
Mr. Hash. At the moment, we are continuing our phase-in
which concludes in 2004, I believe. What we have done, though,
to address the issue of practice expense was to work with the
American Medical Association and use their practice expense
data that they collect on an annual basis as the basis for
establishing relative practice value weights. We think that
more accurately includes the cost of practice as reported by
physicians themselves.
Mr. Kleczka. We have all heard much concern about the
therapy caps. I think you have addressed this earlier in your
testimony but could you restate the HCFA position on the
therapy caps?
Mr. Hash. Our view is there is significant evidence that
some patients are not getting access to an adequate amount of
therapies and we would like to work with the Congress to make
some adjustments to those limits.
Mr. Kleczka. Now that particular adjustment, would that
have to be legislative or could that be administrative?
Mr. Hash. That would have to be legislative, I believe.
Chairman Thomas. Would the gentleman yield on that point
briefly? I think we do have to put it in the context of the
fact that therapy capabilities from a hospital-based structure
are not limited.
Mr. Hash. That is correct.
Chairman Thomas. And that given your inability to keep the
records as appropriately as they should be, someone can receive
therapy even to a $1,500 cap in different locations and you are
not now able to determine that. Is that correct?
Mr. Hash. That is correct, Mr. Chairman.
Chairman Thomas. So we want to put the concern in its
proper context that it is causing some concerns, but that what
we want to look for is evidence that people are being denied
cold, hard therapy where they absolutely need it, and that in
fact there needs to be some corrections to the structure as
well. But I want to underscore I agree there needs to be an
examination of this area, but let's not leave the belief that
it is $1,500 for everyone in every instance, with no
opportunity to do anything else.
Mr. Kleczka. Let me ask the Chair a quick question. Is it
your contention that once the cap is attained in one particular
treatment area, that patient can then be moved to another to
start the 1,500 over again?
Chairman Thomas. No I am just telling you that is reality,
because HCFA cannot monitor that kind of activity. I don't
think that should be the basis for receiving more than the cap
amount. I think we need to look at an appropriate amount. This
area was increasing at 18 percent a year when we did not see an
increased need at that percentage. What we can do is create an
outlier payment structure for the needed prosthetic, let's say,
or for brain damage which clearly over a period of time takes
enormous investment, far beyond that amount for therapy, but
over the life of that individual a significant return to
society, if we are in fact able to rehabilitate them, beyond
the condition that they are in, there is good reason to make
some adjustments.
But I just didn't want to leave the impression that it is a
hard and fast $1,500 cap for every person in America and that
is what we are dealing with. That is not the case, but we are
going to make some adjustments.
Mr. Kleczka. Well, when we take the Chairman's mark to a
markup, I am assuming we will have a lot more discussion on
this particular area.
Thank you, Mr. Hash.
Chairman Thomas. The Chairman took some of your time. You
want to spend a few minutes?
Mr. Kleczka. Well, maybe we will come back.
Chairman Thomas. Does the gentleman from Texas wish to
inquire?
Mr. Johnson of Texas. Yes. Thank you. I agree with you, Mr.
Kleczka; that point is something I want to bring up too. I
would like to know why you guys keep leaning on Y2K and saying
that it is the reason you can't do something. Is that the
reason or is it because you just haven't gotten your act
together?
Mr. Hash. Well, Mr. Johnson, it is the reason. We have had
a very significant challenge in making sure that all of our
computer systems that process Medicare claims and our other
information systems were in fact Y2K compliant. We felt that
that was our No. 1 priority.
Mr. Johnson of Texas. Are they now?
Mr. Hash. We believe they are now. As you know, what we are
concerned about today is the provider and health plan
community, and making sure that they have taken the steps to be
ready.
Mr. Johnson of Texas. That is true. But why can't you work
on implementing the Balanced Budget Act now?
Mr. Hash. Because our internal and external advisors on Y2K
compliance advised us that during the period October 1 through
March 31, 2000 that we should not make any systems changes
because those could, in some unintended way, affect our Y2K
readiness. So we are not making any changes in our systems
through our contractors until we pass through the Millennium.
Mr. Johnson of Texas. It seems to me if the Federal Reserve
and banks and other organizations can do it now, make changes,
that you ought to be able to as well. And I don't understand
after Y2K occurs, which is the first of the year, and you have
no problems, presumably, why you can't get on with it. Why do
you have to wait until March?
Mr. Hash. If we do not have any problems that require
remediation, we expect to accelerate our return to regular
changes in our claims processing systems.
Mr. Johnson of Texas. I wish you guys would get with it.
Let me ask another question. As you continue to do your
risk adjustor phase-in, are you worried about the possibility
of Medicare+Choice plans continuing to pull out of the markets,
presuming they are?
Mr. Hash. Mr. Johnson, as I think Mr. Stark alluded to in
his statements a moment ago, we believe that the decisions
about plans staying or leaving the program are related to a
variety of factors in the marketplace, and, in fact, the coming
in and leaving Medicare+Choice is still going on and I think it
is reflective of larger changes in the health insurance
marketplace.
We don't think that the risk adjustment is a significant
factor in the decision whether or not a plan will contract or
continue to contract with the Medicare program.
Mr. Johnson of Texas. OK. Let me ask you, in 1989, Congress
codified that the 10 freestanding designated cancer centers
were to be exempt from inpatient PPS. Now, why are these 10
hospitals not exempt from outpatient PPS as well and given some
kind of relief?
Mr. Hash. We have met with them and are considering very
carefully a large number of concerns from cancer centers about
our proposed outpatient PPS system. As a result, we expect when
we publish our final rule to make a number of changes, taking
into account what the Congress said in the BBA, which gave us
discretion with respect to a number of items in the hospital
PPS payment system as it affects cancer hospitals.
We intend to exercise the discretion in the law, and we
intend to address the concerns that have been raised by the
cancer centers when we publish our final rule.
Mr. Johnson of Texas. You more or less answered it, but why
did you decide not to exempt the outpatient PPS?
Mr. Hash. We don't believe that the Balanced Budget Act
actually provides for an exemption. It provides for special
consideration of cancer hospitals. That is what we intend to
do.
Mr. Johnson of Texas. The bulk of their business, as you
know, is Medicare-Medicaid.
Mr. Hash. Yes, sir.
Mr. Johnson of Texas. I think we need to take care of them.
I would just like to make one more statement, if I could.
I would say to Mr. Stark, I think he slammed the hospital
systems a little bit. I would like to say that I have been
dealing with them for a long time, and I don't think that they
are fraudulent or attempting to harm the patient population in
any way. They are hurting for dollars. I think that we need to
get out there and figure out where the costs really are and
make adjustments.
Mr. Stark. If the gentleman from Texas would yield, I
agree. I just wanted to suggest that the tables have turned in
recent years, and the fees that we pay the hospitals with the
taxpayers' money are higher than they are getting from many of
the private insurance plans. Perhaps we ought to see the
private insurance plans pay a little more before we use the
taxpayers' money.
That may or may not be the hospital's fault. I am just
suggesting we don't have that data, and I think we could be
more fair if we had it.
Mr. Johnson of Texas. Thank you for the clarification.
Chairman Thomas. I would tell the gentleman from Texas, my
recollection is that the Balanced Budget Act indicated there
could be a 1-year delay in implementing the outpatient PPS,
clearly to examine whether or not it is appropriate and what
changes might need to be made; not that the exemption would not
be an ultimate decision that may be made, but it would be
premature. We should look at it.
I hope that, notwithstanding the delay on the outpatient
PPS, that the administration intends to carry forward whatever
delays were attached to the original date in a systematic and
uniform way.
Can you make a quick comment on that?
Mr. Hash. Mr. Chairman, as you know, we are in the process
of putting together the final rule on this.
Chairman Thomas. That was not my question. If you don't
want to answer it, just say you can't answer it at this time.
Mr. Hash. I can't answer it at this time definitively.
Chairman Thomas. Then we will deal with it. But you should
not require everyone to meet a timetable when the BBA said
there was a 1-year delay, and just because you failed to meet
the timetable, other people have to suffer for it. That is not
the way, in a mutual spirit of cooperation, we ought to carry
out that.
Mr. Hash. I understand, Mr. Chairman.
Chairman Thomas. If you need some legislative statement to
that effect, which I hope you don't, because it will open up
the other question, that is what we are going to have to talk
about.
Does the gentleman from Georgia wish to inquire?
Mr. Lewis. Thank you very much, Mr. Chairman.
Thank you, Mr. Hash, for being here.
Chairman Thomas. If the gentleman will yield just briefly,
it is the chairman's intention not to recess for this vote. So
those of you who have already had your opportunity, if you
would go on over, we are going to try to keep this rolling so
we don't unnecessarily delay individuals.
I thank the gentleman.
Mr. Lewis. Thank you, Mr. Chairman. I will be very brief.
Thank you, Mr. Hash, for being here.
Mr. Hash, this subcommittee is likely to hold a markup of
legislation to fix some of the impact of the BBA. If we don't
find an offset to pay for such fixes, will we be spending from
the Social Security surplus? Could you tell me about that?
Mr. Hash. Mr. Lewis, I don't have all the details on the
available on-budget surplus for this and future years, so it
would depend on whether that money has already been exhausted.
And if it has been because it is committed to other uses, then
anything spent beyond that would come from the off-budget
surplus, which would be the Social Security surpluses.
Mr. Lewis. Could you please describe for me and other
Members of the Committee the effect that the House HHS
appropriation bill will have on your agency?
Mr. Hash. Yes, sir, Mr. Lewis, I would. I think it would be
devastating for us.
Mr. Lewis. Could you go into detail and just describe to
Members of the Committee how devastating would the
appropriation impact be?
Mr. Hash. It would affect us across all of our business and
programmatic activities, including very substantial reductions,
in fact, the virtual elimination of our education campaign for
Medicare beneficiaries. It would definitely cripple our
initiative with respect to insuring the quality of care in
nursing homes and our oversight of nursing homes. It would
significantly impact our ability to continue making changes in
payment systems and the workload that is associated with that.
We have, as you know, Mr. Lewis, one of the very smallest
budgets in relation to the programmatic dollars that we are
responsible for. Less than 2 percent of our administrative
budget, less than 2 percent of Medicare's expenditures are
consumed by our administrative budget. So cuts of the magnitude
proposed by that Subcommittee mark would definitely be
devastating for our agency.
Mr. Lewis. What would be the effect on fraud and abuse
enforcement?
Mr. Hash. That is another area where the proposed mark
reduces substantially the funds that Congress set aside in a
special, dedicated fund for this purpose and reduces them, as I
understand, by $70 million. That would be a very substantial
reduction in our effort to continue our aggressive oversight of
waste, fraud, and abuse in our programs, which has been so
important in returning multiple dollars for every Federal
dollar invested in this effort, to return those dollars
several-fold to the trust funds.
Mr. Lewis. Thank you very much, Mr. Hash.
Thank you, Mr. Chairman.
Chairman Thomas. Thank you.
Does the gentleman from Michigan wish to inquire?
Mr. Camp. Yes, thank you, Mr. Chairman.
My question is regarding the critical access hospital
program. The Balanced Budget Act created this new designation
for certain rural hospitals to be designated as critical access
hospitals. Many have said this program is an attractive program
because it would allow them to serve their communities better
and meet their needs better. But some hospital groups have
complained that this is not being implemented properly. I would
like to hear what HCFA's plans are to improve this program.
Mr. Hash. One of the issues that has been raised, Mr. Camp,
is the time required for physicians to respond to a critical
access hospital. There was an early proposal for a 30-minute
response time. We ended up actually permitting a response time
for these critical access hospitals providers of up to an hour.
I think that has gone a long way to addressing the major
concern that I believe was raised with respect to how we were
implementing the critical access hospital program.
If there are other areas that you are aware of that I have
not mentioned, then we should look at them and try to address
them.
Mr. Camp. Well, specifically, the education and training
that has been provided, or may not have been provided, to
fiscal intermediaries to implement this program, what plans do
you have for education and training?
Mr. Hash. I believe we have been working with the States
through those contractors. A key component of this, as you may
know, is that each State has to establish a State-critical
access hospital plan. Once having established that plan, and I
think not all States have completed that work yet, then in fact
the institution can be designated and paid according to the
rules for critical access hospitals.
If there is some confusion about the role of the
contractors, the fiscal intermediaries, I would like to work
with you and your staff to get clarifying information out
there.
Mr. Camp. Thank you.
My second question is really regarding visiting nurse
associations and home care providers. I have been hearing from
some very reputable home care providers in mid-Michigan, the
area I represent, who have been responsible--and I understand
the fraud and abuse problems we have been trying to address,
but who have been responsible providers.
They have had a history of compliance, they have done well
in their businesses, their denial rates are very low, but they
are being crushed by the regulatory and administrative burden
and the cost of responding to numerous audits and the paperwork
they receive.
What can you tell me about what I can say to these
responsible home care providers that are really burdened? And
there are many other factors that are burdening them, but
particularly this regulatory burden.
Mr. Hash. I would say that we, too, have been trying to
work closely with the home health agencies, including the
Visiting Nurse Association, throughout the country. We
recognize that for many of them the changes included in the BBA
have been difficult to adjust to. That is why, as I mentioned
in my testimony, we have tried to be very lenient with respect
to repayment plans associated with interim payment system
overpayments.
We have also tried to scale back, or phase in more slowly,
some of the other requirements that are imposed through the
BBA. For example, we have cut back on the time for implementing
the surety bond requirement and have reduced the level of that
requirement. We have eliminated sequential billing, which was a
procedure that was causing cash flow problems. We are phasing
in a billing requirement related to 15-minute increments of
home health visit times.
We have tried to take a number of steps to, in effect,
address those kinds of problems that have slowed down either
their cash flow or, in cases where they have found there is a
substantial overpayment, that they need to repay.
Mr. Camp. OK. Thank you for your comments.
Thank you, Mr. Chairman.
Chairman Thomas. The gentleman from Louisiana, if you have
not voted, you are probably going to be pressured for time.
The gentlewoman from Connecticut has already inquired. If
you want to continue the questioning, and then as soon as
someone else comes who has not, you will recognize them. I
appreciate that.
Mrs. Johnson of Connecticut [presiding]. Yes, sir. Trust
me, Mr. Chairman.
I am pleased to have this opportunity to visit with you,
Mr. Hash.
On the hospital outpatient payments, first of all, you do
recognize the need to implement this change in a more gradual
fashion. I appreciate that. Of course, as you increase benefits
payments for some hospitals, you decrease payments benefits for
other hospitals. Can you tell me which groups of hospitals are
going to be hurt by your adjustment?
Mr. Hash. One thing to say at the outset, all of the
estimates people are talking about now are related to our
proposed rule. We got a very large number of comments, and we
are in the process of substantially revising that proposed
rule, so the impact statements and analyses will all be very
different, I can assure you, than they are now.
But, based on the impact analysis that we did on the
proposed rule, the most heavily impacted institutions from the
scheme we laid out in the proposed rule were low-volume rural
and urban hospitals, teaching hospitals, and cancer hospitals.
Mrs. Johnson of Connecticut. Those are the ones you are
going to help?
Mr. Hash. That is our intention, that is correct.
Mrs. Johnson of Connecticut. My concern is that, coming
from a State that has no rural hospitals, because we realized
early on we could not tolerate that designation, and most of my
hospitals in smaller communities are not teaching hospitals,
are they going to be further cut then? Because what I am saying
is it does not fall rationally, it does not fall by category of
hospital, necessarily.
I have seen numbers that show that some people are going to
experience a 50-percent cut in reimbursements and some a 3
percent or 5-percent cut. I think instead of categories of
hospitals, we should be looking at hospital impact.
Mr. Hash. We will, Mrs. Johnson. That is why I said, on the
low-volume problem, which I think may be a problem for many of
your own institutions, they are not necessarily rural but they
are small and they have low volume, that is why we need to
address the impact specifically on an institution that has a
relatively small number of cases.
Mrs. Johnson of Connecticut. Good. I look forward to
working with you on the details.
I assume, as you work on this PPS for outpatient, you are
going to recognize the extraordinary cost of drugs associated
with outpatient care. In just my home town hospital, the cost
of drugs over the last 2 years has increased 43 percent. If we
fail to acknowledge that in the outpatient PPS we will truly
damage our health care system.
Mr. Hash. We, too, have heard that and looked at the data
and recognize that our own data for the original proposal was
not adequate in terms of a reflection of the prices of many
important drugs that are provided in the hospital outpatient
setting. We have hired an outside contractor to gather data on
prices and use. We want to use that to refine our final rule.
Mrs. Johnson of Connecticut. That is good. Thank you.
I assume Mr. Cardin has not had a chance to question. I now
recognize Mr. Cardin.
Mr. Cardin. Thank you, Madam Chairman.
Let me welcome Mr. Hash to the committee.
Mr. Hash. Thank you.
Mr. Cardin. Let me just express my first concern. That is,
I think the circumstances on access are very serious in some
areas that need addressing by this Congress if it cannot be
done administratively. I certainly hope many of these issues
can be done administratively. To the extent that we can be
helpful in accomplishing those objectives I agree with the
Chair we should work together.
If there are areas, and I know there are, that require
legislative assistance, we need to act in this Congress.
Circumstances are getting very serious I know in my State of
Maryland and I think around the Nation.
I am glad to hear you mention the therapy cap and the need
for relief. That will require legislative attention, since it
is established by law. I think the impact that the therapy cap
is having, along with the changes that we have made in the
skilled nursing facility reimbursements, is having a
compounding impact on high acuity patients particularly that
need nursing services.
For the life of me, I cannot understand why we impose the
therapy cap, to start off with, other than to save money. I
cannot think of a policy reason for it.
Second, it is unfair in the way it is implemented. The
Chair pointed out that, because of your ability to track these
expenses, there are some beneficiaries that are exceeding the
cap, and you cannot determine that, but yet, a beneficiary that
is in a nursing facility cannot escape the cap. That is not
fair to, again, a high acuity patient.
I think it really cries out for relief now. I hope we will
all work together to figure out a way to deal with that in a
way that is fair, and I can give you the names of people in my
congressional district that, as early as March of this year,
were up against the cap. That is not right. I think that is one
area we truly need to work together on.
Mr. Hash. We definitely join you in that concern.
Of the settings where we are particularly concerned about
access to therapy services, it is those patients who are in
nursing homes where we want to focus our attention.
Mr. Cardin. Good. I am glad to hear that.
Let me also, please, raise a different view on the HMO
problems on Medicare+Choice. Last year in Maryland, before we
had the Medicare+Choice, we had eight HMOs that were providing
coverage to seniors in our State. We are now down to four HMOs.
We used to have HMO coverage in every county in our State. Now
in most of the counties of Maryland you cannot get--a senior
won't be able to get an HMO effective January 1.
Then in our more populous areas, the most popular HMOs
requested--and today is October 1, so it is a day of decision,
and I assume they will be able to charge our seniors now $50 a
month for the services that were without additional fee in the
current year.
All that is happening, and I don't think it is fair to say
that what we did in the Balanced Budget Act has not had an
impact on that. In our State, we don't have a problem of
network. There are plenty of networks in those lower counties.
It is the fact those reimbursement levels are not allowing
those HMOs to continue. I do think we have a problem, and it is
affecting access.
As you and I both know, the real service area that is going
to be impacted the most is the lack of coverage for
prescription drugs.
Mr. Hash. Absolutely, Mr. Cardin. I didn't mean to say that
the BBA changes are not related at all to these decisions. I
just wanted to suggest that, for many organizations, there are
a multitude of factors that went into their decisions about
whether to drop their contract or to reduce their service area.
But you are absolutely right. The consequence, from the
beneficiary point of view, is loss of access in most cases to
additional benefits or savings from out-of-pocket expenses
associated with joining an HMO. That is a serious issue and one
that we are very concerned about.
I think, in the case of Maryland, that you and I have
talked about, it is a situation in which the growth rate in the
payments to managed care plans in those areas was growing much,
much less rapidly than it had before the BBA came into place.
If those organizations were going to continue to offer, both in
urban and rural areas, the extra benefits they wanted to offer,
they were finding difficulty financing those extra benefits
based on the payments they were receiving. I think, in those
cases, payments played a significant role. But, as you know,
there have been other factors where they pulled out of their
commercial business as well as their Medicare business in the
same areas.
Mr. Cardin. My time has expired. There are many other areas
we have dealt with in the BBA Act. I want to thank you for your
cooperation in looking at each one of those.
Mr. Hash. Thank you.
Mrs. Johnson of Connecticut. Mr. Ramstad.
Mr. Ramstad. Thank you, Madam Chair.
Mr. Hash, I would like to address a question, some
questions related to the Maron Act. I want to specifically
address an issue that I know is important to many, many seniors
in Minnesota and across the Nation. That is, ensuring that
frail, elderly seniors maintain access to the critical
comprehensive health care they are currently receiving.
I know HCFA recognizes how successful and popular the
EverCare program is with current enrolled beneficiaries. I am
not sure some of your colleagues at HCFA have recognized the
significant cost savings of this program to the Medicare
system. Trust me, they are real. I have all the empirical data
in the world to support this. EverCare I think shows that the
market does react to and can react to provide not only quality
health care but can save money and certainly reduce
hospitalizations. That is exactly what EverCare has done.
Do you agree with that?
Mr. Hash. As you may know, I have been working closely with
folks at EverCare about their concerns, and we want to move
forward with them.
The issue that I think we have still--definitely are
devoting a lot of energy and resources to is designing a
payment system that appropriately accounts for the kind of
patients or the kind of individuals they are enrolling there.
That is our joint call.
We are committed to doing the necessary work to ensure
their payments are appropriate for the health status of frail
elderly enrollees in Medicare+Choice plans.
Mr. Ramstad. I certainly appreciate that spirit of
cooperation that you are displaying today. Certainly you do
understand the grave impact that the interim risk adjustor will
have?
Mr. Hash. That is why we have delayed it for them. Our
intention is to examine a risk adjustor that better reflects
the functional status of the individuals enrolled as well as
the health status indicators. For that kind of population, you
may need to take into account both their ability to carryout
the activities of daily living as well as what their health
status is. That is a key part of what we are addressing and
analyzing in our ongoing work.
Mr. Ramstad. Is it your intent to exempt it beyond one
year?
Mr. Hash. We want to see if we can come to an agreement on
a risk adjustment methodology that appropriately recognizes the
health care needs of their enrollees.
Mr. Ramstad. You are willing to work with Mr. Cardin? You
are aware of the legislation Mr. Cardin and I have introduced
concerning the EverCare program?
Mr. Hash. Yes, I am. Our view is that we have a great deal
of optimism about being able to work out a risk adjustment
methodology that should be satisfactory to them and to us as
well.
Mr. Ramstad. Are you talking about all EverCare or just
demos?
Mr. Hash. It would obviously be for the frail elderly
programs around the country, of which EverCare is one.
Mr. Ramstad. So you are willing to work with us to resolve
the problems to take care of all the frail elderly seniors?
Mr. Hash. We definitely want to do that. As I say, I think
a key issue, unless I have misunderstood it, is making sure
that we properly analyze adjusting their capitation rates to
reflect their functional status as well as their health status.
Mr. Ramstad. Again, I appreciate your willingness to work
specifically with reference to EverCare, because that is so
important to many, many elderly frail seniors in Minnesota.
They just--it would be a real shame, a real crime, if they were
to lose this health care option that they really like, that
they have chosen, that they have come to rely upon. So you will
work with us to save this health care option?
Mr. Hash. Yes, sir.
Mr. Ramstad. I yield to Mr. Cardin.
Mr. Cardin. I appreciate that. My time had run out. I was
going to bring up that issue.
I very much appreciate your response, Mr. Hash. It is not a
Minnesota problem or a Maryland problem. It is a problem in
many parts of the country. We are saving money for the system
in these programs dealing with our frail elderly.
Mr. Hash. Yes.
Mr. Ramstad. Thank you again, Mr. Hash. I am looking
forward to getting this done in the next couple of weeks before
we go home.
I also want to, in the remaining seconds, ask you a
question on inherent reasonableness authority.
By the way, I assume I can submit these questions and you
will answer them in writing?
[The following questions submitted by the Hon. Jim Ramstad
and the Hon. Michael Hash's responses are as follows:]
Questions from Hon. Jim Ramstad and Hon. Michael Hash's Responses
Inherent Reasonableness
Question 1. It is my understanding that HCFA received numerous
comments in the spring of 1998 on its interim final regulation setting
forth its IR process and criteria. The comments raised substantive
concerns about the rule, including concerns about HCFA's use of an
interim final rule, adopted before the opportunity to comment, for such
an important subject. In March, Chairman Thomas asked the GAO to
examine HCFA's use of the IR authority. Why did HCFA decide to initiate
a new IR action before responding to the important concerns raised
about the 1998 interim final rule and before the GAO report?
Answer. It was necessary and appropriate for us to issue the
inherent reasonableness regulation in final with comment for several
reasons. The new regulation was merely announcing what the statute
authorized as a procedure change. It did not change the already
existing regulation, except for certain provisions specifically
provided for and clearly stated in the statute. The intent of these
changes was to simplify the process for making inherent reasonableness
determinations. And we believe it would have been irresponsible to
delay implementing this statutory provision and to perpetuate grossly
excessive or deficient Medicare payments.
In response to Chairman Thomas' letter, in which he asked the GAO
to examine HCFA's use of inherent reasonableness authority, we
indicated that we would delay final action on the durable medical
equipment inherent reasonableness proposal until we had the opportunity
to review the GAO's report. As a result, all carrier proposed
adjustments relating to inherent reasonableness have been put on hold.
While we have issued a national proposal, we have no plans to issue any
final determinations before we have reviewed the GAO report.
Question 2. August of this year, HCFA proposed reductions in
payments for certain durable medical equipment and prosthetic devices
based on data obtained from the VA. In doing so, HCFA did not
investigate the prices set through the marketplace.
While an attempt was made to reconcile the differences between the
VA system, a ``device wholesaler,'' and the Medicare program by
applying an adjustment to the median VA price, there is concern that
this approach is flawed. The concerns derive from the fact that the
ways in which manufacturers participate in and sell to each program are
significantly different.
For example, a constituent medical device company has told me that
the proposed markup does not adequately account for the high
administrative costs associated with Medicare claims processing. Given
the burdensome documentation requirements, they employ 26 full-time
staff to process Medicare claims--but less than two employees handle
sales to the VA program. This represents a 13-fold increase in
administrative support per device sold. Other burdens that
differentiate the two programs are: the average payment cycle, which is
20-30 days for VA compared to 4-5 months for Medicare, and the
mandatory rental program for Medicare patients.
What specific considerations were used in applying the adjustments
to the VA payments for determining the Medicare levels? Is it truly
appropriate to use the VA system as a basis for making these
determinations?
Answer. The Veterans Administration (VA) pays for the same type of
medical equipment used by Medicare beneficiaries. In many instances,
the VA is able to purchase equipment for significantly less money than
Medicare can because the VA uses a competitive bidding methodology.
After considering the GAO's report comparing the oxygen payment rates
of the VA and Medicare, Congress lowered Medicare's payment rates for
home oxygen by 30 percent and, thus, gave support to the use of VA
payment amounts as an tool for determining whether Medicare's fee
schedule rates are reasonable. In the case of home oxygen, the VA's
payment amounts were less than half of Medicare's rates. The GAO found
that VA's use of competitive pricing, rather than differences in the
cost of doing business, contributed significantly to the differences in
VA and Medicare payment amounts for oxygen.
For purposes of comparing VA and Medicare payment amounts, we
proposed in our current national inherent reasonableness notice to
increase the VA's median payment amounts by a mark-up factor of 67
percent. The mark-up percentage is based on data furnished to us by
manufacturers as part of our medical device coding process.
In developing our current inherent reasonableness notice, we did
consider suggested wholesale and retail price lists. However, because
of Medicare's predominant role in purchasing health care items, these
``marketplace'' prices may not necessarily be reflective of a
competitive market, but rather how much Medicare is willing to pay
under the fee schedule methodology that has been in place for over 10
years.
Question 3. The IR statute sets forth a more rigorous notice and
comment procedure for adjustments over 15% to ensure that such
significant adjustments are based on appropriate data and are
thoughtfully considered. The statute states that such changes are
measured over the course of a year to prevent HCFA from making multiple
adjustments in a given year without following the more demanding
process.
The agency, however, has adopted a policy that allows it to avoid
that more rigorous process merely by spreading out over successive
years any adjustments of more than 15%. HCFA has employed that policy
more than once in its IR actions to date. For example, in 1998, HCFA
proposed reducing lancets by 20% through a 15% adjustment in the first
year and 5% in the second.
It appears as HCFA is violating the IR statute Congress
established. Please respond.
Answer. As we indicate in our interim final rule, the statute
clearly provides two options for making inherent reasonableness
adjustments. When an adjustment is greater than 15 percent in one year,
procedures similar to those in place prior to the passage of the
Balanced Budget Act (BBA) must be followed. If the adjustment is 15
percent or less in a year, the BBA provided a more streamlined process
and allows either the Secretary or the carriers to propose such a
change. The BBA does not prohibit reductions of 15 percent or less in
successive years.
Outpatient PPS
The BBA requires HCFA to establish a prospective payment system for
most hospital outpatient services furnished on or after January 1,
1999. HCFA staff has indicated that new technology and medical
procedures will be assigned to the lowest payment of the Ambulatory
Payment Categories (APC) related to the treatment or condition.
Question 4. Won't this practice create financial disincentives for
both providers to make the latest medical technological advances
available to their patients and for manufacturers to avoid and/or delay
developing more innovative technical advances in general?
Answer. We will be making significant changes in how we plan to
categorize new technology and medical procedures under the outpatient
department (OPD) prospective payment system (PPS). In cases where it is
possible, if new technology items are similar clinically and in cost to
existing items, a current appropriate APC can be used for placement of
a new technology item. In instances where there is no match with an APC
clinically and on the basis of cost, we expect to use a set of cost-
related APCs for new technology items. These APCs would initially
contain only certain items that are new since 1996, and therefore not
reflected in the 1996 bills used to develop the PPS.
When a new item must be placed in an APC and there is not an
appropriate existing APC, we will use one of the cost-related APCs to
set the payment rate for a period of time (perhaps 2 to 3 year) while
better data about actual costs is collected. Placement in the
appropriate temporary APC would be based on the best available data,
such as a percentage of AWP for drugs, or cost data supplied by device
manufacturers for devices. After 2 to 3 years, the items would be moved
to a permanent APC based on both cost and clinical considerations.
Question 5. When the BBA was passed, 1996 data was the most recent
available to use in calculating APC payment rates. We agreed to this
year because we understood the new PPS system would be implemented in
1999--approximately three years later. However, given HCFA's announced
one-year implementation delay, there is now a four-year window between
the actual year of the data and implementation. Will HCFA use more
recent data--such as data acquired in 1997, or preferably 1998, if it
is available--in refinements to the APC payment categories to more
appropriately reflect advances in medical technology in recent years?
Answer. The law requires the Secretary to use claims data from 1996
and data from the most recent available cost reports in order to
establish relative payment weights under the OPD PPS. In developing the
PPS for implementation in 2000, we are continuing to use claims data
from 1996, as stipulated by the law, but have used more recent 1997
cost reports, if they are available.
After the PPS is implemented, we are required annually to review
and revise the groups and the relative payment weights on the basis of
new cost data and other relevant information. When the new payment
system is in place and hospitals begin to code for services furnished
as required under the new system, more recent data will become a
valuable tool that is used to complete this annual review and make
necessary revisions.
Question 6. The HCFA proposed regulation forces thousands of
outpatient procedures into approximately 340 APC groups. With such a
low number of APCs, it is virtually impossible to achieve comparability
between clinical and relative resources within an APC group. I am told
some procedures will see cuts of up to 56% under the proposed group
compression. Does the BBA specify 340 APC groups, or does HCFA have the
authority to increase the number of APC groupings so that procedures
that are clinically similar and share similar resource costs are
grouped together more comparably?
Answer. The BBA did not specify 340 APC groups. The law allows the
Secretary to establish groups of OPD services within a classification
system so that services classified within each group are comparable
clinically and with respect to the use of resources.
A number of concerns have been raised regarding the variability
within APCs as included in the proposed rule. In developing the final
rule, we plan to make significant revisions to the APCs making them
more homogeneous. We will shift procedures among APCs and create new
APCs when warranted. These changes should reduce the impacts seen for
many items and procedures.
Community Nursing Organizations
Question 7. It is my understanding that HCFA's study only used data
from the ``start up'' years, from 1994-1996. Why does HCFA refuse to
use the data for years beyond 1996, and has HCFA made a copy of its
final report on CNOs available for public review?
Answer. The CNO demonstration project and evaluation were designed
to randomly assign beneficiaries seeking enrollment in the
demonstration project into one of two groups, a control group and a
treatment group. The treatment group consisted of CNO enrollees, while
the control group received care through the traditional fee-for-service
Medicare program. The CNO sites provided data to us covering a 4-year
period from 1993-1997. We believe this is a sufficient time period for
collecting data and conducting a sound evaluation of the CNO
demonstration
In 1997, the CNO sites sought to transfer the control group members
into the treatment group. We advised the CNO sites that doing so would
invalidate any future data that might be collected because the control
group would no longer be available for comparison purposes. Contrary to
our recommendation, the CNO sites transferred the beneficiaries in the
control group into the demonstration treatment group, thus nullifying
the validity of any future data collection efforts.
We expect to receive the final independent evaluation report of the
CNO demonstration shortly. Once we receive it, we will provide a copy
and a summary of the report to Congress and will make them available to
the public.
Question 8. As you know, the CNOs have concerns about the data set
used in the HCFA study and conducted their own study, focusing on high
cost and high volume services, including hospitalizations, ER
utilization, SNF stays and outpatient/physician visits. Have you
reviewed this study? Why does HCFA feel its approach was the
preferential study design?
Answer. We have reviewed the CNO's study design. Their study
examined specific components of the demonstration project in isolation
and did not evaluate the program-wide impact of the demonstration. We
believe that our assessment is preferable to the CNO sponsored study.
Our assessment examined the impact of the demonstration on the Medicare
program as a whole and was performed by independent reviewers who were
not biased towards a particular outcome.
Question 9. HCFA staff has indicated that studies have not found
that the CNOs improve quality of care or reduce health care costs for
enrolled seniors. However, in two recent national studies, the CNOs
have been nominated by experts in the field and selected as ``best
practice'' programs for care of older adults and care coordination
(Mathematica Medicare Coordinated Care Project, Best Practices
Assessment and Demonstration Design, 1999, and the Robert Wood Johnson
Foundation and Ross Laboratories Study of Innovative Programs,
Innovative Healthcare for Chronically Ill Older Persons: Results of a
National Survey, American Journal of Managed Care, 1999). I am also
aware that the Arizona CNO has monitored the health status of new
enrollees since 1998, finding that SF-36 Health Status Scores were
significantly better after one year in all areas.
On the issue of cost, I am aware that while the HCFA evaluation
found that combined, the CNOs provide comparable quality services at a
slightly higher cost than traditional Medicare, a closer look at the
data found two locations yielded cost savings. The total cost of
services per enrollee for the Arizona CNO treatment group was $151.13
less than the control group, and the MN CNO cost Medicare $63.00 per
member per month less than the control group for total hospital, ER,
post-acute rehabilitation and outpatient services by the third year of
the demonstration.
The CNOs utilized their study results to identify ``best
practices'' that can be adopted at all locations and reduce overall
costs. Since the CNOs deliver quality care and can reduce costs, why
does HCFA so strongly oppose this Medicare beneficiary option,
especially since they are so popular with enrollees?
Answer. According to its findings of our independent evaluator, the
CNO model does not cost less than traditional Medicare and, in fact,
increases Medicare trust fund outlays. In addition, our evaluator found
the CNO program had little or no positive impact on the well being of
beneficiaries. As a result of these findings, we do not believe the CNO
model merits replication in the Medicare program as a whole.
You mentioned the Mathematica Policy Research, Inc. (MPR) study.
MPR reviewed best practices for coordinating care in the private
sector. In order to identify as many successful programs as possible,
they cast a wide net. They published announcements in journals and the
Federal Register as well as sent letters to certain programs. MPR
encouraged programs to submit information about their care coordination
practices and any subsequent reductions in program costs.
The MPR review was not a formal evaluation of the CNO program,
however. It was a survey that relied entirely on self-reported
information. MPR did not utilize a comparison group and did not perform
any independent data collection or analysis. The MPR review simply
described common features of successful programs, and did not identify
specific programs as ``best practices.'' You also mentioned the Study
of Innovative Programs, sponsored by The Robert Wood Johnson Foundation
and Ross Laboratories. This study was also a survey and not a formal
evaluation of the program.
In contrast to these two surveys which relied on self-reported
data, our evaluation was based on a carefully designed research
protocol that involved random assignment of participants to treatment
and comparison groups and collection and analysis of data by an
independent third party. We believe our evaluation is the most
appropriate vehicle for assessing the actual impact of the CNO
demonstration.
With respect to cost, our evaluation indicates that the treatment
groups in the CNO demonstration were more costly than the comparison
groups overall. The lower costs in selected areas, as cited by the
American Nurses Association (ANA), were offset by higher costs in other
areas that were not cited in the ANA's report.
Mr. Hash. That is correct. I will be happy to.
Mr. Ramstad. I know a number of members have sent letters
and I have had an HHS staff member in my office to talk about
some of the things that HCFA is doing with the inherent
reasonableness authority Congress gave it.
I see my time has expired. I am very, very concerned about
this authority. I will submit the questions in writing. Thank
you, Mr. Hash.
Mr. Hash. I would be happy to respond, Mr. Ramstad.
Mrs. Johnson of Connecticut. Mr. McDermott.
Mr. McDermott. Thank you, Madam Chair.
Mr. Hash, to your knowledge, is there anything that HCFA
does that is not authorized by law?
Mr. Hash. I hope not.
Mr. McDermott. Basically, everything you do is following
laws that we wrote, right?
Mr. Hash. To the best of our ability, yes, sir.
Mr. McDermott. On the issue of unbundling or anything else,
we are going to have to take the responsibility for unbundling
and let that happen, whatever happens?
Mr. Hash. We want to work with you and be a partner in
addressing those kinds of issues, yes, sir.
Mr. McDermott. If we unbundle in one area, do you think we
will get a request to unbundle in other areas?
Mr. Hash. I think the critical challenge here, Dr.
McDermott, is in fact that we make the changes, whatever
changes we make, on the basis of the best evidence that we have
and we target those changes to where we think the need is
greatest.
Mr. McDermott. I have some concerns in that whole question
of unbundling, having been through this fight a number of times
both here and in the State legislatures.
I was not here when Mr. Lewis asked his question about the
issue of your appropriation, but I understand that the
Appropriations Committee cut back by $70 million the dollars,
the amount that was spent for anti-fraud adjustments. I have
real concerns about this, if you are serious about saving money
in the process.
My understanding is that GAO says that about half the money
that has been saved, actually more than we expected would be
saved, has been from the anti-fraud activities. It is kind of
across-the-board stuff, like coding up, those sorts of things.
Tell me about what your feeling is about then turning around
and giving the providers an increase, when most of the savings
we have gotten has been from cutting out the fraud and the
waste, fraud and abuse in the coding system, or other similar
kinds of ways.
Mr. Hash. I would agree with what you said, Dr. McDermott.
As I said to Mr. Lewis earlier, these cuts are really
devastating. They are, in my judgment, penny wise and pound
foolish. There is abundant evidence that every Federal dollar
invested in fraud and abuse is returned to the taxpayer in the
form of recoveries in multiple amounts over what the investment
is. When Congress set up the fund for fraud and abuse, they set
it up in a special category, in a mandatory appropriation, and
guaranteed stable funding for this important and critical
activity. I think this would be definitely a serious step
backward.
Mr. McDermott. What possible explanation could one make for
why the majority would want to cut a program that cuts out
fraud and abuse and has been effective in more than dollar-for-
dollar numbers? What explanation could there be?
Mr. Hash. I am sorry, Dr. McDermott, but I don't really
have an explanation for you. I am just as shocked and
disappointed about this as you are.
Mr. McDermott. It would seem like they are letting the
pressure off, would it not?
Mr. Hash. I would think so. It would have that effect, yes,
sir.
Mr. McDermott. And so if people know that nobody is going
to come around and look, they can go quite a ways until they
figure, well, we had better tighten up a little?
Mr. Hash. I would agree with that, Dr. McDermott.
Mrs. Johnson of Connecticut. Would the gentleman yield on
that?
Mr. McDermott. Sure.
Mrs. Johnson of Connecticut. One of the big problems is
that the fraud and abuse people, the Inspector General, is
totally ignoring directives from fiscal intermediaries to
providers and charging them with fraud and abuse when they were
acting in conformance, so there are some very serious problems
in what the Inspector General is doing, I would maintain.
Mr. McDermott. It is in our position then, as I hear that,
that the money was unfairly taken from them?
Mrs. Johnson of Connecticut. Absolutely. In some cases, no
question about it.
Mr. McDermott. So the answer to that is then to cut out the
fraud and abuse program?
Mrs. Johnson of Connecticut. That is not the answer, but to
say that there are no problems with the fraud and abuse program
would be really to close your eyes to some of the serious
misactions of the Inspector General. We certainly needed it, we
passed it, I am glad it is there, it is saving money, but there
are serious problems in what the Inspector General is doing, in
some instances.
Mr. Lewis. Mr. McDermott, would you yield, sir?
Mr. McDermott. Surely.
Mr. Lewis. Mr. Hash, you are telling the Committee if you
have this dramatic, unbelievable cut to be able to do something
about abuse and fraud, you are not going to be able to do the
job? It is not a case of the chicken and the egg or the egg and
the chicken, is it?
Mr. Hash. It would have a definite effect on reducing our
efforts that have been very successful in combating fraud and
abuse, no question about it.
Mr. McDermott. So it is the end of your testimony. You
would say you did not do anything that the law did not require
you to do? You have been accused here of going beyond or
somehow misapplying the law. Is that true?
Mr. Hash. We have been trying to apply the law as best we
could, Dr. McDermott.
Mr. McDermott. Fine. Thank you.
Chairman Thomas [presiding]. I believe the operative word
is ``trying.''
Does the gentleman from Louisiana wish to inquire?
Mr. McCrery. Thank you, Mr. Chairman.
Mr. Hash, as you are well aware, the scientific community
sometimes moves faster than the bureaucracy. They develop new
treatments, new drugs, and we certainly all want for our
Medicare recipients to have access to those in a timely
fashion.
Under the new APCs, what is your procedure, your process,
and the timeline that you expect for making adjustments to the
APC to take into account the introduction of new procedures,
treatments, drugs?
Mr. Hash. Mr. McCrery, that is an area that we are
reviewing for the publication of our final rule. But I can tell
you, based on the comments we have received and the folks we
have met with on this very issue of getting advancements
quickly to the bedside or to the clinic site for our
beneficiaries, is a very high priority of ours. We are working
to address that in the most timely way we can in our final
rule.
I will tell you that, as you would see from our proposed
rule of last year, we would immediately allow the assignment of
codes to new advancements, and then under the process that we
use, it is basically to collect the data about the cost, the
charges for new advancements and the use of them over a period
of at least a year so then we can properly assign them, in the
case of an inpatient DRG, to the proper DRG, or, in the case of
the outpatient payments, to the proper APC category.
We want to make sure that process is expeditious, but is
also prudent that we do it on the basis of a database of
charges have accrued over a year.
Mr. McCrery. You expect sometime in the near future to
publish some sort of regimen for that process?
Mr. Hash. Yes, we will be. Our final rule to implement the
hospital outpatient PPS will be coming out at the end of this
year, and that will include specific procedures for how new
things are coded and treated in our outpatient payment system.
Mr. McCrery. OK. Thank you.
Let's talk for a minute about this phenomenon that we have
experienced with the savings in Medicare now projected to be
roughly double what we estimated when we passed the BBA. You
have said in your testimony that there are a lot of other
factors that account for that. Have you been able to isolate
those factors and quantify them?
Mr. Hash. No, Mr. McCrery, we have not. But based on our
own actuary's assessment of the changes in their estimates for
Medicare outlays, and, as you know, based on reports from the
CBO, both have attributed the slow-down in the growth of
Medicare expenditures to fraud and abuse activities in
particular, to changes or lower inflation because of a strong
economy, and, to some degree, the changes of the BBA, which
have slowed down, in some cases, payment processes because we
have changed them a lot.
All of those factors work together, plus the BBA policies
themselves, and have had this combined effect of changing the
rate of growth in Medicare expenditures.
Mr. McCrery. The changes in the rate of payment would be
anticipated now in the estimates for the next 4 years, the next
3 years, I guess. So that really should not enter into the
discussion of why the 5-year figure has doubled, basically.
Of the other reasons, have you been able to come up with a
percent of the total increase that they constitute?
Mr. Hash. We have not, Mr. McCrery.
Mr. McCrery. Don't you think that would be worthwhile for
us to try to isolate what the changes in BBA account for in
terms of that increase in savings, so that we would get a firm
handle on how wrong we were in our estimates with respect to
the spending cuts for Medicare?
Mr. Hash. As you can appreciate, this is--and I am
certainly not an actuary or estimator, but this is an
exceedingly challenging area, and one, as I understand it,
that--the estimates, for example, that were made about the
impact of the BBA in August 1997 were the best estimates that
could be made at that point in time. But as time goes on and
data come in and more information is available, there are new
point-in-time estimates. You cannot compare them in the sense
of, oh, those very same BBA estimates are locked in for the
full 5-year period and that anything else that occurs is
outside of that.
It is very difficult, and I think my colleagues who are
following me on the next panel would be much more qualified to
answer this question of how you distinguish the factors that
account for decreases in Medicare expenditures.
Mr. McCrery. Thank you.
Thank you, Mr. Chairman.
Chairman Thomas. Mr. Hash, you may be acting administrator,
but you are learning fast. You just pass that buck. We
appreciate that.
Does the gentlewoman from Florida wish to inquire?
Mrs. Thurman. I do, Mr. Chairman. Thank you.
I want to go back to the APC issue a little bit. Is it my
understanding, then, that you actually can do these changes
administratively?
Mr. Hash. Are you referring to----.
Mrs. Thurman. Drugs, new technologies?
Mr. Hash. We have a great deal of discretion in the design
of the outpatient payment system; and based on the comments we
have gotten on our proposed rule, we are anticipating making
significant changes in the design of the payment system when we
publish it finally.
Mrs. Thurman. You think you can take care of the issues
where new drugs are coming on the market and are costing more
than what they would be getting today under the old medicines?
Mr. Hash. Right. I do believe we can, Mrs. Thurman. That is
one of the reasons, I think, we felt that the proposed rule did
not adequately reflect the cost of some new drugs, particularly
those that have come on in recent years. It was our decision to
hire an external contractor to go out and actually gather real
prices in current time on selected drugs that are very
important and are high-cost to Medicare beneficiaries.
Mrs. Thurman. Then within the new technology area as well?
Mr. Hash. That would be right. Similarly, there are
important issues about how new devices, and those kinds of
things, how they get coded and how quickly they get
incorporated into the outpatient payment system.
Mrs. Thurman. OK.
Mr. Hash, in our GAO report we are going to be told that in
the area of some of our home health care issues that they found
little evidence that beneficiary access to services was
inappropriately curtailed. Actually, that may not be--yes, GAO.
We have a lot of home health care issues in our area. I have
some questions to ask you. Has HCFA seen the higher-cost
patients losing access to home health care?
Mr. Hash. We don't have any systematic evidence about that,
but of course we have received reports that those kinds of
patients may be having some difficulty. In fact, we met with a
number of advocacy groups on these home health access issues.
One of the things that was reported to us time and time
again was that home health agencies would tell beneficiaries
that they could not get any additional services because they
had reached their cap. There is no individual beneficiary cap.
We have tried time and time again through communication with
home health agencies and, of course, with beneficiaries, to the
best we can, to impress upon them that no agency would be
correct in telling a Medicare beneficiary that they have
exceeded a cap that is a per person cap. That is just not
correct or accurate.
Mrs. Thurman. Have we noticed--I am concerned that we are
cost-shifting now into a higher cost within nursing care
admissions. Have we seen any evidence of more admissions into
nursing care?
Mr. Hash. Not yet. In fact, actually both the admissions to
nursing homes and the days, the stays, are actually continuing
to decline.
Mrs. Thurman. OK. What about emergency admissions? Or
rehospitalization?
Mr. Hash. I don't have that data, but I would be happy to
try to get something for you to address that.
[The response follows:]
Response by Michael Hash to a Question from Hon. Karen L. Thurman
Question. What about emergency admissions? Or
rehospitalizations?
Answer. We have asked the HHS Inspector General (IG) to
conduct a study on emergency room use and hospital readmissions
for home health patients following the passage of the Balanced
Budget Act. We are working with the IG to provide the necessary
data to determine if these patients are returning to the
hospital more frequently than in the past.
We have looked at hospital discharge rates, and we have not
noted that there has been a slowdown in the movement of
patients out of the hospitals, either to nursing homes or to
home health services, as opposed to a hospital.
Mrs. Thurman. Besides just maybe the skilled nursing homes,
what about those that would be long-term care?
Mr. Hash. I think actually, because the standards for
admission, if a patient doesn't need a skilled level of care,
or are lower, then our expectation would be that those are
patients that are probably not being as directly impacted by
the BBA as those patients with a higher acuity level.
Mrs. Thurman. I just want to add and echo the sentiments of
many of my colleagues up here on the physical therapist issue,
particularly with Mr. Cardin on this issue of outpatient
hospitals getting it, and the nursing care. That is a very
difficult situation. Is that something we need to do or, again,
is that something you can do administratively?
Mr. Hash. I believe that is a legislative issue, but one on
which we want to work and provide help in identifying how to
address that issue.
Mrs. Thurman. Thank you.
Chairman Thomas. The gentleman from Pennsylvania, does he
wish to inquire?
Mr. English. Thank you, Mr. Chairman.
Welcome, Mr. Hash. I noticed on page 4 of your testimony
that you extensively outlined what you have proposed to do as
far as rural hospital reclassification, to address the fact
that many rural areas have traditionally been poorly reimbursed
for certain procedures.
I noticed, however, in your discussion of the Medicare
Medicare+Choice program you don't have a similar discussion of
how Medicare+Choice reimbursements, based on some of those old,
unilateral formulas, might be reconsidered.
I note in your discussion and exchange with the Ranking
Minority Member that you testified that low reimbursements do
not account for managed care exiting certain markets, in your
view. Yet our experience in northwestern Pennsylvania with a
product called Security Blue--and I know you are very much
aware of this because your staff has met with my office, and I
appreciate that--our experience with Security Blue has been
that the Blues have been obliged to dramatically truncate the
prescription drug benefit that they offer to seniors and are
able to point to huge differentials within our region, a huge
differential in how Medicare+Choice is reimbursed in Erie,
Pennsylvania, Meadville, Pennsylvania, Sharon, Pennsylvania,
versus Butler, Pennsylvania, which just happens, although it is
neighboring on those areas, to also be neighboring on a high-
cost area.
So my question is, how are you adjusting or considering
adjusting reimbursement levels for Medicare+Choice programs in
historically-low reimbursement areas, like the bulk of my
congressional district?
Mr. Hash. I am glad you asked that question, Mr. English. A
fundamental component of the President's Medicare reform plan
is a very significant change in the way in which the Medicare
program determines capitation payments for Medicare+Choice
plans.
In short order, what it does is provide the opportunity for
health plans to bid to the Medicare program what they believe
to be their costs for delivering the services, so that we move
away from the administered pricing formula that is established
in the statute now.
In addition, I think, in the short run, the BBA itself
intended, I believe, to narrow the range of disparity that was
a reflection of those health care costs that produce such
widely varying capitation rates under Medicare+Choice.
There is beginning to be a significant narrowing of those
rates under current law. But I think our view is that we really
need to move to a system that is more market-based in the
determination of those capitation rates, and that is what is
called for in the President's reform proposal.
Mr. English. I will examine your proposal carefully.
Let me say, having, on a separate point, viewed your
exchanges with the gentleman from Washington State and the
gentlewoman from Connecticut, I wonder, how do you hold your
fiscal intermediaries responsible for their actions when they
make errors that have dramatic impact on providers, for
example, a change in interpretation in a particular rule which
has a dramatic impact on hospitals? You may even be aware of
the one I am referring to. How do you hold the FIs responsible
in cases like that?
Mr. Hash. Mr. English, we do, in fact, have performance
evaluation standards built into the contracts that we have with
fiscal intermediaries and carriers under the Medicare program.
We are in a position to use performance, for example, does the
contractor meet standards or not, and to terminate those
contracts and give the business to other contractors who can
meet our standards.
Mr. English. In the case of a State that is facing a ruling
which is leading to a massive retroactive demand for
reimbursement, does that mean you are reassessing the role of
your fiscal intermediaries in that State, and is that part of
your internal operation?
Mr. Hash. The first step, in the particular case you are
talking about, was to correct----
Mr. McDermott. Mr. Chairman, could we have a clarification?
We are having a discussion about something most of us don't
know what you are talking about.
Mr. English. This has to do with a ruling with respect to
DSH payments and the inclusion of general assistance population
in the formula.
Mr. McDermott. All right. Thank you.
Chairman Thomas. Let me clarify so you have a better
understanding.
In Pennsylvania, for sure, and perhaps in one or more other
States, the States have a payment structure which does not
differentiate between the seniors and the general assistance
program, and that the numbers that were counted for fiscal
intermediaries required the counting, and it created a payment
disparity. It was the fiscal intermediary who created that
payment disparity.
HCFA is now indicating that particular States are
responsible for what became overpayments because of the
inclusion of people who would be on the ordinary Medicare count
number.
The gentleman from Pennsylvania quite properly, I think, is
indicating that he believes that the fiscal intermediaries are
employees, in essence, contractual, with HCFA. And whose
responsibility is it? And if, in fact, there was an error made,
does that error, amounting to millions of dollars, now laid at
the feet of Pennsylvania, constitute sufficient grounds for
HCFA to examine the fiscal intermediaries' competence in terms
of carrying out the program? And probably more importantly, is
Pennsylvania going to wind up holding the bag? Is that a fair
assessment?
Mr. English. Mr. Chairman, that is a marvelous summary.
When you consider the retroactivity involved and the burden
falling on providers that are the providers to some of the most
indigent parts of our population, the finding of the fiscal
intermediaries is truly extraordinary in this case.
Chairman Thomas. And that in fact you believe you are not
at fault, that it is the fiscal intermediaries--the fiscal
intermediary who is at fault?
Mr. English. Mr. Chairman, it was an established policy by
which Pennsylvania was being reimbursed and other States.
Chairman Thomas. That was the question.
Mr. Hash.
Mr. Hash. Yes. The situation in Pennsylvania, as I
understand it, is, after an investigation of what had gone on
there, it was ascertained that, in fact, the policy being
applied, both in terms of what the State was reporting in terms
of these days as well as what the intermediary was requiring in
their audit of hospital cost reports, was not in conformance
with the law. Under those circumstances, we don't have any
other recourse other than to recover payments that are made
that are not consistent with the authority in the law.
Mr. English. Mr. Hash, as you know, in this case the law
was not only established but had long been recognized as
providing for this kind of reimbursement. That had been the
existing policy. To change policy at some point and to go back
in and retroactively impose an enormous financial burden on a
particular set of providers is unconscionable. I think you
would have trouble finding any legislative intent to support
it.
Mr. Hash. I can only say, in response, that it was never
our stated policy. I agree with you that the intermediary
contractor in this case improperly administered it. We never
established a policy any different than the policy that is
established in the law.
Chairman Thomas. I would just tell the gentleman that his
time has expired. I think we have laid it on the table
sufficiently.
The idea that at certain times fiscal intermediaries are at
fault and other times they are not is a policy which makes it
very difficult for us to really understand and appreciate.
One of the reasons the gentleman from California and the
chairman are cosponsoring a Medicare coverage and appeals bill
which will, No. 1, shorten the time line so Medicare
beneficiaries can have the same privileges most private health
care plans have in adjudicating concerns, and that if, in fact,
a fiscal intermediary conducts themselves in a particular way
in a particular area and that problem is corrected, instead of
just that individual in that area, as current law allows,
getting that benefit, that benefit would then extend to all
beneficiaries in all regions.
The harmony and the need to carry out a universal decision-
making structure was the reason, and those people who follow
this area fairly closely know that. If the gentleman from
California and the gentleman from California cosponsor
legislation, it is overdue and needed. That is sufficient in
that area.
One last point, and then I will let you go. Then we will go
to those people that you passed the buck to.
On page 14, you indicate that in the Medicare+Choice area
that you cannot make the risk adjustment budget-neutral. You go
on then to indicate the taxpayers who fund it would find this
unacceptable, et cetera.
I just have to tell you that the broad-based taxpayer
funding base for this proposal, the general fund, is certainly
a broader base, and the burden carried by each of those
taxpayers is significantly less than the dollars the Medicare
beneficiaries have been paying out of pocket for the outpatient
payment overcharge, which has been going on for more than a
decade, in which there seems to be some examination of the
possibility of making it budget-neutral.
In addition, the conclusion in that paragraph says that,
``over the 5 years we are phasing it in, if health plans
maintain their current mostly healthy beneficiary mix,'' my
understanding is that the law requires these plans to sign up
all comers. Are you suggesting there that the plans in some way
screen so that they get a mostly healthy beneficiary mix? The
``if '' really concerns me. ``if health plans maintain their
current mostly healthy beneficiary mix,'' as though they have
the ability to do that, did you intend that in terms of the way
that was phrased?
Mr. Hash. Not at all, Mr. Chairman. What is intended by the
``if '' in that sentence is that if one is relying on the
estimates of the impact of the risk adjustment on which the
estimates are based, with no change in the composition of the
enrollees in those health plans over the next 5 years, it could
be that if that composition changes and there are, for example,
beneficiaries with higher health care needs who enroll in
larger numbers than Medicare+Choice plans and then that impact
will be considerably lower.
Chairman Thomas. My concern is that we ought to look at
every possibility to make sure that we don't have disruptions
of services, including an examination of a potential budget-
neutral adjustment for a short period of time.
I appreciate the administration's concern about taxpayers
on one page, and the total ignoring of the beneficiaries' out-
of-pocket costs that have gone on for more than a decade and
very little sympathy for them, and the fact that perhaps this
area might be budget-neutral as well. I am looking, as the
gentleman from Pennsylvania is, for evenhandedness across the
board in dealing with these problems.
Mr. Hash. We are, too, Mr. Chairman. I would just like to
say that we join you in every bit of concern that you expressed
on behalf of the beneficiaries and their out-of-pocket expenses
associated with outpatient payments. I would say that all of us
who have been involved in public policy, in public life, both
the administration and the Congress, on all sides, share a
responsibility for not addressing this problem earlier.
Chairman Thomas. Thank you for that statement. Thank you.
Basically what you are saying is that what you have written is
not necessarily what you mean, because sometimes there was a
failure to go into the detail and sometimes too much detail. I
understand that.
The gentleman from California wants to make a point.
Mr. Stark. Mr. Chairman, I would like to say, directed to
you and Mike, that it was brought to my attention that we only
have a growth of $5 billion that we can spend without
triggering, under pay-go, a sequester. The limit is $2.78
billion in 2000, and it drops $1 billion to $37,000,000.
It is my further understanding that the first one to get in
under the wire, will not be sequestered. If we got down to the
White House with $5 million in paybacks, then, subsequently,
the Defense Department came in later, ours stays in; their's
goes out. I am just wondering if Mike's department has been in
touch with CBO on this, or, I am sorry, OMB, whose numbers
prevail in this instance?
It seems to me we may be living here in a bit of a paradise
which may not exist, unless the Chair knows some way out of
that one. If we are sitting here, as we are sitting, if the
Committee on Agriculture is up there spending an extra $5
billion we are not looking for and they get to the White House
first, we may be out of luck entirely.
I just would ask either the chairman or Mr. Hash if they
are familiar with this procedural roadblock we may be facing?
Chairman Thomas. Would the administration like to respond
in terms of where they place Medicare beneficiaries vis-a-vis
other programs?
Mr. Hash. We place them right where you do, Mr. Chairman,
right at the forefront of our priority.
I am not familiar with these numbers. I apologize, Mr.
Stark. But I would be happy to follow up with a discussion
about the implications of this. I am not prepared to at this
point.
Chairman Thomas. The Chair made an initial statement about
the question of income security and the reconciliation plan
that has been passed by the Congress, especially section 202,
which refers to both Social Security and Medicare as part of
that retirement security.
There are accounting terms that are referred to, like FIFO,
first in, first out, or LIFO, last in, first out. I think those
are not appropriate in dealing with the problems that we face,
where we identify needs. This chairman is much more concerned
with the administration's willingness to carry on a shared
responsibility.
The gentleman mentioned a dollar amount. If the
administration is willing to carry 50 cents on the dollar of
that amount, we will carry 50 cents on the dollar, and
combined, it could be a reasonable and appropriate adjustment.
It is going to be difficult for the Congress to carry 100 cents
on the dollar for a number of changes, especially where we
believe the administration can make adjustments that would
assist significantly in the total dollar amounts that needed to
be found.
This chairman is not operating on any timeline or felt need
to beat somebody somewhere. The needs are going to be examined.
The needs are going to be assessed and the needs are going to
be taken care of, and I have full confidence that whatever
dollar amount we find will be covered in whatever way it needs
to be covered.
Mr. McDermott. Mr. Chairman, may I ask one short question?
Chairman Thomas. Yeah.
Mr. McDermott. A yes or no question.
Chairman Thomas. Yes or no question, oh, I love those. Go
ahead.
Mr. McDermott. Have you been consulted on any legislation
to be presented to the Congress in this session at this point?
Mr. Hash. Consulted by Members of Congress?
Mr. McDermott. By this committee.
Mr. Hash. We have been working with the staffs, staffs on
both sides of the aisle, with regard to----.
Mr. McDermott. But have you seen language is what I am
talking about?
Mr. Hash. I have not seen language yet.
Mr. McDermott. OK. Thank you.
Chairman Thomas. Thank you, Administrator.
Mr. Hash. Thank you, Mr. Chairman.
Chairman Thomas. Now if the folks the buck has been passed
to would come forward. The chair of the Medicare Payment
Advisory Commission. At least this time she appears before us
in that capacity, Dr. Wilensky, and our friend from the General
Accounting Office, the Director of the Health Financing and
Public Health Issues area, Dr. Bill Scanlon.
As is usually the case, any written testimony you have will
be made a part of the record. You can address us in any way you
see fit orally during the period that you have, and Gail, we
will begin with you and then move to Bill. Thank you for being
with us.
STATEMENT OF HON. GAIL R. WILENSKY, PH.D., CHAIR, MEDICARE
PAYMENT ADVISORY COMMISSION AND FORMER ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION
Ms. Wilensky. Thank you, Mr. Chairman and Members of the
Committee. I am pleased to be here to talk about potential
reasons to the Balanced Budget Act. I am here as chair of
MedPAC, representing the Medicare Payment Advisory Commission.
I want to spend the few minutes I have to talk about what
we know and what we don't know, as of yet, about what has
happened as a result of the Balanced Budget Act, both to the
providers of services to seniors and to some of the health care
plans. I would like to review some of the recommendations that
MedPAC has made and also some of the options that you may want
to consider as you go forward.
As you know and as you heard again from Mike Hash, the
actual spending under Medicare has been growing at a slower
rate than was anticipated, substantially slower. There are at
least three reasons for the slowdown.
He mentioned the one that is probably the most important,
that is, fraud and abuse. CBO has estimated as much as half of
the slowdown has been because of behavior changes in billing as
a response to very aggressive actions by the Inspector General
and the Department of Justice on fraud and abuse. A second
reason is the ``deer in the headlights'' phenomenon. We have
seen this before, when DRGs were put in place in the eighties,
where for the first year or two hospital spending slowed
dramatically, they didn't replace people who had left, slowed
down capital expenditures, etc. The slow down from this was
probably temporary, and some of the slower processing of bills
is also temporary, unlike the fraud and abuse response which
may well persist.
Having acknowledged the slowdown, we really don't know very
much about what the slowdown has meant in the sense of what
changes are from Medicare as opposed to changes that are coming
from the rest of health care, such as aggressive pressure from
managed care and other types of health care plans. You know we
are frustrated by our lack of data. You may or may not know
that HCFA and MedPAC are working together to try to resurrect
something like the hospital panel data so that when we report
to you in March, we will not only have the 1998 cost reports,
but we will have some snapshot data that will be much more
current. It won't be perfect but we are tired of saying we are
only looking at 1997 data and are trying to actually do
something about that.
Let me mention home care. This is an area that has come up
in a number of discussions. What we know is that homecare is an
area where we saw very rapid growth for 10 years, from 1986 to
1996. Since then, the spending has slowed down substantial.
Some homecare agencies have closed. Fewer people are receiving
services, but we really don't know very much about what these
changes mean. This is because the data is unadequate and the
guidelines for coverage are not very clear; all we can really
say is that spending is somewhat slower than it was after a
period of very rapid growth. I will come back to this in a
minute.
MedPAC is also concerned about the plan withdrawals from
Medicare+Choice. This is a complicated area. The plans have
raised some concerns about changes in regulations, the
uncertainty about dealing with government as a business
partner, the potential for yet more changes, as indicated by
the President's proposal in June, which would completely revamp
once again how at-risk plans would interact with the
Government. They are also concerned about risk adjustment.
The question now is what kind of changes to the BBA might
make some sense. Let me offer some suggestions. There are three
that I would put at the top of my list. In discussions with
other commissioners, there seem to be widespread agreement that
these three are the most important.
The first concerns nursing homes. There is widespread
belief that the payments for the sickest patients under the
current medical classification system is too little. One of the
members commented that there hasn't been an increase in nursing
home admissions in the discussion about home care. I would say
that this shouldn't necessarily be regarded as a good sign. The
fact that there has not been increases in nursing home
admissions or in the time that people are in nursing homes may
suggest they are not getting pushed out of home care and into
nursing homes, but it may also be reflective of problems in
nursing homes. This is an area I would put high on my list, if
you are going to make any change at all.
A second area concerns about outpatient therapy caps. You
have already heard about this. Let me remind the committee that
there was a problem you were trying to fix. There was a concern
that this was an abusive area in Medicare. The problem, as I
see it, is that there is no relationship between the cap and
the clinical indicators of the patient. This is what you ought
to try to fix. To just dismiss the notion of a cap would be too
extreme. It would be better to try to moderate how the therapy
cap is implemented. Having the cap only effective for Part B
covered people who are in nursing homes, after their Medicare
coverage of a hundred days, is to hit the most vulnerable who
have no other place to seek therapy option. This needs to be
changed.
The third are concerns about outpatient prospective
payment. Payment to the outpatient part of hospitals was
reduced in 1998. If the prospective payment system goes forward
as now is scheduled in July, there will be a further reduction
of some 5.7 percent. There is also no phase-in, to its
implementation. MedPAC is also concerned about the aggregated
nature of the classes that HCFA has proposed. Our
recommendation is to reduce the hit on payments, if possible,
and phase-in the prospective payment system. Phasing in is
almost always our recommendation. As I've said, we are
concerned that the classes are too large, which means HCFA will
overpay some procedures or visits and you underpay others. That
is an invitation to bad activities.
There are a couple of other areas that we think should be
changed if you can also accommodate these changes. The
physician community has been concerned that there is no
adjustment for projection errors in the calculation of the
sustainable growth rate. That means any errors accumulate over
time. We recommended in our 1999 report that this be changed.
We have also been concerned that the GDP plus zero growth rate
is quite low and have suggested that it be increased slightly
to accommodate scientific advances. This is something you have
heard from us in the past as well.
And while I strongly support the notion of risk-adjusting
plans, the rate at which you phase-in risk adjustment can be
debated. HCFA picked 5 years. That was arbitrary. MedPAC has
been concerned that the risk-adjustment strategy only relies on
inpatient data. If a plan has expenses that keeps seniors out
of the hospital, like some of the disease management
activities, this increases plan expenses in the current year
and then the plan gets reduced payment if seniors are kept out
of the hospital because of actions the plans have undertaken.
HCFA has indicated they will try to respond to this problem but
as yet I haven't heard any response about what they are
planning to do.
Once again, let me say that partial capitation which blends
fee for service and a capitation payment, might be an answer.
It might reduce the plans' uneasiness that if they get some
sicker patients, than is demonstrated by our very imperfect
risk-adjustment mechanism, that they wouldn't get hit so hard.
Partial capitation also encourages them not to skimp on
services.
In sum, I think there is a rationale for making some
adjustments to the BBA. The first three I mentioned are the
ones that are most compelling, but there are some others as
well, depending on how much additional funding you think is
appropriate. Thank you.
[The prepared statement follows:]
Statement of Hon. Gail R. Wilensky, Ph.D., Chair, Medicare Payment
Advisory Commission, and former Administrator, Health Care Financing
Administration
Good morning Chairman Thomas, Congressman Stark, members of
the Committee. I am Gail Wilensky, chair of the Medicare
Payment Advisory Commission (MedPAC), and I am pleased to
participate in this hearing looking at refinements to the
Medicare provisions in the Balanced Budget Act (BBA) of 1997.
My testimony describes what we know and do not yet know about
the implications of the BBA for Medicare beneficiaries, health
care providers, and Medicare+Choice plans. I will also discuss
recommendations that MedPAC has made this year and other
options you may wish to consider.
The changes enacted in the BBA and implemented by the
Health Care Financing Administration (HCFA) reduced Medicare
payment rates relative to what they would have been otherwise
for most providers and for Medicare+Choice plans in many areas.
Not surprisingly, these changes have generated concerns among
providers and health plans about their effects. Providers' and
plans' concerns frequently have been heightened by their
perception that the effects have been more harsh than the
Congress intended, or that the effects, while intended, have
nonetheless imposed burdens, and that there are specific
problems with how HCFA has implemented the law.
Summary
A greater than expected slowdown in Medicare spending began in
fiscal year (FY) 1998 and has continued this year. Medicare spending
rose only 1.5 percent last year, compared with a projection of 5.7
percent by the Congressional Budget Office when BBA was enacted.
Through the first 11 months of FY 1999, outlays ran about 1 percent
below the FY 1998 rate for the same period.
Unfortunately, we cannot draw definitive conclusions about what the
slowdown in spending means. Almost two years have gone by since the
first BBA policies were put in place, but systematic data for this
period are still extremely limited. Moreover, we cannot easily isolate
the effects of the BBA from other changes in policy or market
conditions. For example:
Hospitals have argued that the changes in Medicare
payments are reducing their margins and impinging on their ability to
provide quality care. But the most recent complete information we have
for the Medicare program is from FY 1997, the year before the BBA took
effect.
For home health services, we have seen lower than expected
outlays, closures of home health agencies, and declines in the use of
services. But our interpretation of these findings is clouded by other
policy changes, notably efforts by HCFA and the Department of Justice
to cut down fraud and abuse and by the lack of clear eligibility and
coverage guidelines for home health care.
Widely publicized withdrawals of plans from the
Medicare+Choice program suggest that the program is not achieving the
goals its authors intended. But managed care enrollment has continued
to grow--albeit at a slower rate--since the BBA was enacted. Moreover,
the pattern of withdrawals suggests that factors in addition to
Medicare's payment rates are playing a role.
The BBA had ambitious objectives. For Medicare's fee-for-service
program, it aimed to modernize payment systems and slow the growth in
spending, while preserving Medicare beneficiaries' access to high-
quality health care. For Medicare's managed care program, the BBA
allowed new types of plans to participate and instituted new
requirements intended to enable beneficiaries to choose more
effectively among their health plan options. To expect legislation this
sweeping to achieve all of its objectives flawlessly is unrealistic. In
some cases, targeted changes in statute or regulation could improve
Medicare's payments and access to care for beneficiaries. But the
complaints of providers and health plans notwithstanding, we have no
evidence that wholesale changes in the BBA are either necessary or
desirable.
How did the BBA change payments to providers?
The BBA enacted the most far-reaching changes to the Medicare
program since its inception. The law reduced payment updates or
otherwise slowed the growth in payments to virtually all fee-for-
service providers. The law established, or directed to be established,
new prospective payment systems for services provided by hospital
outpatient departments, skilled nursing facilities, and home health
agencies, and it revised the mechanism for updating fees for physician
services. Finally, the BBA changed the way base payment rates are
determined for health plans participating in the Medicare+Choice
program and directed HCFA to implement a new system of risk adjustment
that accounts for beneficiaries' health status.
Inpatient hospital services
The BBA changed payments for inpatient hospital services in
a number of ways. For hospitals under Medicare's prospective
payment system (PPS), the law provided for no update to
operating payments in FY 1998 and limited updates from FY 1999
through FY 2002. It required phased reductions in the per-case
adjustments for the indirect costs of medical education (IME)
and, temporarily, for hospitals serving a disproportionate
share (DSH) of low-income patients. And it instituted a new
transfer policy for 10 high-volume diagnosis related groups
(DRGs), reducing the payment rates when hospitals discharge
patients in these DRGs to post-acute care facilities following
unusually short stays.
By themselves, lower updates would have slowed the growth
in payment rates to hospitals for inpatient services but would
not have reduced them. In FY 1998, however, the combined effect
of the freeze on payment rates, smaller IME and DSH payment
adjustments, and a small decline in the case mix index reduced
payment rates in absolute terms. Payment rates should begin to
increase again in FY 1999, albeit at a slower rate than would
have occurred in the absence of the BBA.
Outpatient hospital services
In addition to changes in payments for inpatient services,
the BBA also enacted major changes in Medicare's payments for
services provided in hospital outpatient departments. It
eliminated the so-called formula-driven overpayment under which
Medicare's payments did not correctly account for
beneficiaries' cost-sharing and extended the reduction in
payments for services paid on a cost-related basis. The law
also directed the Secretary to establish a prospective payment
system for services that have been paid at least partially on
the basis of incurred costs.
Hospitals have not yet felt the full impact of the BBA
provisions affecting outpatient services. MedPAC estimates that
elimination of the formula-driven overpayment, which took
effect in 1998, reduced payments by about 8 percent. However,
the PPS that was to have gone into effect in January 1999 will
not be put in place before next summer. HCFA originally
estimated that the PPS would reduce payment rates by 3.8
percent, on average, but has since revised its estimate of the
reduction to 5.7 percent. These estimates likely overstate the
ultimate reduction, however, as hospitals will have an
incentive to code outpatient services more accurately than they
do now.
Services in skilled nursing facilities
The BBA enacted a PPS for services provided in skilled
nursing facilities (SNFs). These services had previously been
paid on the basis of costs, subject to limits on routine
services. Under the new system, payments are intended to cover
the routine, ancillary, and capital costs incurred in treating
a SNF patient, including most items and services for which
payment was previously made under Part B of Medicare. Patients
in SNFs are classified under the Resource Utilization Group
system, version III (RUG-III), which groups patients by their
clinical characteristics for determining per diem payments.
The new payment system slows spending growth for SNF
services by moving these facilities from cost-based
reimbursement to federal rates that are based on average
allowable per diem costs in FY 1995, trended forward using the
increase in the SNF market basket index less 1 percentage
point. Because nursing home spending--particularly for
ancillary services--grew rapidly between FY 1995 and FY 1997,
using FY 1995 as the base for payment purposes reduced payments
for many nursing homes. The PPS is being phased in over a four-
year period that began in 1998. Payments in FY 1999 are based
on a 50/50 blend of federal rates and facility-specific rates
and will be based entirely on the federal rates beginning in FY
2001.
Home health services
Before the BBA, home health agencies were paid on the basis
of costs, subject to limits based on costs per visit. The BBA
directed the Secretary to implement a prospective payment
system effective October 1999--since delayed by the Congress to
October 2000--and established an interim payment system (IPS)
intended to control the growth in spending until the PPS was in
place. The IPS reduced the limits based on costs per visit and
introduced agency-specific limits on average costs per
beneficiary based on a blend of agency-specific costs and
average per-patient costs for agencies in the same region. Home
health agencies are now paid the lower of their actual costs,
the aggregate per-beneficiary limit, and the aggregate per-
visit limit. Agencies' per-beneficiary limits are based on
their average costs per beneficiary in FY 1994, trended forward
using the home health market basket index. As with nursing
homes, home health spending grew rapidly in the mid-1990s. For
this reason, using FY 1994 as a base for payment led to
substantial payment cuts for some home health agencies.
Physician services
The BBA replaced the volume performance standard system
that had been used to update physicians' fees with a new
sustainable growth rate (SGR) system. It also introduced a
single conversion factor for all physician services that
reduced payments for some services while increasing them for
others. Finally, the BBA established requirements for payments
to physicians for their practice costs.
Unlike some of the other provisions of the BBA, changes to
Medicare's payments to physicians occurred almost immediately.
Starting on January 1, 1998, the single conversion factor was
implemented along with the first step toward revising practice
cost payments. The effects of these changes were largest for
some surgical procedures, such as cataract surgery and some
orthopedic procedures, where payment rates fell by 13 percent
or more. Payment rates for other services went up, however.
Payments for office visits and some diagnostic services
increased by at least 7 percent.
Medicare+Choice plans
Before enactment of the BBA, Medicare's payments to private
health plans participating in the section 1876 risk contracting
program were based on the average payments made on behalf of
beneficiaries in its traditional fee-for-service program living
in the same county. The BBA severed the link between county-
level trends in fee-for-service spending and payment updates to
plans by instituting a floor under county payment rates,
blending local and national payment rates (subject to a so-
called budget-neutrality provision), and removing the component
of base rates attributable to spending for graduate medical
education. Overall, the law limited updates to payment rates in
all counties by slowing the rate of growth in national fee-for-
service spending and by subtracting a specified factor from
that rate. The blending policy raised updates in some counties
but reduced updates in others.
In addition to changes in base payment rates, the BBA
required HCFA to implement a new system of risk adjustment that
takes into account the health status of the beneficiaries that
plans enroll. The law laid out a very tight time schedule,
requiring HCFA to implement the new system by January 1, 2000.
The system that HCFA has proposed will raise payments for
certain enrollees who were hospitalized in the year preceding
the payment year and will reduce payments for other enrollees.
The amount of the higher payments will depend on the principal
diagnoses associated with hospital admissions. HCFA has
proposed to phase in the new system over a five-year period and
has estimated that other things being equal, the new system
would reduce payment rates by 7.6 percent on average at the end
of the phase-in.
What has been the impact of these payment changes?
Providers' and plans' concerns are clearly relevant to any
assessment of the BBA. But at the same time, we must remember that the
primary objective of the Medicare program is to maintain access to
high-quality care for beneficiaries. Assessing the implications of the
BBA should therefore focus on whether access to or quality of care has
been hampered and, if so, what can be done about it.
In evaluating the potential impact of the BBA on access and
quality, two issues seem especially important. One is how policies may
interact to affect providers' ability and incentives to furnish care.
Hospitals, for example, often furnish many types of services and must
therefore face the combined effects of policy changes that have altered
payments for virtually every service they provide. Medicare+Choice
plans face changes in the way base payment rates are calculated, new
requirements for participation, and future changes in payments arising
from the introduction of a new risk adjustment system.
A second issue is whether the new payment systems adequately
reflect predictable differences in patient care costs. Industry and
other analysts have raised this issue with regard to the IPS for home
health agencies and the prospective payment systems being developed for
outpatient hospital services and being phased in for SNFs. Where
predictable differences in costs are not taken into account, financial
incentives are created for providers to deny access to care or under
treat identifiable groups of patients.
Sorting out the effects of multiple changes in payment policies and
the introduction of new payment systems on beneficiaries' ability to
obtain the medical services they need is challenging in two important
respects. First, many BBA changes have not yet been fully phased in,
and data to evaluate the impact of recent changes are in many cases not
yet available. Second, measuring access to care is difficult. Because
directly measuring appropriate beneficiary use of services is hard to
do with existing data, policymakers often look at determinants of
access, such as provider availability and willingness to serve Medicare
beneficiaries, as well as the nature and extent of other barriers to
access that beneficiaries face. Interpreting the findings of these
analyzes can be difficult, however, because we cannot isolate the
effects of changes in Medicare policy from the effects of other changes
in health care financing or delivery arrangements.
Financial impacts
During the past year, various indicators have been cited as
measuring the financial impact that the BBA is having on providers. The
hospital industry, for example, has issued several reports analyzing
the impact of the BBA on hospital revenues and margins. A second
example is the closures of home health agencies since the IPS was put
in place. The home health industry and its observers claim that the IPS
caused declines in the number of agencies, putting beneficiaries'
access to home health care services at risk.
Hospitals. The reports issued by the hospital industry contain new
projections, but they do not present new data. In response to
congressional requests, MedPAC staff has analyzed these projections and
found that all of them portray a more adverse impact of the BBA than we
believe to be the case. Some present a particularly inaccurate picture
of the impact in FY 1998 by assuming a rate of increase in costs that
substantially exceeds what we already know to have occurred. Data from
the American Hospital Association's National Hospital Panel Survey
suggest that when complete Medicare cost report data become available
later this year, we will again see a decline in Medicare cost per
discharge for FY 1998, the fifth year in succession.
Although we believe that industry reports somewhat overstate the
impact of the BBA on hospital margins, they do correctly present its
overall direction. As it was intended to do, the law has reversed a
six-year trend of Medicare payments rising more rapidly than the costs
of treating Medicare beneficiaries. Still, two reasons make it
difficult to interpret what changes in total margins mean for Medicare
policy. First, the financial pressure that hospitals are currently
experiencing reflects both changes in Medicare's payment policies and
continued strong downward pressure on revenues from private managed
care plans and other payers. In FY 1997, private payers' payments
dropped by 4 percentage points relative to the cost of treating their
patients, while Medicare payments rose relative to costs. Data for FY
1998 are not yet available, but we have every reason to believe that
the downward pressure from private payers continued as Medicare reduced
its payments. Second, because hospitals can be expected to continue
responding to financial pressures by slowing cost growth--the overall
increase in costs per case for all patients has been below 2.5 percent
for five straight years--projected margins serve only as a gauge of
financial pressure, not as a prediction of what will occur. MedPAC has
seen no convincing evidence that the changes to date have affected
either quality or access in the inpatient sector, but we will continue
to monitor developments.
Home health agencies. To examine whether the closures of home
health agencies may have affected beneficiaries' access to services,
the General Accounting Office (GAO) analyzed the distribution of
closures across urban and rural counties. The agency also interviewed
stakeholders--representatives of state agencies, beneficiary advocates,
hospital discharge planners, and managers of home health agencies--in
34 primarily rural counties that had experienced significant agency
closures or declines in the use of services. GAO concluded that the
closures have had little impact on Medicare beneficiaries to date.
However, the agency noted that beneficiaries who are more costly than
average may face difficulty in obtaining home health care in the future
as agencies change their behavior in response to the IPS.
The GAO study found that while about 14 percent of agencies had
closed between October 1, 1997, and January 1, 1999, more home health
agencies were in existence at the beginning of FY 1999 than at the
beginning of FY 1996. The study found that most of the closures
occurred in urban counties and that about 40 percent of the closures
occurred in three states--Louisiana, Oklahoma, and Texas--that had seen
a large expansion in the number of agencies and that had utilization
rates well above the national average.
Stakeholders interviewed by the GAO reported few access problems
currently. State survey agency representatives, for example, indicated
that adequate capacity continued to exist despite the closures and
reported that they had received few complaints about access to Medicare
home health care. Discharge planners and home health agency managers
reported that beneficiaries living in counties that had lost agencies
still had adequate access through agencies located in adjacent
counties.
Willingness to serve beneficiaries
Industry and policy analysts have expressed concerns about the
case-mix adjuster used in the new PPS for SNFs, the lack of case-mix
adjustment in the IPS for home health agencies, and about the new
system for determining physicians' fees. In the Medicare+Choice
program, questions center around whether the lack of participation by
new plans and withdrawals by existing plans reflect payment levels or
other factors.
Skilled nursing facilities. In the case of SNFs, concerns have
centered around the payment weights used in conjunction with the RUG-
III system. Although SNF patients can vary significantly in their use
of ancillary services and supplies such drugs and biologicals, payments
for patients in different RUG-III categories are based on estimates of
the time providers's staff spent furnishing nursing and therapy
services. SNFs may be unwilling to serve patients in some high-acuity
RUG-III groups for whom the costs of services may exceed the payment
rates.
The Office of the Inspector General (OIG) of the Department of
Health and Human Services has undertaken a study to assess these
concerns. The OIG surveyed a random sample of 200 hospital discharge
planners responsible for arranging nursing home care for patients being
discharged from hospitals.
The OIG report concluded that while serious problems in placing
Medicare beneficiaries in nursing homes are not apparent, SNFs are
changing their admitting practices in response to the new payment
system. Two-thirds of discharge planners responding to the survey
reported no difficulty in placing Medicare patients. At the same time,
almost half of the discharge planners surveyed reported that nursing
homes have begun requesting more detailed clinical information about
patients and more often assessing patients directly before making
admissions decisions.
The survey found that some patients have become harder to place,
including those who need extensive services, such as intravenous
feedings or medications, tracheostomy care, or ventilator and
respirator care. These findings are consistent with concerns that
payment weights under the PPS do not account adequately for certain
medically complex patients.
Home health agencies. The IPS for home health agencies has been
criticized because the aggregate per-beneficiary limit is based on
historical patterns of use and does not account for changes in
agencies' patient mix. Industry and beneficiary representatives have
asserted that this limitation has made home health agencies unwilling
to accept patients who are likely to need extensive services. To assess
these concerns, MedPAC contracted with Abt Associates, Inc., to survey
about 1,000 home health agencies in early 1999 on their experience
under the IPS. We also convened a panel of experts familiar with
beneficiaries' problems accessing home health services.
The results of our survey of home health agencies are consistent
with the preliminary information we have on utilization. The agencies
we surveyed generally reported that their Medicare caseloads have
fallen and that the number of visits per user they provide has
decreased. Almost half reported that they had changed the mix of
services they provide, with fewer aide visits being the most common
response. While virtually all of the agencies we surveyed reported that
they are accepting new patients, the share accepting all new Medicare
patients was 75 percent, compared with 85 percent before the IPS was
implemented. About 40 percent of agencies reported a change in
admissions practices--refusing to admit patients that they would have
accepted before the IPS--and 30 percent reported discharging patients
because of the IPS. Agencies most frequently identified long-term or
chronic care patients as those they no longer admitted or have
discharged.
These findings are consistent with the claim that the IPS has
hampered access, but they do not tell the whole story because the
change in payment policy occurred at the same time HCFA was
implementing other policies intended to reduce fraud and abuse,
including stepping up oversight of home health care providers and
imposing a four-month moratorium on the certification of new agencies
in early 1998. The agency also adopted a new procedure for processing
claims for home health care services. Assessing the effect on
beneficiaries of changes in home health agencies' willingness to serve
them is further confounded because we cannot determine whether the
changes in use of home health services observed during the past two
years are appropriate. Medicare's standards for eligibility for and
coverage of home health services are to loosely defined for us to do
so.
Physician services. Three aspects of the new mechanism for setting
physicians' fees have raised questions regarding their impact on
access. First, the introduction of a single conversion factor reduced
payment rates for surgical services, while payment rates for primary
care and other nonsurgical services generally increased. Second, the
Secretary's lack of authority to correct for projection errors and the
potential for oscillations in fee updates under the SGR system have
raised questions about whether updates are appropriate. Because the SGR
is cumulative, uncorrected projection errors affect all subsequent
updates. This happened in 1999, when an unexpected slowdown in
Medicare+Choice enrollment growth led to a smaller than projected
decline in Part B fee-for-service enrollment. Third, the SGR system as
currently designed has the potential for oscillation in fee updates
because of problems with the data and methods used to calculate the
updates. These problems are likely to lead to extreme positive and
negative updates.
To assess the effects of the payment changes introduced in 1998,
MedPAC contracted with Project HOPE to survey 1,300 physicians on their
willingness to serve Medicare beneficiaries. The survey data were
reassuring. Among physicians accepting all or some new patients, over
95 percent were accepting new Medicare fee-for-service patients both in
1997, before the new payment policy changes were implemented, and in
early 1999. The survey also found that only about 10 percent of
physicians reported changing the priority given to Medicare
beneficiaries seeking an appointment. Of those, the percentage giving
Medicare patients a higher priority was almost the same as the
percentage giving Medicare patients a lower priority.
Medicare+Choice plans. The Congress intended the Medicare+Choice
program to expand beneficiaries' health plan options, but this has not
occurred. Plan participation has decreased from a year ago: of 347
contracts HCFA had with risk plans in 1998, 99 of those plans withdrew
from serving at least one county, and many withdrew from the
Medicare+Choice program altogether. This coming January, another 99
contracts will either be canceled or modified to reduce service areas.
At the same time, however, enrollment in Medicare+Choice plans has
continued to grow. Despite a brief dip in growth earlier this year,
enrollment in these plans has grown by 6.5 percent (about 400,000
enrollees) since a year ago.
Payment levels are ultimately an important determinant of plan
participation. However, payment levels alone do not yet appear to have
had much impact either in encouraging new plans to enter the market, or
inducing existing plans to leave. For example, despite the introduction
of the floor and blend payments, we have not seen plan participation
expand significantly in counties that benefitted from those provisions.
Similarly, plan withdrawals have been disproportionately lower in
counties where payment growth has been most constrained. Instead,
plans' reluctance to participate may stem from concerns about
regulatory issues and about the anticipated impact of risk adjustment
on payments in coming years.
Where do we go from here?
Although there is no systematic evidence to date that
beneficiaries' access to care has been impaired, the vast number of
changes to Medicare payment policy introduced by the BBA make it more
important than ever to monitor access. In our March and June reports to
the Congress, MedPAC noted where we believe policy changes are not yet
warranted and recommended specific targeted policies that could help to
alleviate some of the concerns that have been raised regarding access
to care in the future.
Hospital inpatient services
In our March report, MedPAC concluded that the operating
update for FY 2000 enacted in BBA--1.8 percentage points less
than the increase in HCFA's operating market basket index or
1.1 percent--will provide reasonable rates. In formulating our
recommendation, MedPAC took into account part, but not all, of
the cumulative reduction in costs per case that has occurred.
We noted that hospitals have responded to an increasingly
competitive market by improving their productivity and by
shifting services to other sites of care. At the same time, we
recognized factors pointing to the need for caution in
specifying future updates, including emerging evidence that the
decade-long trend in rising case mix complexity, which
automatically increases PPS payments, may be subsiding. We also
questioned whether the unusually low rate of hospital cost
growth observed in recent years can be sustained without
adverse effects on quality of care.
Hospital outpatient services
MedPAC has concerns about the PPS proposed by HCFA for
hospital outpatient services. In basing payments on groups of
services, instead of individual services, the system is likely
to overpay for some services and underpay for others. This
could lead to access problems in the future for beneficiaries
needing services whose payments fall short of costs. In our
March report, MedPAC recommended that the PPS be based on the
costs of individual services. Since that recommendation was
made, HCFA has been collecting comments on its PPS proposal,
with the formal comment period ending July 30, 1999. HCFA will
review the comments with the assistance of a private
contractor, 3M Health Information Systems. HCFA then plans to
issue a final regulation at least 90 days before the PPS is
implemented.
Implementing the outpatient PPS will reduce payments for
virtually all hospitals but could have much larger effects on
specific types of hospitals. For example, based on HCFA's
original estimates--which do not take into account improvements
in coding that will lead to smaller reductions--small rural
hospitals would see a 17 percent decline in payment rates, and
cancer hospitals would see a drop of more than 30 percent.
Given these changes, MedPAC recommended that the Secretary
closely monitor the use of hospital outpatient services to
ensure that beneficiaries' access to appropriate care is not
compromised. Consideration should also be given to phasing in
the new payment system to help us detect any problems before
they become severe.
Skilled nursing facilities
The OIG report on the willingness of SNFs to continue
accepting Medicare beneficiaries provides some comfort that
early anecdotal reports of access problems do not indicate a
widespread problem. Nonetheless, MedPAC remains concerned about
the mismatch between payments and costs for patients who
require relatively high levels of nontherapy ancillary services
and supplies could hamper access in the future. In our March
report, we recommended that the Secretary continue to refine
the classification system to improve its ability to predict the
use of nontherapy services and supplies. An improved
classification system would match payments more closely to
beneficiaries' needs for services and help to avoid access
problems among medically complex patients. HCFA has indicated
that it is researching the adequacy of payments under the PPS
and will implement refinements next year if that research
indicates changes are warranted.
Home health services
Implementing a PPS for home health care services that
accounts for differences among beneficiaries will help to
ensure access for those who require extensive care. MedPAC is
concerned, however, that the timetable for implementing the PPS
is very tight. Accordingly, we recommended in our June report
that the Congress explore the feasibility of establishing a
process for agencies to exclude a small share of their
patients--say 2 percent--from the aggregate per beneficiary
limits. Under our recommendation, Medicare would reimburse care
for excluded patients based on the lesser of actual costs or
the aggregate per-visit limits. MedPAC believes that such a
policy should be implemented in a budget-neutral manner.
In the longer run, ensuring that Medicare beneficiaries
have access to appropriate home health care services will
require clarifying the benefit. To that end, MedPAC recommended
that the Secretary speed the development of regulations that
would outline home health care coverage and eligibility
criteria based on the clinical characteristics of beneficiaries
and that she recommend to the Congress the legislation needed
to implement those regulations.
Physician services
In part because of their technical nature, problems with
the sustainable growth rate system that determines updates to
payments for physicians' services have received less publicity
than concerns about facility payments. But because uncorrected
projection errors and wide swings in payment updates could
raise access problems in the future, MedPAC recommends that the
Congress require the Secretary to correct estimates used in SGR
system calculations every year and that legislation be enacted
to modulate swings in updates. Further, we recommend that the
Congress revise the SGR to include an allowance for cost
increases due to improvements in medical capabilities and
advancements in scientific technology.
Medicare+Choice plans
In our March report, MedPAC recommended that the Secretary
work with organizations offering plans to identify specific
regulations or program policies for which changes, delays in
implementation, or administrative flexibility could reduce the
burden of compliance without compromising the objectives of the
Medicare+Choice program. Two specific changes that we noted--
moving back the deadline for filing adjusted community rate
proposals and giving Medicare+Choice organizations the
flexibility to tailor their benefit packages within their
services--have already been done.
The Commission also made recommendations concerning HCFA's
proposed system of risk adjustment. Although the interim risk
adjustment proposal has important shortcomings, we believe it
represents a substantial improvement over the current method
and that its benefits outweigh its costs. We support phasing in
the new system because doing so will avoid large abrupt changes
in payments to Medicare+Choice organizations and will give
policymakers time to monitor and evaluate the interim system's
effects on organizations and beneficiaries. Given its
limitations, the interim risk adjustment method should be
replaced as soon as possible by a comprehensive method based on
enrollees' encounters in all settings, not just inpatient.
Chairman Thomas. Thank you, Gail. Go.
STATEMENT OF WILLIAM J. SCANLON, PH.D., DIRECTOR, HEALTH
FINANCING AND PUBLIC HEALTH ISSUES, HEALTH, EDUCATION, AND
HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE
Mr. Scanlon. Thank you very much, Mr. Chairman and Members
of the Subcommittee. I am pleased to be here today as you
discuss the issues that have arisen with respect to the program
changes that were mandated by the Balanced Budget Act. As has
been very clear from today's discussions, the BBA set into
motion significant changes that both attempted to modernize
Medicare payment methods and rein in spending.
We have undertaken several studies to review BBA impacts on
different types of services at the request of both this
Subcommittee and others, and I will focus my remarks today on
changes that have affected home health agencies, skilled
nursing facilities, as well as Medicare+Choice plans. My
written statement also describes changes affecting outpatient
therapy services.
Concerns by the industries involved have been raised about
BBA's impacts on beneficiary access and on the financial
viability of providers. The question is how valid are those
concerns. The BBA made necessary and fundamental changes to
Medicare's payment methods to slow spending growth while
protecting appropriate beneficiary care. Prior to the Balanced
Budget Act, spending on post-acute services, especially home
health and skilled nursing facility care, was growing very
rapidly. No analyses supported why the growth should be so
high, and there was significant concerns that overutilization,
inefficient delivery, and fraud and abuse played roles.
Similarly, enrollment in Medicare managed care plans has
been increasing significantly, but extensive research
demonstrated that rather than saving money this enrollment
actually cost the program more due to the poor risk adjustment
of rates.
While refinements are required to make the BBA payment
systems more effective, their design intentionally makes
inefficient providers change their practices to remain in the
Medicare business. For Medicare managed care enrollees, BBA can
also mean that enrollees may not be able to receive as many
additional benefits--ones that are not offered by the
traditional program--without paying premiums. Some may also not
have access to a Medicare+Choice plan at all. Yet for others,
joining a Medicare+Choice plan may still remain the
beneficiary's best option for a broadened benefit package at an
affordable price.
The impacts of payment reform have been very noticeable. In
the case of home health, we reported in May that the number of
Medicare certified agencies had declined by 14 percent. A
significant number of additional agencies have stopped
participating since then, but because the number of agencies
had virtually doubled between 1990 and 1997, beneficiaries are
still served by more than 8,000 agencies.
Home health use has also dropped, but the decline does not
appear to be related to agency closures. It is consistent,
however, with interim payment system incentives to control the
volume of services provided to beneficiaries and to narrow the
widely divergent and unexplained variation in use. While access
does not seem to be generally impaired, there are indications
that beneficiaries likely to be costlier than the average may
have more difficulty than before in obtaining home health
services. The revenue caps imposed by the interim payment
system are not adjusted to reflect variations in patient needs,
a problem that should be ameliorated with the implementation of
the prospective payment system. The challenges, though, of
designing a home health prospective payment system are
significant enough that we should be prepared to have to make
refinements after we have implemented it.
Turning to skilled nursing facilities, several factors
might suggest that the prospective payment system's impact on
the viability of skilled nursing facilities would be less
severe than is being claimed by providers. Medicare is a small
portion of most skilled nursing facilities' business, and
furthermore, only one-quarter of Medicare's current
reimbursement for most facilities is based on prospective
payment. The remainder reflects the facility's own historical
spending, spending that may be inflated due to the provision of
excessive ancillary services in the past.
Nevertheless, recently one of the largest nursing home
chains filed for Chapter 11 bankruptcy protection. We have been
reviewing the difficulties of Vencor and other nursing home
chains for the Senate Finance and Aging Committees. It appears
that these companies' difficulties likely relate to much more
than the Medicare prospective payment system.
Overall, the SNF prospective rates may have been set too
high on average and thus, over rather than under-compensate
providers. Nevertheless, it seems certain that modifications to
the prospective payment system are necessary to more
appropriately target payments to patients who require costly
care. As Dr. Wilensky indicated, the payments for the high
acuity patients are potentially not covering the cost of
serving such individuals. The access problems, though, that
result from that underpaying for these high cost cases, at
least for the short term, are likely to lead to some
beneficiaries staying longer in acute care hospitals rather
than necessarily foregoing care. HCFA, as you have heard, is
aware of the situation and is working to address this problem.
HMO withdrawals from the Medicare+Choice program have also
attracted considerable attention, and approximately 100 plans
last year and again this year either withdrew completely or
reduced their service areas. Our report on last year's
withdrawals and preliminary analysis of this year's indicate
they were not driven by Medicare rates alone. Market share,
enrollment, tenure in an area, and competition from other plans
also played significant roles. Some sound business decisions
made when Medicare was paying too much likely became
problematic when payments were reduced.
Plans are also reducing the additional benefits they offer
and instituting or increasing premiums. As I noted earlier,
Medicare+Choice though still may be the best option available
for beneficiaries that want to augment the benefits available
in a traditional package.
We believe, in aggregate, Medicare+Choice rates remain
sufficient. Last year on average, plans had to supply $54 per
member per month in additional benefits because program
payments exceeded the cost of their delivery in the Medicare
payment benefit package. However, we are concerned that those
resources are not necessarily targeted appropriately. Some
plans may be underpaid even though average payments are more
than adequate. Assuring that both the base rates and the risk
adjustment process appropriately target funds is the critical
challenge.
In conclusion, I would note that the BBA made the necessary
and fundamental changes to Medicare payment methods for many
providers in order to slow payment growth while preserving
appropriate beneficiary care. It is clear we now need
refinements to make these systems more effective. It is
important that we also, though, recognize as Dr. Wilensky
indicated, that we all, GAO, MedPAC and HCFA, are struggling
with limited information on the full impact of these changes
and, therefore, how best to refine them is more difficult. We
need to undertake a thorough and fair analysis and have a fair
trial of these provisions over reasonable periods before we
engage in fundamental modifications.
Thank you very much, Mr. Chairman. I will be happy to
answer any questions you or members of the committee may have.
[The prepared statement follows:]
Statement of William J. Scanlon, Ph.D., Director, Health Financing and
Public Health Issues, Health, Education, and Human Services Division,
U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee: I am pleased
to be here today as you discuss the effects of the Balanced
Budget Act of 1997 (BBA) on the Medicare program. BBA set into
motion significant program changes to both modernize Medicare
and rein in spending. The act's constraints on providers' fees,
increases in beneficiary payments, and structural reforms
together were projected to lower Medicare spending by $386
billion over the next 10 years. Although some BBA provisions
are in effect, data relevant to their impact are generally
limited to date; other provisions have not yet been fully
phased in. As a result, the act's full effects on providers,
beneficiaries, and taxpayers will remain unknown for some time.
BBA's Medicare provisions were enacted in response to rapid
program spending growth that was neither sustainable nor
readily linked to demonstrated changes in beneficiary needs.
The act's payment reforms represented bold steps to control
Medicare spending by changing the financial incentives inherent
in payment methods that, prior to BBA, did not reward providers
for delivering care efficiently. To date, the Congress has
remained steadfast in the face of intense pressure to roll back
certain BBA payment reforms while waiting for evidence that
demonstrates the need for modifications. Calls for BBA changes
come at a time when federal budget surpluses and lower-than-
expected growth in Medicare outlays could make it easier to
accommodate higher Medicare payments. However, as the
Comptroller General cautioned last week, the surpluses are
merely projections that could fall short of expectations, and
the imperative remains to find the reforms that will make
Medicare sustainable and affordable for the longer term.\1\
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\1\ Medicare Reform: Ensuring Fiscal Sustainability While
Modernizing the Program Will Be Challenging (GAO/T-HEHS/AIMD-99-294,
Sept. 22, 1999).
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My comments today focus on payment reforms affecting
certain providers in Medicare's traditional fee-for-service
program and providers in Medicare's managed care program.
Specifically, I will discuss the effects on three providers of
post-acute care services--home health agencies (HHA), skilled
nursing facilities (SNF), and providers of outpatient
rehabilitation therapy--and on the health plans participating
in the Medicare+Choice program.
In brief, some providers of post-acute care and health
plans in the Medicare+Choice program may have to rethink their
business strategies as a result of BBA payment reforms, which
seek to make Medicare a more efficient and prudent purchaser.
Imperfections in the design of BBA-mandated payment systems
require attention, and better information can help policymakers
distinguish between desirable and undesirable consequences.
Based on such knowledge, refinements can help ensure that
payments are not only adequate in the aggregate but are also
fairly targeted to protect individual beneficiaries and
providers. Our issued and ongoing studies of various payment
methods are instructive in this regard, and a summary of our
results to date follows.
Home health care: Our work indicates that (1) the
reductions in the number of HHAs and changes in utilization
were consistent with the objectives of the interim payment
system to control the rapid growth that had preceded BBA and
(2) appropriate access to Medicare's home health benefit has
not been impaired. However, the prospective payment system
(PPS) is a more appropriate tool for the long term than the
interim payment system, because it is intended to adjust
payments for differences in beneficiary needs. As we examine
the challenges of designing a PPS, we are finding that that the
PPS will likely require further adjustments after it is
implemented as more information on home health costs,
utilization, and users becomes available.
SNF care: A PPS was implemented beginning in July
1998 with a 3-year transition to fully prospective rates,
giving providers time to adjust to the new system. Our ongoing
work suggests that factors in addition to the PPS have
contributed to fiscal difficulties for some corporations
operating SNFs. Nevertheless, certain modifications to the PPS
may be appropriate to ensure that payments are targeted to
patients who require more costly care. The potential access
problems that may result if Medicare underpays for high-cost
cases could lead to beneficiaries' staying in acute care
hospitals longer, rather than foregoing care altogether. HCFA
is aware of this potential targeting problem and is working to
develop a solution.
Caps on coverage of outpatient rehabilitation
therapy: In 1999, BBA established an annual $1,500 per-
beneficiary cap on payments for outpatient physical therapy and
speech/language pathology services combined and a separate
$1,500 cap on outpatient occupational therapy. The caps reflect
a legitimate need to constrain service use. For the vast
majority of outpatient therapy users, the caps are unlikely to
curtail access to services. Only a small share of beneficiaries
receiving therapy services are high users. Further, most
outpatient therapy users will likely have access to hospital
outpatient departments, which are not subject to the $1,500
caps. In addition, owing to HCFA's partial approach to
enforcing the caps, noninstitutionalized beneficiaries can
avoid having the caps curtail service coverage by switching
providers. Whether the caps restrict coverage for a small share
of nursing home residents is less straightforward. A need-based
payment system could help better target payments toward
beneficiaries who genuinely require more services than allowed
under the current dollar limits.
Payments to Medicare+Choice health plans: Several
BBA provisions address the long-recognized problem of excess
payments to Medicare+Choice plans. Some provisions have begun
to be phased in, such as reducing the annual rate updates;
others have not yet become effective, such as the use of a risk
adjustment method based on beneficiary health status. The net
effect of the implemented revisions has been modest and, on
average, has likely removed only a portion of excess payments
built into the base rates. Moreover, the recent and upcoming
rounds of plan withdrawals from Medicare are not, as the
industry has argued, fully attributable to Medicare's lowered
payment rates. The evidence emerging from recent rounds of
withdrawals suggests that market share, enrollment size, and
competition from other health plans factor into a plan's
decision to participate in Medicare. Critical to making
Medicare+Choice payment modifications are the establishment of
an appropriate base rate and of a risk adjustment method that
pays more for serving beneficiaries with serious health
problems and less for serving relatively healthy individuals.
Background
The Medicare program consists of two parts: ``hospital insurance,''
or part A, which covers inpatient hospital, skilled nursing facility,
hospice, and certain home health care services; and ``supplementary
medical insurance,'' or part B, which covers physician and outpatient
hospital services, outpatient rehabilitation services, home health
services under certain conditions, diagnostic tests, and ambulance and
other health services and supplies.
Growth in Medicare Spending for Home Health Care
During much of the 1990s, home health care was one of
Medicare's fastest growing benefits; between 1990 and 1997,
Medicare spending for home health care rose at an annual rate
of 25.2 percent. Several factors accounted for this spending
growth, most notably the relaxation of coverage guidelines. In
response to a 1988 court case, a change in the coverage
guidelines essentially transformed the benefit from one that
focused on patients needing short-term care after
hospitalization to one that also serves chronic, long-term-care
patients.\2\ The loosening of coverage and eligibility criteria
contributed to an increase in the number of beneficiaries
receiving services and the volume of services they received.
Associated with this rise in utilization was an almost doubling
in the number of Medicare-certified HHAs to 10,524 by 1997.
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\2\ Duggan v. Bowen, 691 F. Supp. 1487 (D.D.C. 1988).
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Also contributing to the historical rise in home health
care spending were a payment system that provided few
incentives to control how many visits beneficiaries received
and lax Medicare oversight of claims. As we noted in a previous
report, even when controlling for diagnoses, substantial
geographic variation existed in the provision of home health
care, with little evidence that the differences were warranted
by patient care needs.\3\ Additional evidence indicates that at
least some of the high use and the large variation in practice
represented inappropriate billings and unnecessary care.\4\
Medicare oversight declined at the same time that spending
mounted, contributing to the likelihood that inappropriate
claims would be paid. To begin to control spending, BBA
implemented an interim payment system for HHAs beginning
October 1, 1997. A PPS is scheduled to be implemented for all
HHAs on October 1, 2000.\5\
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\3\ Medicare: Home Health Utilization Expands While Program
Controls Deteriorate (GAO/HEHS-96-16, Mar. 27, 1996).
\4\ Medicare: Improper Activities by Mid-Delta Home Health (GAO/T-
OSI-98-6) and Office of the Inspector General, Department of Health and
Human Services, Variation Among Home Health Agencies in Medicare
Payment for Home Health Services (July 1995). Our 1997 analysis of a
small sample of high-dollar claims found that over 40 percent of these
claims should not have been paid by the program. See Medicare: Need to
Hold Home Health Agencies More Accountable for Inappropriate Billings
(GAO/HEHS-97-108, June 13, 1997).
\5\ BBA required the HHA PPS to be in place on October 1, 1999.
Subsequent legislation delayed the implementation by 1 year,
eliminating any transition period.
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Growth in Medicare Spending For SNF Care
As required by BBA, on July 1, 1998, SNFs began a 3-year
transition to a PPS, under which providers are paid a
prospective rate for each day of care. Previously, SNFs were
paid the reasonable costs they incurred in providing Medicare-
covered services. Although there were limits on the payments
for the routine portion of care (that is, general nursing, room
and board, and administrative overhead), payments for ancillary
services, such as rehabilitative therapy, were virtually
unlimited. Because higher ancillary service costs triggered
higher payments, facilities had no incentive to provide these
services efficiently or only when necessary. Thus, between 1992
and 1995, daily ancillary costs grew 18.5 percent a year,
compared to 6.4 percent for routine service costs. Moreover,
new providers were exempt from the caps on routine care
payments for up to their first 4 years of operation, which
encouraged greater participation in Medicare.
Growth in Medicare Spending for Outpatient Rehabilitation
Therapy Services
Rehabilitation therapy comprises a substantial portion of
the post-acute-care services provided by SNFs and other
providers, such as rehabilitation therapy agencies and
comprehensive outpatient rehabilitation facilities. Between
1990 and 1996, payments for outpatient rehabilitation therapy
alone rose at an average rate of 18 percent a year, compared to
9.7 percent average growth rate for the same period for overall
Medicare spending. BBA reforms were designed to control both
the price and volume of therapy services provided in outpatient
settings--the former by a fee schedule and the latter by per-
beneficiary coverage caps.\6\ Specifically, BBA limits coverage
for outpatient therapy to $1,500 per beneficiary for physical
therapy and speech/language pathology services, with a separate
$1,500 per-beneficiary limit for occupational therapy. Hospital
outpatient departments are exempt from these coverage limits.
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\6\ Payments for inpatient rehabilitation therapy services, such as
those provided by SNFs, HHAs, and rehabilitation facilities, are not
subject to the fee schedule and are paid under other rules. In
addition, outpatient therapy provided by critical access hospitals is
not subject to the fee schedule.
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Historical Overpayments to Medicare Health Plans
BBA sought to moderate Medicare's payments to managed care
plans because beneficiaries who joined Medicare managed care
cost--not saved--the government money. That is, the government
was paying more to cover beneficiaries in managed care--an
estimated several billion dollars more--than it would have if
these individuals had remained in the traditional fee-for-
service program. Medicare payments to managed care plans have
been estimated to be too high by as much as 16 percent.\7\
Beginning in 1998, BBA made several changes to the method used
to set Medicare+Choice plan payments, not all of which will
reduce excess payments. Among other things, BBA required a new
risk adjustment method--a mechanism for adjusting payment rates
on the basis of a beneficiary's expected annual health care
costs. It will be implemented in two stages. Beginning in 2000,
HCFA plans to phase in an interim method based on inpatient
hospital data; in 2004 it plans to implement a more
comprehensive method incorporating additional medical data from
other settings. The interim risk adjustment, if fully phased
in, would reduce payments by 7 percent. BBA also reduced
updates to health plan payment rates for a 5-year period ending
2002, for a cumulative rate reduction of less than 3 percent.
However, the effect of these reductions is substantially
moderated because BBA used 1997 payment rates as the foundation
for rates in 1998 and future years. According to HCFA
actuaries, a forecast error caused the 1997 rates to be an
estimated 4.2 percent too high and, consequently, aggregate
plan payments in 1998 were $1.3 billion too high. The excess
payments resulting from this forecast error will increase over
time with managed care enrollment because it is built into the
base rate.\8\
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\7\ In a 1996 study, HCFA estimated that payments were too high by
8 percent in 1994. [See Gerald Riley and others, ``Health Status of
Medicare Enrollees in HMOs and the Fee-for-Service Sector in 1994,
Health Care Financing Review, vol. 17, no 4 (Summer 1996)]. In a 1997
study, we estimated that aggregate payments to California plans were
too high by 16 percent. [See Medicare HMOs: HCFA Can Promptly Eliminate
Hundreds of Millions in Excess Payments (GAO/HEHS-97-16, Apr. 25,
1997)].
\8\ BBA did not allow HCFA to adjust the 1997 rates for forecast
errors, although such adjustments had been a critical component of the
pre-BBA rate-setting process. BBA permits HCFA to correct forecasts in
future years but did not include a provision to allow a correction of
its 1997 forecast.
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Little Evidence to Date of Impaired Access to Home Health Services, but
Future Payment System will Require Refinements
BBA'S new payment policies addressing rapid spending growth for
home health care included the establishment of an interim payment
system, which is currently in effect, and a requirement to replace that
system with a PPS by October 2000. Our published and ongoing studies
discuss the effects of these BBA payment reforms and concerns about
their design and implementation.
Concerns have been raised about the effect of the interim system,
but, as we reported in May 1999, there was little evidence that
appropriate access to Medicare's home health benefit has been
impaired.\9\ The pre-BBA payment system had controls for payments per
visit but left volume unchecked. Since enactment of BBA, home health
agencies have been paid under the interim payment system, which
attempts to control the costs and total volume of services. Indeed, our
work indicates that overall home health utilization in the first 3
months of 1998 was below that in 1996 when Medicare spending for home
health services nearly peaked. Moreover, the sizeable variation in
utilization across counties has narrowed, a change consistent with the
incentives of the interim payment system. Although these changes
occurred at the time that about 14 percent of HHAs closed their doors
to Medicare business, we found little evidence that beneficiary access
to services was inappropriately curtailed.
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\9\ Medicare Home Health Agencies: Closures Continue With Little
Evidence Beneficiary Access Is Impaired (GAO/HEHS-99-120, May 26,
1999).
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Nevertheless, a home health PPS is a more appropriate payment tool
because it can align payments with patient needs. Under PPS, payments
will reflect the needs of the agencies' current beneficiaries rather
than historical spending patterns. However, our ongoing work on this
subject shows that a number of design issues remain, and the payment
system will likely require continued adjustments even after
implementation next year. It appears that HCFA intends to pay HHAs a
per-episode rate for each 60-day period during which a patient receives
services. Such per-episode payments are designed to balance competing
goals of controlling service provision while giving HHAs flexibility to
vary the intensity or mix of services delivered during the episode.
Evidence indicates that HHAs do lower their costs in response to
prospective payments for an episode of care. Whether they will
inappropriately cut care remains to be seen. Under this prospective
payment approach, HHAs also have incentives to increase the number of
episodes of care provided, which could escalate, rather than constrain,
Medicare spending. HCFA will need to adequately monitor service
provision to ensure that beneficiaries receive the care they need and
the number of episodes are not inappropriately increased.
The design of the case-mix adjustment mechanism is critical to
adequately pay for patients with high service needs, yet not overpay
for others with lower needs. Designing this mechanism requires detailed
information about services and beneficiary characteristics, and such
information is currently available only for a sample of users.
Furthermore, the wide geographic and agency-level variation in service
use indicates that standards of care are not well-defined, nor are the
criteria for who should use the benefit. As a result, the factors that
will be used under PPS for grouping patients with similar resource
needs may not adequately distinguish among types of home health
patients, and the PPS payment adjuster that will be associated with
each patient group may not reflect appropriate cost differences.
Systematic errors could result in overpayments for some beneficiaries
and underpayments for others. Underpayments could lead to impaired
access.
Large variations in historic spending patterns mean that a PPS,
which will be based on average payment amounts, will undoubtedly cause
payment levels to rise for certain HHAs and fall for others. Although
the PPS may incorporate an outlier policy--that is, extra payments for
extremely costly cases--additional mechanisms to moderate payment
changes may be appropriate. For example, an ``inlier'' policy to reduce
the payment for a patient who receives few services may be warranted,
particularly given the fact that multiple episode payments may be made
for a single beneficiary. Policies addressing both extremes of service
use could protect the access of beneficiaries with high needs and
protect Medicare from overpaying for low-cost cases. A risk-sharing
method, to account for cost differences across agencies, could provide
further protection against underpayments or overpayments. Given the
heterogeneous use of this benefit and the unresolved PPS design issues,
moderating payments through risk-sharing might be warranted, even
though such a mechanism would weaken HHAs' incentives to provide care
more efficiently.
Aggregate Payments to SNFs are Adequate, but Refinements Needed to Help
Match Payments to Patients' Service Needs
Despite industry charges to the contrary, SNF payment rates under
BBA are likely to provide sufficient, or even generous, compensation
for providers. Nevertheless, the distribution of these payments may be
out of balance, because the current case-mix adjustment method may not
adequately ensure that providers serving high-cost beneficiaries are
paid enough and that those serving low-cost beneficiaries are not paid
too much.
Under the new PPS, SNFs receive a payment for each day of covered
care provided to a Medicare-eligible beneficiary. By establishing fixed
payments and including all services provided to beneficiaries under the
per diem amount, the PPS attempts to provide incentives for SNFs to
deliver care more efficiently. Under the PPS, SNFs that previously
boosted their Medicare ancillary payments--either through higher use
rates or higher costs--will need to modify their practices more than
others. Scaling back the use of these services, however, may not
necessarily affect the quality of care. There is little evidence to
indicate that the rapid growth in Medicare spending was due to a
commensurate increase in Medicare beneficiaries' need for services.
Recent industry reports have questioned the ability of some
organizations that operate SNF chains to adapt to the new PPS. Indeed,
Medicare payment changes have been blamed for one corporation's filing
for protection under bankruptcy law and the potential for another to
similarly file. However, our ongoing work suggests that the PPS should
not have an untoward impact on most SNFs and is only one of many
factors contributing to the poor financial performance of these
corporations. For most SNFs Medicare patients constitute a relatively
small share of their business. In addition, the PPS rates are being
phased in, to allow time for facilities to adapt to the new payment
system, and most of the payments are still tied to each facility's
historical costs. However, heavy investments in the nursing home and
ancillary service businesses in the years immediately before the
enactment of BBA, both to expand their acquisitions and upgrade
facilities to provide higher-intensity services, has created
difficulties for some corporations. Now under tighter payment
constraints for both their SNF and ancillary service operations, these
debt-laden enterprises will not be able to rely on overly generous
Medicare payments. Thus, while PPS does represent a constraint on
Medicare revenue and SNFs will have to adapt, the performance of some
large post-acute providers is a reflection of many Medicare payment
policy changes and strategic decisions made during a period when
Medicare was exercising too little control over its payments. We are
gathering additional information and will report soon on the effect of
the PPS on SNF solvency and beneficiary access to care.
We believe that overall payments to SNFs are adequate. In fact, we
and the Department of Health and Human Services Inspector General (HHS
IG) are concerned that the PPS rates Medicare pays may be too generous.
Most of the data used to establish these rates--from 1995 cost
reports--have not been audited and are likely to include excessive
ancillary costs due to the previous system's incentives and the lack of
appropriate program oversight.\10\
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\10\ The HHS IG recently reported on the inappropriateness of the
base year costs. See Physical And Occupational Therapy in Nursing
Homes: Cost of Improper Billings to Medicare (HHS IG, OEI-09-97-00122,
Aug. 1999).
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We are also concerned that payments for individual beneficiaries
could be inappropriately too high or low because of certain PPS design
problems. The first of these involves the patient classification
system. The classification system was based on a small sample of
patients and, because of the age of the data, may not reflect current
treatment patterns. As a result, it may aggregate patients with widely
differing needs into too few payment groups that do not distinguish
adequately among patients' resource needs. In addition, the variation
in non-therapy ancillary services costs does not appear to have been
adequately accounted for in the payment rates, which may
inappropriately compress the range in payments. Accordingly, access
problems or inadequate care could result for some high-cost
beneficiaries. Hospitals have reported an increase in placement
problems due to the reluctance of some facilities to admit certain
beneficiaries with high expected treatment costs, which will increase
hospital lengths of stay for these patients. HCFA is aware of the
limitations of the patient classification system and is working to
refine the system to more accurately reflect patient differences.
Another concern is that the current patient classification system
preserves the opportunity for SNFs to increase their compensation by
supplying unnecessary services. A SNF can benefit by manipulating the
services provided to beneficiaries, rather than increasing efficiency.
For example, by providing certain patients an extra minute of therapy
over a defined threshold, a facility could substantially increase its
Medicare payments without a commensurate increase in its costs.
Widespread Effect of Outpatient Therapy Caps Doubtful, but Need-
Adjusted Payment Limits Would be Better
Questions have been raised about a BBA coverage restriction for a
third group of post-acute-care services--outpatient rehabilitation
therapy. Together with a fee schedule that replaces reasonable cost
reimbursement for these services, BBA established an annual $1,500 per-
beneficiary cap on payments for outpatient physical therapy and speech/
language pathology services combined and a separate $1,500 per-
beneficiary cap on outpatient occupational therapy.\11\ Services
provided by hospital outpatient departments are exempt from the per-
beneficiary caps.
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\11\ Physical therapy includes treatments--such as whirlpool baths,
ultrasound, and therapeutic exercises--to relieve pain, improve
mobility, maintain cardiopulmonary functioning, and limit the
disability from an injury or disease. Speech/language pathology
services include the diagnosis and treatment of communication,
swallowing, oral motor and related cognitive functions and their
disorders. Occupational therapy helps patients learn the skills
necessary to perform daily tasks, diminish or correct pathology, and
promote health.
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Rehabilitation therapy providers have raised concerns that the
$1,500 limits will arbitrarily curtail necessary treatments for
Medicare beneficiaries, particularly victims of stroke, hip injuries,
or multiple medical incidents within a single year. These concerns have
led to several legislative proposals to include various exceptions to
the caps or eliminate them altogether.
Our ongoing work on this topic suggests that eliminating the caps
without substituting other controls could undermine BBA's comprehensive
strategy for restricting payments for outpatient therapy services.
Controlling the price for each unit of service--as is done with the new
requirement that outpatient therapy providers be paid using Medicare's
physician fee schedule--may not necessarily control Medicare
expenditures if utilization rises. This is particularly likely, given
the price and utilization controls established through PPSs on other
providers of rehabilitation therapy. Thus, the per-beneficiary caps
serve to limit the volume of services provided.
For the vast majority of beneficiaries, the coverage caps are
unlikely to curtail access to needed services. An analysis by the
Medicare Payment Advisory Commission shows that, in 1996, most users
(86 percent) did not exceed $1,500 in payments for physical therapy and
speech/language pathology services or for occupational therapy.\12\
Moreover, as the fee schedule likely reduces payments for many
providers, the proportion of beneficiaries that are unaffected by the
caps could be even higher in 1999 because beneficiaries could receive
more services before reaching the per-beneficiary caps than under the
former cost-based system.
---------------------------------------------------------------------------
\12\ A July 1998 report sponsored by the National Association for
the Support of Long-Term Care and NovaCare, a rehabilitation services
company, projects that 87 percent of beneficiaries will not exceed the
per-beneficiary cap.
---------------------------------------------------------------------------
Even for beneficiaries exceeding $1,500 in payments under the fee
schedule, mitigating factors exist. First, under the BBA exemption,
Medicare beneficiaries have no limits on coverage for rehabilitation
therapy provided by hospital outpatient departments, which are widely
available nationwide. In addition, the caps will initially not be
applied as specified in BBA. Implementing the caps involves many
programming changes to Medicare's automated information systems that
HCFA is unable to undertake concurrent with its year 2000 preparation
efforts. As a result, HCFA's claims processing contractors will be
unable to track therapy payments on a per-beneficiary basis. Instead,
effective January 1, 1999, HCFA employed a transitional approach to
implementing the caps. Under this approach, each provider of therapy
services is responsible for tracking its billings for each Medicare
patient and stopping them at the $1,500 threshold. The consequence of
this partial implementation is that noninstitutionalized beneficiaries
may switch to a new provider when they have reached the $1,500 limit
under their current provider.
The effect of the per-beneficiary caps on nursing home residents is
less clear. HCFA's policy explicitly states that the hospital
outpatient department exemption does not apply to those therapy
services furnished to nursing facility residents. Moreover, the ability
of beneficiaries to switch outpatient providers under HCFA's partial
implementation approach is, practically speaking, not available to
nursing facility residents. Under new billing requirements, the nursing
facility in which the beneficiary resides is required to bill for
outpatient therapy provided to the resident, regardless of the entity
that actually delivered the service. Therefore, unlike their
noninstitutionalized counterparts, nursing facility residents cannot
switch providers to restart the $1,500 coverage allowance. Under these
circumstances, some nursing home residents--like those needing
extensive rehabilitation therapy resulting from such conditions as
stroke or hip fractures--could be vulnerable to out-of-pocket costs for
therapy.
Even the risk for these more vulnerable beneficiaries may be
moderated, however, because nursing home residents seeking therapy for
such conditions would likely receive a complement of rehabilitation
services as a SNF inpatient--before the outpatient therapy coverage
limit begins to apply. For example, individuals suffering a stroke or
undergoing hip replacement would likely spend at least 3 days in an
acute care hospital, which, combined with the need for daily skilled
nursing care or therapy, would make them eligible for a Medicare-
covered SNF stay of up to 100 days, during which they would likely
receive therapy services. After their Medicare coverage period ends,
nursing facility residents can continue to receive outpatient therapy
services under Medicare part B, subject to the coverage limits. BBA
mandates that HCFA develop a classification system based on diagnosis
to determine differences in patients' therapy needs and propose
possible alternatives to the caps in a report due January 1, 2001. This
report will be significant in that a need-based system could help
ensure adequate coverage for those beneficiaries requiring an
extraordinary level of services and prevent overprovision to those
requiring only limited amounts.
Medicare+Choice Remains Relatively Inexpensive for Beneficiaries, but
Improved Risk Adjustment Needed to Target Payments Appropriately
Developing appropriate refinements to BBA reforms affecting
Medicare+Choice requires consideration of several aspects of Medicare's
managed care program. At the moment, plan withdrawals from
Medicare+Choice in 1999, and recent announcements that additional plans
will withdraw in 2000, have prompted debate about whether BBA reforms
have resulted in inadequate payment rates. At the same time, our
published and ongoing work indicates that Medicare managed care
payments to health plans likely continue to exceed the cost of
providing Medicare-covered benefits.
Our analysis of the 1999 withdrawals showed that payment rates
alone could not explain plans' participation decisions. Withdrawals
were not limited to low payment rate counties. The data suggested that
local market conditions affected plans' participation in a county. A
plan was more likely to withdraw from counties it had recently entered,
where its enrollment was low, or where its market share was small
relative to other plans serving the same county. Although our final
analysis will not be available for a few weeks, our preliminary
assessment suggests that similar factors help explain the pattern of
the 2000 withdrawals.
Plan withdrawals may well reflect a normal market correction
spurred by a changing business environment. Prior to BBA, health plans
could expand into new areas with relatively little risk because
overgenerous Medicare rates provided protection from the ill
consequences of small enrollment or large competitors. Between 1993 and
1998, the number of plans and enrollees tripled. However, as BBA slowed
payment growth, health plans may have reevaluated their expansion
decisions, making such factors as potential enrollment, market share,
and competition a key part of plans' decisions to withdraw from certain
geographic areas.
A local example illustrates the importance of nonpayment factors in
plans' participation decisions. In 1996, Blue Cross' Free State health
plan in Maryland--which until that time had served only some of the
state's large urban counties--extended service statewide. Free State
recently announced, however, that beginning in 2000 it would
substantially reduce its geographic service area. The plan is
withdrawing from 17 rural and small urban counties even though BBA will
increase the average base rate in those counties by nearly 6 percent
next year. In contrast, the large urban counties will receive only a
2.4 percent average rate increase, but Free State will continue its
Medicare participation in these counties.
According to industry representatives, it is difficult for health
plans to serve counties with few providers and enrollees because
providers have little incentive to discount their fees and plans cannot
spread risk over a large enrollment base. Although we cannot know with
certainty, these factors may have influenced Free State's decision to
discontinue service in Caroline County and 16 other rural and small
urban Maryland counties. For example, in Caroline County Free State
faced no competitors, had enrolled 19 percent of the beneficiaries, and
would have received a 7.5 percent Medicare rate increase in 2000.
However, less than 4,700 beneficiaries live in the county and Free
State's 19 percent market share represented an enrollment of less than
900 beneficiaries. In contrast, the plan will continue to serve seven
counties where the number of beneficiaries ranges from about 15,200 to
116,600.
In addition to our work on plan withdrawals, our assessment of BBA
payment changes indicates that, relative to the cost of providing the
package of traditional Medicare benefits, payments to health plans
remain excessive. For one thing, plans annually receive a billion-plus-
dollar overpayment in aggregate as a consequence of BBA's terms for
setting the base payment rate. This problem, owing to an uncorrected
forecast error, will be built into future base rates because BBA has
not provided explicit authority for HCFA to correct the forecast error.
In our June 1999 report, we suggested that the Congress consider
certain modifications to Medicare's base payment rates to health plans
to eliminate, among other things, the excess payments resulting from
the 1997 uncorrected forecast error.
Moreover, payments continue to exceed plans' costs of providing
Medicare-covered services. In 1999, the average plan was required to
provide $54 in extra benefits per member per month so that projected
Medicare payments would not exceed the plan's projected costs and
normal profits. In addition, the average plan voluntarily provided
another $54 in benefits per member per month. The additional benefits
can be reflected not only in coverage for services, but also in reduced
beneficiary cost sharing. For example, in 1999 most plans did not
charge a monthly premium and charged only a small copayment for
outpatient services.
In 2000, enrollment in a Medicare+Choice plan will remain a
relatively inexpensive way for a beneficiary to obtain prescription
drug coverage in many areas. On average, plans will charge
beneficiaries $16 per month in premiums and most will offer
prescription drug coverage. Beneficiaries will be charged a copay for
prescription drugs that will average about $17 for brand name drugs and
$7 for generic drugs. In contrast, the average monthly premium for
private supplemental insurance policies (Medigap) offering, among other
things, prescription drug coverage ranges from $136 to $194 per month
in 1999. Moreover, those Medigap policies require a $250 deductible
with a 50-percent copayment.
Given that Medicare has spent more for the generally healthier
beneficiaries enrolled in Medicare+Choice plans than for the generally
sicker beneficiaries in traditional Medicare, the need to have payments
better reflect beneficiaries' expected health care costs is critical.
HCFA's new risk adjustment method, based on certain health status
measures, is scheduled for phased implementation in 2000 and represents
a major improvement over the current method. For the first time,
Medicare managed care plans can expect to be paid more for serving
beneficiaries with serious health problems and less for serving
relatively healthy ones. The method scheduled for implementation in
2004 will be an improvement over the method used in 2000 because it is
intended to include better health status measures derived from more
comprehensive data not currently available.
HCFA's plan to phase in the 2000 risk adjustment method slowly is
designed to balance the needs of taxpayers and beneficiaries. In 2000,
only 10 percent of health plans' payments will be adjusted using the
new method. This proportion will be increased each year until 2003,
when 80 percent of plans' payments will be adjusted using the interim
system. Although a gradual phase-in of the interim risk adjuster delays
the full realization of Medicare savings, it also minimizes potential
disruptions for both health plans and beneficiaries. In 2004, HCFA
intends to implement a more finely tuned risk adjuster that uses
medical data from physician offices, outpatient departments, and other
health care settings and providers--in addition to the inpatient
hospital data on which the interim adjuster is based. This more
comprehensive risk adjustment system cannot be implemented currently
because many plans say they do not have the capability to report such
comprehensive information.
Conclusion
In conclusion, BBA payment reforms seek to curb unnecessary
Medicare spending. As the reforms begin to have their intended effects,
pressure is building to return to more generous payment policies.
Evidence to date shows that BBA is moving Medicare in the right
direction but that adjustments will be needed along the way. These
adjustments should be based on thorough, quantitative assessments so
that misdiagnosed problems do not lead to misguided solutions. With the
health care of seniors and the tax dollars of all Americans at stake,
it will be prudent to uphold new payment policies that exact
efficiencies but make adaptations when substantiated evidence supports
the need to do so.
* * * * *
Mr. Chairman, this concludes my prepared statement. I will be happy
to answer any questions you or other Members of the Subcommittee might
have.
Chairman Thomas. Thank you, Bill. I hope no-one assumed
that once we began this process that we weren't just going to
pass BBA '97, fire and fall back and not monitor. In fact,
included in the legislation was the creation of a bipartisan
Medicare reform commission to begin looking at the out years.
The suggestions that that commission came up with, the
recommendations, although falling short of the 11-vote super,
super, super majority required will, I can assure everyone,
surface in bipartisan legislation with additional refinements
as we move forward.
One of the more interesting areas we have been examining is
the fact that Medicare has to go out and the plans under
Medicare have to go find their beneficiaries one at a time, the
most expensive way to get people covered, and that we might be
able to be fairly creative in terms of a bidding process that
produces the most cost effective plan being rewarded by some
beneficiaries who have signed up, not knowing which plan they
are going to, but with the promise that it would be a zero
premium, and thereby at least mitigating some of the relatively
high costs for marketing a product which under law doesn't have
a whole lot of ability to be varied except for, as you
indicated now, about $54 of additional benefits. That is just
an aside in terms of some of the things that we are continuing
to do.
Thank you. And we are going to ask for MedPAC's additional
recommendations. You have some included in here. The key here
is for us to know as best you are able whether it is going to
require legislation to make the change or whether you believe
administratively the changes could be made. Then whether they
will be made or not administratively is another question. I do
think that the therapy cap is going to have to be legislated,
especially if we create some kind of a pool as well as modify
the caps.
I think there is some room for budget neutral adjustment on
the SNF drug structure but fundamental additional money for
acuity I think also needs to come from us, and we are willing
to do that.
Are you comfortable or do you need some additional analysis
to make some statement about the outpatient prospective payment
capability of the administration in the basic form? Do you
believe that they have the administrative ability to phase it
in and/or make it budget neutral in that stretched out phase-in
or do you want to take a look at it and come back with a
recommendation?
Ms. Wilensky. We will come back with a recommendation. The
answer has to do with whether, if the statute doesn't
explicitly say it can't be phased in, does that give HCFA the
ability to do so, or if the legislation says these are the
savings to be produced by introducing a prospective payment at
a particular point in time, does that limit how it can be
introduced. We will come back with an opinion from the
attorneys on our staff.
Chairman Thomas. I think it probably falls under the
general category of affairs, if there is a will, there is a
way, and hopefully we will be able to work our way through
that.
The concern that you have is a concern that I have, and
this may be a legislative requirement, that notwithstanding the
phasing in, and even if it were possible to make them budget
neutral, there are still going to be significant differential
payments, and perhaps we might think about building some
corridors in terms of plus or minus percentages so that instead
of one big river you can channel those payments where they
might be most appropriate. If in fact we do do that, that is, a
refinement that I think is going to require legislation, and in
the short timeframe we are dealing with that may not be
appropriate, but we are going to have to monitor that very
carefully.
Ms. Wilensky. It does, of course, not take effect until
next summer, and so it gives you, an opportunity to revisit
this issue, if you wanted to.
Chairman Thomas. And while you are looking at the budget
neutral aspect, we, probably in a very short timeframe, request
you look at again the risk adjuster under Medicare+Choice, an
objective analysis of whether they can. Whether they want to or
not of course would be a different question, but whether you
believe it would require legislation to make that change, and
as is usually the case, we want all the answers to these on
Monday morning, preferably before noon, if possible. Thank you
very much.
Ms. Wilensky. I understand. I trust the executive director
will have no problem having that back to you.
Chairman Thomas. And Michael Hash has learned, as have you,
you just pass that baby on. We are getting from behind you.
Ms. Wilensky. It was my years at HCFA that helped me learn
this trick.
Chairman Thomas. Exactly. We do need these in a relatively
short period of time. Thank you.
Does the gentleman from California wish to inquire?
Mr. Stark. I would like to ask Gail, I just reviewed your
career here for a minute. You used to run HCFA, didn't you?
Ms. Wilensky. Indeed, I did.
Mr. Stark. In those days, you were a Republican. Now, you
have to be bipartisan, right, and nobody ever questioned your
conservative philosophy, did they, when you were working for
the Republicans?
Ms. Wilensky. Not to my face. I don't know what they said
otherwise.
Mr. Stark. Now, the Democrats are running HCFA. You and Dr.
Newhouse cosigned a letter recently talking about the operating
budget of HCFA, and just if I can review for my colleagues, and
I am sure you are aware of this, but basically HCFA had asked
for a couple of percent increase in their operating budget,
about $70 million. There were also some additional user fees
that were scheduled to come on stream in their proposal. The
Appropriations Committee, I guess, assumed that we would enact
the user fees, and they cut HCFA's budget by 13 percent, or cut
out $400 million. But, the fact is they are going to get cut
$400 million and HCFA isn't getting the anticipated user fees.
My sense is we added a lot to HCFA's plate with the
balanced budget amendment, and we are complaining often that
they are not done with those duties. But, I wonder if you could
comment--even let us assume you were going to go back and run
HCFA--what do you think about HCFA's administrative budget?
Shouldn't we be passing the user fees or doing something? And I
want to talk to Dr. Scanlon about this a minute, but could you,
in a kind of bipartisan way, weigh in on that?
Ms. Wilensky. As you noted, both as an individual and then
again as a member of MedPAC, I think there has been a mismatch
between the requirements and burdens that had been placed on
the agency as a result of the Balanced Budget Act in turns of
the resources that are available. I don't think it is
appropriate and MedPAC has not looked at how the funding
decision should be made, whether it should follow the normal
course or an extraordinary course. MedPAC is concerned that
there needs to be a decision either to lessen the activities
that you assign HCFA or to provide more administrative support
because otherwise you find, to the Congress' frustration, that
some of the activities don't get done in a timely way. We
realize this is a difficult discretionary spending year, but I
am personally concerned about this as well.
Mr. Stark. And I ask Dr. Scanlon, along the same line,
though this may be going a little further. Could we fix it this
year like we pay the PROs directly out of the trust fund, I
believe. We changed the way. The Medicare integrity program is
paid in Kennedy-Kassebaum Act. In your opinion, if this is a
fair question, could we not pay the HCFA operating budget
directly out of the Medicare trust fund and build in adequate
safeguards for auditing and oversight?
Mr. Scanlon. I think we see from the Medicare integrity
program example under the Health Insurance Portability and
Accountability Act the model in some respects for providing
both the oversight, as well as the certainty about the funding
that HCFA would have available. We have commented, in looking
at HCFA's operations in the past, about the difficulties that
are created by the appropriations cycle and the fact that
appropriations are often delayed and that this delays the
initiation of activities. This was particularly a problem in
the fraud and abuse area. The contractors were not certain how
much they were going to have, and therefore, a portion of the
year would expire, and they really would not have begun the
kinds of activities that would have produced positive results.
Mr. Stark. And as an expert in government policy, if this
Committee had oversight of HCFA's operating budget, wouldn't
you think that HCFA would be far more responsive to the
chairman's requests just as a matter of self-survival?
Mr. Scanlon. My graduate degree was in economics, not in
government policy.
Mr. Stark. One further question. Gail, I have puzzled over
this for years. For a while the California Hospital Association
used to collect data on hospitals, showing all of their income
and all of their expenses and showing their charitable
contributions and all the rest. Now the hospitals say they
don't want to tell us. Is there any reason that you can think
of, even if it had to be sanitized so that we only had it by
State and we didn't know the names of individual hospitals,
that we should not, in this era of computers, be getting
relatively detailed financial statements from every hospital,
indeed every provider in a format that was at least the same
for each institution so that we could begin to compare by area,
by size of hospital, by all of these things where the problems
are? Without that information it makes it very difficult for us
to perhaps offer the best help to those institutions that need
it most. Is there something that prevents that?
Ms. Wilensky. I think I recall this discussion from 8 or 9
years ago. We certainly have got to do better than we are doing
now. It is ridiculous in an age of information that we are
operating on old and, if not irrelevant, sufficiently dated
information that we can't properly advise you and you have
difficulty making the best decisions. Exactly how to put it in
a common format so that the information is available with the
privacy protection that is needed, I am sure would be subject
to debate by the institutions affected. However, we clearly
need to fix the problem we are now facing, and I think it is in
the institution's interests right now to do so.
Mr. Stark. Thank you.
Chairman Thomas. Just let me briefly, before I recognize
the gentlewoman from Connecticut, indicate that there is always
a concern about bureaucracies and how much money they get and
how much money they need. In the President's fiscal year 2000
budget request, HCFA asked for over $50 million to develop a
database for the risk adjuster. Some of us remember something
called the Medicare transaction system, MTS. I believe Dr.
Scanlan at GAO did a study on that. How much was spent on the
Medicare transaction system before they canned it?
Mr. Scanlon. As I remember, around $43 million was spent on
that.
Chairman Thomas. So one of the problems I would tell the
gentleman is that notwithstanding their desire to get money,
there is still in my opinion a significant unwillingness to
face reality where they spend tens of millions of dollars on
programs that aren't going anywhere without admitting that they
aren't going anywhere until the cost is so high. I think you
will find if you examine previous budgets it could have been as
much as a hundred million that was focused there, and we never
got a return on our investment.
Then let me say that one of the things that we absolutely
need, and you are absolutely right, we do need data and we need
to collect it in a confidential way so that individual patient
identity is not divulged, and the gentleman from Maryland and I
have a bill that we are going to introduce on patient records
confidentiality which will address that problem.
Last, in your report, and I apologize for not asking you
this earlier, you talked about the impact that PPS would have
on particular types of hospitals, especially rural and cancer
hospitals. In the BBA there was a requirement of a 1-year delay
of the imposition of any prospective payment system, for
example, on cancer hospitals. If we maintain the current law
relationship of a 1-year delay between the introduction of a
PPS system and an examination as to whether it should be
applied to particular hospices, like cancer hospitals, do you
think that is a sufficient safeguard to make sure we get the
system right or do you think we should exempt them up front
before we have any of the data and the 1-year delay to examine
it? What would be the prudent approach in your opinion?
Ms. Wilensky. I think we ought to have the 1-year delay. I
don't think at this stage exempting them without further
analysis is appropriate. I know there is concern about what
happens in the cancer hospitals. I also know that some of the
academic centers that provide major cancer care challenge that
there is quite the difference that the cancer centers claim. We
have heard that on the commission already. So I think that
having an ability to look at this issue and try to decide how
not to adversely affect these centers before we make a decision
is better than simply exempting them.
Chairman Thomas. While I certainly would not support a
position of imposing a PPS on all hospitals at the same time
and that I think was the reason we built the 1-year delay in, I
still think it is the prudent approach, and I appreciate your
testimony.
Does the gentlewoman from Connecticut wish to inquire?
Mrs. Johnson of Connecticut. I guess I am disappointed, Dr.
Scanlon, in any sense of urgency in your testimony. I think we
have been fortunate that we aren't seeing real access problems
in the nursing home area, and I think it is because most of the
nursing homes are really dedicated to their work and are trying
hard to provide the same level of care they have always
provided, but if we don't begin to take note of the fact that
somebody with a $10,000 prosthetic device is different from
somebody who doesn't have that need, then we are going to have
serious problems. We don't begin to be able to have real-time,
you know, real life recognition of drug costs. They are so much
more a part of treatment, not just in an outpatient, but in
nursing homes. We are going to have real problems, and I think
if you listen to the testimony later on, you will hear that we
are on the verge of that.
The majority of people trying to discharge patients from
hospitals are finding high cost patients hard to place, and I
am tired of looking at the faces of very kindly people who run
wonderful, quality care places, looking at me and saying how
can I honestly, ethically, morally take into account whether
this person is going to cost them a whole lot, but how can I
not, in respect to the fiduciary responsibility I have to keep
the home open.
So I want to say I feel a sense of urgency to address some
of the problems that the BBA has encountered and to address
some of the problems that the administration has created by the
way they have implemented it, and I think we are going to have
to look at urging the administration to use their executive
branch power to eliminate prosthetic devices from the average
payment system, transportation for dialysis when it can't be
delivered in the home. So it is not a big number of things, but
there is some sense of urgency of what needs to be done now,
and I really am disappointed. I don't get that sense of
urgency.
There is just simply too many questions to need to go into.
So let me ask you both a general one that I think is extremely
important. Hospitals are, in my estimation, really in a
difficult situation, and we are going to erode institutions
that are of extraordinary importance, not just to Medicare
patients but to every American in their neighborhood and their
community. I see my hospitals, the small hospitals beginning to
dig into their endowments. This can't go on many years before
you don't have a strong institution.
So when you look at teaching hospitals, one way to
alleviate the immediate stress, until we get a better handle on
the complex variety of changes in the public and private sector
that is impacting these institutions, would be to freeze IME
payments for 2 years and DSH payments. The number of uninsured
is going up. Their responsibilities for indigent care is not
declining. Medicare managed care choice programs are the
poorest payer of all of the managed care plans in my part of
the country.
Now, I may be feeling this more intensely than other
members, because if you look at the study done by HCIA, they
have a whole sort of section where they go into the fact that
New England is more impacted by these decisions than other
parts of the country because we have been officially run, I
guess. I don't quite remember. I am sorry I didn't bring it.
But I think we have to take the situation of the hospitals very
seriously and at least protect them from further reductions in
their inpatient reimbursement structure and particularly those
reimbursement rates that have most to do with care for the poor
and their unique role of training physicians and doing
research. Many of them don't have the 25 percent match anymore
for NIH clearance. So grants that they have traditionally had
are beginning to be at risk.
So, you know, what would you recommend about payment
changes for hospitals in this bill that we are going to
develop?
Ms. Wilensky. I would strongly encourage you to do
something on the outpatient department, as I have indicated,
both to lower the reduction in payment, to phase it in and to
look at how aggregated the payment is. This would especially
help teaching hospitals and rural hospitals because of the very
large and active outpatient areas. I would not halt the IME
reduction. As you know, ProPAC before us and HCFA have
indicated that the indirect medical education payments are
substantially over the costs associated with the indirect
medical education.
I have personally--MedPAC has not taken a position on this.
I personally have somewhat more sympathy on the DSH and the
disproportionate share exactly because of the issue that you
have raised. We know we have had an increased number of
uninsured over the last several years, and while they are
certainly not the sole providers of care and, in fact, have a
mixed experience of how much all of the hospitals do, all the
teaching hospitals do, I think if you have the funding, that to
me would rank higher.
We will be able to come back in January and provide you in
our March report a little better sense of how much of the
increase in costs that is being reported is actually available
in numbers. I have not seen the HCIA report that you have
referenced, but we will certainly be glad to look at it.
Mrs. Johnson of Connecticut. Thank you. I hope you--I see
my time has run out. I hope that you will, in your next round,
look at what is happening to hospitals as a result of the
increase in drugs. My community hospital in my own hometown has
had a 43 percent increase in drug costs in the last 2 years.
There is some drug they have to give every infant that is very
expensive, but you know, their moral and ethical responsibility
requires that they administer it, and nobody reimburses them.
So I think we need more immediate information and we need to
take into account some things that in the past we really
haven't had to take into account.
Are you concerned basically about the state of our teaching
hospitals?
Ms. Wilensky. I think they are certainly reporting that
they are feeling pain. I have some question as to how much of
it is related to Medicare to be very honest. I would like to
have a better sense that these are BBA and Medicare issues.
Otherwise, I think it is a much harder question. We have many
academic health centers, and whether or not the whole
configuration and the role of the Federal Government to the
academic health centers, I am less convinced although the
information, if it were to suggest otherwise would have me
change my mind, that this is a Medicare payment problem.
Although, as I say the outpatient change would help teaching
hospitals a great deal. They have very active outpatient
departments.
Mrs. Johnson of Connecticut. Thank you.
Mr. Scanlon. Mr. Chairman, if I might, I wanted to assure
you, Mrs. Johnson, we do share your concern and your sense of
urgency, even if our official language in the testimony does
not convey that emotion.
We have recommended that the PPS for skilled nursing
facilities be revised to deal with exactly the problems you are
talking about, the high acuity patient as well as the very
unique type of services that very few individuals are going to
require, which potentially could be taken outside of the
prospective payment system. We provided some information to Mr.
Thomas yesterday about this very issue, and so we do share your
concern there.
In terms of access to skilled nursing facilities, we are
completing a survey very similar to the Inspector General's
using another sample of hospital discharge plans. I am afraid
our findings have been very similar to the Inspector General's
in terms of not identifying significant problems. I am going to
be very interested in looking at the testimony that is coming
later to understand where their information fits relative to
the information that we have, but again, we share the same
urgency and concern.
Mrs. Johnson of Connecticut. Thank you.
Mr. Chairman, can I just make one comment to add to that?
Chairman Thomas. Sure.
Mrs. Johnson of Connecticut. It is not just the small,
country hospitals. Hospitals in the city of Dallas and Fort
Worth, which almost all of them have merged because of
financial problems, are having the same, exact problem, and
they have stopped all capital expansion, even though they are
100 percent bed occupied because they are out of money, and
they blame it on Medicare whether you want to realize it or
not.
Ms. Wilensky. I know and I actually just came this morning
from Texas. I understand that they blame it. We need to be able
to advise you to assure ourselves that it is actually Medicare
and not other changes.
Chairman Thomas. Unfortunately, one of the fundamental
problems in America today is there are too many hospital beds.
They may not be in the right places, but there are still too
many hospital beds.
The other concern I have is that this is the first round of
significant adjustments. MedPAC recommended to us that the 7.7
reimbursement rate on indirect medical was probably too
generous. We are talking about going to 6.5. In fact, MedPAC
has recommended a number perhaps below 5 as the appropriate
amount. I think part of this is simply a test of wills. If some
folks with significant leverage can hold the line now, we will
not be able to go ahead and make the kind of reforms that are
necessary over the long haul.
What we need desperately is accurate information so that we
can make the most reasonable decision. We will try to be as
prudent as possible, but it seems to me that moving from 7.7 to
6.5, when we are looking at a glide slope that will extend over
several years, is simply an indication that the entire graduate
medical education area needs to be reexamined, not just the
modification in the current rates, and we intend to do just
that.
Does the gentleman from Wisconsin wish to inquire?
Mr. Kleczka. Thank you, Mr. Chairman. We do have a couple
of minutes before the vote. I have a question of Ms. Wilensky.
You have indicated in your remarks that you believe the
nursing home problems should be addressed in this, what we call
refinement legislation. I happen to agree with the gentlelady
from Connecticut on this subject. I hear stories from nursing
homes and patients in my District where the high acuity
patients are being left in the hospital because nursing homes
are refusing admission. I can't fault the nursing home because
they are not in the business to lose money or to harm the
solvency of the home or to hurt other patients.
They know that when a high acuity patient walks in the door
they are going to be losing big, big dollars. There is no way
that they can do that. So now they are advocating, the profits
or nonprofits alike for some changes in the RUG rates. Can you
give this Committee some specific advice and/or recommendations
as to what adjustments should be had in that area? Some of the
nonprofits homes are looking for relief in the extensive
services and special care areas. Other nursing homes are
looking for relief only in the rehab area. The Hatch bill I
think for the most part deals with the rehab RUGs and slates
them for increases. Give us some direction on this particular
issue.
Ms. Wilensky. The staff that have been working in this area
in MedPAC I know have met with the committee staff on several
occasions discussing the fact that some of the bills have many
categories. Some of the bills are much more focused. We also
have looked at the issue of keeping some potential areas
outside of prospective payment, for example, ambulances. Mrs.
Johnson identified a case with regard to dialysis. Perhaps if
there is no financial relationship between the nursing home and
the ambulance company, that there may be circumstances where
the separation outside of prospective payment would be
reasonable.
We will make sure that there is----
Mr. Kleczka. Do you have a list of those?
Ms. Wilensky. We will make sure----
Mr. Kleczka. What RUGs are you looking at? What RUGs would
you suggest that we address?
Ms. Wilensky. I am sorry?
Chairman Thomas. If I can respond to the gentleman. His
question was what RUGs to adjust. The difficulty is that the
computers at HCFA won't allow us to adjust the RUGs. What we
are going to have to do is find a surrogate for acuity and then
create a multiplier for IVs, hospital beds. There are ways to
create surrogates in the interim.
Mr. Kleczka. The question is not how it is going to be
done. The question is, could you identify for the Committee
which areas you think should be given priority for adjustment.
We will worry about how to do it.
Ms. Wilensky. We will attempt to do so. I don't know
whether the staff has already laid that out. I do know, because
I was involved in some of the discussion, that we have met with
committee staff on the general issue, but we will make sure
that we have as much assistance on the specifics as we can.
Mr. Scanlon. If I could add, I think one of the original
difficulties----
Mr. Kleczka. I am sorry.
Mr. Scanlon. I was going to add to this. One of the
original difficulties in setting up the RUGs was the very small
sample of patients that was being used, and there is the strong
potential that what happened is in the highest categories in
terms of nursing need and in terms of rehabilitation need that
there were too few patients, and therefore, the grouping is too
gross, and what we need to do is think about dividing that
group up. The problem that HCFA has faced is that they need
more information about patients and the variation of needs, and
they are going about trying to collect that. We really
shouldn't make this decision based on intuition. We should be
basing it on data they are trying to collect.
Ms. Wilensky. My understanding is there is a contract out
right now that is supposed to provide data back to HCFA by the
end of the year. The question really is, is there something the
Committee wishes to do in the interim in what is a widely
agreed upon problem while HCFA gets more precise data to
actually make an informed decision about which of those
categories is underpaid and by how much. My understanding is
that if you want to do something right now, it will be on
limited information and HCFA will have a limited ability
between now and next summer to implement something that is very
sophisticated because of all the Y2K and payment issues. My
personal opinion is it would be better to go ahead and do
something now and something more refined next year.
Mr. Kleczka. OK. Would you please share your specific
recommendations with regard to short term changes with the
minority staff?
Ms. Wilensky. Yes, of course.
Chairman Thomas. Thank you very much. I am informed that we
are going to have another vote following this vote, and so it
is going to be very difficult to try to continue the Committee.
If I could ask you, is it going to be possible for the panel to
come back so that other Members could quiz them, and that to
give everyone some assurance and perhaps an opportunity for
lunch, let us say that the Subcommittee will reconvene at 1:30.
Thank you very much. The Committee stands in recess.
[Whereupon, at 12:45 p.m., the Subcommittee was recessed,
to reconvene at 1:35 p.m.]
Chairman Thomas. The Subcommittee will reconvene.
Does the gentlewoman from Florida wish to inquire?
Mrs. Thurman. Thank you, Mr. Chairman. Dr. Scanlon, let me
ask you, as you can tell from some of the conversations that we
have had with the different witnesses, all of us have been
asked to look at some of these issues and the impact of BBA,
and yet we are hearing today that there doesn't seem to be all
that many problems out there, everything is OK. But one of the
things that I would like to ask you is, one of the concerns
that I have is, things, as I think Mrs. Johnson mentioned and
others have mentioned, that things may be not, you may not be
able to identify potential problems in the future, and so one
of my concerns is that if we don't do some of the things that
are being asked by some of these providers, do you see in the
future some real cuts in patient care?
Mr. Scanlon. Let me start by saying I think we don't want
our testimony to be interpreted as saying that everything is
OK. I mean, we think that generally speaking there is still
care being delivered to serve beneficiaries' needs, and we have
identified some problems that exist, and in some instances,
those problems relate to where a person receives care as
opposed to whether they receive care, the example being the
skilled nursing facilities. When people remain in the hospital,
they are still being cared for, they still may be receiving
therapy. We heard from discharge planners that sometimes their
hospital stay is extended long enough that they are able to go
home with home health care instead of going to a skilled
nursing facility for a short stay.
So we do think that those are things to be noted, and at
the same time, we think that the issue is fixing or refining
these various systems in terms of dealing with the problems
that we have identified, which are, generally speaking dealing
with higher-need beneficiaries. This is the case for problems
related to home health, Medicare+Choice, skilled nursing
facilities. How much those will become exacerbated over time, I
mean that is a concern. So we do need to try to address those.
Our other bottom line is we feel there are enough resources
in the system, but, there is a targeting question because we
can still identify areas of overpayment. So that in terms of
trying to deal with the areas of underpayment, we need to think
about some redistributions as well as potential infusions of
new money.
Mrs. Thurman. What about in the area of hospitals? Because
we are hearing from our hospitals, and they are saying, look,
we are holding on barely, and we think if this continues and we
don't get any relief, that you really will see some patient--
and I am hearing that from private, from community, from not-
for-profit, and in particular, some of my teaching hospitals,
the same kinds of things. What can you give us as some hope
here?
Mr. Scanlon. Maybe it is more information as opposed to
hope. I think the issue is that we have not done nearly as much
or really haven't looked into the hospitals per se, leaving
that work to MedPAC, and I would ask Dr. Wilensky to comment on
that.
I do think the one area where the work that we have done
indicates an impact on hospitals consists of those people who
are staying longer and not being placed in skilled nursing
facilities. Hospitals are in many instances not getting
additional revenues to serve those longer-stay patients. But
the whole issue of hospitals, as we talked about this morning,
is tied to what other payers are doing and to the supply of
hospitals we have relative to the need. There has been a
dramatic change in the delivery of medical care and we use less
inpatient hospital services. So it is a question of what is
Medicare's role in resolving this more general set of problems
that are affecting hospitals.
Ms. Wilensky. I think your concern is well placed because I
know you have been visited by representatives of the health
care industry broadly defined, but you will have opportunities
to make further corrections. Many of the statements relate to
projections 3 and 4 years out. If they continue, this is what
will happen. I do urge you to do some things this year, I don't
want you to misunderstand me, but I think you ought to
concentrate in the areas where it is clearer this is a problem
right now, monitor what is going on. We come back to you with
at least two reports a year. We will have more information on
the hospitals. The outpatient we think we can see now coming as
a problem. It is not clear that there is currently a problem on
the inpatient, and I agree that there are probably more
hospitals than we really need, and if we could have some
selective closures, it would be helpful.
Mrs. Thurman. And I do note that you do say that there are
other indicators, pressures that are going on out there. What
would be the kinds of questions that we should be asking for
information from our hospitals to help us make this clearer and
to identify those issues that we really need to be working on
this year?
Ms. Wilensky. The biggest thing that would be helpful would
be to get information that separates out the effects from
Medicare versus the effects that are going on from other payers
in the hospital. We are also sometimes presented with data from
individual hospitals. It is not showing that separation. It is
unreasonable to ask a fiscally fragile program like Medicare to
make up for pressures going on from other payers, and so that
is really something that we need to know. We know that in the
past few years hospitals have been very good at keeping their
costs down. So although Medicare payments weren't rising that
quickly, it allowed for a substantial inpatient margin to build
up.
We want to see what has happened with the costs, whether
they have been able to keep them low. We know the revenue has
been--was frozen and is now growing very, very slowly. My guess
is, there are still, in the most part, Medicare margins
inpatient. The outpatient is a different problem, but if there
is something else, we need to be able to see it. We can't see
it.
Mrs. Thurman. Thank you. Thank you, Mr. Chairman.
Chairman Thomas. I would tell the gentlewoman from Florida,
one of our biggest problems is that we haven't had change in
this area for such a long time.
A piece of humor here is news from the 13th District in
California. It is a press release. The headline is, Medicare
vastly overcharged for infusion therapy provided in skilled
nursing facilities prior to Balanced Budget Act. ``The IG's
findings are a classic example of how Medicare was ripped off
under the old cost-based system,'' Representative Stark said,
chairman of this Committee for more than a decade in which, if
he had been willing to make some of the changes that clearly
needed to be made, especially in SNFs and in home health care,
we would not see the growth that occurred and, therefore, the
significant need to make dramatic adjustments that we are now
faced with.
Does the gentleman from Minnesota wish to inquire?
Mr. Ramstad. Thank you, Mr. Chairman. Dr. Wilensky, Dr.
Scanlon, good to see you both.
Dr. Wilensky, let me ask you a question if I may. I was
also glad to see in the most recent MedPAC report that the
commission recommended that the Secretary should postpone by at
least 1 year the application of the interim Medicare+Choice
risk adjustment for specialized plans such as EverCare, and you
were here for my line of questioning to the previous witness,
and I am quoting now from your report:
Plans should be paid using existing payment methods until a
risk adjustment or other payment system is developed that
adequately pays for care for frail Medicare beneficiaries.
Now, my question is this, if plans should be paid under the
current payment system until a special methodology is developed
for these frail elderly programs, why didn't MedPAC go one step
further to recommend that these programs should be completely
exempted from the internal risk adjuster at least until the new
methodology is implemented?
Ms. Wilensky. It would be a better system if we could bring
them into a single payment mechanism, and it is really a
question of how long will it take until we are at that point.
So we were trying to buy some time until--there is a current
evaluation being done of the PACE, EverCare and Social HMO
programs. We wanted to get more information back that shows the
impacts of these programs. There is an outstanding study with
regard to whether the for-profit, not-for-profit distinction is
of any use. We decided to withhold further recommendations
until these outstanding studies are done. We actually had
considered making a stronger recommendation, but because there
are several studies relating to these programs, we thought it
was more prudent to wait until the information is back. We will
be back next year and say something. So we brought what we
thought was the most important point, which was don't do
anything for now until we can come back next year and see if
there is anything more specific to say.
Mr. Ramstad. That data should be available, should be
forthcoming by when, would you say, early next year?
Ms. Wilensky. My understanding was in enough time so that
when we came back in June 2000 we would have additional
information. I will provide you that when the studies are
supposed to be completed.
Mr. Ramstad. OK. I certainly appreciate the commission's
recognition of the importance of specialized plans,
specifically EverCare. It affects so many of the frail elderly
in Minnesota and Maryland, Mr. Cardin's State and district,
across the Nation as well, as Mr. Cardin pointed out earlier.
In the remaining couple of minutes I have got, I am also
concerned that the annual lock-in requirement will be
detrimental to these frail elderly programs. Thirty percent of
the membership dies in any given year, and if members are only
allowed to enroll once a year in these programs, obviously many
of them won't have the opportunity to avail themselves of these
high quality, innovative, cost-saving programs. What is
MedPAC's position on the once a year annual enrollment
requirement?
Ms. Wilensky. We did have discussion concerning precisely
about the issues you have just raised. I don't recall that we
took a position specifically on that issue. I will go back to
look and if we did, I will let you know. Prior to our report
next year, I will make sure that we have looked at this issue.
Mr. Ramstad. Now, it is my understanding that MedPAC
recommended exempting the PACE program from the annual lock-in
provision. Is that correct? I believe that was exempt.
Ms. Wilensky. I believe that is correct. The issues that we
were dealing with is that we had the outstanding study work was
primarily to be done on the EverCare and the Social HMOs. Those
are evaluations that had been requested and had not been
completed. It was really waiting to that time.
Mr. Ramstad. My point is, implicit in my question is, if
the PACE program can be exempted from this annual requirement,
couldn't this also be done for the EverCare program?
Ms. Wilensky. Yes. Again, the point of our concern was we
did not want to do harm to these programs. We think it prudent
to get this additional information, but we agree this is
something that if you undo the programs it will take a while to
put them back together.
Mr. Ramstad. Finally, Dr. Wilensky, just a footnote to my
friend from Florida's statements. I was just at the Mayo
Medical Center in Rochester, Minnesota, which operates, as you
know, under one of the lowest profit margins of any provider in
the world and also some of the highest quality health care of
any provider in the world. They attribute to the BBA changes a
loss over 5 years of $500 million, and they can't absorb $500
million. So I think this problem is more widespread than some
of us recognize.
Mr. Ramstad. Or at least some of our friends at HCFA
recognize. Thank you.
Chairman Thomas. Thank the gentleman. The gentleman from
Maryland wish to inquire?
Mr. Cardin. Yes. Thank you, Mr. Chairman. I want to agree
with the comments made by Mr. Ramstad. It looks like we don't
have much of a disagreement that we need to make some changes
as relates to the nursing home reimbursements, particularly as
it relates to acuity of patients, and have to do something with
the therapy cap, outpatient services. There is an area where
there appears to be an agreement where there is--I guess the
difference is and emphasis is that many of us think it is an
urgent issue that we have to deal with immediately. Quite
frankly, I find it somewhat disappointing that we don't make
modifications in the program before we reach a crisis position.
Before institutions go into bankruptcy or before patients are
denied care, we should be looking at this and doing what is
right before we reach a crisis position.
Dr. Scanlon, I want to question you as to one statement you
made in your written statement where you say 2000 enrollment in
Medicare+Choice plans will remain a relatively inexpensive way
for a beneficiary to obtain prescription drug coverage in many
areas. I take it in making that statement you looked at what
has happened in this round of contracts between HCFA and the
HMOs?
Mr. Scanlon. Yes, sir, we did look at that. And it is
relatively inexpensive when one compares it to the Medigap
policies that offer drug coverage. We have also been looking
into that area in some other work and found the average
premiums across the three different standard plans that offer
drug coverage. They range from $1,600 to $2,800 a year. So that
is the issue.
Mr. Cardin. I appreciate the relative issue. But let me
talk absolutes for one moment, if I might, and ask whether
Maryland is an anomaly here or whether we are similar to other
States; because when I see what will be available beginning
January 1, 2000, in my State of Maryland, your statement even
``relatively inexpensive'' is just not accurate. Fourteen of
our twenty-four counties will have no options on HMOs, and
Maryland is not a very rural State. We are a rather urban
State. But yet 14 of our 24 jurisdictions will have no plans.
In the 10 jurisdictions that will have plans, I am finding
it difficult to find a plan available that doesn't have any
very low cap unless you have a high premium. For example, in
Harford County you can get into a plan without an additional
premium, but the limit is $300 and the copayment for brands is
$45, and $9 for generic. I wouldn't call that much of a drug
coverage, would you?
Mr. Scanlon. It is very limited drug coverage, but that is
the same situation that exists under Medigap. The lowest
benefit in the standard Medigap plans is the $1,250 cap. That
is the plan that has a $1,600-a-year premium. So for the zero
premium you are getting $300 coverage. Certainly it is not good
coverage, but the issue is relative to your choices if you
remain in the traditional program.
We realize that before, 80 percent of the health
maintenance organizations offering drug coverage were offering
them at zero premiums. That was an incredible benefit for
Medicare beneficiaries but at the same time the program was
paying $54 a month above the cost of delivering the Medicare
benefit package. That was an issue in terms of the overall
sustainability of Medicare financing.
So we recognize what you did in BBA in terms of trying to
put Medicare on a surer footing has an impact on beneficiaries.
You need--we can't make the decision as to where the balance
should be.
Mr. Cardin. I think I agree with your point. I still take
issue with comparing it to the Medigap plans because the
Medigap plans actually provide, at least in my State, greater
coverage than the Medicare+Choice plans.
Mr. Scanlon. Many Medicare+Choice plans----
Mr. Cardin. I can't find a single plan in Maryland that
doesn't have at least a $1,000 cap, and every one of those have
pretty high premiums. So----
Mr. Scanlon. It is definitely true. The benefit has changed
and declined relative to what it was before.
Mr. Cardin. That is the point I would make--my time is
running out. The last point I would make is that the statements
have been made that the changes we made in reimbursement in
1997 is maybe one factor but maybe not even a significant
factor in what the HMOs are doing. I take issue with that. I
think that it is clear, I don't disagree with the fact that we
ought to change the way that we reimburse Medicare HMOs, we
certainly had to do that, but I think it is having a dramatic
impact, at least on my State of Maryland, as to the plans that
are available to our seniors, the affordability of those plans,
and what it covers.
Mr. Scanlon. We don't underestimate the impact of the
changing rates. It is just trying to deal with anomalies that
we find. When we looked at Maryland, we looked at the
withdrawal of the Blue Cross plan from the rural counties. We
found that in those rural counties, the rates were going to be
going up 5, 6 percent, whereas Blue Cross was staying in
counties where their rate was only going to go up 2 percent.
There didn't seem to be that much of a difference in the rural
counties versus the urban counties in Maryland.
So how, when you get a more generous rate offer, you still
withdraw and stay in an area where your rate increase is going
to be lower, that is the thing that we haven't been able to
explain just in terms of Medicare rates. We believe there are
other factors that influence those as well.
Mr. Cardin. There is a difference of $300 a month or more
in what we pay the HMO plan between two counties that are next
door to each other.
Mr. Scanlon. Not in the data that we have from the State of
Maryland.
Mr. Cardin. Oh, yes. In Maryland? The difference between.
Mr. Scanlon. In looking at counties that had rates of $480
to $500 where Blue Cross was leaving--and then the counties
where Blue Cross was staying--it was not much more, certainly
not $300 more.
Mr. Cardin. But there is clearly between the----
Mr. Scanlon. I recognize that situation exists. It is just
that it wasn't the case in terms of the Blue Cross decision in
Maryland.
Mr. Cardin. My time has run out. I disagree with that
conclusion. Maybe we will have a chance later on to----
Mr. Scanlon. I would be happy to bring the data and share
it with you. Thank you.
Chairman Thomas. I thank the gentleman for the discussion,
although it doesn't really focus narrowly on the BBA, the
concerns that we have in front of us. It is clear and opens up
the opportunity to talk about the fact that we have a basic
disconnect very often. The way you are going to get realistic
prices as opposed to artificially developed formulas by
bureaucrats is to allow plans to negotiate for a price with
real-world costs. And of course, that was the premium support
model that the Medicare commission offered. The difficulty with
that is that if you want real-world prices, you have to accept
real-world consequences. In terms of what happens in market
situations, some people win, some people lose.
The idea of plans leaving shouldn't necessarily be a
negative. It depends on what are the conditions, are there
additional plans in the area, is it a market that is paying a
rate which is attractive and would also cover the costs are a
whole series of questions that need to be asked; not just if
plans are leaving.
Mr. Cardin. Will the gentleman yield?
Chairman Thomas. I will as soon as I finish. The difficulty
is that we have gone kind of half way. We created the so-called
Medicare+Choice but we maintained them on formulas which I
think the gentleman made an excellent case for, the
artificiality of the formulas, especially the bizarre payments
between counties in a close proximity simply because there is a
county line or there is a metropolitan statistical area. Those
anomalies have to be removed.
But if you are going to do that, you cannot then say that
Medicare+Choice is a structure unto itself in which costs and
quality will be judged and that dollars will be removed from
that payment area and that you do not apply a cost and quality
comparative to the fee-for-service entitlement program, because
what you are doing is creating a shrinking pot guaranteed to
have the Medicare+Choice program implode.
You also talked about the question of pharmaceutical
benefits. I was interested we didn't introduce the President's
plan because if you look at that, it isn't a very good deal
either. It isn't real insurance. It doesn't cover the real
concerns in terms of stop-loss, and frankly if you don't, if
you don't have better than $500 worth of costs, you ought not
to buy that premium going in in the first place because it
isn't a cost-effective way of covering yourself.
What we did on the Medicare commission is say that
prescription drugs ought to be an integrated part of the
Medicare program and they ought to be handled in a particular
way. What I find especially frustrating about the Medigap
program is that, by law, the first dollar of every Medigap plan
has to go for buying down co-pays and deductibles which produce
overutilization in the system. That isn't a very smart way to
operate either.
We started the process, we are going to go through with
additional changes. But at any point, you will find anomalies
in terms of what used to be and where we are trying to go.
Hopefully, as more and more Members grapple with this
problem, they are going to have to realize there really isn't a
halfway house. We are going to have to accept the changes that
need to be made and make them without the politics that have
been associated with it in the past, with the understanding
that policy delivering benefits to beneficiaries has to be
foremost in our decisions.
The gentleman from Maryland.
Mr. Cardin. I appreciate the comments. And there is not
much I disagree with what you said. I agree with you, but today
is October 1. Today is the day that HCFA has made its decisions
or finished its negotiations with the Medicare+Choice options.
I think there is a difference between what should work in
theory and what has happened in reality. I would just be glad
to share with my friend from California what has happened now
in Maryland. These are the HMOs that are now available in
Maryland. And it is clear that my seniors have less choice. And
there are going to be less seniors enrolled in HMOs next year
in Maryland than there are enrolled today. And I don't think
that is what we intended for Medicare+Choice to do. We expected
to have more choice for our seniors.
I look over this list, seniors ask me all the time when I
am at senior centers what they can do, I have a hard time
recommending any of those plans from the point of view of what
I know they are interested in. I appreciate it, but I do think
what we did in Medicare+Choice was well intended as far as
trying to modify the reimbursement structures for HMOs, but at
least in my State this practice hasn't worked.
Chairman Thomas. And I understand that. I will tell the
gentleman I look forward to working with him to try to make
some realistic decisions on the short time line that we face.
For example, a number of plans began to prepare and make
decisions prior to having all the information in front of them.
In fact, if we do make an adjustment and it does trickle down,
because there is clearly a relationship between what we do on
fee for service in the Medicare+Choice, we ought to create an
option for people to have another decision as to whether they
want to get back in if something happens subsequent to a
decision. And it is denying choice if you force them to stay
with that decision. Some arbitrary 5-year rule for not getting
back into an area when, in fact, the circumstances and the
facts have changed in the area, is just punishing people.
But that is what happens when you deal with a bureaucracy.
They come up with these mindless decisions that make no sense
whatsoever. If in fact the risk adjustment, not withstanding
that there might be some slight overpayments, is, in fact, not
right--it wasn't created in a day--maybe you need to create a
glide slope that stretches out over a longer period of time so
you don't have the disruption of the plans available for
people. We will get the money. The key is to continue forward
and make the changes so that the system works the way it really
should.
If what you want are realistic prices and a competitive
model in which people get the kind of health care we think they
deserve, integrated prescription drugs, you can't do it in some
halfway house. Right now we are in a halfway house. And you are
seeing the results of that halfway house. I don't think it is
acceptable. I think the only direction is to continue to go
forward.
The gentlewoman from Florida.
Mrs. Thurman. One of the things that I think is very
concerning to us is that--and probably because there are
discussions going on potentially because there could be a BBA
fixed bill--is I have folks calling me, screaming about what is
happening on HMO or Medicare choice coverage, saying, ``You
know, everybody is pulling out''--and those kinds of things--
and it is your fault. You won't raise the rates on this. You
won't give us the same rate of return.
What I was interested in, Dr. Scanlon, and I think this is
something that has also got to be talked about because what has
happened right next door from Alachua County and Levy County
and then above in the northern part in Colombia County, those--
all three of those get almost about the same rate. We have not
pulled out of two of those counties, but we have pulled out of
one of those counties.
And one of the things that you mentioned in there is lack
of providers, that they can, in fact, enroll into this and some
other factors. And I think we have to address that, of how do
we address that issue; because, quite frankly, the bottom line
of all of this is that these are Medicare dollars coming out of
the trust fund. And there are seniors in this country that are
getting better care and better benefits than those in other
parts of the country because they don't have that available to
them.
Chairman Thomas. There is no question--I tell the
gentlewoman from Florida, there is no question that is the
case. But it has built up over time. Remember any of those
additional benefits beyond the basic package guaranteed in law
were not designed into the managed care package. Those are the
left-over dollars that are available. And when we are squeezing
the cost factor, the left-over dollars are fewer, the
``benefits are fewer.'' They are not necessarily intrinsically
part of the plan. They are simply the left-over dollars.
And when you take a look at the way in which the formulas
are constructed, a significant factor is the way in which
health care facilities are utilized in particular areas of the
country. It is a simple fact that in certain areas of the
country you don't have as much use of health care facilities as
in other areas. That is built into the formula.
It seems to me that if people want to use more, they ought
to pay more. But that is not the current structure. What we
have to do is address the fundamentals. We have not addressed
the fundamentals. One of my worries is that arbitrarily and
with fixed formula, and with fixed timeframes, we are going to
create a system in which 10 years from now there will be no
Medicare+Choice because we created a fixed pot of money out of
which we remove money--and you heard the Deputy Administrator
of HCFA say that they are going to forge ahead with the risk
adjuster and it would not be budget neutral--we are going to
take money out of this area at a time when the gentleman from
Maryland is indicating there are fewer choices available, plans
are withdrawing, and that probably doesn't seem to be a really
smart decision. Unless of course, these people are committing
hari-kari to show us that we are wrong. And that is probably
not the case.
I think somewhere there is a reasonable balance over a time
line as we bring in additional changes so that we can keep as
many plans in place. I think that we might be able to create a
bonus payment for people to go into areas, provide a 3- to 5-
year bonus payment, because they are not going to go if they
lose money. If we create a structure in which they can get to
critical mass to be able to stay, a 3- to 5-year assistance so
you can have that choice make some sense. Because frankly we
are losing a lot of members on any of the changes we are going
to go forward with if you get the discrepancies that you get
between mostly the urban areas on the coasts and the interior
in terms of choice. They are tired of voting for choice and not
getting any.
That has got to be one of the areas that we look at as soon
as we make some of these adjustments on the Balanced Budget
Act. That is one of the reasons I quizzed the Deputy
Administrator. I believe they can make a number of
administrative decisions which would assist in this area. I am
afraid they are not going to, because they are going to force a
crisis in the area of managed care so that they can say, ``See,
we told you it won't work.'' I hope I am wrong.
Thank you very much. Appreciate you hanging around so that
we could get some additional whacks at you.
And we would ask the next panel to come forward. I want to
thank you for your patience. I can assure you that your
testimony and your presentation are appreciated by this
Committee. It will be listened to and we will react. This is a
panel of, for want of a better term, providers; but clearly
behind each of these providers are significant beneficiaries
who receive the particular help that these various
organizations represented by these individuals provide.
Beginning on my left, your right, is Sister Carol Keehan,
who is president and chief executive officer of Providence
Hospital. She will be speaking on behalf of the American
Hospital Association. Dr. Richard Corlin, gastroenterologist
from Santa Monica, who will be speaking for the American
Medical Association. Maribeth Capeloto who will be speaking on
behalf of the American Association of Health Plans. Blaine
Hendrickson from Rancho Mirage, California, American Health
Care Association. Pamela D. Bataillon is from Omaha, Nebraska,
the Visiting Nurse Association. And then Nancy B. Swigert,
speaking on behalf of the American Speech-Language-Hearing
Association.
Each of you have written testimony. You can submit it for
the record. And if you would address us in any way you see fit
during the time that you have, given the size of the panel, I
would be hopeful we will provide lights for you to monitor your
oral testimony.
Chairman Thomas. And, with that, Sister Carol.
STATEMENT OF SISTER CAROL KEEHAN, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, PROVIDENCE HOSPITAL, ON BEHALF OF AMERICAN HOSPITAL
ASSOCIATION
Sister Keehan. Thank you, Mr. Chairman.
Chairman Thomas. These microphones are very unidirectional,
and you need to speak directly into them. Thank you very much.
Sister Keehan. Thank you, Mr. Chairman. I am Sister Carol
Keehan, president and CEO of Providence Hospital here in
Washington. I am here today representing the American Hospital
Association and its 5,000 hospitals and health system members.
I would like to begin by sharing some of the effects the
BBA is having on my hospital. Our outside audit firm evaluated
the effect of BBA on Providence. For a 5-year period it is $25
million in reduced patient payments. It is not possible to deal
with that and deliver the level of care that citizens of
metropolitan Washington have associated with Providence since
Abraham Lincoln signed our charter. We are not cutting the fat
in our system, but literally the muscle, and indeed in some
cases the heart of health care.
What is worse, the national impact of the BBA was vastly
underestimated. A study by the Lewin Group found that the
originally estimated 5-year BBA hospital payment reduction of
53 billion is in reality more in the range of 71 billion, an
$18 billion increase. The administration can and must help ease
the burdens of BBA.
My written testimony has a list of changes that can be made
without legislation. I will briefly outline four.
HCFA should reverse its decision to cut outpatient payments
an additional 5.7 percent. This would cost hospitals $900
million each year. HCFA's decision is not consistent with the
wishes of Congress, as 77 Senators and 252 Representatives
noted in letters to the administration. They wrote that
Congress in no way meant for these additional cuts to be made.
HCFA should permanently delay any expansion of the number
of DRGs subject to the transfer provision.
HCFA should drop its volume cap on outpatient services.
The BBA requires that HCFA develop methods for controlling
unnecessary services, not create a formula-driven mechanism
that would penalize hospitals for adopting new technologies and
treatments.
Given the fragile condition of Medicare+Choice,
implementation of the risk-adjusted payments should be slowed
further than the current 5 years. Too fast a pace can cause
major disruptions for plans and enrollees.
There are also steps that Congress can take, using the
budget surplus to ease the effects of the BBA. Among those
outlined in detail in my written testimony are these:
The AHA urges your support for legislation that would
provide a payment floor or some kind of stop-loss to protect
hospitals from unreasonable losses during the transition to
outpatient PPS. It is important that such protection not be
done in a budget-neutral manner as additional losses of 3 to 8
percent would be incurred by some hospitals to prevent losses
by other hospitals of 20 to 40 percent. New money is needed so
that the payments that are already inadequate are not
exacerbated.
AHA urges you to repeal the unnecessary and unwarranted
transfer provision by adopting H.R. 405, the BBA's skilled
nursing facility payments by $9 billion over 5 years. It also
required HCFA to implement PPS for these services. But the new
PPS fails to adequately account for the differences in the
costs of caring for medically complex patients such as
ventilator patients. The current payments for these Resource
Utilization Groups or RUGs are below the cost of providing the
services. Until HCFA can revise the case mix, a multiplier
should be used to increase payments for extensive services and
special care cases. When the case mix is revised, this
additional payment can be used to fund the new format.
Because of their small size, rural hospitals are often
unable to absorb the impact of changes in payment and
regulatory policies. With the mounting pressures of the BBA,
these facilities warrant special consideration. AHA urges
relief for rural health care providers, especially sole
community providers, critical access hospitals, and Medicare-
dependent hospitals.
America's medical schools are often cited as national
treasures, yet under the BBA, Medicare's indirect payment for
medical education is scheduled to be reduced from 7.7 percent
to 5.5 percent by fiscal year 2001. This reduction is making it
difficult for these institutions to maintain their cutting-edge
prominence. AHA urges relief for our Nation's teaching
hospitals by freezing the current schedule on further indirect
medical education reductions. As I said, details are in my
written statement.
Here is the bottom line. Now is the time to repair the
unintended consequences of the BBA. We look forward to working
with Congress and HCFA to fix the problems I have outlined
today. Thank you, Mr. Chairman.
Chairman Thomas. Thank you very much.
[The prepared statement follows:]
Statement of Sister Carol Keehan, President and Chief Executive
Officer, Providence Hospital, on behalf of American Hospital
Association
Mr. Chairman, I am Sister Carol Keehan, president and CEO of
Providence Hospital in Washington, DC. I am here today representing the
American Hospital Association (AHA) and its nearly 5,000 hospitals,
health systems, networks, and other providers of care. We appreciate
this opportunity to present our views on an issue that is dramatically
affecting hospitals in communities across America: The Balanced Budget
Act of 1997 (BBA).
Our testimony focuses on how relief from the BBA's Medicare
spending reductions can be attained through both regulatory and
legislative means. But first I'd like to share with you some of the
effects of the BBA on my hospital, to make clear why immediate relief
is so badly needed.
The BBA's Effect on Providence
I manage a hospital and nursing home in northeast Washington, DC.
Our outside audit firm independently evaluated and estimated the effect
of the BBA just on Providence Hospital. For a five-year period, it is
$25 million in reduced patient payment. It is not possible to deal with
that and deliver the level of care that the citizens of metropolitan
Washington have come to associate with Providence Hospital since
Abraham Lincoln signed our charter.
We are not cutting the fat in our system, but literally the muscle,
and indeed in some cases the heart of health care. These deep
reductions force choices to cut non-revenue-producing services like
palliative care, and much of our patient education program. We also
will see our quality evaluation programs and our quality improvement
efforts cut, to name only a few areas where there will be an impact.
These actions have real consequences for patients and families.
Just ask any family what a good palliative care program has meant to
pain control, emotional and spiritual support, as well as basic care
for the terminally ill and their families. The list of compromises
could go on and on, and we must not allow it. The unintended magnitude
of BBA cuts must be addressed because they hurt patients. Even the
best-managed hospitals cannot afford them and retain the level of
service to patients that is required to meet our mission.
Overall Effects of the BBA
For over a year, hospitals across the country have been sounding
the alarm about problems associated with implementation of the BBA. In
all parts of the country--urban as well as rural--we are documenting
service closures and cutbacks as hospitals and other health care
facilities attempt to wrestle with the BBA's dramatic reductions in
Medicare spending.
The BBA mandated the largest changes in Medicare since the
program's inception in 1965. In addition, the budgetary impact of these
many changes were vastly underestimated. A study conducted by The Lewin
Group found that the originally estimated five-year BBA hospital
payment reduction of $53 billion is, in reality, more in the range of
$71 billion--an $18 billion increase.
Balancing America's budget shouldn't deprive Americans of the
health care they need and deserve, and that was clearly not Congress'
intent. But that's exactly what's happening across the nation, even
though two-thirds of the cuts have yet to take effect. Today's
hospitals and health systems encompass all elements of health care
delivery affected by the BBA: home health, skilled nursing, outpatient,
inpatient, and health plans. This makes the BBA's changes particularly
burdensome, and the worst is yet to come.
The Lewin Group was asked by the AHA to forecast the BBA's impact
through the year 2002 on payments for hospital services, including
inpatient, outpatient, hospital-based home health, rehabilitation,
long-term care, psychiatric and cancer services.
Findings from the analysis show:
For all hospitals, total Medicare margins are projected to
be between negative 4.4 percent and negative 7.8 percent in 2002.
Already in the red when treating Medicare patients, rural
hospitals' total Medicare margins may plummet to between negative 7
percent and negative 10.4 percent in 2002 as a result of BBA payment
cuts. Urban hospitals' total Medicare margins in three years are
predicted to range from negative 3.9 percent to negative 7.3 percent.
Outpatient service margins also are expected to drop.
Medicare outpatient margins--already negative in 1999--are estimated to
drop to a negative 28.8 percent if costs increase at a more historical
rate of growth; and negative 20.3 percent if hospital costs increase
more slowly.
In just one year, margins for hospital-based home health
services are predicted to drop dramatically from negative 4 percent in
year 2000, to negative 11.6 percent in 2001. Fifty percent of hospitals
now provide home health care.
Mr. Chairman, caregivers won't compromise quality. But they simply
can't afford to continue providing services if their costs aren't even
covered. How are they to survive? Communities already are losing access
to vital health care services as Washington debates how to spend a
federal budget surplus of billions of dollars. Hospitals are being
forced to cut back or shut down services that affect not just the
elderly who rely on Medicare, but all patients. When the government
acted to reduce Medicare spending to help balance the budget, no one
was certain what effect such enormous reductions would have. Now we
know.
It is critical that Congress and the Administration act now to
alleviate these unintended consequences of the BBA. Here are the
administrative and legislative solutions that we believe can ease the
unintended consequences of the BBA.
Regulatory Solutions
In implementing parts of the BBA, the Health Care Financing
Administration (HCFA) has, in some cases, interpreted the law in ways
that we believe are contrary to congressional intent. There are several
steps that HCFA can and must take to remedy this--and by doing so,
these solutions can be achieved without the need for legislation.
Outpatient PPS--One especially troubling area on the regulatory
front for hospitals and health systems is HCFA's implementation of
outpatient PPS. There are several concerns we have with the direction
in which the agency seems to be headed.
Once the new outpatient PPS system is implemented, HCFA plans to
reduce hospital outpatient payments by an additional 5.7 percent to
fund lower beneficiary outpatient copayments. This means that, on top
of the $9 billion in five-year outpatient payment cuts already in the
BBA, hospitals would suffer further cuts of $900 million annually. This
is contrary to the wishes of more than 252 members of the House and 77
members of the Senate, who signed recent letters to HCFA opposing this
arbitrary, unfair, and uncalled for cut. They made it clear that
Congress, in passing the BBA, in no way meant for additional spending
cuts to be made to hospital outpatient payments beyond the PPS.
According to the congressional letters, HCFA's decision is
``inconsistent with Congress' intent,'' and would be ``inappropriate
and unwise.'' In fact, when the BBA was being drafted, Congress,
beneficiaries, hospitals and the Administration agreed that beneficiary
coinsurance needed to be reduced, but that there would be no additional
hospital payment reductions as a result. HCFA's interpretation of the
BBA is inconsistent with that agreement, and with the law itself.
The AHA believes that HCFA has the flexibility to interpret the law
correctly, so that the proposed payment system does not extract another
$900 million from hospitals.
Provider-based outpatient facilities--Hospitals are no longer just
buildings with four walls. Today, more than ever, advances in science
and technology have allowed hospitals to reach out into their
communities to bring care where it is needed. This is especially true
of outpatient services. In community after community across America,
hospitals are working with others to deliver care where it is needed.
Unfortunately, HCFA threatens the existence of this important care
by adding too-narrow requirements for determining what entities can be
considered hospital outpatient departments. requirement for state
licensure in the proposed rule is arbitrarily biased against providers
in states where licensure does not even exist to cover off-campus
facilities. Moreover, the proposed requirement that Medicare should
mirror how other payers view these facilities is one-sided, ignoring
contractual arrangements between hospitals and private insurers that
offset the lack of a facility fee. These requirements would discourage
hospitals and health systems from reaching out and bringing high-
quality health care to underserved areas of their communities. We urge
HCFA to use conditions of participation or accreditation where
licensure is not available, and we urge the agency to significantly
revise its too-narrow proposed requirements governing provider-based
facilities.
Volume cap--HCFA proposes to reduce future payment updates if
Medicare payments for hospital outpatient services exceed the agency's
projections. If this proposal is implemented, hospitals would be
penalized for adopting new technologies and treatments that increase
the volume of outpatient services while also enhancing the lives and
comfort of beneficiaries.
The BBA requires that HCFA develop methods for controlling
unnecessary services. Volume targets do not make this distinction and
do not fulfill the statutory requirement to probe beyond the numbers.
Moreover, physicians order services, not hospitals. As a result, HCFA's
formula-driven targets would penalize all providers.
Looking at unnecessary services requires HCFA to develop coverage
criteria, monitor for medical necessity and reject claims where
services are medically unnecessary. Peer review organizations (PROs)
can review practice patterns and identify aberrant practices and
practices of questionable medical utility.
The President's Medicare reform proposal indicates that the
administration is considering delaying implementation of this proposal.
While we commend the administration for this delay, a delay of a bad
policy is not sufficient. We strongly urge HCFA to exercise its option
under the BBA to drop this provision altogether. Doing so will ensure
that beneficiaries have continued access to new treatments and
technologies in the outpatient setting.
Accuracy of data--We are extremely concerned about the data with
which HCFA is calculating its payment rates under outpatient PPS. For
example, HCFA estimated that Henry Ford Health System in Detroit would
see an increase of almost $1 million in outpatient payments under PPS.
However, Henry Ford's own analysis identified several discrepancies in
HCFA's estimates. In fact, Henry Ford calculated that the system will
actually see a decrease in payments of $9.6 million, or 21 percent of
their total outpatient revenue. If a system like theirs, which was
expected to see a slight increase in payments, actually experiences a
21 percent reduction, what will happen to those many hospitals
projected to experience a 30 percent loss?
The BBA requires that HCFA use a reliable payment methodology. The
margin of error clearly indicates HCFA's proposal does not meet this
requirement. This is a key reason why a payment ``floor'' is needed,
such as Rep. Foley's bill (H.R. 2241). A floor would protect hospitals
from catastrophic losses if rates are set too low while HCFA makes the
coding/reporting changes needed to ensure that accurate information is
used to project the effects of outpatient PPS. At the same time, the
floor would protect the government from too-high rates set for the same
reason.
In the President's Medicare reform proposal, the large losses
created by the outpatient PPS are addressed through a budget neutral
transition for groups of specified hospitals. The AHA does not support
a budget neutral transition. Budget neutrality would actually increase
losses of some hospitals during the transition to outpatient PPS. Money
must be added so that the BBA's current underfunding of the system is
not exacerbated.
Therapy bad debt payments--We are concerned that HCFA may be
interpreting the BBA in a too-narrow manner on the issue of payment for
occupational, speech and physical therapy. Specifically, hospitals are
currently reimbursed for the bad debt they incur when a beneficiary
receiving such therapy cannot pay the coinsurance. Typically, these
beneficiaries do not qualify for Medicaid but cannot afford Medigap
coverage. However, in the implementation of the therapy fee schedule,
HCFA has indicated that it may no longer reimburse hospitals for this
bad debt. We strongly urge HCFA to retain the ability of hospitals to
be reimbursed for therapy services provided to those elderly who cannot
pay.
Chemotherapy--The AHA believes that there are serious problems with
the data HCFA is using to determine payment for chemotherapy services.
For example, HCFA had to remove the most representative data--claims
with multiple services that use multiple drugs in a single session--
because the costs are not separable. Since chemotherapy treatments
generally involve the administration of multiple drugs, elimination of
claims with multiple sessions and multiple drugs would appear to leave
only claims that do not portray a true clinical picture of
chemotherapy.
As a transitional payment methodology, the AHA recommends that HCFA
temporarily carve out the costs for chemotherapy and chemotherapeutic
agents and pay on a reasonable cost basis until the agency fixes the
underlying coding problems, collects new data, and proposes new groups
or rates. The results would then be included in a subsequent proposed
rule. Otherwise, hospitals may be forced to close their cancer centers
rather than provide lower quality or inappropriate care.
In addition, HCFA's proposal to classify new agents in the lowest
cost group does not reflect what we expect in the future for drug
costs. According to the Bureau of Economic Analysis and other sources,
most of the new drugs--especially new genetically engineered drugs--are
more costly than prior drugs. Clearly, this proposal would penalize
hospitals for using new pharmaceuticals. Moreover, it is incumbent on
the agency to get the information it needs on drug prices to ensure
that it can classify new drugs, or any new technology, into the most
appropriate group from the standpoint of both clinical coherence and
resource use. The AHA opposes HCFA's proposal to place new agents in
the lowest payment group. Similarly, HCFA should evaluate how to pay
for new technology in a timely and fair manner.
We therefore urge HCFA through regulation to develop and propose
methodologies to better recognize the costs of new technology. However,
new and expensive drugs and technologies should not be paid separately
from PPS, and we would oppose any legislation that would do so. Among
other problems, paying these costs separately might lead to double
counting of drug costs if some of the high-cost drugs were substitutes
for lower-cost drugs.
Medicare+Choice--HCFA estimates that, during the 5-year
implementation of risk-adjusted Medicare+Choice rates, payments will
stay the same or decrease for 95 percent of plans in the program, and
increase for 5 percent of plans. Because so many more plans will
receive less money, Medicare will accrue savings of more than $11
billion.
Given the fragile condition of Medicare+Choice, we believe
implementation of risk-adjusted payment rates should be slowed even
further than five years. Too fast a pace could cause major disruptions
for plans and their enrollees. While a slower pace is necessary for
most plans, HCFA should also have a means to more quickly recognize the
higher costs of that 5 percent of plans who are serving higher-risk
populations during this implementation period.
In addition, the government must solve the practical problems that
will ultimately determine the success of Medicare+Choice. For example,
while we have recommended to Congress that it fund a blend of national
and county rates to make Medicare managed care rates more equal across
the country, during 1998 and 1999 these plans did not receive a blended
rate, due to the way the BBA handles updates and budget neutrality
adjustments. We urge HCFA to make recommendations to Congress on how to
create more equitable updates between private market and
Medicare+Choice plans across the country.
HCFA also needs to look at ways to reduce administrative burden.
Medicare+Choice plans must fund their administrative costs from their
capitation rates. Any increase in administrative costs will reduce the
dollars available for patient care. An example is NODMAR, the Notice of
Discharge and Medicare Appeal Rights. This notice used to be given only
to those beneficiaries who object to going home, but hospitals are now
required to give it to all patients. This is unnecessary and costly,
since general appeal rights notices are already provided at admission.
Transfers--Medicare patients sent from one acute care hospital to
another are defined as transfers. Under the BBA, HCFA defines transfers
to include cases where a patient in one of 10 diagnosis-related groups
(DRG) chosen by HCFA stays in the hospital at least one day less than
the national average and then is sent to one of several post-acute care
settings. In the past, hospitals received the full Medicare DRG payment
for each discharge under PPS, regardless of the patient's length of
stay. Payments for cases shorter than average stays help defray the
costs of caring for patients with longer-than-average stays. This rule
of averaging is one of the fundamental principles upon which PPS was
built.
We appreciate the Administration's willingness to delay any
expansion of the transfer provision beyond the current 10 DRGs for two
years. However, we believe it must be delayed permanently, and we urge
the administration to do so. While we will continue to urge Congress to
repeal the provision legislatively (see below), the administration
should, at a minimum, not expand this onerous and unfair provision.
Legislative Solutions
In addition to changes that the administration can make to
alleviate the unintended consequences of the BBA, there are several
legislative steps that we urge Congress to take as well. Together, they
make up a legislative package that can bring real relief to the
nation's hospitals and the communities they serve. urge Congress to
enact the following initiatives, funded through the budget surplus.
These initiatives represent a broad-based relief effort--an effort that
would provide effective relief not just for hospitals, but for a
variety of health care providers who take care of Medicare
beneficiaries in several different settings.
Outpatient--According to a recent MedPAC report, Medicare
reimbursed hospitals only 90 cents for each dollar of outpatient care
provided prior to enactment of the BBA. Today, as a result of the BBA,
hospitals are paid only 82 cents on the dollar. And after PPS is
implemented, HCFA will reduce hospital outpatient payments by another
5.7 percent. However, according to HCFA's own estimates, many hospitals
will lose much more than just that 5.7 percent. Because of the huge
redistributional effects of PPS, more than half of the nation's major
teaching hospitals would lose more than 10 percent; nearly half of
rural hospitals also would more than 10 percent.
In addition, catastrophic losses would be experienced by some
individual hospitals. For example, large hospitals in Iowa and New
Hampshire will immediately lose almost 14 to 15 percent of their
Medicare outpatient revenue. Other large urban hospitals in Missouri,
Massachusetts, Wisconsin, Florida, and California stand to lose 20
percent to 40 percent. Some New York City hospitals would lose more
than 40 percent. Some small rural hospitals in Arkansas, Kansas,
Mississippi, Washington, and Texas will lose more than 50 percent of
their revenue.
To prevent these precipitous drops in Medicare revenues from doing
additional harm to hospitals and the Medicare beneficiaries who rely on
them, we urge passage of legislation that would limit payment losses
created by the move to outpatient PPS. However, the costs of financing
this proposal should not be paid by the remaining hospitals, because
most of them are also expected to lose under the outpatient PPS.
Additional losses would have to be incurred by those hospitals, ranging
from 3 to 8 percent, to protect other hospitals from losses of 5 to 15
percent. Instead, this change needs to be funded by additional Medicare
spending. Beneficiary spending would be unaffected. Under this
proposal, until January 2002, each hospital's Medicare payments for
outpatient PPS services would be adjusted so that the hospital's losses
are limited to 5 percent of what the hospital would have been paid by
Medicare under the current system. For calendar year 2002, the payment
losses would be limited to 10 percent. For CY 2003, the payment losses
would be limited to 15 percent. No limit is set after 2003. Depending
on whether HCFA changes its interpretation that unfairly cuts an
additional 5.7 percent from hospitals under outpatient PPS, this
proposal will require roughly $1.9 billion over five years in new
funding. The AHA urges your support for legislation that would provide
such a payment ``floor'' and protect hospitals from unreasonable losses
during the transition to outpatient PPS. Such legislation (H.R. 2241)
was introduced in June by Rep. Mark Foley (R-FL), and has 78 co-
sponsors. We urge you to support it.
Transfer policy--As mentioned above, we believe HCFA has the
administrative capability to delay permanently the expansion of DRGs
affected by this provision. However, a legislative solution to repeal
this provision does exist. AHA urges you to repeal the unnecessary and
unwarranted transfer provision by adopting H.R. 405.
Inpatient--The Medicare Payment Advisory Commission (MedPAC) has
reported that hospitals will ``incur significant operating and capital
costs in becoming year 2000 compliant.'' As a result, MedPAC has
recommended that a modest increase in hospital inpatient payments be
made to help offset the costs of these improvements to medical devices
and information systems. AHA urges adoption of MedPAC's recommendation
for a modest PPS update to compensate hospitals for Y2K readiness
activities, through the passage of H.R. 2266.
Rural relief--Because of their small size, rural hospitals are
often unable to absorb the impact of changes in payment and regulatory
policies. With the mounting pressures of the BBA, these facilities
warrant special consideration, especially considering their role as the
hub of the local health care delivery system. AHA urges relief for
rural health care providers--particularly sole community providers,
critical access hospitals, and Medicare-dependent hospitals--through
the adoption of some of the provisions of H.R. 1344.
Medical education--This nation's medical schools are often referred
to as national treasures. Yet under the BBA, Medicare's indirect
payment for medical education is scheduled to be reduced from 7.7
percent to 5.5 percent by FY 2001. We all benefit from the research and
medical education conducted in our medical schools and teaching
hospitals, but this reduction is making it difficult for these
institutions to maintain their cutting-edge prominence. AHA urges
relief for our nation's teaching hospitals by freezing the current
schedule on further indirect medical education reductions through the
adoption of H.R. 1785.
Disproportionate share payments--The BBA took an important step by
removing hospitals' clinical education payments from Medicare+Choice
payments. This move was made to ensure that payments be made to those
facilities actually incurring the added costs. Unfortunately, BBA did
not remove disproportionate share (DSH) payment. This special payment
is made to support the additional costs hospitals incur in treating
large numbers of low-income individuals. Without this funding, these
institutions will experience difficulty maintaining access to vital
health care services for low-income individuals. AHA urges relief for
hospitals serving the uninsured by adopting H.R. 1103, which carves out
disproportionate share payments from Medicare managed care payments.
Managed care--The BBA set in motion a long-overdue change to the
Medicare program by reducing geographic variations in managed care
payments. This equity update to Medicare+Choice payments would be
accomplished by ``blending'' the county rate with a national rate, thus
reducing the historic variation in Medicare health plan payments from
county to county throughout the country. HCFA has had difficulty fully
implementing this provision due to the way the law was drafted. AHA
urges the full funding of the Medicare managed care payment blend to
provide fair payment in all parts of the country by adopting H.R. 406.
Long-term care--The BBA reduced skilled nursing facility (SNF)
payments by $9 billion over five years. At the same time, it required
HCFA to implement a prospective payment system for these services. The
new PPS is not refined enough, however, and therefore fails to
adequately account for differences in costs associated with the care of
medically complex patients. In particular, the payment for non-therapy
ancillaries (pharmaceuticals, respiratory therapy and special
equipment) is the same proportion across all the categories in the
payment system, even though for some patients care costs are much
higher.
Both HCFA and providers believe these issues can ultimately be
addressed by revising current case-mix categories (Resource Utilization
Groups) used in the new SNF PPS to reflect these types of patients.
However, HCFA cannot make any changes to case-mix until after 2000, and
additional dollars are still needed to mitigate the consequences of the
BBA. HCFA has also not completed its research on how to improve case-
mix. Based on preliminary research by HCFA contractors, patients in two
RUGs categories ``extensive services,'' which includes patients who
need IV feeding, IV medications, or require ventilators, and ``special
care,'' which includes patients who have multiple sclerosis, cerebral
palsy or require respiratory therapy seven days a week--have much
higher non-therapy ancillary costs than other patients. The current
payments for these RUGs are far below the costs of providing the
services, ranging from a high of 81 percent to a low of 62 percent of
costs.
A multiplier should be used to increase the payments for these
groups extensive services and special care until the final case-mix
improvements can be made by HCFA. The specific multiplier will no
longer be necessary once the Secretary refines case-mix and the funding
can then be used to fund the revised case-mix format. The multiplier
can be implemented regardless of the Y2K restrictions since HCFA
already plans on updating the RUG rates in October 1999.
Psychiatric PPS--Cuts to psychiatric services were also included in
the BBA. As a result, many hospitals serving the mentally ill will
receive payments below previous levels--real cuts. AHA urges
adjustments to payments to psychiatric hospitals in a budget-neutral
manner by adopting H.R. 1006.
Home Health--BBA included a number of changes in payment, coverage,
and administrative requirements for home health agencies. Until PPS
could be implemented, BBA provided for an interim payment system (IPS)
designed to reduce payments to home health agencies. The IPS was the
first of the BBA's provisions to be implemented and created a number of
disruptions in access to services in some areas of the country. AHA
urges that additional funding be targeted to home health providers to
minimize the ongoing inequities of the IPS, and lessen the 15 percent
payment cut scheduled for the home health PPS in FY 2001.
Conclusion
Now is the time to repair the damage done by the BBA. We strongly
urge you to act now, before you recess for this year, on these BBA
relief measures. With a new century dawning, we must work together to
ensure that the Americans we serve can achieve hospitals' vision of a
healtheir America. We look forward to working with Congress and HCFA to
fix the problems that we have outlined for you today.
Chairman Thomas. Dr. Corlin.
STATEMENT OF RICHARD F. CORLIN, M.D., GASTROENTEROLOGIST, SANTA
MONICA, CALIFORNIA, AND SPEAKER, AMERICAN MEDICAL ASSOCIATION
HOUSE OF DELEGATES
Dr. Corlin. Thank you, Mr. Chairman. My name is Richard
Corlin. I am a gastroenterologist in private practice in Santa
Monica, California. And I also serve as speaker of the AMA's
House of Delegates.
Mr. Chairman, we particularly appreciate your efforts to
reform the Medicare program and look forward to working with
you and each Member of this Subcommittee on comprehensive
reform. Today, however, we ask the Subcommittee to focus on
fixing the serious problems with Medicare sustainable growth
rate system, the SGR.
Mr. Chairman, we request that you direct HCFA to correct
the $3 billion projection errors in the 1998 and 1999 SGR. We
further request that you approve legislation this year to
improve the SGR system. The SGR enacted under the BBA of 1997
is intended to slow the projected rate of growth of physician
services. It is calculated each year with a base level and then
growth based on four factors: medical inflation, changes in
Medicare fee-for-service enrollment, GDP growth per cap, and
changes in spending due to law and regulations.
MedPAC has recommended a series of improvements much of
which Dr. Wilensky has underscored earlier today. Some of these
are: (1) to require HCFA to correct its projection errors and
restore the $3 billion SGR shortfall resulting from these
errors--money that was intended to be there as part of the BBA;
(2) to increase the SGR target to account for physician costs
due to technological advances and an aging population; (3) to
implement measures to curtail volatility in physician payment
rates; and (4) require HCFA and MedPAC to provide information
and data on payment updates.
SGR projection errors are inevitable, since HCFA must use
estimates to calculate the SGR at the beginning of each year.
Thus, physician payment updates are not based on actual data
but on projected data which has so far proven erroneous; and,
worse than that, which HCFA refuses to correct.
For the 1999 SGR, HCFA projected that Medicare-managed care
enrollment would rise 29 percent. It actually increased only 11
percent. This error led to a corresponding drop in projected
fee-for-service enrollment and a negative 1999 SGR. As a result
of this error, physicians are caring for more than 1 million
patients, more in Medicare fee-for-service than are either
accounted for or paid for at all by HCFA.
For the 2000 SGR which is published in this morning's
Federal Register, HCFA has projected Medicare-managed care
enrollments again which are growing at a rate far steeper than
that projected by the CBO. Although HCFA does not believe it
has the legislative authority to correct its own projection
errors, we strongly disagree. The AMA's Office of General
Counsel has reviewed this matter and has advised that the
statute, and its legislative history as well as long
established rules of statutory construction, firmly store the
view that HCFA can and must direct its own SGR projection
errors.
On October 27, 1997, the final notice signed by Nancy
DeParle and Donna Shalala stated, ``Differences between
projected and actual enrollment will be adjusted for in
subsequent years.'' and again, ``Differences between actual and
real gross domestic product per capita growth will be adjusted
for in subsequent years.''.
In addition, the SGR needs to be set at a GDP plus at least
2 percentage points to take into account the two main factors
responsible for increasing health care costs: advances in
technology and aging population. And again, we need to make
HCFA live up to its own commitment in adjusting estimated costs
for real costs once the data is available.
MedPAC has recommended that the SGR include a factor higher
than GDP to account for, ``cost increases due to improvements
in medical capabilities and advancements in scientific
technology.'' We strongly agree with that as well.
Physicians, regardless of our speciality, are unanimous in
our concern that payment cuts due to flaws in the SGR on top of
more than a decade of previous cuts could threaten our ability
to continue to offer our Medicare patients the finest medical
care in the world. Thus the SGR system must be fixed and it
must be fixed this year. Thank you.
Mr. McCrery [presiding]. Thank you, Dr. Corlin.
[The prepared statement follows:]
Statement of Richard F. Corlin, M.D., Gastroenterologist, Santa Monica,
California and Speaker, House of Delegates, American Medical
Association
The American Medical Association (AMA) appreciates the
opportunity to present to this Subcommittee our views
concerning improvements to the Medicare sustainable growth rate
(SGR) system for physicians' services, and appreciates the
Subcommittee's focus on this important issue. As Congress
prepares to consider Balanced Budget Act (BBA) refinements and
Medicare reforms, the AMA urges inclusion of improvements in
Medicare's SGR system in any legislation approved by the
Subcommittee, and urges the Subcommittee to request that HCFA
immediately correct its 1998 and 1999 SGR projection errors.
The SGR, enacted under the BBA, establishes a target growth
rate for Medicare spending on physician services and is
intended to slow the projected rate of growth in Medicare
expenditures for physicians' services. Annual adjustments to
physician payment rates are up or down, depending on whether
actual spending on physician services is below or above the SGR
target.
Physicians are the only group subject to the SGR target,
despite the fact that Medicare spending on physician services
has been growing more slowly than other Medicare benefits.
Although the BBA included measures to slow projected growth in
these other benefits, the Congressional Budget Office continues
to forecast much higher average annual growth rates for other
services than for physician services over the next decade. In
contrast to annual growth in outlays of 4.6 percent for
inpatient hospital services, 5.7 percent for skilled nursing
facilities, 6.5 percent for home health, and 14.6 percent for
Medicare+Choice plans, average annual growth in physician
services is projected at only 3.1 percent from 2000-2009.
Physicians were subject to significant and disproportionate
Medicare payment cuts prior to the BBA, yet we have never
abandoned our elderly and disabled patients. From 1991-97,
physician payment updates already had slipped 10 percent below
growth in medical practice costs.
The physician community is concerned that the growth limits
in the current SGR system are so stringent that they will have
a chilling effect on the adoption and diffusion of innovations
in medical practice and new medical technologies. In addition,
we are concerned that the Health Care Financing Administration
(HCFA) has not revised its projections used in establishing the
1998 SGR when data proved HCFA erroneous. Further, HCFA has
stated it will not correct 1999 SGR errors without a
congressional mandate, despite that in the first two years of
the SGR, erroneous HCFA estimates have already shortchanged the
target by more than $3 billion. Finally, we are concerned that
the SGR could also cause future payments to be highly volatile
and fall well behind inflation in practice costs.
Medicare Physician Payments and Medicare Payment Advisory
Commission Recommendations
Medicare payments for physicians' services are updated annually by
HCFA. Payment rates are based on a relative value scale system, enacted
under OBRA 89, that reflects the physician work, practice expense and
professional liability insurance costs involved in each service. The
relative value for each service is multiplied by a dollar conversion
factor to establish actual payment amounts. The conversion factor is
required to be updated each calendar year, which involves, in part,
establishing an update adjustment factor that is adjusted annually by
the SGR.
In its March 1999 Report to Congress, the Medicare Payment Advisory
Commission (MedPAC) identified serious problems in the SGR system and
recommended significant improvements to it. The AMA and the national
medical specialty societies share MedPAC's concerns and believe that
improving the SGR is a critical component of efforts to ensure that the
85 percent of Medicare beneficiaries who are enrolled in the fee-for-
service program continue to receive the benefits to which they are
entitled.
MedPAC recommends, and the AMA agrees, that Congress revise the SGR
system as follows:
The SGR should include a factor of growth in real gross
domestic product per capita plus an allowance for cost increases due to
improvements in medical capabilities and advancements in scientific
technology;
The Secretary should be required to publish an estimate of
conversion factor updates by March 31 of the year before their
implementation;
The time lags between SGR measurement periods should be
reduced by allowing calculation of the SGR and update adjustment
factors on a calendar year basis;
HCFA should be required to correct the estimates used in
the SGR calculations every year; and
The SGR should reflect changes in the composition of
Medicare fee-for-service enrollment.
The Sustainable Growth Rate System
The SGR system was enacted under the BBA and replaces the Medicare
Volume Performance Standard system, which had been the basis for
setting Medicare conversion factor updates since 1992. The SGR sets a
target rate of spending growth based on four factors: changes in
payments for physician services before legislative adjustments
(essentially inflation); changes in Medicare fee-for-service
enrollment; changes in real per capita gross domestic product (GDP);
and an allowance for legislative and regulatory factors affecting
physician expenditures. Growth in real per capita GDP represents the
formula's allowance for growth in the utilization of physician
services.
The target rate of spending growth is calculated each year and is
designed to hold annual growth in utilization of services per
beneficiary to the same level as annual GDP. Physician payment updates
depend on whether utilization growth exceeds or falls short of the
target rate. If utilization growth exceeds GDP, then payment updates
are less than inflation. If utilization is less than GDP, payment
updates are above inflation.
Because of the serious problems with the SGR system, as discussed
below, four improvements must be included in legislation to fix the
SGR:
There must be a requirement to correct HCFA's projection
errors and restore the $3 billion SGR shortfall resulting from these
errors;
The SGR must be increased to account for physician costs
due to adoption of new technology;
Measures must be implemented to curtail volatility in
physician payment rates and avoid steep cuts in the future; and
HCFA and MedPAC must be required to provide information
and data on payment updates.
Problems with the Sustainable Growth Rate System
Of the needed improvements listed above, we wish to focus on two
major problems with the SGR. First, there is a ``projection error''
problem. Specifically, in determining the SGR each year, HCFA must
estimate certain factors used to calculate the SGR. In the first two
years of the SGR system, HCFA has seriously miscalculated these
factors, and thus physicians have been shortchanged by several billion
dollars. In addition, these projection errors will continue each year,
and the resulting shortfalls will be compounded.
The second major problem with the SGR system is that it does not
allow growth in physician payments sufficient to account for
physicians' costs due to technological innovations. In addition, as
discussed above, there are other problems with the SGR system, which we
have separately addressed below.
Finally, we note that, unlike some other Medicare payment issues,
the problems with the SGR system and their solutions are a matter on
which the physician community is unified. National organizations,
regardless of medical specialty, as well as organizations representing
medical colleges and group practices, have been working closely
together with the AMA to address these complex issues. On behalf of the
entire physician community, we ask Congress to take the necessary steps
to assure that we can continue to offer our Medicare patients the
finest medical care in the world.
The Projection Error Problem
HCFA's SGR Projection Errors Must Be Corrected. Two of the four
factors used to calculate the SGR target each year are growth in U.S.
GDP and Medicare fee-for-service enrollment growth. Because the target
must be calculated before the year begins, HCFA can only speculate as
to what GDP growth will be and how many people will enroll in fee-for-
service versus managed care. Recognizing the need for such speculation,
HCFA acknowledged in a 1997 physician rate update regulatory notice
that the actual data for each year, once available, might reveal errors
in its estimates of as much as 1 percent, or $400 million. HCFA also
promised that the difference between its projections and actual data
would be corrected in future years.
In the first two years of the SGR, erroneous HCFA estimates have
already shortchanged physician payments by more than $3 billion.
Specifically, the 1998 SGR projection error was $700 million, and the
1999 SGR error was $2.5 billion. HCFA has not corrected these
projection errors and does not plan to do so, without further
legislative authority. One year after the 1997 notice, HCFA reneged on
its pledge to correct SGR errors based on its newly-conceived assertion
that the agency does not believe it has the proper legislative
authority to correct such errors. (See below discussion of our strong
belief that HCFA absolutely has the authority to correct its own
projection errors.) HCFA then simultaneously issued its most egregious
error by projecting Medicare managed care enrollment would rise 29
percent in 1999, despite the many HMOs abandoning Medicare in 1999.
This error led, in turn, to a projected drop in fee-for-service
enrollment and a negative 1999 SGR. Data now show that managed care
enrollment has increased only 11 percent, a fraction of HCFA's
projection, which means physicians are caring for 1 million more
patients in Medicare fee-for-service than were forecast.
The table below shows the magnitude of the errors that HCFA has
made to date in its estimates of GDP and enrollment growth:
[GRAPHIC] [TIFF OMITTED] T5699.001
The 1998 and 1999 SGR projection errors are a serious problem. The
SGR is a cumulative (as opposed to annual) system, and the cumulative
SGR target is like a savings account for physician services. As
discussed, HCFA's errors have left a $3 billion shortfall in this
account, which, if not restored, will either produce unwarranted
payment cuts or deficient payment increases. Indeed, the 1999 SGR
projection error alone will increase to $5 billion by the end of the
year 2000 if left uncorrected. Although the President's 2000 budget
proposes to address the projection errors, we are concerned that HCFA
may correct the errors in a way that will effectively cancel any
benefit to payment rates from using accurate data.
Physicians have faced a decade of payment cuts without ever
abandoning Medicare patients. We have done our part to keep costs
within the limits imposed by the BBA. Now, Congress must do its part by
insisting that payment updates be based on correct SGR estimates.
HCFA Has The Legislative Authority to Correct Its SGR Projection
Errors. As discussed above, HCFA presently is adopting the stance that
it lacks the legislative authority to make annual corrections to SGR
projection errors, yet we have never heard a clear explanation from
HCFA as to the basis for its position.
It would be an understatement to say that we strenuously disagree
with HCFA's position. From our perspective, HCFA's professed lack of
legislative authority is disingenuous--it flies in the face of clear
legislative intent and well-established principles of statutory
construction, not to mention common sense. Application of a statute by
a regulatory agency certainly allows for reasonable interpretation.
In adopting the SGR system, Congress replaced one Medicare
physician payment update system with one that was thought to be
improved. It would be ludicrous to construe the statute, as HCFA
apparently now professes to do, to indicate that Congress intended the
SGR to be a system based exclusively and perpetually on estimates,
without any mechanism to tie physician payments to real data. The
statute does not say this, and legislative intent does not support
this.
This logical construction of the statutory language is bolstered by
the legislative history and HCFA's own prior regulatory acknowledgments
of the propriety of these periodic reconciliations. Congress adopted
the SGR language in response to PPRC recommendations contained in its
1996 Report to Congress. This report clearly indicated that annual
reconciliations should occur in order to mitigate the effects of
projection errors. Moreover, HCFA itself has previously acknowledged in
a 1997 regulatory notice that it would conduct reconciliations to
correct SGR projection errors in future years.
In short, the statute itself, and the clear legislative intent
provide that HCFA has the statutory authority to implement annual
reconciliations. In fact, we believe HCFA has the responsibility to
exercise its rulemaking authority to carry out this legislative intent.
The SGR Must Allow for Technological Innovations and Other
Factors Impacting Utilization of Health Care Services
MedPAC has also recommended that Congress revise the SGR to include
a factor of growth in real gross domestic product per capita plus an
allowance for cost increases due to improvements in medical
capabilities and advancements in scientific technology. The system is
currently designed to hold annual utilization growth at or below annual
GDP growth. A common method for policymakers to evaluate trends in
national health expenditures is to look at growth in health spending as
a percentage of GDP, but this approach is replete with problems. There
is no true relationship between GDP growth and health care needs.
Forecasts by Congressional Budget Office and the U.S. Census Bureau
indicate that real per capita GDP growth will average about 1.5 percent
per year over the next decade. This is far below historical rates of
Medicare utilization growth. Indeed, at 5.9 percent, average annual per
beneficiary growth in utilization of physicians' services was three to
four times higher than GDP growth from 1981-1996. Thus, if history is
any guide, holding utilization growth to the level of GDP growth
virtually guarantees that Medicare physician payments will decline.
A primary reason for this lack of congruity between GDP and
Medicare utilization is that GDP does not take into account health
status trends nor site-of-service changes. Thus, if there were an
economic downturn with negative GDP growth at the same time that a
serious health threat struck a large proportion of Medicare
beneficiaries, the consequences could be disastrous.
Secondly, GDP does not take into account technological innovations.
The only way for technological innovations in medical care to really
take root and improve standards of care is for physicians to invest in
those technologies and incorporate them into their regular clinical
practice. The invention of a new medical device cannot, in and of
itself, improve health care--physicians must take the time to learn
about the equipment, practice using it, train their staff, integrate it
into their diagnosis and treatment plans and invest significant capital
in it. Yet physician spending is the only sector of Medicare that is
held to as stringent a growth standard as GDP and that faces a real
possibility of payment cuts of as much as 5 percent each year. Keeping
utilization growth at GDP growth will hold total spending growth for
physician services well below that of the total Medicare program and
other service providers.
To address this problem, as recommended by MedPAC, the factor of
growth under the SGR relating to GDP must be adjusted to allow for
innovation in medical technology. We believe that to implement
adequately MedPAC's recommendation, the SGR should be set at GDP+2
percentage points to take into account technological innovation, as
discussed further below.
In addition, we urge that Congress consider a long-term approach to
setting an appropriate growth target that takes into account site-of-
service changes, as well as health status and other differences between
Medicare's fee-for-service and managed care populations that lead to
differential utilization growth. Thus, we believe that the Agency for
Health Care Policy and Research (AHCPR) should be directed to analyze
and provide a report to MedPAC on one or more methods for accurately
estimating the economic impact on Medicare expenditures for physician
services resulting from improvements in medical capabilities and
advancements in scientific technology, changes in the composition of
enrollment of beneficiaries under the fee-for-service Medicare program
and shifts in usage of sites-of-service.
Technological Innovation. Congress has demonstrated its interest in
fostering advances in medical technology and making these advances
available to Medicare beneficiaries through FDA modernization,
increases in the National Institutes of Health budget, and efforts to
improve Medicare's coverage policy decision process. The benefits of
these efforts could be seriously undermined if physicians face
disincentives to invest in new medical technologies as a result of
inadequate expenditure targets.
As first envisioned by the PPRC, the SGR included a 1 to 2
percentage point add-on to GDP for changes in medical technology. Ever-
improving diagnostic tools such as magnetic resonance imaging, new
surgical techniques including laparoscopy and other minimally-invasive
approaches, and new medical treatments have undoubtedly contributed to
growth in utilization of physician services and the well-being of
Medicare beneficiaries. For example, a recent paper published by the
National Academy of Sciences indicated that from 1982-1994 the rates of
chronic disability among the elderly declined 1.5 percent annually.
With GDP projected to grow by 1.5 percent annually, the failure to
allow an additional 1 to 2 percentage points to the SGR for
technological innovation means that the utilization target is only half
the rate that was originally planned. Technological change in medicine
shows no sign of abating, and the SGR should include a technology add-
on to assure Medicare beneficiaries continued access to mainstream,
state-of-the art quality medical care.
Site-of-Service Shifts. Another concern that should be taken into
account by the GDP growth factor is the effect of the shift in care
from hospital inpatient settings to outpatient sites. As MedPAC has
pointed out, hospitals have reduced the cost of inpatient care by
reducing lengths-of-stay and staff and moving more services to
outpatient sites, including physician offices. These declines in
inpatient costs, however, are partially offset by increased costs in
physician offices. Thus, an add-on to the SGR target is needed to allow
for this trend.
Beneficiary Characteristics. The SGR should also be adjusted for
changes over time in the characteristics of patients enrolling the fee-
for-service program. A MedPAC analysis has shown that the fee-for-
service population is older, with proportions in the oldest age groups
(aged 75 to 84 and those age 85 and over) increasing, while proportions
in the younger age group (aged 65-74) has decreased as a percent of
total fee-for-service enrollment. Older beneficiaries likely require
increased health care services, and in fact MedPAC reported a
correlation between the foregoing change in composition of fee-for-
service enrollment and increased spending on physician services. If
those requiring a greater intensity of service remain in fee-for-
service, the SGR utilization standard should be adjusted accordingly.
Other Problems with the SGR System
Stabilizing Payment Updates under the SGR System. The AMA strongly
agrees with MedPAC's further recommendation that Congress should
stabilize the SGR system by calculating the SGR and the update
adjustment factor on a calendar year basis.
Instability in annual payment updates to physicians is another
serious problem under the SGR system, as has been acknowledged by HCFA.
Projections by the AMA, MedPAC and HCFA show the SGR formula producing
alternating periods of maximum and minimum payment updates, from
inflation plus 3 percent to inflation minus 7 percent. Assuming a
constant inflation rate, these alternating periods could produce
payment decreases of 5 percent or more for several consecutive years,
followed by increases of similar magnitude for several years, only to
shift back again. These projections are based on constant rates of
inflation (2 percent), enrollment changes, GDP growth and utilization
growth. There is a serious problem when constant, stable rates of
change in the factors driving the targets lead to extreme volatility in
payments that are entirely formula-driven.
A primary reason for this instability is the fact that there is a
time lag in measurement periods for the SGR. Specifically, while
physician payment updates are established on a calendar year basis, SGR
targets are established on a federal fiscal year basis (October 1
through September 30) and cumulative spending (used to calculate the
SGR) is established on an April 1 through March 31 basis. These time
periods must all be consistent and calculated on a calendar year basis
to attempt to restore some modicum of stability to the SGR system.
Simulations by the AMA and MedPAC have also shown, however, that
the change to a calendar year system will not, by itself, solve the
instability problem. Additional steps would be needed. The wide range
of updates that are possible under the current system, from inflation
+3 percent to -7 percent, is one reason for the instability. The lower
limit is also unacceptably low, and, assuming an MEI of 2 percent,
represents an actual 5 percent cut in the conversion factor in a single
year. These levels of payment cuts would be highly disruptive to the
market, and likely would have the ``domino effect'' of impacting the
entire industry, not simply Medicare fee-for-service. Many managed care
plans, including Medicare+Choice and state Medicaid plans, tie their
physician payment updates to Medicare's rates. Thus, payment limits
under current law must be modified to assist in stabilizing the SGR
system. We recommend that the current limits on physician payment
updates (MEI +3 percent to MEI -7 percent) be replaced with new,
narrower limits set at MEI +2 percent and MEI -2 percent.
Finally, use of the GDP itself also contributes to the instability
of the payment updates since GDP growth fluctuates from year to year.
Thus, we recommend measuring GDP growth on the basis of a rolling 5-
year average.
Payment Preview Reports. Finally, MedPAC has also recommended that
Congress should require the Secretary of the Department of Health and
Human Services to publish an estimate of conversion factor updates
prior to the year of implementation. We agree.
When the SGR system was enacted to replace the previous Medicare
Volume Performance Standards, the requirements for annual payment
review reports from HCFA and the PPRC were eliminated along with the
old system. Without these reports, it is impossible to predict what the
payment update is likely to be in the coming year, and it is impossible
for Congress to anticipate and respond to any potential problems that
may ensue from an inappropriate update or a severe projection error.
Changes in Medicare physician payment levels have consequences for
access to and utilization of services, as well as physician practice
management. These consequences are of sufficient importance that the
system for determining Medicare fee-for-service payment levels should
not be left unattended on a kind of ``cruise control'' status, with no
``brake'' mechanism available to avoid a collision.
The AMA, therefore, urges that the payment preview reports be
reinstated. Specifically, we believe that HCFA should be required to
provide to MedPAC, Congress and organizations representing physicians
quarterly physician expenditure data and an estimate each spring of the
next year's payment update. MedPAC could then review and analyze the
expenditure data and update preview, and make recommendations to
Congress, as appropriate.
Conclusion
Enactment of the SGR system improvements recommended by MedPAC are
critical to the continued ability of our nation's physicians to
continue to offer our Medicare patients the finest medical care in the
world. If these improvements are not put in place, the SGR system could
lead to severe payment cuts in the Medicare physician fee schedule and
payments for services that do not accurately reflect their costs. The
cuts resulting from both the statutory design of the SGR system and
administration of the system by HCFA would be in addition to more than
a decade of cuts in physician payments. For example, in the six years
from 1991-1997, overall Medicare physician payment levels fell 10
percent behind the rate of growth in medical practice costs. Many
individual services and procedures faced even deeper cuts.
Recent survey data from the AMA's Socioeconomic Monitoring System
indicates that these payment changes are having very significant
effects on the practice of medicine. Of 2,450 randomly selected
physicians that were surveyed from April-August 1998, 35 percent
reported they are not renewing or updating equipment used in their
office, are postponing or canceling purchasing equipment for promising
new procedures and techniques, or are performing many procedures in
hospitals that were formerly performed in the office. Three quarters of
these physicians reported that Medicare payment cuts were an important
factor in their decisions to defer or cancel these investments in
capital.
With these kinds of changes already taking place in response to
previous payment changes, we have grave concerns about the effects of
the further reductions that could take place due to the SGR or
incorrect practice expense values. In order for the medical innovations
that will come from Congress' enhanced funding of biomedical research,
FDA modernization, and better Medicare coverage policies to translate
into ever-improving standards of medical care, physicians must be able
to adopt these innovations into their practices. It is already clear
that Medicare payment cuts are threatening continued technological
advancement in medicine, and this is a threat that affects all of us,
not just Medicare beneficiaries. Clearly, reversal of the trend to move
services away from inpatient sites into ambulatory settings could also
have severe consequences for health care costs, as well as patient
care.
We appreciate the efforts of the members of the Subcommittee to
explore the problems presented by the SGR system, as well as the
opportunity to discuss our views on this extraordinarily important
matter. We urge this Subcommittee and Congress to consider MedPAC's
recommendations and the recommendations we have discussed today, and
are prepared to engage fully in detailed discussions with the
Subcommittee and Congress as we work to achieve a workable and
reasonable solution.
Mr. McCrery. Next we have Maribeth Capeloto, director,
Federal Relations, Group Health Cooperative, from Seattle,
Washington. Ms. Capeloto, did I pronounce your name correctly?
Ms. Capeloto. Yes, you did.
STATEMENT OF MARIBETH CAPELOTO, DIRECTOR, FEDERAL RELATIONS,
GROUP HEALTH COOPERATIVE OF PUGET SOUND, SEATTLE, WASHINGTON,
ON BEHALF OF THE AMERICAN ASSOCIATION OF HEALTH PLANS
Ms. Capeloto. Thank you Mr. McCrery. Mr. Chairman and
Members of the Subcommittee, thank you for the opportunity to
comment on issues related to implementation of the
Medicare+Choice program. I am Maribeth Capeloto, director of
Federal Relations, and a former administrator of government
programs for Group Health Cooperative based in Seattle,
Washington. I am testifying today on behalf of the members of
the American Association of Health Plans which represents more
than 1,000 HMOs, PPOs and similar network health plans.
Let me begin by saying, Mr. Chairman, that we still support
the goals of the BBA to expand choices for seniors, to enhance
benefits, integrate care and benchmark quality. We are
suffering through some unintended consequences rights now of
what was major structural change.
It was with your leadership on the Bipartisan Commission on
the Future of Medicare that a premium support model for
Medicare was developed. If a premium support model for Medicare
is to be successful in the future, it is imperative that the
Medicare+Choice program be stabilized now. Beneficiaries
deserve and are demanding a smoother transition of the
Medicare+Choice program as envisioned by the Congress.
Group Health is a not-for-profit company and is the
Nation's largest consumer-governed health care organization. We
signed our first Medicare HMO contract more than 20 years ago
in 1976 and at present serve nearly 60,000 Medicare
beneficiaries. I am sad to report that effective January 1st,
2000 Group Health will withdraw from counties which will affect
over 4,000 enrollees. In some of these counties there are no
other health plan options for beneficiaries.
It is indisputable that HCFA faces an enormous task in
implementing the Medicare+Choice provisions of the BBA. The
policy goals may be supportable but the time line that HCFA has
set and the choices they have made have contributed to the
program's instability. This has contributed to the unfortunate
decisions made by plans including Group Health to curtail their
participation in the Medicare+Choice program.
As a consumer-governed HMO, decisions to leave markets are
extremely painful for us, especially since, as I stated before,
we have served beneficiaries for over 20 years as a risk
contractor and have been in Washington State serving seniors
since 1947.
The approach HCFA took in designing the risk adjuster is
perhaps the most visible example of a policy decision that has
challenged the Medicare+Choice program. Rather than
implementing the risk adjuster in a budget-neutral manner,
which it has the administrative authority to do, HCFA's design
will reduce payment by another 11.2 billion over the next 5
years.
While we support risk adjustment as a necessary goal, the
reductions due to the risk adjuster as currently constructed
diminish the effectiveness of the floor and blended payment
methodology, central reforms approved by the Congress. Year
2000 is the first year that any counties received blended
payments. New data this week suggests that the blend will not
be funded in 2001. Even in some blended counties like those we
serve, the risk adjuster reduced payments, even when our rates
are below the national average. For example, when fully
implemented in 2004 in Seattle, the risk adjuster will decrease
payments by 6 percent; and in Spokane, a more rural area, the
risk adjuster would decrease payments by 8.8 percent.
The impact of the risk adjuster in combination with the
lack of predictability in the blend being implemented from year
to year, creates massive instability in the program. The user
fee for beneficiary education further erodes our already low
payment rates.
Group Health has partnered with HCFA for more than 20
years. We disagree with HCFA's characterization that plans are
unstable partners. The regulatory framework that HCFA has
adopted since the BBA is far more onerous than anything we have
experienced in the past 2 decades. The examples of burdensome
and costly regulations are numerous: data collection, new
reporting requirements, Y2K compliance. Also frustrating is the
lack of clarity or completion of other regulations these
delays, which are also expensive. The GME carveout regulations
are an example here.
Beneficiary education is something we take very seriously
as a consumer-governed cooperative. Last week HCFA required us
to send a HCFA-drafted 13-page letter to beneficiaries in
counties we are exiting. The HCFA-drafted letters that we had
to mail on our letterhead were confusing and contained, in our
view, unnecessary language. Their letter to ESRD enrollees,
some of our more vulnerable members, required us to inform
these patients about ESRD demonstration projects that are 1,500
miles away and that none of them could access.
I can not emphasize enough how important it is to stabilize
the Medicare+Choice program. Our beneficiaries, your
constituents, deserve better. We stand ready to work with you,
Mr. Chairman and members of the subcommittee, to address the
current challenges facing the program and to honor the
intention of the Congress when it approved the BBA.
Chairman Thomas [presiding]. Thank you very much.
[The prepared statement follows:]
Statement of Maribeth Capeloto, Director, Federal Relations, Group
Health Corporative of Puget Sound, Seattle, Washington, on behalf of
American Association of Health Plan
I. Introduction
Mr. Chairman and members of the Subcommittee, thank you very much
for the opportunity to comment on issues related to the Health Care
Financing Administration's (HCFA) implementation of the Medicare+Choice
program. I am Maribeth Capeloto, Director of Federal Relations and
former Administrator of Government Programs for Group Health
Cooperative, based in Seattle, Washington. Group Health is a not-for-
profit company and is the nation's largest consumer-governed health
care organization. We signed our first Medicare HMO contract more than
20 years ago in 1976 and at present serve nearly 60,000 Medicare
beneficiaries.
I am testifying today on behalf of the members of the American
Association of Health Plans (AAHP), which represents more than 1,000
HMOs, PPOs, and similar network health plans. AAHP's membership
includes the majority of Medicare+ Choice organizations, which
collectively serve more than 75 percent of beneficiaries in the
Medicare+Choice program. Together, AAHP member plans provide care for
more than 150 million Americans nationwide and have strongly supported
efforts to modernize Medicare and give beneficiaries the same health
care choices that are available to working Americans.
AAHP's member plans have had a longstanding commitment to Medicare
and to the mission of providing high-quality, comprehensive, cost-
effective services to beneficiaries. In fact, like Group Health, many
of our fellow member plans have served beneficiaries since the
inception of the Medicare HMO program fifteen years ago, if not before,
when the program was offered as a demonstration. In establishing the
Medicare HMO program, Congress and the Administration were seeking to
offer beneficiaries more coverage choices--choices through which plans
could offer beneficiaries additional benefits not available in fee-for-
service Medicare in exchange for a more limited provider panel. The new
program was viewed as a milestone, holding both opportunities and
challenges for the government, health plans, and beneficiaries. Over
time, the number of Medicare HMOs steadily increased, reaching 346 in
1998. More than 17 percent--or 6.2 million beneficiaries--have
voluntarily chosen a health plan over fee-for-service Medicare, up from
only six percent just five years ago.
According to recent research, health plans are attracting an
increasing number of older Medicare beneficiaries and beneficiaries are
remaining in health plans longer. In addition, near-poor Medicare
beneficiaries are more likely to enroll in health plans than higher-
income beneficiaries. An AAHP analysis of Medicare Current Beneficiary
Survey (MCBS) data shows that minority beneficiaries are at least as
likely to be in Medicare+Choice as in fee-for-service Medicare. These
health plans offer Medicare beneficiaries numerous benefits that are
not covered under fee-for-service Medicare, such as full year's
hospitalization, lower copayments and deductibles, and prescription
drug coverage (Figure 1).
Figure 1: Comparison of Medicare+Choice and Fee-For-Service Benefits
------------------------------------------------------------------------
Medicare+Choice Fee-For-Service
------------------------------------------------------------------------
Outpatient Prescription Drug Yes............... No
Coverage.
Deductible for Physician Visits. No................ Yes, $100
Copayment for Physician Visit... Nominal copayment. 20 percent
coinsurance after
$100 deductible
Hospital Inpatient Cost-Sharing. Typically, No..... Yes
Day Limit on Extended Hospital Typically, No..... Yes
Coverage.
------------------------------------------------------------------------
Recent studies also highlight Medicare beneficiaries' high levels
of satisfaction with their Medicare health plans. HCFA data show that,
among beneficiaries with strong preferences, HMOs have a larger
proportion of very satisfied enrollees than fee-for-service Medicare. A
July 1997 study by CareData in conjunction with Towers Perrin also
revealed very high rates of enrollee satisfaction among retirees who
joined Medicare HMOs offered by their employers. Overall, almost 70
percent of retirees enrolled in an HMO that offered Medicare coverage
were extremely or very satisfied with their HMOs.
The strong and steady growth in the number of beneficiaries who
chose a health plan over fee-for-service Medicare and plans that
participate, along with the high-levels of satisfaction, signaled a
program that was flourishing. In approving the Balanced Budget Act
(BBA) two years ago, Congress sought to build on the success of the
Medicare risk program and to expand coverage choices even further,
while at the same time taking steps toward ensuring the solvency of the
Medicare trust fund. The establishment of the Medicare+Choice program
was supported by AAHP and regarded as the foundation for moving forward
with a program design that can be sustained for future generations of
Medicare beneficiaries. Without action this year, the promises made to
beneficiaries with the passage of the BBA will remain unfulfilled, and
of equal importance, prevent the successful implementation of virtually
every long-term Medicare reform initiative that this Subcommittee might
examine.
II. Current State of the Medicare+Choice Program
The Medicare HMO and Medicare+Choice programs share the fundamental
goal of expanding availability of new Medicare coverage options. But
rather than continuing to evolve and grow, the Medicare+Choice program
is devolving and contracting. As members of the Subcommittee know, the
first public sign of trouble in the Medicare+Choice program surfaced
last fall when nearly one hundred health plans were forced to reduce or
end their participation in the program, resulting in more than 400,000
beneficiaries losing their health plan choice. Fifty thousand of these
beneficiaries were left with no other health plan option. At that time,
AAHP and others urged the Administration and Congress to make mid-
course corrections, arguing that if program problems were left
unaddressed, more health plans, many of which have participated in the
program for years, would face the same difficult decisions in 1999 and
beyond. As members of the Subcommittee fully know, this concern became
the unfortunate reality.
In mid-July, HCFA announced that 327,000 beneficiaries in another
ninety-nine health plans, including some enrollees in Group Health,
would lose their health plan on January 1, 2000. Of the 327,000
affected beneficiaries, 70,000 will have no choice but to return to the
fee-for-service program because there is no other Medicare+Choice plan
in their area. Although total enrollment in Medicare+Choice has
increased, the year to date growth rate has fallen dramatically to 6.8
percent for the first eight months of 1999. Growth between January and
September in 1998 and 1997 was 11.1 percent and 17.4 percent,
respectively. Between August and September 1999, fewer than 25,000
beneficiaries joined Medicare+Choice plans, compared to the pre-BBA
monthly average of approximately 100,000 beneficiaries.
In addition to these sobering events, three months ago, on July
1st, AAHP released results of a survey of its 26 largest members that
participate in the Medicare+Choice program, which showed that among
responding organizations, a substantial number of beneficiaries who
will be able keep their plan next year will face increased out-of-
pocket costs and reductions in benefit levels. AAHP's survey results,
which were independently collected and tabulated by Peter D. Hart
Research, showed that premium changes to be instituted by 18 companies
will affect nearly 1.5 million of the 3.86 million beneficiaries
covered by the survey whose plans will remain in the program next year.
Among these individuals, monthly premiums will increase by $20 or more
for 926,009 persons and $40 or more for 400,757 of the 926,009 persons.
Monthly premiums will decrease for just fewer than 12,000 individuals;
in all instances, these decreases will be less than $20. More than 1.3
million enrollees will face an increase in prescription drug
copayments, while just 10,000 enrollees will have decreased
prescription drug copayments next year. Additionally, about 600,000
individuals covered by the survey will face hospital inpatient
copayments averaging $275 next year.\1\ These results coincide with
those of an Administration survey released less than two weeks ago.
---------------------------------------------------------------------------
\1\ In responding to the survey, plans were asked to provide
information on the benefit arrangement that presently applies to the
largest share of their Medicare+Choice enrollees. Plans were asked to
describe the 1999 benefit, any change in the benefit to become
effective on January 1, 2000, and the number of enrollees covered under
the benefit. Using this information, Peter D. Hart Research estimated
the number of enrollees affected by benefit changes and the magnitude
of these changes among the subset of enrollees covered by the most
common benefit arrangement. Not all companies responded to each
question.
---------------------------------------------------------------------------
III. Sources of Medicare+Choice Program Instability
The health plans that announced their decisions to leave the
Medicare+Choice program or to reduce benefits did not make their
decisions lightly. Many of these plans worked up to the July 1st
deadline to devise strategies that would enable them to maintain their
current service area, to stay in the program next year, or to minimize
benefit reductions. But for many of these plans, current problems with
the Medicare+Choice payments and increased regulatory burdens were too
overwhelming, and they were forced to reduce their participation, to
withdraw from the program or to scale-back benefits. Without a doubt,
HCFA's approach to implementing policies and changes required by the
BBA have influenced these decisions.
Medicare+Choice Payment
HCFA Risk-Adjustment Approach Undermines BBA Medicare+Choice
Payment Reforms Goals. The BBA limited the annual rate of growth in
payments to health plans, producing $22.5 billion in savings from the
Medicare+Choice program. The BBA also sought to reduce geographic
variation in payments to encourage the development of coverage choices
in areas of the country with lower payments. In 1998 and 1999, however,
no counties received blended payment rates because of the low national
growth percentage and the inability to achieve budget neutrality.
AAHP and its member plans supported the passage of payment reforms
in the BBA and understood the need to contribute our fair share toward
the savings necessary to stabilize the Medicare Trust Fund. We are
deeply concerned, however, that administrative actions taken by HCFA
affecting Medicare+Choice payments do not serve the best interests of
beneficiaries and were not anticipated by Congress. Together with
unintended consequences of higher than anticipated inflation, HCFA's
actions are contributing to a growing gap in funding between the
Medicare+Choice and fee-for-service sides of the program, which is
undermining the program's stability.
As members of the Subcommittee know, Congress directed HCFA to
establish a health-status based risk-adjustment methodology. HCFA has
chosen to fulfill this requirement by implementing its new risk-
adjustment methodology in a manner that will cut aggregate payments to
Medicare+Choice organizations by an estimated additional $11.2 billion
over a five-year period beginning in 2000. This is an administratively
imposed increase in the $22.5 billion savings Congress expected from
the payment methodology as enacted in the BBA. This reduction reflects
only the first stage of risk-adjustment. According to the
Administration, the second stage, which will be based on utilization in
all settings, is expected to reduce payments by another 7.5 percent
beginning in 2004 resulting in a 15 percent total reduction.
At the time of the BBA's approval, the Congressional Budget Office
(CBO) did not score the new risk-adjuster as saving money. More
recently, CBO stated that it had ``previously assumed'' that the health
status-based risk-adjustment in the Medicare+Choice program would be
budget neutral.\2\ There is no doubt that HCFA has the authority to
implement the risk-adjuster on a budget-neutral basis. Sadly, we
already have begun to see the effects of HCFA's decision not to take
this approach, which has contributed to the recent decisions by health
plans to curtail their participation or to reduce benefits next year.
---------------------------------------------------------------------------
\2\ ``An Analysis of the President's Budgetary Proposals for FY
2000,'' Congressional Budget Office.
---------------------------------------------------------------------------
Short of any action--either administrative or legislative--the
situation is not likely to improve. AAHP analyses of
PricewaterhouseCoopers projections of Medicare+ Choice rates in each
county over the next five years shows that a significant gap opens up
between reimbursement under the fee-for-service program and
reimbursement under the Medicare+Choice program.\3\ These analyses show
that:
---------------------------------------------------------------------------
\3\ AAHP calculation from PricewaterhouseCoopers (PWC) analysis
prepared for AAHP, March 1999. AAHP's analysis produces conservative
estimates of the Fairness Gap by assuming that county-level
Medicare+Choice and FFS payments were equal in 1997, even though
Medicare+Choice payments were actually lower than FFS per capita
payments in 1997. PWC analysis based on first stage of risk adjustment.
PWC analysis does not reflect second stage of risk adjustment, which
HCFA expects to reduce payments by an additional 7.5 percent in 2004.
The Fairness Gap represents growth between 1997 and 2004 in the
projected difference between county-level aged Medicare+Choice risk-
adjusted per capita payments and FFS per capita payments. Top 100
counties by enrollment account for 72 percent of enrollment.
---------------------------------------------------------------------------
The Medicare+Choice Fairness Gap will be at least $1,000
for two-thirds of Medicare+Choice enrollees living in the top 100
counties, as ranked by Medicare+Choice enrollment (Figure 2).
For nearly half of Medicare+Choice enrollees living in the
top 100 counties, government payments to health plans on behalf of
beneficiaries will be 85 percent or less of fee-for-service Medicare
payments in 2004, significantly exceeding estimates of so-called
overpayment due to favorable selection by plans (Figure 3).
In the top 101 to 200 counties as ranked by enrollment,
nearly half of Medicare+Choice enrollees live in areas where the
Fairness Gap will be $1,000 or more in 2004. These counties include
smaller markets in which plans were expected to expand into under the
policy changes implemented by the BBA.
Perhaps most importantly, AAHP found that a large percentage of the
``Fairness Gap'' is attributable to HCFA's risk-adjuster, the design of
which is severely flawed. Rather than measuring health-status, as
required by the BBA statute, HCFA's risk-adjustment method measures
inpatient hospital utilization. This design penalizes numerous health
plans, which like Group Health, use disease management programs that
are designed to reduce hospitalizations for chronically ill patients
who would have otherwise been treated in inpatient settings. These
programs are structured to prevent costly hospitalizations by treating
patients in alternative settings. Contrary to ensuring predictability
in the new Medicare+Choice program, the impact of this risk-adjustment
methodology will be to restrict new market entrants and leave
beneficiaries with fewer options, reduced benefits and higher out-of-
pocket costs. This result squarely contradicts Congress' goals in
developing the Medicare+Choice payment reforms included in the BBA.
AAHP has found, for example, that the impact of HCFA's risk-adjuster on
Medicare+Choice payments to rural and urban counties is similar--rural
areas with Medicare+Choice beneficiaries are cut by about 6 percent,
while urban areas are cut by about 7 percent.
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Another AAHP analysis of PricewaterhouseCoopers projections that
incorporates the effect of the risk-adjustment methodology when it is
phased-in at 10 percent indicates that nearly half of current
Medicare+Choice enrollees live in areas in which year 2000 payments
will increase by 2 percent or less over 1999 payments. This situation
will likely worsen in 2001 when HCFA will base 30 percent of
Medicare+Choice payments on its risk-adjustment methodology. This means
that payments in many parts of the country will fall below the two
percent minimum update established by Congress. HCFA's risk-adjuster
also will diminish the effectiveness of the blended payment methodology
and payment floor in reducing geographic variation in Medicare+Choice
payments.
Exclusion of Spending on Medicare-Eligible Retirees From
Medicare+Choice Rate Calculation.
Spending on medical services furnished to Medicare-eligible
military retirees by Department of Veterans Affairs (VA) and Department
of Defense (DoD) hospitals continues to be omitted from the calculation
of Medicare+Choice rates. A few years ago, the Prospective Payment
Advisory Commission (ProPAC) estimated that health care provided in DoD
and VA facilities to Medicare beneficiaries accounts for 3.1 percent of
the total resource costs of treating Medicare beneficiaries. ProPAC
concludes from its findings that the omission of the cost of care
provided in DoD and VA facilities to Medicare beneficiaries leads to
systematic errors in both the level and distribution of Medicare
managed care payments. H.R. 2447, introduced by Congressman McDermott,
represents one approach that would help address this problem by
including these amounts in Medicare+Choice rate calculations.
Plans Have Limited Ability to Reflect GME Carve-Out In Contracts with
Teaching Facilities.
In addition, the BBA sought to begin tackling some of the issues
related to Graduate Medical Education (GME) reform by limiting the
number of residents supported by the Medicare program and by providing
incentives to hospitals to reduce the size of their training programs.
However, a central BBA provision, the removal of GME funds from the
calculation of payments to Medicare+Choice organizations, does not
appear to address broader GME reform goals. Studies show that health
plan members do use teaching facilities and that plan payments on
behalf of a member receiving treatment in a teaching hospital greatly
exceed payments for the same case in a non-teaching hospital. Although
GME payments are being removed from Medicare+Choice payments, in many
markets, the dominance of teaching hospitals limits health plans'
ability to reflect the carve-out by making commensurate reductions in
payments to teaching hospitals. Consequently, teaching hospitals are
receiving GME payments from the Medicare program as well as higher
payments from health plans. Ultimately, it is the Medicare beneficiary
who bears the burden of these higher payments due to reductions in
additional benefits that they otherwise would receive.
User Fee Further Erodes Medicare+Choice Payment Updates.
AAHP also has significant concerns about the funding of the
Medicare beneficiary information campaign. While it is reasonable for
health plans and their enrollees to contribute to funding HCFA's
education and information dissemination initiatives, their contribution
should be in proportion to their participation in the Medicare program.
On average, generating the $95 million will require a tax of $1.90 each
month for each beneficiary enrolled in a Medicare+Choice plan (the tax
is collected over only the first nine months of the year). This $1.90
per month per beneficiary tax represents 18 percent of the average
monthly 1998 to 1999 payment increase under the new BBA payment
methodology.
AAHP supports the goal of providing beneficiaries with accurate
information that allows them to compare all options and select the one
that best meets their needs. Thus far, however, the campaigns have not
met expectations. Many beneficiaries received incorrect or confusing
information and some plans were left out of the brochure altogether.
AAHP urges Congress to ask HCFA for an accounting of its use of
resources for educational purposes. We also urge Congress to adopt
MedPAC's recommendation to fund this program through HCFA's operating
funds rather than a tax on Medicare+Choice enrollees. AAHP continues to
believe that the entire beneficiary information program should be
reevaluated and streamlined.
Stabilizing Payment Will Help Stabilize the Medicare+Choice
Program
The present state of the Medicare+Choice program is not what
Congress expected when the BBA was approved two years ago. Rather than
having expanded coverage choices, beneficiaries face fewer coverage
choices. Additional benefits offered by plans that are not available in
the fee-for-service program are being jeopardized. Some have argued
that HCFA overpays health plans and that plans withdrawing from the
market are simply making ``business decisions.'' In response, first let
me say this: overpaid health plans do not leave a market. Overpaid
health plans do not reduce benefits. Second, payment and regulatory
requirements dictate the type of environment in which health plans
participate in the Medicare+Choice ``business.'' So yes, the current
payment and regulatory environment is forcing plans to make difficult
business decisions regarding their participation in the Medicare+Choice
program.
In the absence of an administrative action, H.R. 2419, introduced
by Congressmen Bilirakis (R-FL) and Deutsch (D-FL), is one approach
that would go a long way toward stabilizing the payment situation in
both urban and rural areas by requiring that HCFA implement the new
risk-adjuster on a budget-neutral basis, which is in keeping with
Congressional intent. The bill also would ensure that national updates
to government payments for beneficiaries choosing a Medicare+Choice
plan grow at the same rate as government payments for beneficiaries
choosing fee-for-service Medicare. H.R. 2419 represents one equitable
approach to restoring funding by increasing the total dollars available
in setting Medicare+Choice payment rates. This approach will help
ensure that the BBA goal of expanding coverage choices for all
beneficiaries is met.
Another way that payments could be stabilized is through
establishment of a true payment floor. As discussed earlier in this
testimony, Medicare+Choice payments are falling drastically relative to
fee-for-service Medicare payments--in many areas, payments are falling
to 80 percent or less of fee-for-service payment. To prevent this, a
true floor could be set such that Medicare+Choice payments would not
fall below a specified percentage of fee-for-service per capita
payments in a county.
Medicare+Choice Regulatory Environment Contributes to Program
Volatility
The challenges facing the Medicare+Choice program do not result
from payment alone. HCFA's approach to overseeing the program and the
structure of the Medicare+Choice program are contributing to the
volatility in the program. Further complicating issues is the
reorganization of HCFA, which has undermined communication between
health plans and HCFA staff. Taken together, the issues of payment and
regulation have challenged plans' abilities to maintain their health
care networks. In an increasing number of cases, providers around the
country simply have told health plans that given low payments and
increased regulatory requirements on them, that they are better off
just seeing beneficiaries under the fee-for-service program. Without an
adequate provider network, health plans cannot meet HCFA's
Medicare+Choice participation requirements leaving them with no other
option but to exit the program.
HCFA Roles as Purchaser and Regulator in Conflict.
HCFA's dual roles as purchaser and regulator are, at times, in
conflict, and nowhere has this conflict been more evident than in
HCFA's implementation of the BBA. These role conflicts remain
unresolved, even largely unaddressed. Until ways are found to reconcile
them, however, they will stand in the way of designing and delivering a
Medicare+Choice program that really works for beneficiaries.
Unfortunately, there are numerous examples that point to this inherent
conflict between HCFA's roles.
Request for Adjustments to ACRs. The circumstances that plans faced
in the fall of 1998 perhaps best illustrate this situation. HCFA
published the Medicare+Choice regulation, which was more burdensome
than expected, nearly a month and a half after the date plans were
required to file their 1999 adjusted community rate proposals (ACRs)
last year. This situation and the unrealistic compliance deadlines,
combined with the reduced rate of increase in payments and the
uncertainty created by the new risk-adjustment model, were major
factors in decisions by plans across the country and across model types
to become deeply concerned last fall about the viability of the
benefits and rates included in their ACRs on the originally mandated
May 1st deadline. This led AAHP members to make an unprecedented
request to HCFA to allow plans to resubmit parts of their ACRs. In some
service areas, the ability to vary copayments--even minimally--meant
the difference between a plan's ability to stay in the Medicare+Choice
program or to pull out of a market.
While this request presented HCFA with a complicated situation,
AAHP strongly believes that an affirmative decision would have been
better for beneficiaries. As a purchaser, HCFA had a strong motivation
to maintain as many options as possible for beneficiaries by responding
to health plans' concerns and adopting a more flexible approach to
Medicare+Choice implementation. As a regulator, however, HCFA had
concerns about criticism that could result from reopening benefit and
rate proposals, and thus chose not to allow any opportunity for
adjustment of ACRs. HCFA's decision in part contributed to the
withdrawal of nearly 100 health plans from the program, affecting more
than 400,000 beneficiaries. This unfortunately is not the only example
of a policy decision made by HCFA that is undermining the fulfillment
of the BBA goals.
HCFA to Implement QISMC without Exercising Deeming Authority. The
provisions of the BBA concerning quality oversight standards for
Medicare and Medicaid participating health plans call for an
implementation that builds upon the quality improvement standards of
existing accreditation organizations and avoids duplicate reviews. AAHP
has long advocated for coordination of quality standards for health
plans in order to maximize the value of plan resources dedicated to
quality improvement. In an effort to avoid duplication with other
quality initiatives undertaken by plans, the BBA explicitly authorizes
HCFA to develop a process through which health plans would be
``deemed'' to meet quality-related requirements. Unfortunately, HCFA
has chosen to begin implementation of its Quality Improvement System
for Managed Care (QISMC) and it has done so without completing work
that will permit Medicare+Choice plans to take advantage of the
statutory authority for deeming.
HCFA's Approval Process for Marketing Materials Creates Delays.
HCFA recently issued a standard summary of benefits document to
facilitate the comparison of benefits offered by health plans. AAHP
supports the goal of this project, however, we believe it was completed
on a timeframe that did not allow for the completion of necessary
development work. As a result, HCFA made modifications to improve the
document even after plans had been asked to submit compliant materials.
The Agency now is in the process of revising its model evidence of
coverage (EOC). Some HCFA regional offices are delaying approval of
plans' EOCs pending their receipt of the new model EOC from the central
office. These examples clearly indicate the need to devote adequate
time to projects and the need for clear communication between central
and regional HCFA offices on the effective date of new requirements,
such as the use of the revised EOC.
IV. Solving the Problems that Undermine the Success of the
Medicare+Choice Program
The Medicare+Choice program is critical to strengthening and
stabilizing Medicare over the long term. There is no doubt that HCFA
faces an enormous task in implementing the BBA. But as we have
described in this testimony, we believe that HCFA has made decisions
and taken approaches that clearly do not serve the best interests of
beneficiaries. AAHP and its member plans stand ready to provide
assistance as policymakers work to understand the combination of
factors that threaten the success of the Medicare+Choice program. We
emphasize that it is in everyone's interest--including beneficiaries,
providers, health plans, HCFA and Congress--for the BBA to achieve its
full promise. Our concern last year that without action, more
beneficiaries would lose access to their plan and that others would
face reductions in benefits has become a dismal reality. Further delay
in instituting administrative and legislative remedies could render the
Medicare+Choice program beyond repair or salvage. This outcome would be
a loss not only for the beneficiaries who have chosen a Medicare+Choice
plan, but also for future beneficiaries who would be denied the
opportunity to do so.
Chairman Thomas. Mr. Hendrickson.
STATEMENT OF BLAINE HENDRICKSON, INDEPENDENT OWNER, LEGACY
HEALTH CARE, RANCHO MIRAGE, CALIFORNIA, ON BEHALF OF THE
AMERICAN HEALTH CARE ASSOCIATION
Mr. Hendrickson. Thank you, Mr. Chairman and Members of the
Subcommittee. Thank you for allowing me the opportunity to
appear before you today. I would like to take this opportunity
to share the concerns of skilled nursing providers as we
navigate our way through the recently implemented SNF
protective payment system.
My name is Blaine Hendrickson and I operate three
independent nursing facilities in the Indio and San Bernadino
areas of California. I speak today on behalf of the American
Health Care Association. Because of the way the SNF PPS has
been implemented, many Medicare beneficiaries are not gaining
access to the skilled nursing care they need. Skilled nursing
providers, particularly those who specialize in caring for the
sickest Medicare patients, are facing a serious financial
crisis. This is forcing many of us throughout the Nation to
reexamine our ability to participate in the Medicare program.
I am one of those facilities. I operate a facility in
Indio, California, a small rural community. In 1997, because of
our reputation of quality care-giving, we were asked to take
over a small 68-bed facility. I agreed, and in my efforts I
found that the facility was not meeting the needs of the
community. As a result, we went from providing no Medicare to
an average of 12 to 14 Medicare residents to respond to the
community's need.
However, with the new Medicare cuts, we have gone from an
average reimbursement of $408 a day to an average of $231,
which is impossible to do. I am talking about patients who need
24-hour medical attention, extensive therapy, IV antibiotics
and a host of medications, all for $231 a day, far less than
our resources can provide.
So in my community, Medicare patients now face the
possibility of having to go hours away from family and friends.
The problem is that simple and must be fixed now.
Let me tell you what this means for Medicare's sickest
beneficiaries. If Medicare funding levels are not restored,
already reduced access to patient care will continue to erode.
Already, availability of capital for facility improvement and
nurse staffing has vanished and a growing number of skilled
nursing facilities throughout the Nation will be forced to
close their doors. This is not limited to just the large
national companies but to small providers such as me.
Small providers like me are finding it difficult to
survive. We are struggling with a government asking us to do
more with much less. It cannot be disputed that access problems
exist for Medicare SNF patients. In fact, a recent OIG report
showed that the majority of hospital discharge planners, 58
percent in fact, identified patients who require extensive
services have become more difficult to place in SNFs since
Medicare cuts have been implemented.
The Medicare cuts are affecting our employees as well. The
bleak outlook for SNFs is creating an environment that will not
allow us to attract and retain the high-quality professional
staff. These deep cuts will have forced layoffs of tens of
thousands of employees. That is a fact.
Mr. Chairman, I have been blessed with a 14-year-old son
named Ricky who was born with spina bifida. Medical
professionals told our family he wouldn't survive for more than
5 years. And they urged us to institutionalize Ricky because
his condition required ongoing medical--complex medical
attention. Only one facility in California was capable of
caring for him and that facility was hundreds of miles away
from our home and our community. I can't begin to describe the
emotional turmoil our family experienced, feelings of
overwhelming guilt, anxiety, hopelessness and questions about
whether or not we would be abandoning our son. But our family
was lucky. My wife was able to devote herself full time to
being Ricky's caregiver. And so rather than send him hundreds
of miles away to receive the care he needed, we cared for our
son at home. But for many, caring for a loved one at home is
not possible.
Mr. Chairman, as my time runs down, I would like to propose
four recommendations to improve access and to improve the
program under Medicare PPS:
No. 1, create payment add-ons for certain RUG categories
effective October 1. HCA supports Senate bill 1500. Currently
there is no House companion, but we hope the House will
consider a similar proposal as you begin to markup. It is
critical to identify where these patients with high-cost
intense medical needs which are covered in the PAPS system make
payment add-ons to address the disparity between the cost of
providing these services and the resources Medicare currently
provides.
No. 2, update the current SNF market basket effective
October 1, 1999. The current market basket grossly understates
the actual market conditions for SNFs. Mr. Chairman, for some
time you made it clear that the administration should do its
part in refining the system. We agree. HCFA has a legal
authority to address the inequities of the SNF market basket.
In fact, at the request of the White House, we provided them
with the legal opinion making clear their legal authority and
we will submit that for the record.
Mr. Hendrickson. No. 3, allow providers to transition to
the Federal rate effective October 1, 1999. PPS rates are based
on cost reports that date all the way back to 1995. This puts
some providers at a disadvantage. Providers should have the
option of electing to move to the full Federal rate immediately
if they show they are disadvantaged by PPS.
And finally, Medicare beneficiaries would achieve great
relief if Congress would pass Mr. McCrery's and Mr. Cardin's
H.R. 1837. Mr. Chairman, I thank you for the opportunity to be
here today. The majority of my residents have served this
country in extraordinary ways and it is a privilege to serve
them today. Thank you.
Chairman Thomas. I would just tell you, Mr. Hendrickson,
your statement was superb timing on the one particular bill
that you mentioned. We won't put that to a vote right now. We
will wait until later.
[The prepared statement follows:]
Statement of Blaine Hendrickson, Independent Owner, Legacy Health Care,
Rancho Mirage, California, American Health Care Association
Thank you, Chairman Thomas and Members of the Ways and Means Health
Subcommittee, for allowing me to appear before you today. I would like
to use this opportunity to share the concerns of skilled nursing
facility (SNF) providers as we navigate our way through the challenges
of the recently implemented SNF prospective payment system (PPS) and
other issues brought about by the Balanced Budget Act of 1997 (BBA).
My name is Blaine Hendrickson, and I operate three independent
nursing facilities in the Indio and San Bernardino areas of California.
I speak today on behalf of the American Health Care Association (AHCA),
a federation of 50 affiliated associations representing over 12,000
non-profit and for-profit assisted living, nursing facility, and
subacute care providers nationwide.
Mr. Chairman, balancing the budget and controlling Medicare
spending in an effort to save the program and ensure its financial
viability for future generations is a laudable goal. In fact, our
commitment to that goal was evident when AHCA voiced strong support for
the development and implementation of a new prospective payment system
(PPS) under Medicare. We understood that such a system would encourage
operational efficiencies and ultimately reduce Medicare spending for
patients needing skilled nursing care.
However, because of the way the SNF PPS has been implemented, and
to some extent because of language contained in the Balanced Budget Act
itself, significant numbers of Medicare beneficiaries are not gaining
access to the skilled nursing care they need. These beneficiaries need
your help. Skilled nursing providers themselves, particularly those who
have specialized in caring for the sickest Medicare patients, are
facing a serious financial crisis, which is forcing many of us
throughout the nation to re-examine our ability to participate in the
Medicare program.
The BBA intended to reduce Medicare payments in 1999 from $248
billion to $232 billion. In September, however, the Congressional
Budget Office estimated that actual payments will be only $210 billion.
That $22 billion shortfall was not expected and has created chaos for
providers and seniors.
I must be honest with you: I'm not the least bit comfortable
sitting in front of you here today discussing inadequate Medicare
funding in the same sentence with providing care for our nation's most
vulnerable citizens--the frail, sick, and elderly. But I am not going
to hide behind rhetoric. People put their lives and the lives of their
loved ones--our residents--in our hands--24 hours a day, truly a
daunting responsibility that we take very seriously. It is a very
difficult and challenging job, but we provide this skilled nursing care
with dedication and compassion.
The sheer numbers of Medicare patients are growing every day, and
the demands put on us for quality skilled nursing care also grows with
this increased need for care. Our nation's elderly are living longer,
fuller lives. And the advanced skilled nursing care for supporting this
gift of extended life and extended living through advanced medicine and
technology requires ever-increasing, highly advanced skilled nursing
care, additional therapies and life-enhancing medicines. Skilled
nursing facilities simply cannot provide these services for the most
medically complex and frail patients without a system in place that
supports our patients' additional medical needs. I am one of those
facilities.
Mr. Chairman, I operate a facility in Indio, California--a small,
rural community not unlike the community you come from. The state
Department of Health approached me several years ago to take over a
small, 68-bed facility because of my record in quality caregiving. In
my efforts, I found that the facility was not meeting the needs of the
community with regard to Medicare patients. Patients were having to
leave our community to access facilities far away in order to get the
care they needed. So we went from no Medicare beds to 12-14 beds out of
the 68 beds we have.
However, with the new Medicare cuts, we went from an average of
$408 a day for reimbursement for medically complex patients to an
average of $231, which is simply impossible to do. We're talking about
patients who need 24-hour medical attention, extensive therapy, IV
antibiotics, G-tubes, a host of medications, and other services, all
for $231 day, significantly less than our resources can provide. So in
my community, Medicare patients are now having to leave their
communities to get care, sometimes hours away from family and friends.
The problem is as simple and as complex as that. The problem is very
real. And the problem must be fixed now.
One important indicator of the urgency and severity of the problem
is a capitalization of the health care sector. In the past 18 months,
market capitalization for hospitals has dropped approximately 40%. The
skilled nursing industry market capitalization has dropped by almost
twice as much--nearly 75 percent. We--providers, policymakers,
families, and Medicare beneficiaries themselves--are facing a crisis of
incredibly significant proportions. Time is of the essence. The
situation will worsen unless you take action.
Just a few weeks ago, one large national provider of skilled
nursing services, filed for chapter 11 bankruptcy protection. This is
part of a growing national trend. This, I fear--I know--is just the tip
of the iceberg. We are witnessing this dramatic impact only four months
into full implementation of the new prospective payment system.
Providers are struggling. Patients are being affected. And families are
concerned.
Let me tell you what this means for Medicare's sickest
beneficiaries. If Medicare funding levels are not restored, already
reduced access to patient care will continue to erode. Already,
availability of capital for facility improvement and nursing staff will
vanish, and growing numbers of skilled nursing facilities throughout
this nation will be forced to close their doors. And this is not
limited to just the large national companies that provide care to tens
of thousands of elderly and disabled, but to regional providers, small
providers such as me, both non-profit and for-profit facilities.
I have had the opportunity to travel throughout the country to talk
with other skilled nursing providers across the country. I can tell you
from that experience, this is not a problem that affects only national
companies, as you may have been led to believe. This problem is rampant
among skilled nursing providers who care for the sickest Medicare
beneficiaries. We are committed to continuing to provide the highest
quality of care. And--so far--we are doing everything possible to
refrain from laying off direct caregivers, the men and women on the
front lines of health care, ensuring a high quality of clinical care
and a high quality of life for our patients. These providers also are
cautious about discussing the impact these cuts are having because,
quite honestly, we do not want to create a sense of fear in the hearts
of residents and families who depend on us. Right now, some of us are
getting by with dramatically reduced resources. How much longer can we
do this? Only time will tell. Small providers like me, who fly below
your radar, are finding it very difficult to survive. We are struggling
with a government asking us to do much more with much less--demanding
higher levels of quality in the face of drastic cuts. It simply doesn't
make sense. It's hurting America's elderly. And America's seniors
deserve better.
I have been a health care provider with an excellent record for 30
years, and in that time, I have never been as concerned as I am now
about our ability to continue serving seniors and the disabled. I am
concerned about real people facing very real problems--problems of
access to needed care.
No one disputes that access problems exists for Medicare SNF
patients. In fact, an OIG report, seeking to examine access problems to
skilled nursing care, showed that the majority of hospital discharge
planners (58%) identify patients who require extensive services have
become more difficult to place in SNFs since Medicare cuts have been
implemented. ``These types of patients typically require complex direct
nursing care and expensive medications, and they include patients who
require intravenous feedings, intravenous medications, tracheotomy care
or ventilator care,'' the report says.
Additionally, one-third of discharge planners said it was difficult
to place Medicare patients in SNFs, and 65 percent said PPS has had an
effect on their ability to place patients.
The access problem is occurring because SNFs are being forced to
reevaluate the extent to which Medicare will allow them to
appropriately care for the sickest patients.
The Medicare cuts that are denying beneficiaries access to care are
not just affecting Medicare beneficiaries, but are affecting our
employees as well. The bleak outlook for SNFs is creating an
environment that will not allow us to attract and retain high quality
professional staff. These deep cuts have forced layoffs of tens of
thousands of employees. That is fact. Mr. Chairman, the job of skilled
care staff is challenging under any circumstances, but I can say with
certainty that these dramatic reductions add a new degree of difficulty
in providing access to high-quality care that Medicare beneficiaries
expect and deserve.
I have been blessed with a 14-year old son named Ricky, who was
born with spina bifida and severe complications related to his
condition. Medical professionals told our family that Ricky wouldn't
survive for more than five years. And they urged us to institutionalize
Ricky because his condition required ongoing complex medical attention.
Only one facility in California was capable of caring for Ricky, and
that facility was hundreds of miles away from our home and our
community. I can't begin to describe the emotional turmoil our family
experienced--feelings of overwhelming guilt, anxiety, hopelessness, and
questions about whether or not we would be abandoning our son. I can
tell you that without question, that was the most difficult time of my
life. But our family was lucky. My wife was able to devote herself
fulltime to being Ricky's caregiver. And so, rather than send him
hundreds of miles away to receive the care he needed, we cared for our
son at home. But for many families in America, caring for a loved one
at home is simply not possible. And I know too well what it's like to
be faced with the decision to move someone you love far from home--
simply to receive health care.
These cuts have created another sad and difficult reality for
patients and families: patients who are discharged from hospitals to
skilled nursing facilities are being forced to use facilities far away
from family and loved ones to receive the specialized care they need,
because many facilities in their vicinity are no longer providing that
level of skilled nursing care.
You may ask why this is a problem. First, let me ask you, how would
you like to face a very difficult and emotional decision of having to
put a loved one in a facility because you can no longer care for them
yourself? Those of you here today who have gone through that process
know what I am saying, you know how difficult that decision is. Now,
add to that the decision to place a loved one in a facility that is a
hundred miles away from home, because skilled nursing care in your
community isn't available. And forcing patients into health care
settings far from home makes daily or even weekly visits impossible.
This not only affects the family deeply, it also interferes with the
patient's recovery and emotional well being. I count my blessings every
day that I have not had to make that decision for Ricky.
The other real problem that Medicare cuts are having on Medicare
beneficiaries--one I know everyone sitting here has heard about--is the
arbitrary cap imposed on nursing home residents for life-enhancing
rehabilitation therapies. These caps on Part B therapies, which are set
at $1500 per year, have had a terrible effect on certain residents
across the country. The combined $1500 limit on speech therapy and
physical therapy and the additional $1500 cap on occupational therapy
are threatening patient access to life-enhancing care. For example,
this flawed policy is forcing patients--patients recovering from stroke
and other serious conditions-to choose between therapy to enable them
to either walk or talk because Medicare resources simply will not cover
both. Imagine sitting with your family, trying to decide whether your
mother or father should receive physical therapy after a stroke in
order to walk again, or receive speech therapy in order to talk again,
or even swallow appropriately. You might think I am being overly
dramatic, but families are faced with this cruel and difficult
decision--even as I sit before you right now. This tragedy is best
illustrated by looking at a real life example of how a Medicare
beneficiary's life has been changed.
This example involves an 85 year-old woman named Frances. Frances
owned her own hat making shop here in Northwest Washington. Frances had
a stroke early this year and suffered from right-side paralysis as a
result. She could not walk, speak, or take care of herself in her
activities of daily living such as bathing, eating, dressing, or
toileting. She received physical therapy to teach her how to walk
again, and was able to walk from her room to the TV room with a walker
and a nurse aide behind her. Her speech therapy was helping her to
relearn how to swallow and speak again. Unfortunately, she exceeded the
$1500 cap on June 23rd, and now the facility provides care to her
without reimbursement and tries to stretch its resources to prevent any
decline. Frances also received occupational therapy which taught her
how to take a bath by herself, get dressed by herself (with help in the
room if needed), and toilet by herself. She had regained independence
in her life. Unfortunately, Frances has also exceeded her occupational
therapy cap and is now in danger of losing some of the skills and
quality of life she had gained.
The facility is doing the best it can to care for their residents,
but 10% have exceeded the speech/physical cap and about 5% have met or
will exceed the occupational therapy cap. Care for our nation's frail
elderly is being rationed, and in many cases they are not getting the
amount of therapy they need. If after meeting the cap, a resident
falls, is hospitalized and needs skilled therapy in the same calendar
year, he/she could face a serious access problem in finding a home that
will care for them for free. Let me express my appreciation to
Congressmen McCrery and Cardin for their leadership on addressing this
problem. Medicare beneficiaries would benefit if Congress would pass HR
1837, legislation introduced by Congressmen McCrery and Cardin. This
legislation would address the arbitrary nature of the $1,500 annual
caps on Part B outpatient rehabilitation services imposed by the BBA.
These caps were included without the benefit of data or hearings. Mr.
Chairman, I assure you--speaking from the front lines of the skilled
care community, no one who was part of this process could have intended
this cap to create the kind of patient impact we're seeing. Mr. McCrery
and Mr. Cardin's legislation would create criteria to trigger
exceptions to the caps for the sickest and most vulnerable Medicare
beneficiaries. Pass the McCrery/Cardin bill (H.R. 1837) to allow for
some exceptions for these caps. These caps have reduced a benefit to
Medicare beneficiaries and any relief would go a long way to ensure
them an appropriate level of benefits.
Mr. Chairman, the bottom line is that the deep cuts in Medicare
create a clear and present danger to the well-being of our nation's
elderly. The problems are critical and require immediate attention. I
would like to outline what we believe to be fair solutions to four
critical challenges--solutions that take into account the constraints
of Congress and HCFA in implementing change.
Recommendations
1. Create payment add-ons for certain RUG categories effective
October 1, 1999. Congress, HCFA and MedPAC all recognize that the new
payment system for SNFs fails to account for the costs associated with
caring for certain Medicare beneficiaries with medically complex
conditions. That is especially true for patients with high utilization
of non-therapy ancillary services, such as prescription drugs,
respiratory care, IV antibiotics and chemotherapy. To help solve this
problem, AHCA supports Senate Bill 1500, the Medicare Beneficiary
Access to Quality Nursing Home Care Act. Currently, there is no House
companion, but we hope the House will consider similar legislation. S.
1500 would identify where there are patients with high-cost, intense
Medicare needs, which are covered in the PPS system and make payment
add-ons to address the disparity between the cost of providing those
services and the resources Medicare currently provides. Let me briefly
address an issue that has raised some questions among policy makers.
The RUGs system for SNFs has never appropriately taken into account
non-therapy ancillary services. There has been a great deal of
discussion around the RUG categories which are creating the most
significant problems. Our research shows that the elderly population we
serve is likely to suffer from co-morbidities. In other words, although
patients require rehabilitative therapy, it is highly possible--even
likely--that many of those patients will have other medically complex
needs in addition to that therapy. And that, Mr. Chairman, is the
fundamental flaw of RUGs. In the hierarchical RUG system, a patient's
rehabilitation needs are often the only criteria by which a patient is
assigned a RUG category--often ignoring other expensive life-saving
medical services. We recommend targeting a payment add-on to those RUG
categories with the highest concentrations of high non-therapy
ancillary users. And we recommend that the majority of these relief
funds must come in the first couple years so that relief is immediate
and lasting.
2. Update the current SNF market basket effective October 1, 1999.
To a certain extent also addressed by S. 1500, is the fact that HCFA
and Congress should replace the current inflation rate update factor
for SNFs with a more accurate measurement of the cost of services they
are required to provide. This current market basket grossly understates
the actual market conditions for SNFs because it understates the annual
change in the costs of providing an appropriate mix of goods and
services produced by SNFs. SNFs have dramatically changed the services
we provide and the acuity levels of the patients we care for. Mr.
Chairman, for some time you have made it clear that the Administration
should do its part in refining the system. We have shown in two legal
opinions, including one from a former HCFA general counsel, that HCFA
has the legal authority to address the inequities of the SNF market
basket. In fact, we did this at the request of the White House. I would
like to submit both of these legal opinions as an addendum to my
testimony.
3. Allow providers to transition to the federal rate effective
October 1, 1999. PPS rates are based on cost reports that date all the
way back to 1995. We believe providers should have the option of
electing to move to the full federal rate immediately if they can show
they are disadvantaged by the transition. This would prevent facilities
that changed the type and volume of Medicare services after 1995--the
PPS base year--from being disadvantaged by the transition rate. Again,
this is a matter of equity, and a means of easing the transition to
PPS. We believe this can be done administratively by HCFA, however
HCFA's intransigence may require Congress to act.
4. Medicare beneficiaries would achieve great relief if Congress
would pass H.R. 1837, legislation introduced by Congressmen McCrery and
Cardin. Let me, again, express my sincere appreciation to them for
their leadership on this.
Mr. Chairman, as I conclude my remarks, I would like to convey to
the Committee that we understand that we must work within the
constraints that exist. That is why we've worked so hard to put forward
solutions that are realistic, reasonable, responsible and within reach.
Each of the actions we recommend would restore funding that would
ensure continued quality and access to care for Medicare beneficiaries.
And that is why each of the actions we recommend today should be
adopted for the sake of the patients entrusted to our care. These
solutions can only be achieved in a bipartisan fashion, and we look to
your leadership.
Mr. Chairman, I thank you for the opportunity to be here today. I
proudly entered this noble profession 30 years ago. There are tens of
thousands of people such as me out there, and they are hurting. I can
honestly tell you--despite the sensationalistic and rare examples of
poor performers you see in the media from time-to-time--that an
overwhelming majority of my colleagues share the same passion and
commitment to this profession, and provide good, quality care. The
majority of my residents are rich with love of family, love of life,
and have served this country in extraordinary ways throughout their
lifetime. It is a privilege to serve them.
On behalf of AHCA, I want to make clear our commitment to providing
high quality care to America's frail and elderly. The situation we are
facing is critical, but it will get worse unless Congress and the
Administration work with providers to fix the system. You can make a
very real difference for a population that expects--that deserves--no
less. Only you have the power make a difference . . . to give voice to
a population that needs your help . . . your nation's elderly,
disabled, and the men and women who they rely on every day for their
skilled nursing care.
And thank you for the opportunity you have given me today.
Chairman Thomas. Ms. Bataillon.
STATEMENT OF PAMELA BATAILLON, VICE PRESIDENT, BUSINESS
DEVELOPMENT, VISITING NURSE ASSOCIATION OF THE MIDLANDS, OMAHA,
NEBRASKA, ON BEHALF OF VISITING NURSE ASSOCIATIONS OF AMERICA
Ms. Bataillon. Thank you, Mr. Chairman. My name is Pam
Bataillon and I am vice president of the Visiting Nurse
Association of the Midlands which is located in Omaha,
Nebraska. The Visiting Nurse Associations of America are
grateful to you and the Committee for your continued interest
in refining provisions of the Balanced Budget Act of 1997.
VNAs want to work with you to find administrative and
legislative solutions to the problem areas such as the
immediate need to address our cash flow crisis resulting from
the multitude of Federal regulatory requirements that have been
uniformly applied to all the providers, regardless of their
history of compliance and responsibility in the Medicare
program.
Focused medical review, Operation Restore Trust and Wedge
audits, increased technical denials, recoupment of overpayments
made under the interim payment system, OASIS, 15-minute
incremental reporting and subsequent changes in billing
procedures, and now confusing advance beneficiary notices have
all come into effect since the passage of the BBA.
VNAA believes that implementation of many of these
provisions has gone beyond congressional intent and made it
difficult for VNAs and other home care providers to meet the
health needs of eligible patients. The compounded effect of
trying to simultaneously meet all of these regulatory mandates
and survive under low IPS reimbursement rates has affected how
we deliver care to patients, depleted our resources, and
impacted our staff morale.
Regarding the IPS cost caps, I want to address Mr. Hash's
earlier statement today that providers do not understand the
nature of the aggregate per-beneficiary cost limit. We clearly
understand that the cap is not a per-patient cap and is applied
in the aggregate. The problem in terms of meeting patients'
needs is balancing all of their costs under the aggregate cap.
It does not take very many high acuity patients to upset the
apple cart.
As cost-efficient providers, VNAs' aggregate caps are so
low that we are finding it very difficult to serve the sickest
of patients, which has been our mission for over 100 years.
VNAA understands that Congress had to enact dramatic
changes to the Medicare home health program in 1997, but now is
the time to reassess and make adjustments so that responsible
providers do not continue to be penalized by the IPS
reimbursement structure and a one-size-fits-all Federal
regulatory mandate process.
We are at the point where we have to make sure that the
baby is not thrown out with the bath water, which is why VNAA
urges you to ensure that the BBA provision to reduce Medicare
home health expenditures by 15 percent never goes into effect.
The 15-percent cut is a significant threat to VNAs and to their
ability to provide patient care. The average 25 percent budget
cuts that VNAs have already made to survive under IPS is
challenging our ability to provide the care that patients need
to remain stable and at home. Many VNAs report that they cannot
accept all eligible patients because of shortage of staff or
anticipated costs. As a group of providers whose costs have
been, by and large, under the national average, we have cut
into the bone and can't cut any further.
To understand the devastation to my agency from the
combined effect of IPS and regulatory mandates, I have included
specific information about our agency. Between August 1997 and
August 1999, we have had to reduce our budget by $2,600,000,
reduce our staff by 42 percent and reduce our total volume of
visits by 32 percent.
The result of these budget cuts has directly affected
patient care. We have only been able to provide the bare
minimum of service, barely getting them to a stable situation
before we can dismiss them.
Dismissing patients earlier: more and more we see evidence
that this earlier discharge results in hospital readmissions.
This creates increased costs for Medicare both at the hospital
level and then when the patient is once again referred for
post-acute hospital home care, often at a higher acuity level.
The VNA has survived current cuts; however, we have
exhausted our resources. A 15-percent cut in revenues would
decimate the agency and preclude us from carrying on our 103-
year-old mission of providing home health care in our
community.
VNAA is certain that another 15-percent cut under IPS would
be the straw that would break the camel's back. In response to
a survey sent to VNA members earlier this month the vast
majority of those VNAs who responded said they would seriously
consider discontinuing participation in the Medicare program.
Fourteen VNAs said they would definitely or likely close, in
addition to the 10 that have already closed due to IPS. All who
responded to surveys said they would eliminate or decrease all
indigent care and completely deplete their reserves or charity
funds and foundation resources.
In most communities the VNA is the choice of last resort,
the place that all other home care agencies refer their high
acuity and highly complex hard-to-serve patients. Our
recommendations are several. They are detailed in the submitted
written testimony.
One that would help us would be to ensure that the BBA
provision of a 15-percent reduction in Medicare home health
expenditures does not go into effect.
Another would be to enable agencies to be reimbursed
immediately through a pass-through on their cost reports for
the cost of OASIS (which, by the way, has added 30 minutes to a
home visit) and other regs.
Another would be to pass legislation to extend the PIP
system through at least the first year of PPS system.
Another, exclude home health agencies in good standing from
prepayment review and limit their post-payment review to no
more than 10 percent of claims.
Also, to increase the per-beneficiary cost limit and the
per-visit cost limit to help offset the costs of OASIS
implementation.
To implement MedPAC's outlier recommendation under IPS and
to enforce HCFA's statement that it will grant 3-year extended
repayment plans on IPS-related overpayments to home health
agencies.
Thank you very much for allowing us to present this
information and recommendations to you and your committee.
Chairman Thomas. Thank you very much, Ms. Bataillon, and we
appreciate the specificity and the reasonableness of your
request.
[The prepared statement follows:]
Statement of Pamela Bataillon, Vice President, Business Development,
Visiting Nurse Association of the Midlands, Omaha, Nebraska, on behalf
of Visiting Nurse Associations of America
Introduction
Mr. Chairman and Members of the Subcommittee: My name is Pam
Bataillon and I am Vice President of the Visiting Nurse Association
(VNA) of the Midlands, which is located in Omaha, Nebraska. The VNA is
an independent, Medicare-certified home health agency serving eastern
Nebraska and Western Iowa. I am pleased to be here today to present the
recommendations of the Visiting Nurse Associations of America (VNAA)
regarding refinements to the Medicare home health provisions included
in the Balanced Budget Act of 1997 (P.L. 105-33). VNAA is the national
membership association for non-profit, community-based home health
agencies.
VNAA is grateful to you, Mr. Chairman and members of the
Subcommittee, for your continued interest in refining provisions of the
Balanced Budget Act of 1997 (BBA). We support your efforts to ensure
that this landmark legislation accomplishes congressional intent and
does not inadvertently create federal policies and requirements that
are counterproductive to its goals.
Visiting Nurse Agencies (VNAs) want to work with you to find
administrative and legislative solutions to the problem areas, such as
the multitude of federal regulatory/administrative requirements that
have been uniformly applied to all providers regardless of their
history of compliance, cost-consciousness and responsibility in the
Medicare program. We think it is absurd that providers with nearly 35
years of experience providing quality, cost-effective care in the
Medicare program with 0-3% denial rates (and decades of experience
before Medicare was established) have to spend more time now responding
to the scrutiny of several government audits and complying with
paperwork mandates than providing patient care, or filling out forms to
account for every minute of in-home patient care, or spending tens to
hundreds of thousands of dollars on software and training to meet OASIS
requirements that are only reimbursed a fraction of the cost.
Focused medical review, Operation Restore Trust (ORT) and Wedge
audits, increased technical denials, sequential billing, recoupment of
overpayments made under the Interim Payment System (IPS), OASIS, 15-
minute incremental reporting and subsequent changes in billing
procedures, surety bonds, and now advance beneficiary notices, have all
come into effect since the passage of the BBA. In addition, HCFA is
redefining the benefit, which has created confusion regarding what is
and what is not a covered service. For example, providers were given no
notification that insulin-management for blind diabetic patients is no
longer covered. We have received retroactive denials on such cases.
VNAA believes that implementation of many of these provisions has
gone beyond congressional intent and made it difficult for VNAs and
other home care providers to meet the health care needs of eligible
patients, primarily because of cost and cash flow issues. The
compounded effect of trying to simultaneously meet all of these
regulatory mandates and survive under low IPS reimbursement rates has
depleted our resources and our staff morale. Because of our century-old
mission to provide cost-efficient, compassionate care to all patients
in need of home health care regardless of condition or ability to pay,
we will not let this difficult regulatory period defeat our ability to
care for patients--but we need your help.
VNAA understands that Congress had to enact dramatic changes to the
Medicare home health program in 1997 and that bold initiatives were
required to rid the program of fraud and abuse, but now is the time to
reassess and make adjustments so that the responsible providers do not
continue to be penalized by the IPS reimbursement structure and one-
size-fits-all federal regulatory mandates. We believe that adjustments
to the BBA can put us back on the right track before it is too late. We
are at the point where we have to make sure that the ``baby is not
thrown out with the bathwater,'' which is why VNAA urges you to ensure
that the BBA provision to reduce Medicare home health expenditures by
15 percent never goes into effect.
Mr. Chairman, and members of the Subcommittee, you have taken the
lead to ensure that the BBA is good, sound policy. We are grateful to
you for spearheading legislation last year that made changes to the IPS
reimbursement formula, which was the first step toward removing the IPS
penalty on cost-efficiency. We know that you will continue to do the
right thing by building on the Medicare home health improvements made
by last year's Omnibus Appropriations Act. Please repeal the pending 15
percent cut to Medicare home health expenditures, which is scheduled
for October 1, 2000. It remains as a significant threat to VNA patient
care. The average 25% budget cuts that VNAs have already made to
survive under IPS is challenging our ability to provide the care that
patients need to remain stable and at home. Many VNAs report that they
must discharge patients earlier than the optimal time for discharge.
Others report that they cannot accept all eligible patients because of
shortage in staff or anticipated costs.
Already, the number of patients who have had to remain in hospitals
or nursing homes longer than necessary is increasing. The number of
individuals who have had to go without care has also increased. Several
VNAs no longer participate in the Medicare program; approximately 10
VNAs have closed; and many have discontinued service in rural areas.
Our experience closely parallels the findings of the Medicare Payment
Advisory Commission (MedPAC). According to MedPAC's June 1999 report,
nearly 40 percent of agencies surveyed responded that because of the
IPS, they no longer admit all Medicare patients whom they would have
admitted previously, and about 30 percent of agencies reported
discharging certain Medicare patients because of the IPS. The
Commission suggests allowing agencies to exclude a small portion of
their patients from the aggregate per-beneficiary payment limits to
ensure that these beneficiaries will have access to needed services.
As a group of providers whose costs have been by and large under
the national average, we have cut into the bone and we can't cut any
further. To understand the devastation to the VNA of the Midlands from
the combined effect of IPS and regulatory mandates, I have included
specific information about our agency below.
Between August 1997 and August 1999, we have had to:
Reduce our budget by $2,600,000;
Reduce our staff by 42%; and
Reduce our total volume of visits by 32%.
In 1997, we were 11% under our cost caps. In 1998, we were 12% over
cost caps. These actions have resulted in a 32% drop in revenues and a
42% drop in net assets (from $1,595,231 to $973,875). Regulatory
mandates, including OASIS, ORT audits, and the 15-minute reporting and
billing requirement, have simultaneously added to the pressure of
keeping costs under the per-visit cost limits and have increased our
average cost per visit from $62.50 to $68.98. This has been a common
experience among VNAs, where they have historically kept costs
significantly below the per-visit cost limits, and are for the first
time just under, at, or above those limits. (Please see VNA of St.
Lucie and Martin Counties' data sheet on such costs, which is attached
to this testimony).
The VNA of the Midlands was the target of a Operation Restore Trust
(ORT) survey in 1999 because we are the biggest home care agency in
Omaha. The results of the survey revealed that two nursing visits and
one occupational therapy visit on two separate patients were determined
to be technical denials because the physician did not date his
signature and the date did not appear in locator 23 on the
recertification form. Two nursing visits from two different patients
were denied because the physician diagnosis of a legally blind diabetic
was not deemed sufficient rationale for the VNA to prefill the insulin
syringes for the patient. We were cited for not having documented that
the family was unwilling to complete the task. The one occupational
therapy sample was extrapolated to all the occupational therapy claims
for that time period. This meant that the reviewer applied a 9.5%
denial rate to all nursing claims a 100% denial rate to occupational
therapy claims. Instead of having to repay $322.55 on the actual denied
claims, we were subject to a projected overpayment of $24,255.76.
The result of these budget cuts has directly affected patient care.
We have only been able to provide the bare minimum service to each
patient, dismissing them earlier. More and more, we see evidence that
this earlier discharge results in hospital re-admissions. This creates
increased costs for Medicare, both at the hospital level and then when
the patient is (once again) referred for post-hospital home care, often
at a higher acuity level.
The VNA has survived the current cuts; however, we have exhausted
our resources. A 15% cut in revenues would decimate the agency. We
would seriously consider dropping out of the Medicare program because
it could bankrupt the agency and prevent us from carrying out our 103-
year-old mission of serving the sick and the poor in Omaha.
VNAA is certain that another 15% cut under IPS would be the straw
that would break the camel's back. In response to a VNAA survey sent to
member VNAs this month, the vast majority of those VNAs who responded
said that they would seriously consider discontinuing participation in
the Medicare program if a 15% cut were implemented on October 1, 2000.
The following VNAs who have said they would definitely or likely
close are:
VNA of the Midlands in Omaha, Nebraska;
VNA in Princeton, Illinois;
VNA in Plainville, Connecticut;
VNA in Manhattan, Kansas;
VNA in Waterford, Michigan;
VNA is Pittsburgh, Pennsylvania;
VNA of South Portland, Maine;
VNA in Atlanta, Georgia;
VNA in Stuart, Florida;
VNA in Columbus, Ohio;
VNA in Ventura, California,
Sun Home Health Services in Northumberland, Pennsylvania
Home Nursing Agency in Altoona, Pennsylvania
All who responded to the survey said they would eliminate or
decrease all indigent care and completely deplete their reserves/
charity funds and foundation resources.
VNAA's Recommendations
1. Ensure that the BBA provision of a 15% reduction in Medicare
home health expenditures never goes into effect. We strongly oppose a
reduction of the 15% to a lesser percentage, and recommend another
delay if necessary before a full repeal can be accomplished.
We understand that repeal of the 15% cut costs approximately $15
billion over 10 years, according to the Congressional Budget Office
(CBO). Because CBO anticipates that Medicare home health savings will
be well above the $16.2 billion required by the BBA over a five year
period (possibly three-times that number), the 15% cut is not necessary
and, frankly, is overkill. If federal budgetary caps make it impossible
to repeal the 15% in 1999, then a delay is essential so that the 15%
doesn't take effect on the same date as the implementation of the
Medicare Home Health Prospective Payment System (PPS)--October 1, 2000.
VNAA believes that the PPS is our best hope for a fair and equitable
reimbursement system, which will base payments based on the condition
of the patient rather than on agencies' historical costs as is the case
under the current IPS method. We know that this Subcommittee urgently
waits for implementation of PPS. A 15% cut on the date of
implementation may doom the plan before it even gets off the ground.
2. Ensure that HCFA's PPS plan is implemented on time and without a
transition period. We strongly support HCFA's proposed use of national
cost averages in the determination of per-episode reimbursement rates;
and urge you to oppose any attempt to transition in the plan using
agency-specific historical costs.
3. Pass legislation to extend the Periodic Interim Payment (PIP)
system through at least the first year of prospective payment.
Extension of PIP would ease the transition from IPS to PPS and has been
proven to be critical in terms of cash flow for VNAs under the HCFA PPS
Per-Episode Demonstration Project.
4. Sunset the 15-minute increment reporting requirement. This
activity has been expensive because of the change in forms and
software, and is consuming of a clinician's time in a patient's home.
It also does not account for off-site activities performed by the
clinician that are directly related to patient care (e.g., physician
consultation). An alternative approach that would provide more useful
information regarding clinician time and patient outcomes would be to
have agencies report ``time in'' and ``time out'' and link such
information to the patient's OASIS data.
5. Delay the implementation of the New Advance Beneficiary Notice.
Although we are supportive of notices to beneficiaries, providers only
received directions from HCFA on September 22 for an implementation
date of October 1. In addition, the current notices supplied by fiscal
intermediaries to providers are lengthy and confusing at best for
beneficiaries.
6. Repeal the BBA requirement to bundle durable medical equipment
(DME) costs with other home health costs through consolidated billing
under the Medicare home health prospective payment system. VNAs view
the bundling of the DME into the home health billing process as one
additional administrative burden for which there is no cost
recognition.
7. Enact a provision contained in H.R. 2456 that would: (1) exclude
home health agencies with a finalized claim denial rate of less than 5
percent (average of the three most recent cost reporting periods) from
prepayment review and (2) limit their post-payment review to no more
than 10 percent of claims. Conducting high cost, intense audits on all
agencies, regardless of past practices by the agency, is expensive and
unproductive. Matching the rate of review to the rate of denial would
provide an incentive to agencies to submit ``good claims'' because it
would result in less review.
8. Enact a provision in H.R. 2240 that would further increase the
per-beneficiary cost limit for home health agencies whose current PBLs
are currently under the national average PBL. An increase in the PBL
for these agencies would better enable them to serve the highest-cost
patients and help offset the costs of OASIS implementation.
9. Increase the per-visit cost limit to help offset the costs of
OASIS implementation.
10. Implement MedPAC's outlier recommendation under the Interim
Payment System.
Conclusion
VNAs' sole purpose for participating in Medicare is to provide
compassionate, cost-effective care to patients. If regulations strangle
our ability to meet patients needs and if low reimbursement does not
cover the cost of care, more responsible providers will make the
decision to drop out of the Medicare program. Mr. Chairman, the loss of
good, responsible providers is not what the Medicare program needs. We
have kept costs down. We are often the providers of last resort. We
have helped families cope with disability and death in the comfort of
their own homes for over 100 years. Please enact and enforce our
recommendations to ensure that responsible home care providers can
continue to serve Medicare beneficiaries for another 100 years. Thank
you for allowing us this opportunity to provide our views and
recommendations.
[Attachments are being retained in the Committee files.]
Chairman Thomas. Ms. Swigert.
STATEMENT OF NANCY B. SWIGERT, OWNER, SWIGERT AND ASSOCIATES,
INC., LEXINGTON, KENTUCKY; AND IMMEDIATE PAST PRESIDENT,
AMERICAN SPEECH-LANGUAGE-HEARING ASSOCIATION
Ms. Swigert. Thank you, Chairman Thomas and Members of the
Subcommittee, for allowing me to appear here today.
My name is Nancy Swigert and I have a private practice in
Kentucky. As a practicing speech-language pathologist, I teach
people who have had a stroke to learn to swallow again. If they
can't learn to swallow again, the consequences are for food and
liquid to get in the lungs, causing pneumonia or death. In
fact, more deaths result from asphyxiation following stroke
than any other complications.
I also work with patients who can't communicate, and teach
them how to communicate again. Lack of communication skills
results in patients needing more expensive, and more intensive
levels of care.
I am before you today as the immediate past president of
the American Speech-Language-Hearing Association. We have close
to 100,000 speech-language pathologists, audiologists, and
speech-language-hearing scientists. We work very closely as
well with other professional rehabilitation organizations like
the American Occupational Therapy Association and the American
Physical Therapy Association on issues that we are discussing
in the hearing today. Therefore, I am here today representing a
total of approximately 300,000 rehabilitation therapy
professionals.
As the Committee considers BBA refinements, ASHA urges the
committee to include provisions that would relate to outpatient
rehabilitation services. We ask that you consider both
enactment of an exceptions process that retains the caps,
except in those instances where the patient requires medically-
needed services, and incorporating three $1,500 caps by
granting independent status for speech-language pathologists.
As the cap is currently implemented by HCFA, the burden of
the utilization policy is being borne chiefly by high acuity
patients. It seems that the patients who are going to exceed
the cap are those who have multiple diagnoses, or those who
have multiple incidents within a year. And we have to remember
as well, that patients in nursing homes can't switch providers
when they have reached their cap.
To make matters worse, in implementing this provision, the
Health Care Finance Administration ruled that speech-language
pathology and physical therapy share a $1,500 cap.
Mr. Chairman, we have appreciated your personal efforts to
try to correct that situation administratively, but in the
absence of action by the agency, we urge the Committee to
legislatively make the technical corrections necessary to
resolve this unintended consequence of the BBA. While I can
provide the committee with case after case of real-life
examples even within my own family of how Medicare
beneficiaries' lives have been changed negatively, I would like
to share with you a summary of a recently completed randomized
survey of speech-language pathologists who reside in Texas,
North Carolina, Connecticut and California. In brief,
clinicians estimated that 23 percent of patients covered by
part A and 70 percent of patients covered by part B were
expected to be denied speech-language pathology services due to
restrictions directly resulting from the BBA policy changes.
According to clinicians, the most frequently cited
consequence of denied care was the potential for an increased
risk of aspiration pneumonia, which is getting food and liquid
in the lungs, and dehydration. Let me point out, by the way,
that treatment of aspiration pneumonia costs on average about
$15,000, so the therapy to prevent it is a real bargain.
Mr. Chairman, I believe that this study confirms our most
grave concerns about the negative impact and unintended
consequences of some BBA policy decisions. We believe Congress
needs to take action now to make reasonable refinements in
these policies so that appropriate and necessary care to our
seniors is not sacrificed. I would ask you, Mr. Chairman and
Members of the Subcommittee, to consider two specific options
that Congress can implement to that end.
First, as sponsored by a number of Members of this
Committee and specifically initial cosponsors Congressmen
McCrery and Cardin, enact the Burr-Grassley legislation, H.R.
1837, that retains the cap except in those instances where the
patient requires medically-needed services.
Second, recognize the independent services being provided
by speech-language pathologists, thereby eliminating the shared
cap between speech and physical therapy. Because of this
misdirected interpretation of the BBA therapy cap provision,
there needs to be a distinction made as a matter of law and
public policy. I urge this Committee to distinguish these types
of care and not force a patient to choose whether he or she
will be able to walk or swallow again.
Speech-language pathology services are a benefit under
current law and have been since 1972. However, as a speech-
language pathologist in private practice, I cannot bill
directly to Medicare. We are merely asking that you grant us
the same level of billing authority as physical and
occupational therapists. By function of law this would then
extent the current two caps to three caps. We need both the
exception process and a delinking of physical and speech
therapy.
Mr. Chairman and Members of the Committee, on behalf of
ASHA and the other rehabilitation professional groups, we
appreciate your efforts to rectify the problems presented by
the current therapy caps as well as the opportunity to discuss
our views on this critically important matter. We urge you to
take action to remedy the unintended consequences caused by the
implementation of these arbitrary caps and we look forward to
working with Congress and HCFA to fix these problems. Thank
you.
[The prepared statement follows:]
Statement of Nancy B. Swigert, Owner, Swigert and Associates, Inc.,
Lexington, Kentucky, and Immediate Past President, American Speech-
Language-Hearing Association
Thank you, Chairman Thomas and Members of the Committee, for
allowing me to appear before you today. My name is Nancy Swigert, and I
am the owner of a private practice in Kentucky. I personally provide
speech-language pathology clinical services, and I am the immediate
past president of the American Speech-Language-Hearing Association
(ASHA), which represents nearly 100,000 speech-language pathologists,
audiologists, and speech, language and hearing scientists. We also work
closely with the other national rehabilitation professional
organizations--the American Physical Therapy Association (APTA) and the
American Occupational Therapy Association (AOTA)--on the issues related
to todays hearing; in total representing some 300,000 rehabilitation
therapy professionals.
On behalf of these professionals and our patients, we appreciate
the opportunity to present our views to this Subcommittee concerning
problems in the implementation and refinements to the Medicare
provisions in the Balanced Budget Act (BBA) of 1997 impacting services
to outpatient rehabilitation beneficiaries. As Congress prepares to
consider BBA refinements, ASHA urges inclusion of improvements that
relate to outpatient rehabilitation services in any ``BBA fix''
legislation approved by the Subcommittee, specifically the $1500
beneficiary cap on a combined speech language pathology/physical
therapy benefit. This provision, which also includes a separate $1500
cap on outpatient occupational therapy, was enacted to control
``inappropriate'' utilization of outpatient rehabilitation services by
requiring beneficiaries to pay for services that exceed the cap.
However, what this provision has done is disrupt treatment for many
and denied seniors, especially those who are the sickest, the necessary
services they need so that they can return to functional levels in the
most fundamentally human skills of swallowing, speaking and walking. As
implemented, the burden of the utilization policy is being born chiefly
by high-acuity patients, such as individuals recovering from stroke,
hip injuries and medically-complex cases that result in multiple
medical incidents within a single year.
In testimony previously given before other congressional hearings
on the impact of this policy from the BBA, we believe representatives
from federal agencies have trivialized and underestimated the number of
Medicare beneficiaries who will exceed the caps, and will consequently
face either disrupted and costlier care or denied care. Moreover, it is
our strong contention that government assessments about the impact of
these caps is significantly under estimated due to the self-rationing
by patients and their families, as well as widespread confusion about
how this policy has been implemented. Mr. Chairman and Members of the
Committee, I ask that you not to let them play down the severe impact
of the caps are having on the hundreds of thousands of our sickest
Medicare patients.
To make matters worse, in implementing this provision, the Health
Care Financing Administration (HCFA) ruled that the speech-language
pathology and physical therapy were to share $1500 for those Medicare
outpatients who required both, citing the BBA provision that included
speech-language pathology services (SLP) with physical therapy (PT)
services. This action set an ugly precedent, disregarding the whole of
Medicare and Medicaid regulations developed since 1972, when ``speech
pathology services'' were added as a benefit, as well as all clinical
and practice standards that clearly recognize speech-language pathology
and physical therapy as separate and very distinct services.
Essentially, the 1972 amendment adding speech-language pathology
services was re-interpreted to mean that Medicare outpatient speech-
language pathology is a part of Medicare outpatient physical therapy,
even though there is a separate definition in the statute (Section
1861(ll) of the Social Security Act) for speech-language pathology
services. ASHA protested the interpretation and provided HCFA with a
legal analysis that, we believe, gives the agency adequate flexibility
in correcting this problem. While sympathetic with our case, HCFA has
cited that it does not have the authority to make such a change. Mr.
Chairman, we have appreciated your personal efforts to administratively
correct this situation. But in the absence of action by the agency, we
urge the Committee to legislatively make the technical corrections
necessary to resolve this unintended consequence of the BBA.
While I could provide the Committee with case after case of real
life examples--even within my own family--of how Medicare
beneficiaries' lives have been negatively changed, I would like to
share with you a summary of a recently completed randomized survey of
speech-language pathologists who reside in Texas, North Carolina,
Connecticut, and California. The survey investigated the impact of
recent changes in Medicare reimbursement policies on the access
patients have to the care provided by speech-language pathologists, and
the nature of the possible consequences to the well being of these
patients if the care is not available.
In brief, clinicians estimated that 23% of patients who were
covered under Part A and 70% of the patients covered under Part B were
expected to be denied speech-language pathology care due to
restrictions directly resulting from BBA policy changes. According to
the clinicians, the most frequently cited consequence of denied care
was the potential for an increased risk of aspiration pneumonia and
dehydration, while also noting that these patients would likely
experience an inability to resume normal daily activities and would
continue to rely on a caregiver. Mr. Chairman, I believe that this
study reconfirms our most grave concerns about the negative impact and
unintended consequences of some BBA policy decisions.
We believe Congress needs to take action now to make reasonable
refinements in these policies so that appropriate and necessary care to
our seniors is not sacrificed. I would ask you, Mr. Chairman, and
Members of the Committee, to consider two specific options that
Congress can do to this end:
First, as sponsored by a number of Members of the Committee, enact
the Burr/Grassley legislation (H.R 1837 and S. 742) that retains the
cap except in those instances where the patient needs the additional
services. Specifically, if a patient has a dual diagnosis; has two
episodes of illness in one year; or is at risk of hospitalization. We
worked on this legislation because we understood Congressional wishes
to control utilization of this benefit. However, this benefit is
intended to improve patient care and exceptions should be made for
those patients who need the services and avoid costly inpatient
hospitalizations.
Second, separate the shared cap between speech-language pathology
and physical therapy services, and recognize in legislation the
independent services being provided by speech-language pathologists.
Because of misdirected interpretation of the BBA therapy cap provision,
there needs to be a distinction made--as a matter of law and public
policy--between the offering of speech-language pathology and physical
therapy services. As a provider, I treat people who have had strokes
relearn to swallow. More deaths result from asphyxiation following a
stroke than any other complication. As a provider, I treat people who
can not communicate. Relearning these skills is time consuming,
especially for a patient who has had a massive stroke or who have
Parkinson's Disease. These are services that are very different from
physical therapy. I urge this Committee to distinguish these types of
care and not force a patient to chose whether he or she will be able to
swallow or walk again because of the unintended consequence of this
combined cap on SLP and PT services.
Under current law, a speech-language pathologist can provide
services as an independent practitioner; however, they must send their
bills through either a physical therapist or a physician. This benefit
is in current law. We are merely asking that you establish us with the
same level of billing authority as physical and occupational
therapists. By function of law, this would then extend the current two
caps to three caps. Combining this with the Burr/Grassley legislation
allows for two important improvements:
(1) when patients are seriously ill, their care can continue
without the beneficiary having to pay out-of-pocket for services;
(2) for other patients seeking therapy services that do not fall
into this category, they would have $1500 cap in speech-language
pathology services; $1500 in physical therapy services; and $1500 in
occupational therapy services.
Mr. Chairman and Members of the Committee, on behalf of ASHA and
the other rehabilitation professional groups, we appreciate your
efforts to rectify the problems presented by the current therapy caps,
as well as the opportunity to discuss our views on this critically
important matter. We urge you to take action to remedy the unintended
consequences caused by the implementation of these arbitrary caps, and
we look forward to working with Congress and HCFA to fix these
problems.
Chairman Thomas. Thank you very much.
The gentleman from Louisiana, does he wish to inquire? I
know he has a time constraint.
Mr. McCrery. Yes, thank you, Mr. Chairman. I am trying to
catch a plane this afternoon.
Sister Keehan, is that how you pronounce your name, Keehan?
Sister Keehan. Yes.
Mr. McCrery. I was pleased that you pointed out a number of
areas where you thought the administration could provide some
relief through administrative action. Do you know to what
extent the American Hospital Association has pursued those
areas with HCFA and what kind of response you have gotten from
HCFA?
Sister Keehan. I can say very candidly that we have made
certain that HCFA and the administration know that these are
the areas we want addressed. To my knowledge, we haven't gotten
a formal response. I think all of them are under advisement,
but we haven't gotten a formal response.
We have made these known as an organization. We have made
them known as individual providers. We would like a response,
quite frankly. It is October 1.
Mr. McCrery. We would, too. Thank you.
Ms. Swigert or Mr. Hendrickson, with respect to the therapy
caps, just to give the Subcommittee some sense of the problem,
could one of you or both of you describe for us the kind of
therapy that, say, a stroke patient would need, and how much
that therapy would cost in relation to the caps?
Ms. Swigert. I think I could do most of that, except I am
not sure about the cost. I will see if somebody can help me.
It is a very good diagnosis, as an example, because almost
every patient who has a stroke needs all three therapies.
Physical therapy works on bed mobility, helping the patient
learn to sit, balance again, hopefully to walk, or at least be
mobile in a wheelchair.
Occupational therapy helps that patient learn to care for
themselves again, to be able to brush their teeth, comb their
hair, and dress, so they are not totally dependent on a
caregiver.
Of course, they are also going to need a lot of therapy for
both swallowing and communication. They need a lot of intensive
therapy, and certainly at least what the speech/language
pathologist can address typically for a stroke patient is
definitely going to exceed the $1,500 cap.
Mr. McCrery. Would you like to add to that, Mr. Henderson?
Mr. Hendrickson. I can add to that in that certainly stroke
is a wonderful example of where patients are going to
continually come up against the cap.
The stay under A for a stroke is normally a short period of
time, and normally the real rehabilitation time takes place
under B. In the case of most stroke victims, they would cap
without question under just simple rehabilitation of getting
over the condition. So that is a very excellent choice of
medical conditions, but most of them would be against the cap,
almost without question.
Mr. McCrery. Mr. Hendrickson, you noted that changes in
Medicare cut your reimbursement for medically complex patients
from $408 to $231 per day. Have you estimated your actual costs
for providing the level of service necessary for those
medically complex patients?
Mr. Hendrickson. Certainly we have, and it is considerably
higher than $231 a day, I will assure you of that.
I am glad you asked me the question, because we in our case
were affected by a double hit and probably an unintended
consequence of BBA. Being a facility who took over in 1997 with
no Medicare, the base period for that facility was very, very
low, so we find ourselves providing services today under a 25
percent implementation of PPS at $65 a day less than the
national average PPS rate. So we not only have the problem of
having high-intensity patients receive less money, but, because
of the base period, we are disadvantaged with another $70 or
$65 a day below the Federal rate.
But our costs to provide care to a patient like that would
be very, very comfortably in the range of about $300 to $310 a
day.
Mr. McCrery. Thank you, all of you, on the panel. I
appreciate your testimony.
Thank you, Mr. Chairman.
Chairman Thomas. Thank you. I also thank you for your
testimony.
We have a relatively limited objective in the attempt to
put this legislation together. I know it is a difficult job
representing your own particular interests, notwithstanding the
fact you are speaking for a larger group, and you have in front
of you the statements that the larger group wants you to make.
You are trying to get your position represented, as well. But
it is not real helpful for us in the kind of decisions that we
need to make when some of the testimony is reflected.
For example, Mr. Hendrickson, and I am glad you got into
that exchange with my colleague from Louisiana, I believe your
statement was, if funding is not restored. We are not going
back to pre-BBA. The idea that the position is to simply
abolish provisions makes it very difficult, because, in
essence, you are throwing yourself at the mercy of the Congress
to pick what it is we are going to do for you.
To the degree that you can, provide specific areas in which
we can make some adjustments, or, as Dr. Corlin, utilize the
Med-Pac recommendations, which I think go right to the
particular subject matter. And we are going to be, obviously,
looking at those very carefully. There may be some disagreement
over percentages or timelines, but the areas that have been
emphasized are areas that we can go to.
Sister Keehan, in your testimony I heard that you wanted or
you read that you wanted a floor or a stop loss. I don't recall
the statement of a delay. That obviously would have an impact
in which we don't impose it in the timeframe that was indicated
and that we buy some time or we stretch it out.
Sister Keehan. That was the opening sentence, Mr. Chairman.
Chairman Thomas. I apologize, then.
Sister Keehan. It should reverse its decisions to cut
outpatient payments. That is, until it can get to--AHA has been
supportive of a new method of payment, but even Med-Pac and
everybody today has said how terrible the data is. You don't go
to a new method of payment with such flawed data, and everybody
admits it. We are saying hold it until you get good data.
Chairman Thomas. The idea that it has to be a dollar amount
may be difficult in certain instances. Your best chance is to
give us as many specific items so we can kind of pick and
choose.
Ms. Bataillon, you did that, and I know that you emphasize,
because it is a fairly large sword hanging over your head, the
15 percent cut. But that is not scheduled to go in until
October 1, 2000. That is, for us, a fiscal year away.
You suggested a number of specifics. I am going to be
looking at those, things such as we know there is an enormous
disparity between States that get high payments and low
payments. We have created a kind of a blend structure that will
move to a national average.
I think it would be beneficial, because you are one of
those areas that have a low utilization, that you can, in fact,
move to the national average immediately, rather than waiting
for the phase-in.
Obviously, those above the national average are going to
want as long a glide slope as possible, but it seems to me
that, for the dollar amounts and to get assistance where it is
most needed, we ought to be able to allow those that are below
the national average to move to the national average. Those are
the kinds of things that we can do.
Ms. Swigert, the idea of reopening, creating the three
caps, makes some sense. I know my colleague from Maryland and
my colleague from Louisiana are talking about a diagnosis-
related payment structure. We may, in the time we are dealing
with it, instead of trying to create that structure, we might
perhaps at least at this stage create an outlier for a
percentage of the really high costs, whatever they may be, and
rather than pinning them in particular categories, getting
those out from under the cap, where they are relatively few and
very expensive, and then take another look at it.
As I had said earlier, and I know you folks have been kind
enough to stay here all day, this is going to be something we
are going to be doing periodically. It is especially difficult
because HCFA, in its commitment to all these measuring tools,
as soon as the law was passed, turned around and said, we
cannot produce them in the timeframe that we need them.
We plugged some numbers in. The $1,500 cap was an ASLHA
number. Combining the cap was arbitrary. We were trying to get
a handle on it. That may work for 6 or 9 months, certainly not
for 2 or 3 years.
So as you present information, go back over your testimony,
talk to your principals, I would say that if you have a list of
specific doables, and you believe them to be doable, fairly
specific, you have a better chance of getting into the package
that makes adjustments relatively quickly, rather than talking
about long-term programs that will redirect the Balanced Budget
Act. That will occur over time as the data comes in, but I will
repeat myself, the more specific, the more easily we can make
the change, the better chance you have.
Obviously, you want to do some money adjustments. Those can
be in there, but the dollar amount that we have, just look
across the dais here in terms of the broad-based interests that
you represent and the dollar amounts that we have available.
That is why at the beginning of the hearing I said we
needed to deal with real costs, where they need to go, and
short time lines. It doesn't do any good for us to offer you
some relief in 2004 if you are not going to be around. And,
frankly, Ms. Bataillon, given the history of the VNA, your
willingness to provide care for those who otherwise would not
get it has a significant impact on me when your poll shows that
people who are there because their heart and souls are there
are not going to be able to continue.
We need to make some immediate fixes and then pick up our
heads and talk about where we need to go over the next several
years, and we will walk ourselves through this adjustment
period. There is no question that the regs do not reflect the
acuity that we need. You have heard the testimony. HCFA said it
cannot adjust, we cannot create new regs, but we are going to
work on identifying the acuity areas so we can get money in
those areas that most appropriately need it, so that patients
do not get turned away or get denied needed coverage.
But it is not especially helpful if the immediate response
is, these are the resource utilization groups we want
increased, and all of them are rehab. That does not necessarily
reflect the acuity that we are looking for.
You need to understand, we have a relatively short time
line. The more specificity you give me, the more choices I have
available, the better the opportunity we can provide you with
immediate fixes to get us through this period so that HCFA
computers are up and running again and that we are getting data
coming in so we can make additional adjustments.
This is an ongoing process which, hopefully, continues to
lead upward, upward in terms of better programs, a little more
money, better information and better utilization of taxpayers
dollars.
I want to thank you very much for your willingness to wait
through the day and to provide us with excellent testimony, but
as much specificity as you can give us would be much
appreciated.
Does the gentleman from Maryland wish to inquire?
Mr. Cardin. Let me thank the panel for their testimony and
for their patience.
The issues that you have raised we have been questioning
during the course of this hearing. I agree with the chairman. I
hope we will be able to come up with some solutions during this
session.
Sister Keehan raised an issue I want to underscore,
graduate medical education. We have not had too much discussion
about that during this hearing. I would just remind the
chairman that I do have a bill in on graduate medical education
that not only deals with the problems our academic centers have
but we give the chairman about $6 billion over 5 years that he
could use if he needed some additional revenue.
I also like to make--he asked for some specific
suggestions. I thought we should put that one on the table.
Thank you all again for your testimony.
Chairman Thomas. I would tell the gentleman who represents
Johns Hopkins----
Mr. Cardin. The University of Maryland, also.
Chairman Thomas [continuing]. And the University of
Maryland that the system that has historically sustained
graduate medical education in this country simply on the backs
of the hospitals, and especially the Medicare payments, is a
system that cannot be sustained. You have been very creative in
looking for additional ways to fund it. Unfortunately, some of
those who are directly representative of those institutions
have only recently begun to understand that they have to come
forward, just as these individuals have, with very specific,
programmatic changes. We need the doable and not the desirable.
Hopefully, what you have given us is primarily doable and moves
us in the direction of the desirable.
Thank you very much. The hearing stands adjourned.
[Whereupon, at 3:05 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Academy of Family Physicians
The 88,000 members of the American Academy of Family Physicians
would like to provide the following comments on the impact of the
Balanced Budget Act of 1997 (BBA) on graduate medical education.
Included in this statement are the specific problems with the Act and
the Academy's recommendations for solving them. All of the relief the
Academy seeks can be achieved in the provisions of the Graduate Medical
Education Technical Amendments Act of 1998 (HR 1222), and we urge you
to include this bill in any legislation you craft to remedy problems
with the BBA. We are pleased that the House Ways and Means Subcommittee
on Health is reviewing how this significant law is impacting important
programs.
Background
The Academy has had a long-standing interest in graduate medical
education because of our commitment to a rational physician workforce
policy that both discourages an oversupply of physicians, and
encourages increased training of those physician specialties in short
supply. Our organization has produced and updated regularly a number of
policies on physician workforce issues, as well as specific GME
recommendations. Recently, the Academy undertook a year long process to
revise our physician workforce recommendations with the goal of
supporting efforts to ensure that all Americans have access to primary
care services; that the needs of underserved rural and urban
populations are met; and that evolving managed care delivery systems
have an adequate supply of an appropriate mix of primary care
physicians.
In addition, the Academy has long been concerned that graduate
medical education in the US is currently financed by the Medicare
program without sufficient incentives to reduce the oversupply of
physicians or ensure appropriate distribution of physicians by
geographic location and specialty. Although there are several harmful
consequences as the result of this disconnect between Medicare policy
and physician workforce needs, one of our primary concerns is the
imbalance between primary care and subspecialist physicians in this
country.
Changes Necessary as a Result of the Balanced Budget Act of 1997
In general, the Balanced Budget Act of 1997 contains several
graduate medical education policies advocated by the Academy for years.
The Academy supports a limit on the number of medical residents, and we
also support GME payments for training in non-hospital sites and the
carve-out of payments to teaching hospitals from the average adjusted
per capita cost. However, we have supported these policies in
conjunction with specific protections for needed primary care programs.
Such protections are absent from the law and regulations. In fact, the
only section of the Act that includes an acknowledgment of the
importance of primary care training programs is the demonstration
project, which allows incentive payments for voluntary reduction in
residents. Unfortunately, the Act has had serious consequences for
family medicine programs.
Following are recent data on how the BBA has affected family
medicine residency programs. The information was obtained by the
Academy and the Organizations of Academic Family Medicine.
The BBA '97 is causing family medicine residency programs
to reduce significantly their number of residents for the first time,
and to force an unusually high number of programs to close.
(According to the survey, 10% of all family medicine residency
programs have been asked to reduce their number of residents due to the
BBA, while 23% have been informed it is likely they will have to cut
back. This is the first year that programs have been forced to reduce
their number of residents; in 1990, there were 380 programs, a figure
that increased to 470 in 1998. In addition, at least five programs are
expected to close; the number is typically one or two per year. As a
result, the BBA has had a serious impact on family medicine residency
programs.)
A major purpose of the BBA was to encourage the growth of
rural training programs. Recent data indicates that family medicine
rural training ``tracks,'' programs that require residents to spend one
year in an urban facility and two years in a rural area, have an
exceptional retention rate: 76% of their residents remain in rural
areas.
(According to the survey, 29 of the nation's 474 family medicine
training programs (1999 figure) have established rural training tracks.
Remarkably, every graduate of one-half of the reporting programs was
practicing in a rural area, a 100% retention rate. Overall, 76% of the
graduated residents were serving rural communities. As a result, these
data indicate the success of these family medicine training programs,
programs that should be expanded and continued in any BBA ``fix''
legislation.)
In addition, other harmful effects of the Act are demonstrated in
the following results of a survey of family medicine training programs,
which was conducted by the Organizations of Academic Family Medicine.
56 percent of family medicine programs responding that
were in the process of developing new rural training sites have
indicated they will either not implement those plans, or are unsure of
their sponsoring institutions' continued support.
The majority of those family medicine programs that are
planning to decrease residency slots are the sole residency program in
a teaching hospital. (This means these family practice programs have no
alternative way of achieving growth such as decreasing other specialty
slots within the 1996 cap on positions.)
Due to significant training out of the hospital, most
family medicine residency respondents did not have their full residency
positions captured in the 1996 cost reports upon which the
reimbursement is based, causing a loss of Medicare revenue compared to
most other specialties that train almost exclusively in the hospital.
Recommendation
Following are the Academy's four recommendations for solving these
problems. These provisions are included in HR 1222.
Supporting Residency Training in Ambulatory Sites
HR 1222 would treat all hospitals sponsoring residency programs
fairly--not just those that were training residents in the hospital in
1996--by including those residents who were training in the community
in the cap. This provision would halt the reduction in numbers in
family medicine residencies and also stop the closure of these
programs.
As you know, the BBA capped the number of residency slots in an
institution, a number that determines the amount of indirect graduate
medical education funding (IME) the institution receives. Without
``resetting'' the caps, the residency programs that were training
residents in the community in 1996 will have their Medicare IME cap
lowered and receive less funding in subsequent years. Ironically, while
one intent of the Act was to encourage ambulatory training by providing
IME support after 1998, the Act inadvertently did not account for those
residents who were already training outside of the institution at the
time, such as family medicine residents. The Academy supports Medicare
funding for all residents training outside of the hospital.
Providing Limited Growth to Single Residency Program Hospitals
HR 1222 would allow hospitals that sponsor only one residency
program to increase their resident count by one per year, up to a
maximum of three, to meet community needs for primary care physicians.
Under the BBA, a hospital with several residency programs can move
positions from less popular subspecialty programs to high-demand
primary care programs, such as family medicine, to meet the residency
caps. By contrast, a hospital with only one program does not have this
option. Approximately 300 hospitals sponsor only one residency program;
191 are in family medicine.
Supporting Residency Programs Under Development
HR 1222 bill would allow a few, new, family medicine residency
programs that have long been under development to be established by
extending the cut-off date for new residencies. Specifically, any
residency programs that were approved after January 1, 1995, and before
September 30, 1999, could be set up.
The BBA set August 5, 1997, as the cut-off date for new
residencies, which had a disproportionate, negative effect on family
medicine residency programs because of the growth in these training
programs.
Meeting the Needs of Rural Communities
HR 1222 would permit the establishment of new, rural training
programs by allowing urban residency programs sponsoring these programs
to receive an exception to the caps (for the rural programs only.) As
referenced above, these programs have 76% retention rates.
The BBA capped all residency programs, but strongly supported the
establishment of rural programs. This provision clarifies the intent of
the Act by supporting the growth of rural programs.
Conclusion
The American Academy of Family Physicians appreciates the
opportunity to inform your deliberations on the impact of the BBA on
graduate medical education system. Thank you for the opportunity to
provide these comments.
Statement of David S. Holtzman, Esq., Director of Government Affairs,
American Association of Diabetes Educators, Chicago, IL
Dear Mr. Chairman and Honorable Members of the Subcommittee: On
behalf of the members of the American Association of Diabetes
Educators, we appreciate the opportunity to share with you our concerns
regarding implementation of the ``Expanded Coverage for Outpatient
Diabetes Self-Management Training Services.'' In our view, the promise
of substantial expansion of Medicare beneficiary access to outpatient
diabetes education training services and the savings to Medicare that
would result from reduced long term expenditures for medical care and
hospitalizations have gone unfulfilled. Opportunities exist for
legislative action by Congress as well as action by the Administration.
The AADE is a professional association comprised of over 11,000
health care professionals nationwide from a variety of disciplines who
provide direct patient care to people with diabetes in a variety of
settings.
AADE was proud to play a leading role in the development of the
landmark legislation directing the Health Care Financing Administration
to provide expanded benefits for outpatient diabetes self-management
training services through the Medicare program. This comprehensive
improvement in access to diabetes self-management education could
provide millions of dollars in long-term savings for Medicare and other
federal health programs by providing people with diabetes the means and
the knowledge to stay healthy and avoid medical complications.
A General Accounting Office report found that at least 1 in 10
Medicare beneficiaries is diagnosed with diabetes and that it is that
up to 25 percent of all Medicare costs go to treat diabetes or its
complications. [Medicare: Most Beneficiaries With Diabetes Do Not
Receive Recommended Monitoring Services. GAO/HEHS-97-48, March 1997].
Studies conducted in this country and abroad have shown that if
people with diabetes manage their disease through keeping their blood
glucose levels within acceptable ranges it can significantly reduce
healthcare costs. People with diabetes establish good control over
their diabetes by learning how to monitor their blood glucose levels
and to lower or maintain good control through a combination of behavior
modification, learning the principals of good nutrition, and often
medication. People who establish good control over their diabetes can
largely avoid the expensive hospitalizations that can result from
uncontrolled diabetes and the life threatening complications that
result if the disease is not well controlled.
However, the expected savings to the Medicare program have not been
realized because the road to implementation of the expanded benefits
for the diabetes education benefit has largely gone unfulfilled. HCFA
has largely failed to implement the benefit in a timely or coordinated
manner. The BBA directed HCFA to implement the expansion of coverage
for outpatient diabetes education and training services as of July 1,
1998.
Earlier this year the agency proposed rulemaking attempting to
implement the expanded benefit. [Outpatient diabetes self-management
training services; expanded coverage. Federal Register, Vol. 64, No.
28, Feb.11, 1999 6827-6852] The proposal was highly controversial and
met with almost universal condemnation by providers and patient groups
in the diabetes community.
The provisions of the proposed rule were widely criticized as
establishing excessively restrictive eligibility qualifications on
which seniors with diabetes could receive self-management education
along with unrealistic limits on the type of services and the providers
to be deemed qualified by HCFA.
AADE is extremely concerned that HCFA's proposal to establish
onerous requirements for HCFA-approved providers will dramatically
reduce the number of diabetes education programs that are eligible to
provide services to Medicare beneficiaries and severely limit access to
diabetes education services. HCFA estimates that some 750 ``approved
entities'' will be authorized to provide outpatient self-management
training services once the final rule is in place. This is wholly
inadequate. Far more diabetes educators will need to participate as
Medicare providers in order to meet the goal of the legislation.
The proposed limits on program length and format of the diabetes
education also do not provide adequate flexibility to enable Medicare
beneficiaries with diabetes to receive the full benefit of this
program. HCFA's decision to set the maximum lifetime benefit at 10
hours with a potential of one additional hour per year upon physician's
order is inadequate. And, except in exceptional circumstances all
patient education must be offered in a group setting. The HCFA proposed
patient eligibility requirements for diabetes education fail to
recognize that diabetes is a disease that requires constant monitoring
and frequent alterations to a patient's treatment and education plan.
Finally, the standards for diabetes education should be formed with
the involvement of the diabetes community so that the means used to
assure program quality does not become a barrier to access. HCFA's
proposal would have the agency be the final arbiter of national
standards that are developed by the leading organizations representing
patients and providers in the diabetes community.
This controversial HCFA proposal generated a firestorm of criticism
including over 1350 comments to the agency during the proposal's 60 day
review period letter. Additionally, a letter signed by 117 members of
this House urged HCFA to make real and substantive changes to the
agency proposal consistent with the concerns raised by AADE and other
members of the diabetes community.
In the absence of formal HCFA rulemaking determining the provisions
and procedures of the new diabetes benefit, the agency has put into
place national coverage policies to guide intermediaries and carriers
who process claims submitted by patients and service providers for
outpatient services under Part B of the Medicare Program. These
``temporary'' policies have been in effect for over 15 months.
The national coverage policies put into place are substantially
similar to the plan subsequently proposed by HCFA in its February 1999
proposal. As a result the intended expansion of access to quality
diabetes self-management education has been stymied because prospective
providers cannot meet HCFA's onerous requirements. Further, existing
providers are threatened because they too will not be able to meet the
burdensome standards proposed by the agency.
The end result is that many Medicare beneficiaries have been
blocked from access to the needed diabetes education services that
Congress identified as being crucial in reducing the costly
expenditures for diabetes and related complications because HCFA's
policies have prevented qualified providers from participating in the
Medicare program.
Along with the challenges created by the Administration in
implementation of the Expanded Coverage for Outpatient Diabetes Self-
Management Training Services, the text of the authorizing legislation
has created an obstacle for diabetes educators seeking to provide
services to Medicare beneficiaries, effectively preventing the
providers uniquely qualified to provide diabetes education services
from participating in the Medicare program. We urge the Congress to
pass legislation which would permit Certified Diabetes Educators to be
eligible as providers of diabetes self-management education and
training services to Medicare beneficiaries.
Section 4105 of the BBA expanded Medicare, Part ``B'' to include
coverage for Diabetes Outpatient Self-Management Training Services
furnished by a Certified Provider in an outpatient setting; and, by an
individual or entity meeting the quality standards established by the
Secretary of Health and Human Services.
Section 4105 defines a Certified Provider to be a physician, or an
individual or entity that in addition to providing diabetes outpatient
self-management training services, provides other items or services
payable under the Medicare program. However, very few diabetes
educators provide any other service to Medicare. This definition of
Certified Provider has effectively prevented diabetes educators from
expanding their practices into facilities outside the hospital setting.
The goal of the BBA was to encourage vital and lifesaving diabetes
education services to be available to Medicare beneficiaries in
delivery systems beyond the walls of the hospital. The tragedy is that
the same educator who is providing the services to patients inside the
hospital is prevented from participating in the Medicare program when
moving the practice setting into the physician's office. While the BBA
permits individuals and entities without any prior connection or
experience treating people with diabetes to be reimbursed the
healthcare professionals with the most expertise cannot be reimbursed.
Including CDEs as a Certified Provider broadens access for Medicare
beneficiaries to receive diabetes outpatient self-management training
services through health professionals with demonstrated expertise to
deliver quality diabetes education services. The health professional
holding the CDE credential has met specific and rigorous eligibility
criteria, including academic preparation, practice experience and
passage of a written examination. There are approximately 10,500 CDEs
in the United States, distributed throughout every state. As a group,
CDEs are comprised of health professionals trained in many disciplines
including registered nurses, registered dietitians, registered
pharmacists and physicians. Recertification of the credential is
required every 5 years. No other provider group, individual or entity
currently recognized as a Certified Provider meets this standard.
Our members respectfully urge the Committee to impress upon the
Administration the need for swift and decisive action by HCFA to
implement the Expanded Coverage for Outpatient Diabetes Self-Management
Training Services consistent with the recommendations made by this
organization and the other organizations within the diabetes community.
Further, we urgently request that Congress pass corrective legislation
to amend section 4105 of the BBA to permit Certified Diabetes Educators
to participate as providers in the Medicare program.
We thank Chairman Thomas and the members of the Subcommittee for
their leadership and support of quality diabetes care. We look forward
to working closely with the members and their staff in finding
solutions to the serious challenges that face the Medicare Program.
Statement of Len Fishman, President, American Association of Homes and
Services for the Aging
The American Association of Homes and Services for the
Aging (AAHSA) is pleased to present written testimony to the
House Ways and Means Health Subcommittee on the revisions that
must be made in the 1997 Balanced Budget Act's provisions that
apply to long-term care providers. As members of Congress are
realizing, deep cuts in Medicare funding for skilled nursing
facilities have had unintended consequences that are severely
affecting vulnerable Americans residing in our nation's skilled
nursing facilities. We welcome the opportunity to provide input
and comments to the Subcommittee about how we can better serve
the aging population.
AAHSA is a national non-profit organization representing
more than 5,300 not-for-profit nursing homes, continuing care
retirement communities, assisted living and senior housing
facilities, and community service organizations. More than half
of AAHSA's members are religiously sponsored and all have a
mission to provide quality care to those in need. Every day
AAHSA members serve one million older persons across the
country.
The Balanced Budget Act of 1997 was intended to rein in the
growth of Medicare expenditures on post-acute care by
encouraging providers to become more efficient. However, the
ways in which the new payment systems have been implemented
have had unintended consequences for Medicare beneficiaries
receiving care from skilled nursing facilities and home health
agencies.
Skilled Nursing Facilities
In 1997, the Balanced Budget Act was expected to save $9.5 billion
over five years from Medicare funding of skilled nursing facilities by
changing the payment system from a cost-based reimbursement to a
prospective payment system that reimburses for care based on residents'
needs. This new system reduced Medicare spending on skilled nursing
facilities by 17 percent. The prospective payment system for skilled
nursing facilities provided payment rates for the average cost of
providing care to patients based on defined Resource Utilization Groups
(RUG-IIIs). The system that went into effect July 1, 1998 is being
phased into national rates over four years. Under prospective payment
system rates, skilled nursing facilities are reimbursed for the bundle
of all Medicare Part A and Part B services provided to residents
covered under a Part A stay. This forces the skilled nursing facility
to act as a prudent buyer of services and to provide cost effective
care. The efficiency encouraged by the prospective payment system was
expected to account for the 17 percent reduction in funds.
In developing the prospective payment rates for the RUG
classifications, non-therapy ancillary services such as prescription
drugs, ventilator care, wound care and prosthetics represented
approximately 43 percent of the nursing component. Whereas the nursing
component costs were developed with staffing time measurements within
the RUG-III classification system, non-therapy ancillary costs were
lumped into the RUG-IIIs without regard to the type, amount, and cost
of the services required and provided to patients within each grouping.
HFCA has a contract for research to modify the RUG-III classification
of non-therapy ancillary costs. However, the research is not expected
to be completed until early 2000 for changes to be in effect by October
2000.
AAHSA does not oppose the prospective payment system, because we
recognize the need to control the growth of Medicare costs. However,
the RUG-III payment rates that HCFA developed do not accurately reflect
some important costs involved in providing essential care to nursing
facility residents. At the time the Balanced Budget Act was considered,
Congress recognized that payment rates must be sufficient to meet the
needs of nursing facility residents with complex conditions. The
conference report on the Balanced Budget Act stated, ``It is the intent
of the Conferees that the Secretary develop case mix adjusters that
reflect the needs of such patients,'' (House Report 105-217, page 758).
The RUG-III payment rates that are now in effect do not meet this
criterion for medically-complex residents.
As not-for-profit providers, AAHSA members are driven primarily by
the goal of fulfilling their mission of providing high-quality medical
care to their residents. Furthermore, nursing facilities, unlike all
other health care providers, are subject to federal quality standards
under the Omnibus Budget Reconciliation Act of 1987, which requires
skilled nursing facilities to maintain every resident at his or her
highest practicable level of functioning. This requirement limits the
degree to which skilled nursing facilities can achieve efficiencies by
cutting costs.
Many AAHSA members now are in a difficult position. On the one
hand, their mission and legal obligation is to provide as much care as
is necessary to achieve and maintain a resident's highest level of
functioning. On the other hand, there is a large discrepancy between
the per diem rates that Medicare pays and the actual cost of caring for
medically-complex residents. While AAHSA members do not have to show a
profit, there is a limit to the amount of losses that they can absorb.
Although the prospective payment system has been in effect for just
over a year, we are hearing increasingly from skilled nursing
facilities that have had to dip into endowments or step up charitable
fundraising in order to subsidize the care of Medicare residents with
complex needs. These funding sources generally have been reserved for
other needy residents who have exhausted their personal financial
resources, and to supplement reimbursements under the Medicaid program,
which also does not pay its fair share of the cost of care. Having to
use charitable funds to supplement inadequate Medicare reimbursement
puts a severe strain on nursing facilities' ability to serve all of
their residents.
Because of the flaws in the way the RUG-III categories were
designed, Medicare spending on skilled nursing care is falling below
the levels that facilities can absorb by becoming more efficient. In
fact, it appears that the way in which the prospective payment system
has been implemented will cut the growth of Medicare spending far more
than the $9.5 billion that originally was projected. Although the
numbers are still being reviewed as to whether more money than expected
have been removed from skilled nursing facility services, the fact
remains that vulnerable residents in need of quality skilled care in
nursing facilities are being hurt by the unintended consequences of the
budget cuts.
In addition to lower funding than is needed to provide quality
care, the distribution of funds is also inequitable. The prospective
payment system's payment rates according to RUG-III are averages.
Individual residents of a skilled nursing facility rarely consume the
average cost of nursing, therapy and non-therapy ancillary services.
Some require less, others slightly more, which averages out. However, a
few residents require substantially more care and services, and thus
significantly higher costs, than ever expected for the average
resident. Most of the excessive costs are for non-therapy ancillary
services. Examples of medically complex patients requiring
extraordinarily expensive non-therapy ancillary costs include the
following:
In Michigan, a skilled nursing facility provided over
$80,000 in intravenous medications to a resident with cancer who was in
the facility for 27 days. Of that amount, Medicare paid less than
$10,000.
A skilled nursing facility that treats residents with AIDS
provides each of them with an extensive battery of medications whose
daily cost exceeds $450; whereas the Medicare payment is less than $200
per day for each resident.
A skilled nursing facility in rural Wisconsin had to close
down its ventilator care unit because Medicare reimbursement fell to
half of the actual cost of providing the services. The facility could
not refuse to provide the care just to Medicare patients, since that
would have constituted illegal discrimination under federal law, so the
facility was forced to stop providing ventilator care to anyone. This
facility had been the only provider of ventilator care in a large
geographic area that covered several counties and portions of three
states. As a result, many patients who were ready to leave hospitals in
the vicinity but who needed ventilator care had to remain in the
hospital because they had no other access to the care they needed.
After providing wound care at a cost of over $200 a day
for a resident who had had an amputation, a skilled nursing facility
provided him with a prosthetic device costing over $9,500 so that he
could maintain the greatest degree of independence possible. Medicare
reimbursed his care at less than $200 per day.
A facility admitting a resident who needs renal dialysis 3
to 4 times a week will incur ambulance costs for each trip and will
receive only $145 per day.
As indicated by these examples, the new reimbursement system
imposes large shortfalls on skilled nursing facilities that serve
patients needing expensive non-therapy ancillary services. Most
facilities cannot absorb the large losses that the new reimbursement
system imposes on an indefinite basis.
Recommendations
Restore a limited amount of Medicare funding to skilled
nursing facilities: As noted above, HCFA's implementation of
the Balanced Budget Act is resulting in far greater spending
cuts in skilled nursing than were projected when the law
originally was passed. Excessive cuts in skilled nursing
facility reimbursement should be mitigated by eliminating the
minus one percent reduction in the market basket adjustment of
the base year for the fiscal years after 1995.
Add limited amounts of reimbursement, on a temporary basis,
to the RUG III categories that represent medically-complex
residents: For the most part, the reimbursement rates under the
prospective payment system roughly equate to the actual cost of
providing care, and modest shortfalls average out with
correspondingly modest higher payments. In some RUG III
categories, however, inadequate accounting for non-therapy
ancillary costs has led to a severe discrepancy between
reimbursement rates and the actual costs of care. These
categories need a temporary adjustment for the next several
months until HCFA's current research is completed and the
agency is able to make a permanent revision in the rates to
make a more appropriate allowance for non-therapy ancillary
costs.
Based on AAHSA's analysis of SNF PPS claims, medically
complex residents are classified into a variety of RUG-III
categories. All the residents classified into the extensive
services and special care RUG-III categories are medically
complex with very high non-therapy ancillary cost per day. This
is supported by a study conducted by Abt and Associates that
was funded by HCFA. The Health and Human Services Office of
Inspector General recently reported that hospital patients in
the extensive services and special care categories had
difficulty gaining placement in skilled nursing facilities. In
addition, medically complex residents who receive therapy often
are classified into one of the rehabilitation RUG-III
categories. According to AAHSA's research, most residents in
the medium and high rehabilitation RUG-IIIs have non-therapy
ancillary costs per day that exceed the amount reimbursed. The
RUG-III groups deserving limited add-ons to the PPS rates
include: SE3, SE2, SSC, SSB, SSA, RMC, RMB, RHC, RHB, RVC, RVB,
RUB.
Carve extraordinarily expensive services out of the
prospective payment system: The majority of services that are
extraordinarily costly, beyond the ability of a skilled nursing
facility to average out under the prospective payment system,
fall into three areas: infusion drugs, especially those used
for chemotherapy; custom-fit, lower-limb prosthetics; and
ambulance transportation for residents needing kidney dialysis.
While the prospective payment system averages the cost of these
services among all skilled nursing facilities, the individual
facility that provides these services experiences catastrophic
costs that the PPS rates based on average reimbursement cannot
possibly cover. These services represent a small percentage of
all skilled nursing care, but their costs are so high that they
can adversely impact an individual facility or cause severe
access problems to Medicare beneficiaries requiring these
services.
Include the Part B add-on in the facility-specific rate for
facilities in states that participated in the case-mix
demonstration: Under the Balanced Budget Act, Congress
attempted to establish an equitable transition period for
facilities in states that took part in the Multistate Nursing
Home Case-Mix and Quality Demonstration project. During the
demonstration, Medicare Part A residents received ancillary
services billed to Medicare Part B that should have been
reflected in the facility-specific rate under PPS. However,
HCFA has interpreted the law to exclude these Part B costs from
the facility-specific rate. As these cost are bundled into the
PPS rates, excluding the Part B add-on from the facility
specific rates means reimbursements that do not cover the cost
of services for facilities in the demonstration states. In
evaluating the comments that it received on various aspects of
the prospective payment system, HCFA noted that, ``a Part B
add-on to the facility-specific rate for providers
participating in the NHCMQD in 1997 could well be an
appropriate payment policy in light of the historical
circumstances.'' HCFA has concluded, however, that the specific
language of the BBA precludes the agency from implementing a
reasonable treatment of Part B costs in the transition formula
for facilities in the demonstration states. Congress must
correct this inequity by including the Part-B add-on in the
facility-specific rate for these nursing facilities.
Skilled nursing facilities--therapy caps
Effective January 1, 1999, the Balanced Budget Act limits Medicare
beneficiaries to an annual beneficiary cap of $1,500 for physical
therapy which includes speech-language pathology and a separate $1,500
cap for occupational therapy. The only exception is unlimited
rehabilitation services from an hospital outpatient facility.
Beneficiaries living in the community have the option of switching
from an independent therapist to a hospital outpatient facility. .
Residents of a skilled nursing facility, on the other hand, may not
receive therapy in any other setting or by another provider other than
the skilled nursing facility. The therapy cap is a restriction based on
where the Medicare beneficiary resides and receives rehabilitation
services, and it therefore discriminates against residents of skilled
nursing facilities.
Medicare beneficiaries in skilled nursing facilities require
rehabilitative services to restore and maintain functioning that might
enable a return to the community or enhanced quality of life. Residents
of a skilled nursing facility are limited as to where they may receive
therapy by the very nature that they required placement in a skilled
nursing facility. The Part B therapy caps place unfair and unrealistic
limitations on services available to these Medicare beneficiaries.
Nursing home residents often have multiple co-morbidities or multiple
episodes that require more therapy than the cap allows.
The therapy caps have imposed severe reimbursement shortfalls on
nursing facilities that compound the problems resulting from the
prospective payment system. Federal nursing home quality standards
mandate that nursing facilities provide whatever therapies are
medically necessary in order for residents to regain and maintain their
highest practicable level of functioning. Nursing facilities therefore
are forced to absorb the cost of providing medically-necessary therapy
services that exceed the Medicare caps.
Recommendation
AAHSA strongly urges Congress to pass S. 472 and H.R. 1837,
legislation to ease the therapy caps for Medicare beneficiaries in
nursing facilities who encounter multiple episodes or who have multiple
conditions requiring physical, speech, or occupational therapy.
Home Health Reimbursement
The combined effects of the Balanced Budget Act of 1997, Operation
Restore Trust, and the Omnibus Reconciliation and Appropriations Act of
1998 have left Medicare-certified home health services in turmoil.
Reimbursement levels were severely cut by the interim payment system;
numerous federal agencies are strongly scrutinizing the industry for
fraud; and adjustments made last year to the interim payment system
provide little relief to home health agencies, especially those that
care for the sickest beneficiaries.
The home health interim payment system that was included in the
1997 Balanced Budget Act significantly lowered the reimbursement level
for home health agencies for cost reporting periods beginning on or
after October 1, 1997. At the time of its passage, Congress and the
Administration calculated that the interim payment system would cut $16
billion in home health expenditures over a five year time period. This
past March, the Congressional Budget Office (CBO) determined that the
savings will approximate $79.1 billion over five years. It therefore
appears that home health savings over the 5-year period will far exceed
the $16 billion target.
Reimbursement was cut so low by the interim payment system that
small, rural and/or traditionally cost-efficient agencies (those
already providing the fewest visits and services that were medically
necessary, most often not-for-profits) are being forced out of
business. Furthermore, many agencies' ability to care for sicker
patients in need of complex services or multiple visits have been
severely restricted. Adjustments made to the interim payment system in
1998 were too late to prevent the demise of approximately 14 percent
(1,261) of the nation's home health agencies, as recently reported by
the GAO (GAO/HEHS-99-120). More will fail this year without additional
relief. HCFA's OSCAR data through mid-August of this year indicates
that 2,486 home health agencies have closed, up from 554 agency
closures in June 1998.
While AAHSA appreciates the finding of the aforementioned GAO
report, Medicare Home Health Agencies: Closures Continue, With Little
Evidence Beneficiary Access Is Impaired: ``home health agency closures
due to implementation of the interim payment system are consistent with
interim payment system incentives to control utilization,'' AAHSA
remains concerned that the data analyzed for the study does not reflect
the current status of home health access. Unfortunately, this study
used beneficiary utilization data from the first quarter of 1998 and
compared it to similar data in 1994 and 1996. While this was the best
available data at the time, we urge Congress to request further study
as more reliable, up-to-date data becomes available. We also must
recommend that Congress continue to hear from beneficiaries and their
caregivers as to how all of these changes are affecting their access to
home health services, keeping in mind that consumers may have a limited
understanding of the Medicare home health benefit's eligibility and
coverage guidelines.
AAHSA members surveyed earlier this spring reported various effects
of the implementation of the Balanced Budget Act across the continuum
of care. Our members who provide home health services are experiencing
declines in admissions either because hospitals with captive home
health agencies are not referring patients to other home health
agencies, or due to fears associated with inappropriate referrals from
doctors, an outgrowth of the intensified scrutiny from Operation
Restore Trust. Moreover, AAHSA home health members report decreases in
their home health reimbursements under the interim payment system
ranging from 10 to 33 percent.
The home health interim payment system must be adjusted so that the
medically complex, sickest beneficiaries do not lose access to care. At
the same time, HCFA must work with home health providers to assure that
their upcoming introduction of a home health prospective payment system
is fair to all stakeholders including the beneficiaries and the federal
budget. We must assure quick implementation of a new home health
prospective payment system that does not penalize cost-efficient home
health agencies or that creates competitive disparities among agencies.
Recommendations
While the interim payment system is in effect, Congress must amend
it to assure access to beneficiaries by providing relief to home health
providers. AAHSA urges Congress to:
1. Eliminate the additional 15% cut due in Oct. 2000
2. Establish an outlier for medically complex beneficiaries
3. Provide IPS overpayment relief
4. Revise per visit limits to at least 108% of the national median
While there are at least eight bills under consideration in the
House addressing the home health interim payment system, AAHSA urges
you to consider bills introduced which address these items including
Rep. Emerson's H.R. 2744, Reps. Riley and Etheridge's H.R. 2546, Reps.
McGovern, Coburn and Weygand's H.R. 1917, and Rep. Watts' H.R. 2628.
Conclusion
In the long run, the new Medicare prospective payment systems for
skilled nursing facilities and home health providers will help to slow
the growth of Medicare spending by making post-acute care more
efficient. The ways in which these systems have initially been
implemented, however, have resulted in larger spending reductions than
Congress intended and in sizeable discrepancies between Medicare
reimbursement rates and the actual cost of providing care. These
discrepancies pose serious difficulties for not-for-profit skilled
nursing facilities and home health agencies that already have been
providing high quality care in an efficient manner.
Not-for-profits cannot provide services indefinitely when the
reimbursement they receive falls far short of the actual cost of
providing the care and results in significant financial losses to the
provider. Medicare beneficiaries with complex needs already are having
some difficulty in accessing care; these access problems are likely to
worsen if changes are not made in the reimbursement rates. Some funding
must be restored to Medicare post-acute care, and adjustments in the
prospective payment rates must be made in order to ensure the continued
availability of post-acute care not only to Medicare beneficiaries, but
to the wider community as well.
Finally, Congress must keep in mind that when the government does
not pay its share of the cost of care, beneficiaries of government
programs will not be the only ones to have difficulty obtaining
services or to receive inferior care. Health care providers cannot
discriminate against Medicare beneficiaries in either the nature or
quality of services they provide. As reimbursement rates fall too far
below the costs of providing care, providers are likely to drop out of
the Medicare program or discontinue certain services for any patients,
no matter what kind of insurance coverage they have. Evidence of this
is occurring within the home health industry. If health care providers
are forced to cut corners to keep their costs at levels that will be
reimbursed, these quality reductions will affect all of their patients,
not just those covered by Medicare. Unless the problems that have
arisen under the Balanced Budget Act are corrected, the quality and
availability of health care services for all consumers, not just
Medicare beneficiaries, will be affected.
Statement of American Clinical Laboratory Association
The American Clinical Laboratory Association (``ACLA'') is
pleased to have the opportunity to submit this statement with
regard to the Subcommittee's consideration of issues related to
the Health Care Financing Administration's (``HCFA'')
implementation of the Balanced Budget Act of 1997 (``BBA'').
ACLA is an association of independent clinical laboratories
located throughout the United States, whose members account for
over half the laboratory services furnished by independent
laboratories. All ACLA members are directly affected by certain
provisions of the BBA pertaining to coverage and payment for
clinical diagnostic laboratory tests. In our statement, we will
review the impact of various BBA provisions on clinical
laboratories, including a key provision that has yet to be
implemented; discuss the current status of BBA reforms as they
apply to laboratory services; and provide ACLA's view on
possible action.
The BBA introduced sweeping changes to the Medicare
program, representing some of the most extensive reforms since
the enactment of Medicare in 1965. The BBA also recognized the
importance of greater uniformity in regulations and payment
policies applicable to laboratories. Policy differences among
local carriers had created significant problems for
laboratories, especially those that operated in more than one
state. Because of these differing policies, Medicare may pay
for testing in one state but not in another. In fact, two
physicians practicing across the hall from one another could
each order the same laboratory tests and put down the same
information on the requisition; yet, one carrier would pay for
the testing, while another would not. In some cases, this would
result in one patient having to pay for testing that would be
covered by Medicare somewhere else. Obviously, this is grossly
unfair to Medicare beneficiaries.
The BBA adopted a two-part strategy to remedy this problem.
First, it required HCFA to develop uniform coverage and
administrative policies for laboratory tests using a negotiated
rulemaking process. Second, it proposed to reduce the number of
carriers processing clinical laboratory claims in order to
facilitate more uniform claims processing. While HCFA has acted
to implement the negotiated rulemaking provisions, it has taken
no action on the regional carrier requirements.
HCFA convened the negotiated rulemaking committee required
by the BBA in July 1998. This Committee, which included
representatives of the laboratory and medical community and
HCFA, was charged with developing uniform coverage,
administration and payment policies for laboratory tests
payable under Part B of the Program. The BBA required that
these national policies be ``designed to promote program
integrity and national uniformity and simplify administrative
requirements with respect to clinical laboratory tests.''
In August 1999, the negotiated rulemaking committee
completed work on a draft notice of proposed rulemaking. That
document will include over 20 national policies covering about
half the volume of clinical laboratory tests, which will help
reduce the disparity in the treatment of clinical laboratory
tests. The negotiated rulemaking committee's work is a major
step toward the goal of increasing uniformity. ACLA applauds
HCFA and the other members of the committee for their hard work
in completing this process.
It will, however, be at least two years before the
rulemaking is final and its policies are effective. In the
interim, differences in carrier policies will continue to
present inequities in the treatment of laboratories and
Medicare beneficiaries. Even after the policies are effective,
however, local carriers will have wide discretion in the
development of payment and claims processing policies, so long
as their local requirements do not conflict with national
coverage policies. Disparities in how claims for laboratory
testing are processed and reimbursed are, therefore, likely to
continue. For example, ACLA is aware of a situation where one
laboratory lost a significant contract to another laboratory
because the first laboratory was in a jurisdiction where the
carrier required significant documentation for all laboratory
testing. The carrier for the jurisdiction where the other
laboratory was located required less documentation. Because the
laboratory has to obtain the documentation from the physicians
ordering the tests, the physicians decided to switch to the
other laboratory to avoid these more onerous documentation
requirements.
It was to resolve these types of differences that Congress
included the second provision in the BBA--the regional carrier
provision. The provision, section 4554(a) of the BBA, requires
HCFA to reduce the number of carriers processing laboratory
claims from the current 34 to no more than five. One carrier in
each region would be responsible for processing laboratory
claims under Part B of the Medicare program. The purpose of
this provision was to reduce the differences in the various
rules applicable to laboratory claims. The BBA called for this
provision to be in place by July 1, 1999.
Despite the statutory requirement, HCFA has failed even to
initiate the process of designating regional carriers.
Moreover, it has not provided any explanation or justification
for the delay. In 1998, the Administration included a proposal
to repeal the regional carrier provision. Congress, however,
rejected the Administration's proposal to repeal the regional
carrier provision. In fact, the House Appropriations Committee
report specifically directed HCFA to recognize the
establishment of regional carriers as a priority. Nonetheless,
no action has been taken on this provision.
The administrative simplification provisions of the BBA
were designed to work in tandem to achieve greater uniformity
in the process of clinical laboratory testing--a goal that
would ultimately redound to the benefit of laboratories,
physicians and most of all beneficiaries. Such a result would
reduce the costs of claims processing, increase predictability
concerning what testing would be paid for, and eliminate
unnecessary regulatory burdens. Congress implemented a two part
strategy to achieve this aim--uniform policies through
negotiated rulemaking and regional carriers. While HCFA has
almost completed work on the first piece, it has yet to start
on the second. ACLA strongly urges the Subcommittee to direct
HCFA to implement the regional carrier provision.
ACLA appreciates the opportunity to comment on these
issues. We would be happy to work with the Subcommittee on
helping resolve any of these issues.
Statement of American College of Physicians-American Society of
Internal Medicine
The American College of Physicians-American Society of
Internal Medicine (ACP-ASIM), representing over 115,000
internal medicine physicians and medical students, appreciates
the opportunity to comment on needed refinements to the
Medicare provisions of the Balanced Budget Act of 1997 (P.L.
105-33). Our membership includes practicing physicians,
teaching physicians, residents, students, researchers, and
administrators who are directly affected by provisions of the
BBA. We are particularly concerned about provisions that
undermine the financial viability of our nation's teaching
hospitals, imperil the educational mission of teaching
hospitals, threaten the provision of care to underserved
populations, and jeopardize our nation's medical research
enterprise. This statement addresses three areas impacted by
the BBA: cuts in Medicare payments for the indirect costs of
graduate medical education (IME), refinements in calculations
of physician payments for Resource-Based Practice Expenses
(RBPE), and the Sustainable Growth Rate (SGR) System for
Medicare Part B.
Indirect Graduate Medical Education Payment Reductions
Under the BBA, Medicare adjustments for indirect medical education
expenses (IME) are scheduled to be reduced from the 1997 level of 7.7%
for every 10 percent increment in a hospital's resident-to-beds ratio
to 7.0% in FY 1998; 6.5% in FY 1999, 6.0% in FY 2000, and 5.5% in
FY2001 and thereafter. Medicare IME payments were designed to reimburse
teaching programs for the added costs of supervision, caring for
indigent patients, overhead, and other costs associated with an
educational environment. Teaching hospitals often serve as providers of
health care for inner-city populations that otherwise are underserved.
They provide substantial amounts of uncompensated care for poor and
indigent patients. Graduate medical education is the linchpin for these
inner-city ``safety net'' hospitals, and they cannot survive if their
educational programs are not adequately funded.
The BBA reductions in Medicare IME payments to teaching hospitals
were originally estimated to save $5.6 billion between 1998 and 2000.
However, indications are that the cuts from the BBA are much greater
than anticipated. The BBA was expected to reduce payments by $103
billion over five years (1998-2002). However, two years into BBA's
implementation, estimates now place its impact at $191.5 billion, 86
percent more than originally anticipated. These excessive cuts will
further jeopardize the survival of teaching hospitals and their
programs of graduate medical education.
Cutbacks in Medicare funding and the growth of managed care in both
the public and private sectors threaten the viability of many teaching
hospitals. A recent study of the impact of Medicare BBA reductions by
the Lewin Group indicates that hospitals will lose an average of 4.4
percent on Medicare charges by 2002. Without relief from the BBA cuts,
70 percent of all hospitals will lose money on Medicare charges by
2002. The typical teaching institution will lose $47 million in
Medicare reimbursements between 1998 and 2002. Without change the
scheduled BBA reductions will cut funding for the typical teaching
hospital by $12.6 million in the year 2002 alone. Urban hospitals
typically lost money on Medicare charges in 1999, and will lose 4.0
percent in 2002. Rural hospitals began losing money on Medicare charges
as early as 1996, and without modification of BBA will lose 7.1 percent
in 2002. In this increasingly competitive environment, academic health
centers face decreased payment for services, decreased volumes of
clinical services, and loss of market share. Meanwhile, they continue
to treat the most severely ill patients and care for the poor and the
indigent.
The BBA cuts also jeopardize our nation's medical research
enterprise. In addition to caring for patients and educating the next
generation of physicians, medical schools and teaching hospitals serve
as the crucible for much of the nation's medical research. By combining
research with medical education and clinical care, teaching hospitals
help translate the promise of scientific discovery into better health
and improved quality of life for all Americans. Medicare BBA cuts
undermine the ability of teaching hospitals to perform this vital
mission.
The American College of Physicians-American Society of Internal
Medicine urges the Subcommittee to stop further implementation of the
BBA reductions in Medicare IME adjustments. Freeze the cuts at the
current level of 6.5 percent. Without such action, further
implementation of the BBA will result in reductions in IME payments of
28.57 percent over four years, reducing the IME adjustment from 7.7
percent in FY 1997 to 5.5 percent in FY 2001.
Specific legislative relief is necessary for hospitals that provide
a disproportionate share of care to the indigent. The BBA provides for
a 5 percent reduction in disproportionate share adjustments (DSH) over
five years. Since the law was enacted two years ago, Medicare DSH
payments have already been reduced by 2 percent.
Accordingly, ACP-ASIM supports ``The Graduate Medical /Education
Payment Restoration Act of 1999 (HR 1785/S 1023) introduced by
Representative Charles Rangel (D-NY) and Senator Daniel P. Moynihan (D-
NY), which would freeze the reductions in the IME adjustment at 6.5
percent. The College also supports ``The Medicare Hospital Emergency
Assistance Legislation (HEAL) Act (HR 2266) sponsored by
Representatives Nita Lowey (D-NY) and Jack Quinn (R-NY), which would
freeze Medicare DSH cuts at FY 1999 levels and stop further cuts in IME
payments.
We further recommend support of other legislation that would help
restore crucial funding required by the nation's teaching hospitals,
including ``The Hospital Outpatient Preservation Act'' (HR 2241/S
1263), sponsored by Representative Mark Foley (R-FL) and Senator James
Jeffords (R-VT) and ``The Managed Care Fair Payment Act of 1999'' (HR
1103/S 1024). HR 2241 would establish a payment floor to limit losses
for hospitals that incur large payment reductions under BBA. HR 1103
provides that DSH payments for Medicare+Choice enrollees should go
directly to eligible hospitals.
Implementation of Resource-Based Practice Expenses (RBPEs) to the
Medicare Physician Fee Schedule
Section 4505(d)(1)(C) of the Balanced Budget Act of 1997 (BBA 97)
requires the Health Care Financing Administration (HCFA) to develop a
refinement process to be used during each of the four years of the
transition period to full resource-based practice expenses (RBPEs). In
the November 2, 1998 final rule, HCFA outlined the steps it is
undertaking to resolve the outstanding general methodological issues.
These steps include: the establishment of a mechanism to receive
additional technical advice for dealing with these broad practice
expense relative value unit (RVU) methodological issues; evaluation of
any additional recommendations from the U.S. General Accounting Office,
MedPAC, and the Practicing Physicians Advisory Council; and
consultation with physicians' and other groups about these issues.
ACP-ASIM is pleased that the refinement process is well underway
and we believe that it is progressing reasonably well considering the
complexity of the issue. HCFA has awarded a contract beginning in May
1999 to obtain assistance in evaluating various aspects of its practice
expense methodology. HCFA believes that the awarding of the
methodological support contract and the establishment of the Practice
Expense Advisory Committee (PEAC) as a subcommittee of the AMA Relative
Value System Update Committee (RUC) represent important steps in its
refinement process. The RUC/PEAC is a multi-specialty group, chaired by
the AMA, which provides recommendations to HCFA on refinement of work
and practice expense RVUs. HCFA has stated that it intends to rely on
the RUC/PEAC for advice on refinement of the direct practice expense
inputs during the congressionally-mandated four-year refinement period.
At a meeting last week in Seattle, the RUC/PEAC established a
process and ground rules for refinement of direct practice expense
inputs. This will allow the RUC/PEAC to provide HCFA with
recommendations for correcting any errors in the direct practice
expense inputs as RBPEs are phased in over calendar years 2001 and
2002. In the meantime, the comment period on HCFA's notice of proposed
rulemaking on the calendar year 2000 physician fee schedule provides an
opportunity for interested parties to make recommendations on code-
level direct practice expense RVUs for calendar year 2000.
The contractor providing HCFA with technical assistance is
preparing recommendations on complex issues that HCFA is likely to
thoroughly evaluate before making decisions. Some of the activities
that HCFA has requested that the contractor undertake are:
Evaluation of the validity and reliability of American
Medical Association (AMA) Socioeconomic Monitoring Survey (SMS) data
for the specialty groups.
Identification and evaluation of alternative and
supplementary data sources from specialty and multi-specialty
societies.
The development of options for validating the Harvard and
RUC physician procedure time data.
The evaluation of the indirect cost allocation
methodology.
The development of options for the five-year review of
practice expense RVUs.
Some specialties have expressed concern that HCFA intends to edit
out certain clinical staff costs for services provided in a health care
facility other than a physician's office. HCFA has stated, however,
that it cannot pay for such services because they represent duplicate
payments for services already paid under Medicare Part A; are not
typical practice expenses incurred by physicians; and represent costs
that are not payable under Medicare rules and payment policies. ACP-
ASIM agrees that it would be inappropriate for HCFA to pay for such
costs at this time, since the evidence to date does not support a
conclusion that such costs are typical. However, the RUC/PEAC has
agreed to consider data from specialty societies that could support the
inclusion of such costs for selected services. We agree that such
issues should be addressed by the RUC/PEAC refinement process.
We recognize that some are recommending that HCFA delay for one
year its decision to edit out clinical staff in facility settings until
the RUC/PEAC examines this issue. ACP-ASIM disagrees. A delay would
mean that, in the meantime, such costs would be included in the
practice expense RVUs for calendar year 2000 even though the RUC/PEAC
has not had the opportunity to examine the data to support their
inclusion. In our view, resource based practice expenses require that
adequate data be presented, as validated by a peer group like the RUC/
PEAC, to support the inclusion of certain costs in the practice expense
RVUs before it is assumed that they should be included--not the other
way around.
Given that calendar year 2000 transition payments will be based 50%
on RBPEs and 50% on historical charges, no specialty will be subjected
to extreme reductions next year as a result of requiring them to first
present their data to the RUC/PEAC before a decision is made on
recommending to HCFA that such costs be included in the practice
expense RVUs. Since the impact of HCFA's decision to edit out the
clinical staff time for facility services is less than two percent,
plus or minus, for most specialties when RBPEs are fully implemented in
2002, the impact of editing out these costs will be a change in
payments of only one percent for most specialties in calendar year
2000.
To summarize, ACP-ASIM believes that substantial progress has been
made on refining the practice expense RVUs as mandated by the Balanced
Budget Act of 1997:
HCFA has proposed improvements in its methodology as part
of its notice of proposed rulemaking on CY 2000 fee schedule payments.
This notice provides an opportunity for interested parties to recommend
specific corrections in code level practice expense RVUs for
consideration for CY 2000 payments.
The RUC/PEAC has agreed to a process to consider data from
specialties to refine direct PE-RVUs during the transition to RBPEs.
The RUC/PEAC process will allow for consideration of data on
controversial issues such as HCFA's proposal to eliminate payment for
clinical staff costs of services in the facility setting.
The fact that payments in calendar year 2000 will be based
50% on RBPEs and 50% on historical charges will ease any adverse impact
on physicians who may be disadvantaged during the time that the RUC/
PEAC is considering data on the code-level practice expense
refinements, including data on clinical staff costs in the facility
setting.
HCFA's contractor will provide recommendations for further
improvement in HCFA's data and methodology.
Consequently, ACP-ASIM strongly believes that there is no need for
Congress to amend the Balanced Budget Act of 1997 to mandate a further
delay in the transition to RBPEs, to limit the amount of payment
changes that may occur in each year of the transition, or to in other
ways modify the BBA 97 provisions relating to practice expenses.
The Ways and Means Committee should also be aware that one
provision of the BBA 97 relating to practice expenses is currently
being adjudicated. A United States Magistrate Judge in Illinois filed a
report on September 8, 1999 in favor of the federal government in a
lawsuit challenging how the Health Care Financing Administration
calculates resource-based practice expenses for physician services.
The lawsuit, which was filed on behalf of a group of surgical and
medical specialty societies, argued that HCFA violated the law by using
1998 practice expense relative value units (RVUs) in determining
Medicare practice expense payments in 1999, 2000, and 2001. ACP-ASIM
and several other medical societies had filed a ``friend of the court''
(amicus) brief supporting HCFA's interpretation of the law.
The issue at stake in the case is whether or not HCFA was correct
in using the practice expense relative value units (RVUs) that were in
effect in 1998 as the base year for calculating practice expense
payments during the transition to resource based practice expenses.
(During the transition, practice expense payments in calendar years
1999, 2000, and 2001 are a blend of historical charges and resource
based practice expenses. The percentages of resource-based PE-RVUs to
be used was 25% in 1999, 50% in 2000, 75% in 2001, and 100% for 2002).
The 1998 practice expense RVUs included a ``down payment'' for office
visits, as mandated by the Balanced Budget Act of 1997, which raised
the PE-RVUs for office visits but lowered them for several hundred
procedures. Specifically, the 1998 PE-RVUs for certain services were
reduced to 110% of their work RVUs for the service, and the money would
be reallocated to raise the PE-RVUs for office visit procedures. The
amount of this reallocation was limited to $390,000,000 in 1998. The
magistrate concluded that HCFA's decision to apply the 1998 ``down
payment'' for office visits for the subsequent transition years is a
reasonable interpretation of the law.
ACP-ASIM expects that a final decision on the lawsuit will be
forthcoming soon. The decision hopefully will put an end to the
disagreement over the meaning of the Balanced Budget Act of 1997 in
regard to the ``down payment'' for office visits and the subsequent
transition to RBPEs. We do not believe that it will be necessary for
Congress to intervene in this issue at this time, given that a
resolution may soon be forthcoming through the judicial process. Any
effort to amend the BBA 97 provisions on the ``down payment'' and
subsequent transition will open up Congress to a very divisive and
unnecessary debate over issues that may be close to being settled in
the courts.
Sustainable Growth Rate (SGR) System for Medicare Part B
ACP-ASIM urges Congress to fix Medicare's Sustainable Growth Rate
(SGR) system to ensure that the 84 percent of beneficiaries enrolled in
fee-for-service under Medicare continue to receive the access and
benefits to which they are entitled. Enacted in BBA 97, the SGR
establishes a target growth rate for Medicare spending on physician
services, then annually adjusts payments up or down, depending upon
whether actual spending is below or above the target.
Physicians are the only group subject to this target, despite the
fact that Medicare spending on physician services has been growing more
slowly than other Medicare benefits. Although BBA 97 included measures
to slow projected growth in these other benefits, the Congressional
Budget Office continues to forecast much higher than average annual
growth rates for other services than for physician services over the
next decade.
To address this disparity, the Medicare Payment Advisory Commission
(MedPAC) recommended in its March 1999 Report to Congress improvements
to the SGR. These improvements included:
Correcting HCFA's projection errors and restoring the $3
billion SGR shortfall due to these errors;
Enacting all measures necessary to curtail volatility in
payment rates and avoid steep future cuts;
Increasing the SGR to allow for physician costs due to
adoption of new technology; and
Requiring HCFA and MedPAC to provide information and data
on payment updates.
ACP-ASIM has discussed the improvements described above with HCFA
officials, who generally agreed with our concerns, but noted that they
did not have the authority to fix the problems described above.
Accordingly, ACP-ASIM asks that Congress make legislative changes to
eliminate errors in the SGR system.
In its November 2, 1998 Federal Register notice, HCFA indicated,
``We do not believe that the Congress, in enacting the SGR,
contemplated such significant variances between estimates made at
different points in time.'' In the notice, HCFA also states that, ``In
the long term, [conversion factor] updates could oscillate between the
maximum increase and decrease adjustments. . .'' This means, in
essence, that conversion factor updates could alternate between periods
of inflation plus 3% and inflation minus 7%. Such dramatic swings would
be highly disruptive to the predictability of physician reimbursement,
and will be a particular hardship when the conversion factor is set at
inflation minus 7%. This inherent instability in the SGR system is a
serious problem, which must be addressed by Congress before large
unintended payment cuts occur.
The disparity between Medicare's rates and physicians' practice
costs will only become much wider if not fixed now. This will not only
make it difficult for physicians to cover the costs of advances in
technology but make it harder to provide the state-of-the-art medical
care Medicare beneficiaries need and deserve.
Changes Requiring Legislation
The SGR formula has several other shortcomings that will require
legislative correction. First, Congress should create an add-on to the
SGR formula to allow for technological changes in medicine that
increase the demand for physician services. As first envisioned by the
Physician Payment Review Commission (PPRC), the idea of a target tied
to GDP included a 1 to 2 percentage point add-on for changes in medical
technology. Ever-improving diagnostic tools and surgical techniques
have undoubtedly contributed to growth in utilization of physician
services, and to the well-being of Medicare beneficiaries.
Technological change in medicine shows no sign of abating, and the SGR
should include a technology add-on to assure Medicare beneficiaries'
continued access to mainstream medical care.
Second, Congress should create an add-on to the SGR formula to
account for the rising cost of ambulatory care practice with the shift
in care from hospital inpatient settings to outpatient sites. As MedPAC
has pointed out, hospitals have reduced the cost of inpatient care by
reducing length of stay and scaling back on staff. Some inpatient staff
and service reductions are offset by increased costs and services in
physician offices and other outpatient sites.
Third, Congress should instruct the administration to periodically
adjust the SGR to allow for changes over time in the characteristics of
patients enrolling in Medicare+Choice plans compared to those remaining
in the fee-for-service program. HCFA has stated that Medicare
beneficiaries who enroll in managed care plans may be healtheir than
those who stay in the fee-for-service program. If the trend is for
people who are older and/or sicker to remain in the fee-for-service
program, there should be an adjustment to the SGR to account for such
differences in the beneficiary population. Absent such corrections, if
fee-for-service payments are slashed relative to Medicare+Choice
payments, the Medicare fee-for-service program may effectively
dissolve, leaving beneficiaries without a viable alternative to managed
care.
Fourth, Congress should raise the lower limit on SGR updates to
provide a more acceptable floor on payment updates. Assuming a Medicare
Economic Index of 2%, the lower limit of inflation minus 7% would imply
a 5% actual cut in the conversion factor in a single year. The Medicare
update formulae for other (non-physician) providers does not expose
them to the degree of payment reductions that physicians are likely to
experience under the SGR. Medicare+Choice payments are guaranteed
annual increases of 2%. For the hospital update for a year to be
analogous to the lowest potential physician update, it would have to be
set at market basket minus 7%--an unlikely scenario at best.
Fifth, Congress should eliminate SGR projection errors by either
giving the administration the authority to change projections as new
Gross Domestic Product (GDP) data becomes available or by requiring the
administration to update the SGR using actual GDP data.
Conclusions
Indirect Graduate Medical Education payment reductions
ACP-ASIM believes that Congress should:
1. Stop further implementation of the BBA reductions in
Medicare IME adjustments, and freeze the cuts at the current
level of 6.5 percent.
2. Limit reductions in disproportionate share adjustments
(DSH) to the 2 percent already implemented by 1999 and prevent
further cuts.
3. Redirect DSH payments for Medicare+Choice enrollees from
managed care plans directly to eligible hospitals.
4. Establish a payment floor to limit losses for hospitals
that incur large payment reductions under BBA.
Resource-Based Practice Expense (RBPE) Relative Value Units
(RVU)/Refinement Process of the Medicare Physician Fee Schedule
ACP-ASIM believes that:
1. The RBPE refinement process is well underway and is progressing
reasonably well considering the complexity of the issue. The
administration has the authority and capability to continue the
refinement process and that there is no need for Congress to change the
rules or delay implementation.
2. The refinement process established by HCFA is reasonable and
consistent with the provisions of the Balanced Budget Act of 1997.
3. The administration should exclude all clinical staff time
allotted to the use of clinical staff in the facility setting from the
raw Clinical Practice Expense Expert Panel data. However, HCFA should
consider future recommendations that may be forthcoming from the
American Medical Association Relative Value System Update Committee/
Practice Expense Advisory Committee during the refinement process that:
Show that it is a typical practice to employ clinical
staff for the procedure codes in question and
Document what types of services the clinical staff are
providing. Any recommendations for inclusion of clinical staff in the
facility setting must differentiate between physician-substitutive
services (which should be addressed through the work relative value
units, not the practice expense relative value units), general
administrative costs (an indirect cost) or specialized clinical
assistance that may represent a legitimate practice expense that should
be paid by Medicare.
4. The administration should not delay for one year its decision to
edit out clinical staff time in the facility setting. A delay would be
contrary to the idea of a resource-based system, as it would require
HCFA to continue paying for costs that have not been validated through
the refinement process.
Sustainable Growth Rate (SGR) Formula
To improve the Sustainable Growth Rate Formula, Congress should:
1. Create an add-on to the SGR formula to allow for technological
changes in medicine that increase the demand for physician services.
2. Create an add-on to the SGR formula to account for the rising
cost of ambulatory care practice with the shift in care from hospital
inpatient settings to outpatient sites.
3. Instruct the administration to periodically adjust the SGR to
allow for changes over time in the characteristics of patients
enrolling in Medicare+Choice plans compared to those remaining in the
fee-for-service program.
4. Raise the lower limit on SGR updates to provide a more
acceptable floor on payment updates.
5. Eliminate SGR projection errors by either giving the
administration the authority to change projections as new Gross
Domestic Product (GDP) data becomes available or by requiring the
administration to update the SGR using actual GDP data.
ACP-ASIM appreciates the attention that the Subcommittee is giving
to refining and correcting Medicare provisions included in the BBA and
the opportunity to submit testimony. We are prepared to work with the
Congress and the Administration to enact legislation that will help
maintain the fiscal solvency of the Medicare program without
drastically curtailing services to Medicare beneficiaries, jeopardizing
our nation's medical education and research capability, or further
undermining the viability of our teaching hospitals and academic
medical centers.
Statement of American Medical Group Association, Alexandria, VA
The American Medical Group Association appreciates the opportunity
to present written testimony for the record to the House Ways and Means
Health Subcommittee on refinements that we believe need to be made to
the Balanced Budget Act of 1997. The AMGA commends Chairman Bill Thomas
and the Committee for holding a hearing on this important subject and
appreciates your efforts to remedy the unintended consequences caused
by the BBA.
The American Medical Group Association represents approximately
45,000 physicians in more than 250 medical groups from across 40
states. AMGA members are among the largest and most prestigious medical
groups in the country and include such renowned organizations as the
Mayo Foundation, the Palo Alto Medical Foundation, the Lahey Clinic,
the Henry Ford Health System, the Cleveland Clinic, and the Permanente
Federation, Inc. AMGA's mission is to shape the health care environment
by advancing high quality, cost-effective, patient-centered and
physician-directed health care.
The Balanced Budget Act of 1997 (BBA 97) was the most significant
reform of the Medicare program since its inception in 1965. The BBA 97
encompasses over 300 changes that have had, and continue to have,
significant implications and consequences for medical groups and the
patients we serve. Multi-specialty medical groups are unique in that
they are comprehensively involved in all aspects of health care
delivery affected by the Balanced Budget Act: physician services,
inpatient and outpatient hospital care, Medicare+Choice health plans,
skilled nursing facilities, teaching hospitals, and home health care.
Consequently, multi-specialty groups have sustained, and continue to
sustain, dramatic revenue reductions which interfere with capital
budgeting and patient care.
AMGA understands the need to eliminate unnecessary and wasteful
services and inefficiencies. However, the reimbursement reductions
imposed in BBA 97 are having a significant negative impact on the
ability of medical group practices to continue to deliver quality care
to beneficiaries and are threatening the financial viability of many
groups. AMGA members are struggling to make up for the shortfalls
caused by the BBA 97, yet, rather than compromise the quality of
services they provide, groups are finding it necessary to cut back on
beneficial services and uncompensated care. For your review, we have
attached a few real examples of the estimated net revenue impact of
specific items in the BBA 97.
Medical groups need both administrative and legislative remedies if
they are going to continue delivering quality care. Relief from the
Balanced Budget Act should include:
Relief from reductions for teaching hospitals and academic
medical centers. BBA 97 limits payments for IME, interfering with
teaching hospitals' ability to provide quality care to the poorest and
sickest individuals. Under the BBA 97, Medicare adjustments for IME are
scheduled to be reduced from the 1997 level of 7.7% to 5.5% in FY 2001.
These excessive cuts will further jeopardize the financial viability of
teaching hospitals to provide patient care to under-served populations
and conduct medical research. AMGA supports legislation introduced by
Rep. Charles Rangel (H.R. 1785) and Senators Moynihan and Kerrey (S.
1023) that would freeze IME payments at current levels and prevent
future scheduled BBA 97 cuts.
Repeal the patient transfer provision. Under the expanded
transfer definition, the government pays less for shorter stay payments
but does not increase payment for longer-stay patients. Payments for
cases shorter than average stays help defray the costs of caring for
patients with longer-than-average stays. AMGA supports legislation
proposed by Senator Grassley (S. 37) and Rep. Jim Nussle (H.R. 405)
which would repeal this provision.
LFix the way Medicare pays Medicare+Choice plans by:
LRequiring HCFA to implement the risk adjustment
process on a budget neutral basis. The ``risk adjustment''
process was intended to distribute funds based on the health
status of M+C enrollees, however, HCFA has proposed a model
that would impose deep spending cuts in the M+C program. AMGA
supports H.R. 2419, the ``Medicare+Choice Risk Adjustment
Amendments of 1999,'' introduced by Congressman Michael
Bilirakis.
LSpeed up implementation of the risk adjustment
mechanism, permitted that it uses a reliable database that
takes into account the beneficiary' heath status and medical
costs. Many of our medical groups care for a disproportionate
number of the sicker Medicare population and have faced a sharp
reduction in Medicare payments.
Require HCFA to modify the Sustainable Growth Rate (SGR)
expenditure target. Currently, there are significant flaws in the
formula that is used to calculate the annual payment update for
physician services. Absent significant modifications in the SGR,
physicians face payment constraints that are far more severe than
Congress intended.
Delay implementation of the prospective payment system for
outpatient departments so that HCFA can address and amend the proposed
rule. The proposed rule has numerous problems and would severely impact
medical groups across the country. As proposed, the rule does not
recognize that integrated systems have moved many services to
ambulatory sites, imposes a volume cap on payment updates if Medicare
payments exceed HCFA projections, and uses a methodologies that do not
accurately recognize the costs of technology and treatments. We support
legislation introduced by Senator Jeffords (S. 1263) and Rep. Mark
Foley (H.R. 2441) that would provide for a transition period and limit
payments reductions over three years.
Restore the budget neutrality on the new prospective
payment system's reimbursement methodology. The 5.7% across the board
reduction in payment to outpatient departments imposes an $900 million
per year reduction in payment to hospitals that was not intended by
Congress in the BBA. Congress intended that payments to hospitals
should remain budget neutral under the new PPS system. We support the
steps taken by Reps. Johnson and Cardin, and Senators Cochran, Kerry,
and Rockefeller urging HCFA to restore the budget neutrality.
Physician Self Referral Amendments
As you continue your examination of the BBA 97 in order to evaluate
whether or not legislative changes are necessary, the AMGA would urge
you to include language that would clarify the physician self-referral
law (otherwise known as the Stark law) and bring it more in line with
Congress' original intent. AMGA supports fully the intent behind the
self-referral law--to prevent physicians from ordering unnecessary
services in order to profit from the Medicare and Medicaid laws.
However, the self-referral law has gone far beyond the original intent
and it now interferes with the delivery of efficient, quality health
care. The law's provisions are so vague and open to misinterpretation
that is virtually impossible to conclusively determine whether certain
ancillary service arrangement are or are not in violation of the self-
referral law. In addition, the ``compensation arrangement'' provision
of the law precludes many business activities which are essential to
the successful operation of multi-faceted, integrated health care
organizations.
Section 4314 of the Balanced Budget Act of 1997 requires that the
Secretary of Health and Human Services issue written advisory opinions
to outside parties concerning whether the referral of a Medicare
patient by a physician for a certain designated service is prohibited
under the physician self-referral law. While Congress' intent was to
help physicians better understand the law, advisory opinions have not
had the desired overall effect. Instead, AMGA believes that legislative
changes to the law are necessary to correct the unintended consequences
of the self-referral law. AMGA supports the H.R. 2651, legislation
introduced by Congressman Bill Thomas. This legislation would remove
the barriers to integration and innovation, while still maintaining the
original intent of the law.
Medicare Reform
AMGA commends President Clinton for taking steps to introduce a
Medicare reform proposal that seeks to modernize the program, introduce
private sector innovations, and help seniors pay for prescription
drugs. In particular, we strongly support the creation of a
demonstration project of bonus payments for physician group practices
who reduce excessive use of services and demonstrate positive medical
outcomes for their patients. Based on our members' experience, medical
group practices are leading the way to cost-effective, high quality
health care through integrated financing and delivery of medical
services. A shared commitment and an underlying patient care mission by
all involved have produced superior results in quality health care
service and satisfaction for both patients and providers. Through
organized delivery systems, providers save time, money, and resources,
and improve patient care.
At the same time, we are disappointed that the President's proposal
continues the pattern of cutting payments to providers as a way to
maintain Medicare solvency. President Clinton's Medicare reform would
cost hospitals and health plans $70 billion over 10 years. The
potential for additional Medicare cuts to medical groups will be
disastrous because, as integrated practices, they carry the burden of
the full scope of reductions.
While we recognize the need to eliminate inefficiencies and
wasteful services, the Federal government cannot finance and expand the
Medicare system by cutting provider reimbursements. The President's
proposed reductions come on the heels of Medicare spending reductions
contained in the BBA 97, and will reduce our ability to provide quality
services that the elderly depend on. While the President's
establishment of a $7.5 billion provider set-aside fund appears to
recognize that the BBA 97 reductions were too harsh, this funding level
is insufficient to address reimbursement inadequacies and does little
to ensure that Medicare beneficiaries will continue to have stable
access to health care providers. More importantly, the $7.5 billion
would result in battles among the provider community to determine who
is most worthy of relief.
Rather than implement further reductions at the expense of health
care delivery, Congress needs to do two things: First, Congress needs
to fix the unintended consequences of the BBA 97. This will ensure that
Medicare beneficiaries will continue to receive quality and cost-
effective care from providers and medical groups. Second, if solvency
of the Medicare program is to be sustained, Congress needs to
fundamentally restructure and modernize the Medicare program. Such a
system should be based on the principles of patient choice, competition
among providers in price, marketplace innovation, a defined role for
the government, and should adopt marketplace innovations. We believe
that Medicare restructuring should incorporate the innovative and cost-
reducing delivery system reforms that have emerged in the private
sector. Continuing to reduce provider reimbursements as a part of
reform is not a viable option.
The AMGA understands the budget constraints Congress is working
with and has worked hard to put forward solutions that are realistic
and reasonable. However, without some relief, medical groups will find
it increasingly difficult to provide access to quality care to Medicare
beneficiaries. It is crucial that Congress acts now to make the
necessary adjustment to the Balanced Budget Act of 1997 so that medical
groups can continue to provide Medicare beneficiaries the health care
services they deserve and depend on. We look forward to working with
the Committee on this very important issue.
Mayo Foundation--Rochester, Jacksonville, and Scottsdale
----------------------------------------------------------------------------------------------------------------
BBA Reductions (in millions of
dollars) 1998 1999 2000 2001 2002 2003 Total
----------------------------------------------------------------------------------------------------------------
Reduction to IME payment Rate 6.4 13.9 20.5 26.5 28.5 30.7 120.1
PPS-exempt unit TEFRA rates - 1.0 1.0 0.9 0.8 0.7 4.3
Reduction to Federal capital 5.1 5.6 6.0 6.5 6.7 6.8 31.7
payments
Transfer DRGs 0.6 2.5 2.5 2.5 2.5 2.5 12.6
Outpatient PPS (assume 5% 0.3 0.7 0.7 0.7 0.7 0.7 3.5
reduction)
Outpatient formula-driven 1.1 1.7 1.8 1.9 2.0 2.1 9.4
overpayments
Eliminate IME payment on 3.4 3.8 3.6 3.6 3.8 4.1 19.0
outliers
SNF prospective payment - 3.0 6.0 9.0 12.0 12.0 42.0
Reduction to bad debts - 0.1 0.1 0.1 0.1 0.1 0.4
HHA reduction to limits and 0.5 0.5 0.5 0.5 0.5 0.5 2.5
PPS0.5
Medicare Part B physician fee - 3.0 6.0 9.0 12.0 12.0 42.0
schedule
Total Reductions.............. 18.3 35.6 45.5 54.9 60.4 63.0 259.3
----------------------------------------------------------------------------------------------------------------
Henry Ford Health System--Detroit, MI
----------------------------------------------------------------------------------------------------------------
BBA Reductions (in millions of
dollars) 1998 1999 2000 2001 2002 Total
----------------------------------------------------------------------------------------------------------------
PPS-Hospital Payment Update 5.2 8.9 12.5 14.7 17.0 58.3
IME Adjustments 3.2 5.7 8.2 10.7 10.7 38.5
Capital Payment for PPS Hospitals 3.3 3.3 3.3 3.3 3.3 16.5
Transfer DRG Provision - 3.1 3.1 3.1 3.1 12.4
Disproportionate Share Payments 0.1 0.2 0.2 0.3 0.4 1.2
Bad Debt Payments 0.5 0.8 0.9 0.9 0.9 4.0
Formula Driver Overpayments 2.9 2.9 2.9 2.9 2.9 14.5
Outpatient PPS - - 4.8 9.6 9.6 24.0
Physicians Single Conversion 1.0 1.0 1.0 1.0 1.0 5.0
Factor
Physician Practice Expense RVUs - 0.6 1.0 1.4 1.8 4.8
Home Health Interim Payment 1.0 - - - - 1.0
System
Sustainable Growth - 1.2 1.7 1.2 1.2 5.3
HMO 2% Cap 2.2 4.6 TBD TBD TBD 6.8+
Risk Adjusting Scheme N/A N/A TBD TBD TBD TBD
User Fees $525,000 620,000 651,000 684,000 718,000 3.2
Total Reductions............... 19.9 32.9 39.3 49.8 52.6 195.5+
----------------------------------------------------------------------------------------------------------------
Lahey Clinic--Burlington, MA
----------------------------------------------------------------------------------------------------------------
BBA Reductions (in millions of
dollars) 1998 1999 2000 2001 2002 Total
----------------------------------------------------------------------------------------------------------------
PPS Hospital Updates 1,295,081 2,466,203 3,379,178 3,964,511 4,578,043 15,683,016
Formula Driven Overpayment 850,000 850,000 850,000 850,000 850,000 4,250,000
IME 1,322,000 2,555,000 3,266,000 4,199,000 4,199,000 15,241,000
IME Managed Care 562,500 1,500,000 2,200,000 2,900,000 3,480,000 10,642,500
Transfer Policy - 1,000,000 1,000,000 1,000,000 1,000,000 4,000,000
APC - - 1,000,000 2,000,000 2,000,000 5,000,000
Single Conversion Factor 750,000 1,000,000 1,000,000 1,000,000 1,000,000 4,750,000
Resource-Based Practice Expense RVU - 300,000 700,000 1,100,000 1,500,000 3,600,000
Total Reductions................... 3,654,581 6,371,203 8,995,178 11,213,511 11,647,043 41,881,516
----------------------------------------------------------------------------------------------------------------
Statement of American Medical Rehabilitation Providers Association
The American Medical Rehabilitation Providers Association
(AMRPA) is pleased to submit testimony today on the Balanced
Budget Act's (BBA) requirements relating to the development of
a prospective payment system (PPS) for rehabilitation
providers. AMRPA is a membership organization representing 360
freestanding rehabilitation hospitals and rehabilitation units.
This is about 33% of such facilities recognized by the Medicare
program.
I. Background
Rehabilitation hospitals and units provide medical care and various
therapies to patients who, because of disease, injury, stroke or
similar incidents, have impairments of their abilities to function,
either physically or cognitively. Our goal is to help them regain the
maximum level of functional capability and return them to their homes
and independent living patterns. More than 80% of patients admitted to
rehabilitation hospitals and units return to their homes, in spite of
the fact that many have experienced severe disabilities. Because many
of the conditions producing the need for rehabilitation are associated
with aging, a significantly high percentage of patients in
rehabilitation hospitals and units are covered by the Medicare program.
In 1997, over 70% of admissions to such facilities were patients
covered by fee-for-service Medicare. Accordingly, the policies of the
Medicare program largely determine the availability and quality of
rehabilitation services. And there is little room for error.
Prior to enactment of the BBA, rehabilitation hospitals and
rehabilitation units in general hospitals were paid on a cost-based
system (TEFRA) and were exempt from the PPS system that was designed
for acute care hospitals. The TEFRA cost-based system distorted
payments and services by discouraging treatment of complex patients and
by creating an uneven playing field among providers.
Our association and its predecessor strongly supported the idea of
a rehabilitation prospective payment system (RPPS) to replace the
flawed and inequitable system of TEFRA limits which have distorted care
for Medicare beneficiaries for over 15 years. We were very pleased when
an RPPS was included in the BBA of 1997.
A rehab PPS can correct the mistakes created by the TEFRA system
and better target Medicare funds to serve patients' needs. The Balanced
Budget Act of 1997 (BBA) required the Health Care Financing
Administration (HCFA) to develop a PPS for rehabilitation hospitals,
and units referred to as rehabilitation facilities in the law. The BBA
is completely adequate to support a rational, patient-oriented PPS.
However, we believe that amendment of the law is needed to ensure
adoption of a rehabilitation PPS without negative consequences,
particularly for Medicare patients.
The BBA requires that the Secretary set rates in the rehabilitation
PPS to reduce total expenditures for inpatient rehabilitation services
by 2% from what they would have been in the absence of a PPS. Any such
calculation is subject to misjudgments about volume of services, but a
per-episode payment system is much more predictable than a per-diem
system. The former is subject to changes in total patient volume. The
latter is subject to this factor, as well as the average number of days
of care which can result in increased expenditures.
II. The PPS System Recommended by MEDPAC is Completely Sound and Should
be Used for an RPPS
The rehab PPS was addressed in depth in the March 1, 1999,
report on the Medicare program submitted to Congress and the
Administration by the Medicare Payment Advisory Commission
(MedPAC). We support MedPAC's recommendations regarding a PPS
for rehabilitation and related matters which parallel our
views.
In its report to Congress, MedPAC recommended that the
Secretary of Health and Human Services develop a rehab PPS
using a per-discharge approach and a patient classification
system known as the Functional Independence Measure-Function
Related Groups (FIM-FRG), a payment system designed for HCFA by
the RAND Corporation. The FIM-FRG is based on a patient
classification system developed by researchers at the
University of Pennsylvania. In its work for HCFA, RAND
evaluated this classification system and designed a PPS based
on it. The result is a well-developed system based on data from
a large number of rehabilitation hospitals and units. We
believe it accurately measures patients' needs for treatment
and will fairly match Medicare payments to relative needs for
rehabilitation services.
The system designed by RAND parallels the structure of the
PPS used for general hospital care. Payment would be per-
discharge and case-mix groups would be determined by a
combination of diagnosis, age, and functional ability of the
patient. These factors are the basis for the patient
classification system know as FRGs.
The system designed by RAND is a per-episode system.
Originally designed using data from 37,000 rehab patients in
1990 and 1991, FRGs were further refined by Rand, in 1994, with
data from over 90,000 Medicare patients. As such, the system
well-represents a broad range of rehab patients. HCFA and RAND
now have comparable data from 1997 for over 200,000 patients
and will soon have similar data for 1998. Further, patient
classification and weights under the FRG system can be easily
updated before the implementation date of October 1, 2000. Such
data is available annually, permitting regular review of
payment classifications and weights.
The FIM-FRG is a discharge-based classification system
which sorts patients into 21 diagnostic categories, known as
Rehabilitation Impairment Categories (RICs). MedPAC believes
that a system based on FIM-FRG would be more reliable, because
FIM-FRG is stable over time and predictive of length of stay
and per-discharge resource use. It also contains the most
complete compilation of data on rehab patients. With minor
modifications, the FIM-FRG is ready to be implemented.
Adoption of the FRG system also would allow assessment of
the impact of the PPS on patient care, outcomes, and quality.
Existing data on outcomes--the functional improvement of
patients--go back a decade or more. These data can be used to
examine patient outcomes before and after introduction of a
PPS. In fact, the payment system could even reward the
achievement of superior results for patients.
III. Concerns About Alternative Approach
AMRPA supports HCFA's implementation of MedPAC's recommendations.
However, the Department's approach may not be fully clear until it
publishes its methodology, which is not expected until December 1999.
HCFA was previously developing a system similar to the PPS that was
recently implemented for SNFs. The SNF PPS uses a classification system
that relies on the MDS patient assessment tool designed for use in
nursing facilities. HCFA was also inclined to create the rehab PPS
using the analytic system known as Resource Utilization Groups (RUGS)
combined with a per diem approach. However, because of the MedPAC
recommendations, guidance from Members of Congress, and internal
Departmental disagreements, HCFA recently announced it will follow the
MedPAC recommendations. We strongly support this approach.
IV. Why AMRPA Supports per Discharge With FIM-FRG
One of the great defects of the TEFRA system is that the system
strongly encouraged providers to treat patients with lesser medical
complications and functional impairments and imposed a financial
penalty for taking more disabled and medically complex patients. A
primary goal of a PPS should be to match payment rates with varying
treatment requirements so there is no financial incentive to treat one
type of patient over another.
The BBA requires that a PPS be developed with rates that will
result in a 2% reduction in outlays from what would have been spent in
the absence of a PPS. Based on FY 1996 data, it appears that this
provision of the BBA will produce a budget for rehab PPS of about $4.4
billion. The issue is how to most effectively use this amount of money
to obtain the best possible rehab services for the approximately
325,000 Medicare patients admitted to rehabilitation hospitals and
units each year.
Rehabilitation providers have operated under a construct that, in
effect, reflects the per-episode payment system--namely, TEFRA limits--
for 16 years. Such limits have encouraged reductions in lengths of
stay. Average Medicare length-of-stay in rehabilitation hospitals and
units has declined from about 22.6 days in 1988 to just over 16 days in
1997. A per-diem system would provide a huge incentive to reverse this
trend. Based on 1997 data, a one-day increase in the average Medicare
length of stay would, under a per-diem system, result in increased
Medicare spending of about $240 million.
Rehabilitation is a process, and the determination as to when a
patient is ready for discharge involves a number of variables,
including the patient's physical and cognitive progress, his or her
medical condition, the level of support in the home and the patient's
attitude. These and other social and clinical factors are weighed by
the attending physician and other members of a rehabilitation team in
determining when discharge is appropriate. For over 15 years, Medicare
has encouraged shorter lengths of stay through the TEFRA system.
Rehabilitation facilities exist to meet the needs of their
patients. A payment system that discriminates against certain types of
patients poses a serious problem to ethical people in the business of
providing quality services and outcomes. Financial reality means that
they can not treat large numbers of patients for whom the payment is
inadequate. Matching services to an inadequate daily payment and
keeping patients longer is a poor substitute for providing the optimum
level of services and the earliest possible discharge. Providers want
to be able to deliver the care that is in keeping with maximum progress
for patients, and they do not want to operate under a system which
chronically frustrates achieving that goal. For all the above reasons,
AMRPA supports the MedPAC recommendation for a discharge based
rehabilitation prospective payment system, based on FIM-FRG, and HCFA's
announcement in July to pursue the FIM-FRG approach.
V. What Needs to be Done to Implement the FIM-FRG RPPS
As mentioned earlier, FRGs are currently based on 1994 data from
over 90,000 patients. There are now data to support the creation of
revised FRGs based on 1996 and 1997 data from over 200,000 patients.
AMRPA supports updating the FRGs to a more recent year. To account for
practice pattern evolution and patient mix, the FRGs could be
recalculated every year, which would be a relatively easy exercise.
Since the system is currently based on 1994 data, the system's
accuracy could be improved by updating either a portion or the entire
system to reflect 1997, or preferably 1998 data which will soon be
available. RAND is using the 1997 data which is currently available. We
envision the following steps:
1. The FRGs are based on data which are currently collected
voluntarily from about 80% of rehab providers. The financial data is
collected by HCFA; the clinical data is gathered by UDSmr and
Caredata.com (Medirisk). No site visits to hospitals are required.
2. RAND matches the clinical and financial databases on a patient-
by-patient basis using sex, birth date, and admit date.
3. The charge data collected off bills by HCFA is converted to cost
through multiplication of the charge by the cost: charge ratios
contained on the Medicare cost reports. This is done on a per cost
center basis.
4. New FRG algorithms could be calculated from the newer data. The
FRG algorithms are the definitions by diagnosis, age and FIM scores
which determine the break points between FRGs.
5. Rand/HCFA would then account for the distribution of cases. This
is fairly straightforward since a database of 66% (220,000 cases) of
the patient population is assigned to the various FRGs.
6. A high cost outlier should be developed to preserve access for
unusually costly patients.
At some point, the FRGs will have to be moved to be supported by
MDS-PAC data. The Minimum Data Set for Post Acute Care (MDS-PAC) is a
data tool HCFA is developing to use in several sites of care. It will
be critical that the same score on an MDS-PAC functional motor item can
be translated to the similar FIM item, or if there is a difference,
that it is accounted for in the algorithms. To ensure that it is done
correctly, we recommend that RAND conduct an empirical study of the use
of the FIM and MDS-PAC. It should include data being collected on the
same patients using the FIM and the MDS-PAC, then analyzed with respect
to FRGs to assure the MDS-PAC collects the data necessary to categorize
patients into the FRGs. RAND should independently validate HCFA's work
as RAND was not involved in the developmental work on the MDS-PAC.
VI. Conclusion
AMRPA believes the future of rehabilitation access is at stake in
the design and implementation of the rehab PPS. We, like MedPAC, think
the means are at hand to produce a sound, stable system which will
provide open access and high quality service to all types of patients.
However, we urge the Committee to take limited legislative action.
To direct that HCFA adopt the RAND system as the basis for a
rehabilitation PPS would require only two changes in the language of
the BBA pertinent to this matter. First, the payment unit for a rehab
PPS should be a discharge. Second, the factors used by the RAND patient
classification system--impairment, age, co-morbidities, and functional
capabilities of the patient--should be made mandatory and referenced
explicitly.
HCFA currently has the discretion to develop the PPS in whatever
manner it prefers. This is the agency's opportunity to get the system
right and avoid additional unintended consequences. We want to ensure
that payment is as appropriate and accurate for each patient as
possible so more complex patients continue to have access to the
services they need.
Therefore, we recommend the Committee amend the BBA to direct the
Secretary of Health and Human Services to develop a rehab PPS based on
a per-discharge payment unit utilizing the function related groups and
the other adjustments MedPAC recommends. We thank the Committee for
this opportunity to submit testimony. AMRPA looks forward to the future
and our ongoing positive relationships with Congress and the
Department.
Statement of American Nurses Association
The American Nurses Association (ANA) is pleased to submit
this statement to the Committee on Ways and Means, Subcommittee
on Health for the record of the October 1, 1999, hearing
regarding refinements to the Medicare provisions included in
the Balanced Budget Act of 1997 (BBA 97).
ANA is the only full-service professional organization
representing the nation's 2.6 million Registered Nurses through
its 53 constituent associations. ANA advances the nursing
profession by fostering high standards of nursing practice,
promoting the economic and general welfare of nurses in the
workplace, projecting a positive and realistic view of nursing,
and by lobbying the Congress and regulatory agencies on health
care issues affecting nurses and the public.
ANA believes that there are many instances in which the BBA
97 made cuts to Medicare programs that were too severe and have
resulted in a reduction of quality of health care and a
reduction in access to health care. It has also resulted in
financial hardship to many who have dedicated their lives to
caring for our nation's elderly and disabled. ANA calls on
Congress and the Administration to take immediate action to
remedy this situation.
The legislation that most comprehensively addresses the
multitude of problems caused by the BBA 97 is S. 1678, the
``Medicare Beneficiary Access to Care Act.'' Although this is a
Senate bill and not before this panel, ANA calls on this
subcommittee to enact legislation similar to S. 1678.
ANA believes that the underlying problem was a mind set
that allowed arbitrary budgetary targets to override genuine
health care considerations. In 1997, Congress established a
goal of how much it wanted to cut from Medicare. Meeting these
cuts was the overriding goal. Health care consequences were
secondary. As it turned out, the cuts in the BBA 97 were more
severe than anticipated. Some estimates project that the BBA 97
has, in actuality, cut as much as twice as much as anticipated.
Nurses all across the nation are seeing the consequences of
these cuts in both acute care settings and post-acute care
settings. Some of the chief areas of concern are outlined
below.
Home Health Care
The Interim Payment System (IPS) implemented by the BBA 97 has
caused severe problems for home health providers and the patients they
serve. Among the impacts of the IPS for home health care are:
approximately 550,000 fewer Medicare beneficiaries receiving home
health services in 1998 than in 1996; the closing of nearly 25 percent
of all home health agencies in the United States; and average home
health agency reimbursement decreasing 29 percent since 1996.
ANA calls on Congress to take action to:
Eliminate the 15 percent cut scheduled for October 1,
2000;
Provide resources for an outlier provision for high-cost
patients;
Increase the IPS per-visit cost; and provide relief from
financially disabling overpayments; and
Eliminate the 15-minute billing requirement.
We believe these steps are the minimum necessary to ensure that the
Medicare population has access to quality home health services.
Skilled Nursing Facilities
The implementation of a prospective payment system (PPS) for
skilled nursing facilities (SNFs) has resulted in greater reductions in
payments than originally intended. While we do not argue that the SNF
PPS needs to be eliminated altogether, we believe that it needs to be
modified.
The BBA 97 intended to reduce Medicare SNF payments from $248
billion to $232 billion. It has been estimated by the Congressional
Budget Office, however, that the reductions will be to $210 billion--a
$22 billion shortfall.
ANA calls on Congress to:
Create payment add-ons for certain RUG categories; and
Update the current SNF market basket; and allow providers
to transition to the federal rate effective October 1, 1999.
We believe action is necessary to reduce the burden being felt by
some of Medicare's most vulnerable patients.
Acute Care
The BBA 97 has had severe impacts on many hospitals. This has
resulted in a decrease in both quality of care and access to care. In
acute care, as in other areas, we see that the impact of the BBA 97
cuts has been more severe than originally anticipated. While the BBA 97
intended to cut hospital payments by $53 billion over five years, the
actual cuts are $71 billion--an $18 billion shortfall.
ANA calls on Congress to:
Pass legislation that would limit payment losses created
by the move to outpatient PPS;
Adopt MedPAC's recommendation for a modest PPS update to
compensate hospitals for Y2K readiness activities;
Provide relief for rural health care providers--
particularly sole community providers, critical access hospitals, and
Medicare-dependant hospitals;
Provide relief for hospitals serving the uninsured by
carving out disproportionate share payments from Medicare managed care
payments; and
Fully fund Medicare managed care payment blend to provide
fair payment in all parts of the country.
ANA believes this action is necessary to provide access to quality
acute care for the elderly and disabled.
Conclusion
ANA believes that Congress and the Administration need to take
immediate action to reduce the harm done by BBA 97 by enacting S. 1678
or similar legislation. We believe that future decisions about health
care need to be made with the focus on health care needs rather than on
arbitrary budgetary goals. We look forward to continuing to work with
Congress and the Administration, as well as our colleagues in the
health care community, as our nation deals with these issues.
Statement of American Osteopathic Association
The American Osteopathic Association, which represents
43,500 physicians, appreciates the opportunity to provide
testimony on refinements to the Medicare provisions of the
Balanced Budget Act of 1997.
This testimony addresses areas affected by the BBA:
Graduate Medical Education; the Sustainable Growth Rate and
refinement of the Resource-Based Practice Expense Relative
Value Units.
Graduate Medical Education: Osteopathic medicine is
separate and distinct from allopathic medicine. Consequently,
osteopathic residency programs are not interchangeable with
allopathic training programs. The Balanced Budget Act of 1997
and its attempts to constrain residency training programs have
a much more significant impact on osteopathic medicine than on
allopathic. A recent increase in the number of osteopathic
students, combined with the BBA 97 provisions, means many of
these students will be unable to train in osteopathic residency
programs. [Attachments are being retained in the Committee
files.]
Osteopathic medicine has a long tradition of serving the
under-served, of providing care in rural areas. If osteopathic
residents are not able to train in osteopathic programs, the
tradition of serving the under-served may be threatened.
Although not its intent, BBA 97 has severely impaired the
expansion of residency programs in rural and under-served
areas. Relief wouldbe appreciated.
The AOA endorses the ``Graduate Medical Education Technical
Corrections Act of 1999'' (S.541/H.R. 1222) which was
introduced by Sens. Susan Collins (R-ME) and Frank Murkowski
(R-AK) in the Senate, and by Rep. John Baldacci (D-ME) in the
House. This bill would rectify the unintended problems created
by BBA 97 in regards to GME.
The AOA also endorses two separate pieces of legislation
which create all-payer GME trust funds: All-Payer Graduate
Medical Education Act (H.R. 1224) introduced by Rep. Ben Cardin
(D-MD); and Medical Education Trust Fund Act of 1999 (S-210)
introduced by Sen. Daniel Patrick Moynihan (D-NY).
The BBA reductions to Medicare adjustments in Indirect
Graduate Medical Education to teaching hospitals were
originally estimated to save $5.6 billion between 1998 and
2000. However, it is the AOA's understanding that the cuts from
the BBA are much greater than anticipated. Payments were
expected to be reduced by $103 billion over 5 years, yet
estimates are now 86% higher--$191.5 billion--than originally
anticipated. Academic health centers treat the most severely
ill patients and care for the poor. The AOA believes such cuts
will threaten the survival of teaching hospitals and their
programs of graduate medical education.
Sustainable Growth Rate: The AOA urges Congress to fix the
sustainable growth rate system. The AOA recently wrote to HCFA
expressing our concerns about the instability of the current
SGR system. We believe the following legislation action should
be taken:
(1) Congress should create an add-on to the SGR formula to
allow for technological changes in medicine that increase the
demand for physician services;
(2) Congress should create an add-on to the SGR formula to
account for the rising cost of ambulatory care practice with
the shift in care from hospital inpatient settings to
outpatient settings.
(3) Congress should instruct the administration to
periodically adjust the SGR to allow for changes over time in
the characteristics of patients enrolling in Medicare+Choice
plans compared with those remaining in the fee-for-service
program.
(4) Congress should raise the lower limit on SGR updates to
provide a more acceptable payment floor for the updates.
(5) Congress should eliminate SGR projection errors by
either giving the administration the authority to change
projections as new Gross Domestic Product data becomes
available or by requiring the administration to update the SGR
using actual GDP data.
Resource-based Practice Expense: We are pleased with the
progress that has been made on refining the Practice Expense
Relative Value Units as mandated by BBA 97:
In the Medicare physician fee schedule proposal, HCFA has
made improvements in its methodology, providing an opportunity
for commenters to recommend corrections in code level practice
expense RVUs for the year 2000.
HCFA should continue to work in cooperation with the RUC/
PEAC process to ensure that the most accurate data is available
and used to refine the practice expense RVUs. The AOA strongly
supports bringing specialties together to work on the
refinement process.
In addition, HCFA proposes to remove the physicians'
clinical staff time in the facility setting from the raw CPEP
data used in calculating the practice expense payment for any
service. AOA agrees that Medicare should not pay twice for a
service. However, we do believe staff time in the office--such
as a nurse counseling a family; billing; time spent with
managed care companies--should be recognized and accounted for
in the practice expense. HCFA should establish a mechanism to
recognize those costs related to staff time in the office. In
addition, the AOA believes that further study may be necessary
to resolve the issue of practice expense payment for the
physicians' clinical staff time in a facility setting.
The AOA appreciates the opportunity to submit testimony and
the attention the Subcommittee is giving to the refinement and
correction of Medicare provisions in BBA.
[Attachments are being retained in the Committee files.]
Statement of American Physical Therapy Association, Alexandria, VA
Mr. Chairman and Members of the Subcommittee on Health, on
behalf of the more than 70,000 member physical therapists,
physical therapist assistants, and students of physical
therapy, the American Physical Therapy Association (APTA) is
pleased to submit this statement for your consideration as you
re-examine Medicare provisions contained in the Balanced Budget
Act of 1997. APTA commends the Committee on holding a hearing
on this important subject and appreciates having the
opportunity to comment.
Most Americans will probably need physical therapy services
at some time during their life. As people grow older, they may
suffer a stroke, break a hip, or sustain other traumatic
injury. Many of these illnesses and injuries occur unexpectedly
and require physical therapy services, which enable people to
return to home, to work, to school, or to an active retirement.
If Medicare beneficiaries receive these services on a timely
basis, they are able to obtain maximum independence and
increase the quality of their life.
The BBA significantly changed Medicare payment policies for
rehabilitation services. These changes have had a detrimental
impact on the ability of Medicare beneficiaries' access to
quality physical therapy services. Ultimately, they could
result in increased Medicare spending. This testimony will
focus on three of the payment policy changes in the BBA, which
have had a major impact on the ability of Medicare
beneficiaries to receive quality physical therapy services.
These include: (1) the $1500 cap on outpatient rehabilitation
services; (2) the skilled nursing facility prospective payment
system; and (3) the home health agency prospective payment
system.
Background
Prior to the BBA of 1997, Medicare reimbursement for physical
therapy services varied, depending on whether the services were covered
under Part A or Part B, and depending on the setting in which the
services were furnished. Skilled nursing facilities, rehabilitation
hospitals/units, home health agencies, CORFs, and rehabilitation
agencies were reimbursed under a retrospective cost-based system.
Physical therapists in private practice were reimbursed under the
physician fee schedule.
The BBA made significant changes to Medicare payment policies for
rehabilitation services. Under the BBA, beginning January 1, 1999, an
annual $1500 per beneficiary cap per year for physical therapy
(including speech language pathology services) and for occupational
therapy will be imposed on Medicare beneficiaries receiving outpatient
rehabilitation services. In addition, skilled nursing facilities
furnishing services under a Part A stay are reimbursed according to a
new prospective payment system, beginning July 1998. CORFs, home health
agencies (Part B), SNFs (Part B), rehabilitation agencies, and
outpatient hospital departments are reimbursed under a fee schedule,
beginning January 1, 1999.
These drastic changes, which will be discussed in further detail in
the paragraphs that follow, occurred at the same time. Thus, providers
did not have much time to prepare for them. Further, there was no
opportunity to determine whether any of these changes alone would have
brought about the necessary reductions in Medicare payment. For
example, changing from a cost-based system to a fee schedule for
outpatient therapy servings may have resulted in considerable savings
that would have made the $1500 cap unnecessary.
$1500 Cap on Outpatient Physical Therapy Services
The Balanced Budget Act (BBA) of 1997, amended section 1833(g) so
that beginning January 1, 1999, an annual $1500 per beneficiary cap per
year, per therapy will be imposed on Medicare beneficiaries receiving
outpatient rehabilitation services furnished by physical therapists in
independent practice (PTPPs), rehabilitation agencies, Comprehensive
Outpatient Rehabilitation Facilities (CORFs), skilled nursing
facilities (SNFs), and physicians' offices. The $1500 cap does not
apply to physical therapy services furnished in outpatient hospital
departments. In regulations issued by HCFA, two caps are established:
(1) $1500 per beneficiary per year for physical therapy and speech
therapy combined; and (2) $1500 per beneficiary per year for
occupational therapy.
A. The Cap Is Insufficient to Cover the Costs of Therapy
APTA strongly opposes the imposition of a $1500 cap on therapy
services. APTA believes that this cap will have a detrimental impact on
Medicare beneficiaries who need physical therapy services beyond the
arbitrary $1500 limit. The ability of Medicare beneficiaries to receive
the necessary physical therapy services under the $1500 limit is
further exacerbated by grouping speech therapy and physical therapy
together under one $1500 cap. In its June report to Congress, the
Medicare Payment Advisory Commission (MedPAC) stated that in 1996
``Physical therapy accounted for 70% of outpatient therapy payments.
Occupational therapy and speech pathology made up 21% and 9% of
payments, respectively.'' \1\
---------------------------------------------------------------------------
\1\ Report to the Congress: Context for a Changing Medicare
Program, Medicare Payment Advisory Commission, June 1998, p. 82.
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Documents produced by APTA and the Medicare Payment Advisory
Commission (MedPAC) indicate that $1500 per beneficiary per year is
insufficient to cover the costs of physical therapy for certain
diagnoses. In November 1997, the APTA published The Guide to Physical
Therapy Practice, Part II: Preferred Practice Patterns (hereinafter
referred to as the ``Guide''), that shows the impact that the $1500 cap
will have on beneficiaries in need of physical therapy. The Guide,
which was developed by expert panels of physical therapists, contains
preferred practice patterns describing common sets of management
strategies used by physical therapists for selected patient/client
diagnostic groups. The Guide classifies patients by impairments and
diagnostic groups, identifies the range of current options for care,
and approximates the expected range of number of visits per episode of
care for these patient groups. The Guide shows which conditions require
extensive physical therapy treatment. They include: individuals
recovering from a stroke, lower extremity amputation, hip replacement,
and Parkinson's disease to name a few. A chart, highlighting the mid-
range of physical therapy visits necessary per episode of care is
attached.
MedPAC analyzed the impact of the coverage limits and presented the
results of this analysis in its June 1998 report to Congress. MedPAC
examined the 1996 claims of patients treated in rehabilitation agencies
and CORFs who incurred payments that exceeded the $1500 coverage limit.
The Commission found that about 1/3 of patients in rehabilitation
agencies and CORFs exceeded either $1500 of outpatient physical and
speech therapy or $1500 of occupational therapy. MedPAC found that some
types of patients were more likely to exceed the dollar limit than
others. For example, half of the stroke patients served in these
settings exceeded the cap.
President Clinton, considerably younger than Medicare eligibility
age, suffered a knee injury, had surgery and underwent extensive
physical therapy for 3-4 months. Had he been a Medicare beneficiary,
the President's care would have exceeded the $1500 cap after 2-3 weeks
of care. As of result of his physical therapy, the President has
resumed full functional activities.
B. The $1500 Cap will disrupt the Continuum of Care
This payment policy will disrupt the continuum of care. Patients
will be forced to change treatment settings to an outpatient hospital
once the cap has been reached in a non-outpatient hospital setting.
Rather than saving money for the Medicare program, this policy only
redirects the patient to receive care in an outpatient hospital
department. Many beneficiaries, particularly in rural areas, may have
difficulty obtaining access to needed physical therapy services because
they would have to travel a considerable distance to reach a hospital.
Skilled nursing facilities will have two methods of reimbursement,
depending on whether the patient's stay is being covered by Part A or
Part B. If the patient is under Part A, therapy services will be
reimbursed under a prospective payment system. Under this system, the
SNF receives a per diem payment for each patient, which varies
depending on which of the 44 resource utilization groups (RUG) the
patient is classified. For Part B Medicare patients (when the patient
has exceeded the 100 day part A stay), the skilled nursing facility
will receive payment under the physician fee schedule for therapy
services and the $1500 cap will apply. This system is confusing to the
skilled nursing facility and the patient and disrupts patient care.
Further, Medicare beneficiaries in skilled nursing facilities that
are receiving Part B benefits will probably be unable to receive
physical therapy services once the cap has been reached. In the SNF PPS
regulations issued in July 1999, HCFA requires that SNFs bill for all
therapy services and states that a SNF resident may not go to an
outpatient hospital department to receive therapy services once the
$1500 limit has been exceeded. Therefore, SNF residents will be unable
to receive these services without paying out-of-pocket.
C. The $1500 cap will be difficult to administer
In addition to having an adverse impact on Medicare beneficiaries,
the $1500 cap will also be extremely difficult for HCFA to administer.
It will be an administrative nightmare for HCFA to determine whether a
Medicare beneficiary has exceeded the $1500 cap. For example, a
physical therapist in private practice will have difficulty determining
whether a beneficiary has already received $1500 of outpatient therapy
services in a skilled nursing facility. In addition, if the beneficiary
resides in New York for part of the year and Florida for the remainder
of the year, it may be difficult for the therapist in Florida to know
that the beneficiary had already received services in New York. The
fact that skilled nursing facilities, CORFs, rehabilitation agencies,
and private practitioners may submit different billing forms or have
different timing for submission of their bills will also result in
administrative problems in tracking whether the cap has been met.
According to the BBA, HCFA shall ``submit by January 1, 2001 a
report to Congress including recommendations on establishment of a
revised coverage policy for therapy services based on classification of
individuals by diagnostic category and prior use of services in place
of the dollar limits.'' APTA supports a coverage policy based on
patient resource utilization rather than caps.
APTA recommends that Congress repeal the $1500 cap on outpatient
therapy services. If the cap is not repealed, Congress should establish
exceptions to the cap. A bill, titled, ``The Medicare Rehabilitation
Benefit Improvement Act of 1999 (H.R. 1837 and S.427), which was
introduced in Congress, gives the Secretary of the U.S. Department of
Health And Human Services the authority to establish exceptions to the
current cap. The bill would address some of the problems that have been
caused by the $1500 cap by providing an exceptions process for the
medically complex and frail patients. According to the legislation, a
Medicare beneficiary would have to meet one of the following
requirements to receive an exception to the cap: (1) Be subsequently
diagnosed with an illness, injury or disability that requires
additional medically necessary rehabilitation services; (2) need more
extensive rehabilitative services due to an additional diagnosis or
incident that worsens the beneficiary's condition; (3) be hospitalized
if further rehabilitation services are not provided; or (4) meet other
criteria determined by the secretary of HHS. APTA urges members of
Congress to support this legislation. Passage of this legislation will
help to ensure that patients who are in need of outpatient therapy
services receive appropriate care.
It is APTA's view that the amount of physical therapy that the
patient receives should not be contingent upon the practice setting.
Patients should receive the appropriate level of care at the
appropriate site of services that is based on medical and functional
need and not on economic incentives or disincentives.
Skilled Nursing Facility Prospective Payment System
The BBA reduced skilled nursing facility payments by $9.5 billion
over five years and required the Health Care Financing Administration
(HCFA) to implement a prospective payment system (PPS) by July 1, 1998,
for skilled nursing facilities (SNF's). We believe that the prospective
payment system can improve the cost efficiency of the Medicare program
if implemented appropriately.
Under the PPS, a per diem payment is made to the SNF to cover the
routine, ancillary and capital costs incurred by the facility during
the patient's stay. One of the most critical issues in developing a
prospective payment system is developing a case-mix measure that will
be used to ensure that a facility is paid sufficiently for the
resources necessary to provide appropriate care. If appropriate payment
rates are established, patients will have access to medically necessary
care of high quality. If inadequate rates are established, patients
will experience difficulties in obtaining services.
In developing the per diem rates, HCFA included costs related to
nursing and social services salaries and total costs of non-therapy
ancillary services in the nursing case mix. Because the non-therapy
ancillary services, such as wound care, enteral nutrition, and
pharmaceuticals, were treated as a direct pass-through under the Multi-
State Case Mix and Quality Demonstration, HCFA did not have information
on the amount of these services that a resident in a particular RUG-III
group would receive. The case-mix weights only capture variations among
RUGs groups in anticipated costs for nursing and therapy staff time.
The differences in resource utilization for the other ancillaries are
not reflected in the therapy or nursing case mix weights and are not
captured in the non-case mix component of the payment. Therefore, the
facility receives the same amount for the non-case mix component
regardless of the RUGs-III grouping.
The residents in the different groups may vary in their use of
other ancillary services and supplies, such as wound care, lab tests
and pharmaceuticals. Thus, the new PPS fails to adequately account for
differences in costs associated with the care of medically complex
patients. According to preliminary research from HCFA, patients in two
RUGs categories, ``extensive services'' (which includes patients who
need IV feeding, IV medications, or require ventilators) and ``special
care'' (which includes patients with MS or CP) have much higher non-
therapy ancillary costs than other patients.
In our view, these issues can be addressed by revising current
case-mix (Resource Utilization Groups) categories used in the new SNF
PPS to account for these medically complex patients. Unfortunately,
HCFA cannot make any changes to case-mix until after 2000 because of
the year 2000 computer problems.
Problems arise for Medicare patients, particularly those who have
complex medical conditions requiring extensive nursing care,
rehabilitation and respiratory therapy and substantial use of
pharmaceuticals, specialized medical treatments and other non-therapy
ancillaries. It is a serious problem if SNF PPS payment rates are
insufficient to cover the costs of severe, medically complex patients
who incur significantly higher costs. In addition, APTA is concerned
that resources provided through the established RUG system for
necessary physical therapy services are being utilized to offset losses
relating to RUG payment for other services and items. APTA is wholly
opposed to this practice.
APTA supports utilizing a multiplier to increase the payments for
the extensive services and special care RUGs groups, until the final
case-mix improvements can be made by HCFA. It is clear that payment for
these categories is inadequate related to the costs associated with
treating these individuals. Once the Secretary refines case-mix and the
funding, the multiplier may no longer be necessary.
Recent OIG Reports
APTA supports the overall findings of the U.S. Health and Human
Services' Office of the Inspector General (OIG) in reports issued
recently regarding physical therapy and occupational therapy services
provided in skilled nursing facilities (SNFs).
In its report titled ``Physical Therapy and Occupational Therapy in
Nursing Homes: Medical Necessity and Quality of Care,'' the OIG found
that 83 percent of therapy provided in nursing homes was medically
necessary and that most patients would not have achieved similar
outcomes without therapy. However, 13 percent of therapy was billed
improperly to Medicare because the therapy was not medically necessary
or was provided by inappropriate staff. Another 4 percent of therapy
was not documented in the patient's medical record. The OIG noted that
some of these problems resulted from a lack of awareness and
understanding of the Medicare coverage guidelines and criteria.
The OIG recommended more training for skilled nursing facilities
and therapy staff on guidelines, coverage criteria, local medical
review policies, and monitoring procedures. APTA supports this OIG
recommendation and is eager to work with the Health Care Financing
Administration (HCFA) to provide such training.
APTA has worked diligently to enhance the documentation skills of
its members, an effort that has been commended by the Office of the
Inspector General. Physical therapy documentation practices need to be
improved in the skilled nursing home environment. Awareness and
understanding of Medicare coverage guidelines is essential and it is
the professional responsibility of physical therapists and physical
therapist assistants in skilled nursing facilities to be aware of these
guidelines.
The OIG report titled ``Physical and Occupational Therapy in
Nursing Homes: Cost of Improper Billings to the Medicare Program,'' it
was reported that $145 million was spent on services provided by
inappropriate personnel. The quality of care beneficiaries received
from those individuals must be in question, and should be address by
this Congress.
The OIG study, which was conducted before the implementation of the
prospective payment system (PPS) for skilled nursing facilities (SNFs),
also found that assistants and aides provided care that is above their
level of expertise, education, and training. APTA has long opposed the
use of inappropriate staff to provide services. The 1999 APTA House of
Delegates reaffirmed that position in an action stating that,
``Physical therapists are the only professionals and physical therapist
assistants, under the direction of the physical therapist, are the only
paraprofessionals who provide physical therapy interventions.''
APTA cautions that the SNF PPS encourages facilities to provide
care by the least expensive means. APTA is, therefore, concerned that
the PPS may be facilitating, instead of correcting, this behavior. APTA
is eager to address the issues brought forth in the OIG reports and to
work with Congress and the HCFA to ensure that beneficiaries receive
high quality care in skilled nursing facilities.
Home Health PPS
The BBA required HCFA to establish a PPS for home health services
and implement the system beginning October 1999. In addition, if the
PPS is not implemented by that date, home health agency payments would
be reduced by 15%. In the interim, home health agencies are reimbursed
under an interim payment system established by the BBA. Because of
problems associated with the IPS, Congress later passed legislation
mandating that the home health agency PPS be implemented by October 1,
2000 and delayed the 15% across the Board reductions until that date.
APTA urges Congress to ensure that HCFA implements a PPS system by
the deadline. Under the current interim payment system, HHAs are
experiencing significant reductions in payment, which are impacting
beneficiaries access to services. HCFA estimates that the IPS system
will result in a decrease in payments to home health agencies of $1.06
billion in 1998 and $2.14 billion in 1999 compared to payment that
would have been made if it were not enacted. This is approximately a 9%
reduction. In determining this reduction, HCFA accounts for changes in
the HHAs behavior, which might include increasing the number of low
cost beneficiaries served, decreasing the number of visits provided,
and discharging patients earlier.
APTA is concerned that due to the low reimbursement rates, home
health agencies will be forced to cut costs by reducing the amount of
therapy and other services that Medicare beneficiary receives, despite
the fact that those services are medically necessary. In addition, it
is difficult for HHAs to obtain physical therapists to furnish services
in rural areas, and as a result, the HHA has to pay higher salaries to
these therapies. Because the HHAs are receiving significantly lower
reimbursement under the new IPS, they may have difficulty recruiting
therapists in these rural areas. To further reduce the IPS system
payments by an additional 15% would exacerbate the problems cause by
the IPS and would prevent Medicare beneficiaries from receiving much
needed rehabilitation services that would enable them to function
independently.
APTA urges Congress to ensure that the home health agency PPS is
implemented as scheduled in October 1999 and that payment rates are set
appropriately under the PPS. In addition, HCFA should consult the
rehabilitation industry as they develop this system.
Home Health Oasis
On January 25, 1999, the Health Care Financing Administration
(HCFA) published an interim final rule titled: ``A Reporting Outcome
and Assessment Information Set (OASIS) Data as Part of the Conditions
of Participation for Home Health Agencies.'' This rule revises the
existing conditions of participation for home health agencies. The rule
requires that home health agency (HHA) health care providers complete a
comprehensive assessment for each patient and that they incorporate the
OASIS into the process.
OASIS is a lengthy, complex assessment tool. APTA believes that
these and other design flaws must be addressed in order for OASIS to be
an affective assessment tool. APTA wishes to work with Congress and the
HCFA in refining OASIS.
Physical Therapists in Private Practice
Another HCFA payment policy, which has further exacerbated the
impact that the BBA has had on therapy services relates to supervision
of physical therapists assistants, who render services in private
practice settings. In the November 1998 final physician fee schedule
rule, HCFA revises section 410.60 of the regulations to state that in
private practice physical therapy office, assistants and aides would
have to be personally supervised by the therapist and employed
directly. HCFA further defines personal supervision to require that the
therapist be in the room during the performance of the service.
APTA believes that the supervision requirement of physical
therapist assistants in the private practice setting should be direct
supervision rather than personal supervision. Direct supervision
requires that the physical therapist be on the premises when services
are furnished by the assistants, but not in the room. It is not
necessary for the physical therapist to be in the same room as the
assistant for services to be safely and effectively delivered.
Physical therapist assistants are recognized practitioners under
Medicare and are defined in the regulations at 42 CFR Sec. 485.705(c).
According to this provision, a physical therapist assistant is ``a
person who is licensed as a physical therapist assistants by the State
in which he is practicing, if the State licenses such assistants, and
has graduated from a 2-year college-level program approved by the
American Physical Therapy Association.'' APTA defines physical
therapist assistants as a ``technically educated health care provider
who assists the physical therapist in the provision of physical
therapy. The physical therapist assistant is a graduate of a physical
therapist assistant associate degree program accredited by an agency
recognized by the Secretary of the United States Department of
Education or the Council on Postsecondary Accreditation.'' Attached are
APTA's Guidelines on Direction, Delegation, and Supervision in Physical
Therapy Services, which provide these definitions.
Physical therapist assistants have the education and training to
perform services without a physical therapist being in the room. As
stated earlier, for Medicare to reimburse for the services of a
physical therapist assistant, the physical therapist assistant must
have graduated from a school of physical therapy approved by the
American Physical Therapy Association. To be accredited by APTA's
Commission on Accreditation in Physical Therapy Education (CAPTE),
programs must include a comprehensive curriculum, which makes the
graduate competent to furnish services. Attached are the evaluative
Criteria for Accreditation of Education Programs for the Preparation of
Physical Therapist Assistants, which include a description of the
curriculum for PTA schools.
Requiring personal supervision of assistants, would also be
contrary to state laws, which do not require that a physical therapist
be present in the room when supervising a physical therapist assistant.
In addition, in many other Medicare settings, such as SNFs, home health
agencies, and rehabilitation agencies, the supervision requirement of
PTAs is general supervision, meaning the physical therapist does not
have to be on the premises when the PTA is furnishing services.
Attached is a chart summarizing Medicare regulatory requirements for
supervision of physical therapist assistants in rehabilitation
agencies, CORFs, home health agencies, inpatient hospitals, outpatient
hospitals, physical therapists in private practice, physician's
offices, and skilled nursing facilities. A copy of Medicare regulations
and laws related to supervision accompany the chart.
Requiring direct supervision would be consistent with the
supervision requirement for assistants that PTPPs were required to meet
in the past under section 410.60(a)(3)(ii) of the Medicare regulations.
Prior to January 1999, section 410.60(3)(ii) of the regulations stated
that outpatient therapy services are covered if they are furnished,
``by or under the direct supervision of a physical therapist in
independent practice who is licensed by the State in which he or she
practices. . . .'' Section 486.151 also reiterated that ``services must
be furnished by or under the direct supervision of a qualified physical
therapist in independent practice.'' Further, section 2215 of the
carriers manual (Service Furnished by Physical or Occupational
Therapist in Independent Practice) states the following:
Nature of Covered Services: To be covered as physical
therapy, services must be the type and be rendered under the
conditions specified in section 2210. The services must be
provided either by or under the direct personal supervision of
the therapist in independent practice and the services of
support personnel must be included in the therapist's bill . .
.
Section 2050.1 of the carriers manual, which relates to a physician
billing services as incident to, states that ``coverage of services and
supplies incident to the professional services of a physician in
private practice is limited to situations in which there is direct
personal physician supervision. It further defines the term direct
personal supervision as follows:
Direct personal supervision in the office setting does not
mean that the physician must be present in the same room with
his or her aide. However, the physician must be present in the
office suite and immediately available to provide assistance
and direction throughout the time the aide is performing
service.
In response to APTA's comments regarding this issue, in the
November 1998 final fee schedule rule, HCFA states ``We do not believe
that we have the authority to modify the supervision requirements for
therapy (physical, occupational or speech-language pathology)
assistants and aides. Therefore, we are maintaining our current
requirement that therapy assistants and aides have to be personally
supervised by the therapist and employed directly by the therapist, by
the partnership or group to which the therapist belongs.'' (63 Fed Reg
58870). This provision clearly changes HCFA's policy with respect to
supervision in the private practice setting. Furthermore, the language
in the Federal Register, indicates that the decision to change the
supervision requirement from direct personal supervision (as defined on
the premises or in the suite) to personal supervision (in the room) was
based upon inaccurate information.
We request that you urge HCFA to clarify that the supervision
requirement for physical therapist employed in private practice setting
should be direct supervision. This would mean that the physical
therapist must be present in the office suite and immediately available
to provide assistance and direction throughout the time the assistant
is performing the service.
Conclusion
As your Committee examines the impact of the BBA on patient care,
you should ensure that Medicare beneficiaries have access to the
physical therapy services that they require. This can be accomplished
by: (1) repealing the $1500 cap on therapy services; (2) ensuring
appropriate payments rates under the SNF PPS for medically complex
patients; and (3) establishing a home health PPS based on sufficient
payment rates and case mix methodology. While we have only touched upon
a few areas of concern, the APTA recommends that you strive to ensure
that payment methodologies do not dictate patient care. It is our hope
that any Medicare reforms will enable Medicare beneficiaries to receive
necessary physical therapy services in an efficient, cost-effective
manner.
Statement of American Society for Gastrointestinal Endoscopy,
Manchester, MA
The American Society for Gastrointestinal Endoscopy (ASGE)
is pleased to submit the following recommendations for the
Subcommittee's consideration as it reviews possible
modifications to Medicare provisions in the Balanced Budget Act
of 1997 (BBA '97). ASGE represents the more than 6500
physicians who specialize in the use of endoscopy to diagnose,
treat and manage digestive diseases and conditions.
These changes represented one of the most significant
overhauls of the Medicare program in many years. Congress
initiated major revisions in Medicare's structure and payment
policies, including coverage of colorectal cancer screening and
other preventive benefits, changes in payment for physicians'
practice expenses, and establishment of a prospective payment
system for hospital outpatient department services, along with
many other provisions. The Subcommittee is to be commended for
initiating this review of the impact of BBA '97 in order to
evaluate whether or not the modifications are having negative
impacts on health care delivery for Medicare beneficiaries. If
the subcommittee determines that changes are required, ASGE
urges quick action on them.
ASGE has recommendations in three areas: colorectal cancer
screening, practice expense payments and the rules governing
payments for hospital outpatient departments and ambulatory
surgery centers.
Colorectal Cancer Screening
The preventive services provisions of BBA '97 represented a major
step forward in Medicare coverage of preventive care. ASGE particularly
supports the coverage of colorectal cancer screening because it is a
proven service that saves lives. Public understanding of the importance
of screening for this cancer has grown dramatically and physicians are
receiving more and more requests from patients for the service. In
fact, many practices have waiting lists of people who want to be
screened for this cancer.
Historically, many gastroenterologists and other physicians trained
in endoscopy have taught their nurses how to perform simple colorectal
cancer screening using a flexible sigmoidoscope. There is ample
research showing that nurses can perform this service safely and
effectively. However, under current Medicare law and regulation, there
is no way to pay for this service when performed by a nurse. ASGE
recommends that this situation should be changed to include trained
registered nurses in the universe of providers eligible for Medicare
reimbursement for flexible sigmoidoscopy for colorectal cancer
screening.
ASGE and representatives of the Society of Gastrointestinal Nurses
and Associates met with HCFA to discuss this problem and presented the
scientific data documenting the appropriateness and safety of nurses
performing screening sigmoidos--copy. We were advised that the payment
limitation was a function of the statutory language adopted in 1997 and
that HCFA had no authority to allow reimbursement for this service when
performed by nurses.
This limitation has no relationship to the training and skills of
nurses and is an artificial barrier to the most cost-effective
provision of these crucial screening services. ASGE urges the
Subcommittee to amend the BBA '97 colorectal cancer screening
provisions to allow reimbursement when appropriately trained nurses
perform flexible sigmoidoscopy for screening purposes.
Payment for Practice Expenses
The move to resource based practice expense relative values in the
Medicare physician fee schedule is having a significant impact on our
members, and many other physicians, as we see a tremendous shift of
reimbursement dollars from hospital and ambulatory surgery center
services to services in the physician office setting.
The implications of this transfer for our members and their
patients are not completely clear, but they could be significant and
possibly harmful to best medical practice. ASGE has for years
recommended that all settings where GI endoscopy is performed meet
equivalent safety standards. Few physicians' offices meet those
criteria. There are many sound medical and safety reasons why GI
endoscopy is not common in the physician office, and financial
incentives that might change that situation should be viewed with
caution.
Lack of Refinement as Required by BBA '97
Any payment system that has the potential to reduce practice
expense payment by nearly 70% for complex medical and surgical
procedures performed in the hospital requires careful review and
refinement. In fact, the BBA, which laid out the current framework for
revising the calculation of practice expense relative values, requires
HCFA to conduct a refinement of these values each year during the
transition from the old values to the new ones. ASGE is very concerned
that HCFA is not meeting that schedule and that the opportunities
created by the statute for refinement and transition are being lost.
In the fall of 1998 HCFA published its final rule implementing the
first phase of the Balanced Budget Act practice expense provisions. The
agency identified more than 25 issues of data and methodology that
required further attention and indicated that it would deal with them
in the refinement process. HCFA stated that it would hire a contractor
to advise agency staff on the many complex questions that remained.
Some of these, like the question of how new data would be entered into
the system, are critical to the future use of resource based practice
expense relative values.
The proposed rule released in July does not address most of these
matters. In fact, HCFA has only recently hired a contractor with
expertise to assist the agency with refinement issues. The contractor
is not expected to make a final report before May 2001. Thus, the
earliest any significant refinement of the practice expense values
could be achieved is 2002, after the transition has ended. It is quite
possible the implementation of refinements could extend beyond that
point. Therefore, we have urged HCFA to continue to consider all
practice expense relative values as interim until all the refinements
are complete, even beyond 2002.
Clinical Staff Time
HCFA did attempt one refinement of significance in its recently
proposed rule affecting the use of clinical staff when services are
provided outside the physician office, but the controversy surrounding
that proposal highlights the difficulties facing the agency as it tries
to move forward.
The issue of clinical staff time has its roots in the earliest
efforts to capture data on physician practice expenses. Several
specialties, including cardiothoracic surgeons, cardiologists and
ophthalmologists, indicated that they frequently brought their own
staff to the hospital to assist with surgery and patient rounds. They
argued that these expenses needed to be included in HCFA's database
that would be used to calculate the practice expense relative values.
In the proposed rule, HCFA addressed this question again and
eliminated these expenses. HCFA also published its estimates of the
impact of this decision on the various specialties. Not surprisingly,
the practice expense payments for cardiothoracic surgeons declined even
more than was previously estimated. However, the GI community was
stunned when HCFA estimated that its Medicare payments would drop
another 2% as well. Since gastroenterologists have not argued that they
take their own staff to the hospital, they could not understand why
their payments would be reduced by HCFA's policy decision. It turns out
that HCFA not only eliminated costs associated with clinical staff
brought to hospitals, but also costs associated with clinical staff who
support a hospital service from the office setting. This includes, for
example, costs such as providing patient instructions for the
procedure, providing the results to the patient and/or the family, and
other similar clinical interactions.
ASGE objects to this action. HCFA is required to ``recognize all
staff, equipment, supplies, and expenses'' in developing new resource
based practice expense relative value units. When HCFA began its data
collection efforts, physicians were specifically asked to identify the
amount of time that clinical staff spent on hospital based services. If
HCFA disputes these answers now, then it should develop a process for
reviewing that information with the physician community. The newly
hired contractor should be asked to advise HCFA on how to address this
question. Likewise the contractor should be directed to review the
circumstances under which some physicians may bring their own staff to
the hospital. This entire matter is clearly one that should be subject
to the refinement process and not subject to a unilateral decision that
further depresses payments for services performed in the hospital. We
have urged HCFA to delay this action until input has been received on
this issue from the American Medical Association's Relative Value
Update Committee, the newly established multispecialty Practice Expense
Advisory Committee and HCFA's own outside expert.
Site of Service Differential
HCFA has for many years applied a site of service differential in
Medicare physician payments, creating differing levels of payment for
practice expenses when a service is performed in the physician's office
and when the same service is delivered in a hospital or ambulatory
surgery center. The theory is that a physician incurs greater practice
expense when providing the service in the office where the physician
must carry all the overhead costs compared to performing the same
service in the hospital where the institution may bear some of these
costs. Our concern is not with the theory, but with its application.
The differential in payment between these settings is significant, and
may be large enough to encourage physicians to perform more and more GI
endoscopy in the unregulated office setting. Since all but the simplest
endoscopic procedures require the use of anesthesia, usually conscious
sedation, ASGE believes that the office is an inappropriate site of
service unless the office demonstrates it meets the same standards as
ambulatory surgery centers or hospital outpatient departments. Few
physician offices can meet this standard, and we see no willingness by
HCFA to begin requiring that physician offices meet these requirements.
We are not alone in this concern. The Florida Board of Medicine is
now reviewing a proposed rule that would require the presence of an
anesthesia-trained third party to administer office-based anesthesia.
California has acted legislatively to address this same problem. These
states recognize that there is risk to patients in the unregulated use
of anesthesia in the physician office and are taking steps to protect
patients.
ASGE believes that HCFA should do no less. HCFA's prior rules on
the site of service differential required that a procedure be performed
at least 50% of the time in the physician office setting before any
payment differential would be applied. This simple formula assured that
the use of a procedure in the office was well accepted before a payment
differential was established. When HCFA used panels of experts to
develop the original cost estimates for practice expenses, a 10%
threshold was adopted. These panels would not consider costs in the
office setting unless there was evidence that the procedure was
performed in the office at least 10% of the time. HCFA's current rule
has no explicit threshold. Most of the GI endoscopy procedures that are
subject to the site of service differential are performed in the office
10% or less on average, according to HCFA data.
ASGE believes that HCFA's current application of a site of service
differential sends the message that the federal government believes
that these procedures are appropriately performed in the unregulated
office setting. This is the wrong message.
If HCFA does not want to set a simple threshold for the application
of the site-of-service rule, such as 25%, then it may wish to consider
the recommendation of the Medicare Payment Advisory Commission
(MedPAC). In its report to Congress this year, MedPAC recommended that
``decisions regarding the applicability of the site-of-service
differential should reflect a clinical consensus about the settings in
which specific services should be provided.'' That would also be a
sensible way to resolve this issue, one that is consistent with the
standard of care in each specialty. At the present time, the consensus
among the national gastroenterology organizations is that HCFA's action
is not correct. It would require little effort to work with the
interested specialty societies to clear up this situation and would
reduce the possibility of unintended consequences for patient care.
ASGE has previously recommended that this site of service rule be
changed to better reflect an appropriate standard of medical care. We
have urged HCFA to either apply a reasonable threshold to the
application of a site of service differential or adopt MedPAC's
recommendation. HCFA should then recalculate the practice expense
relative values based on this new standard.
What Should This Subcommittee Do?
ASGE is presenting these detailed comments to the Subcommittee to
demonstrate the complexity of the effort to develop practice expense
payments that realistically address the true costs of medical practice.
This issue has been debated since 1992 when the physician fee schedule
went into effect. HCFA has already spent years examining this problem
and trying to collect data upon which to act. Now we have learned that
the transition will likely be over before HCFA is prepared to act on
needed refinements to data and methodology. The investment of seven
years and untold taxpayer dollars has produced little. Even if HCFA
accepted the recommendations we have just outlined, significant
problems remain with the entire enterprise.
ASGE believes that the time has come to reexamine the decision to
move to resource based practice expense relative values. We do not
believe that HCFA has the resources to address refinement questions
promptly. Given our present limited knowledge and federal resources, it
is unlikely that we can ever develop real confidence in the practice
expense relative values. If there is no shared confidence in the
values, how can Congress or the public be assured that the massive
changes in payment that are now underway are justified and will cause
no harm? The reimbursement shifts now underway affect all medical
services provided outside the physician office and particularly impact
the nation's tertiary care and teaching hospitals which often
specialize in the very kinds of medical and surgical procedures most
hard hit by these changes.
ASGE appreciates the leadership of the Subcommittee during the
debate over practice expenses in 1997. The changes incorporated in the
BBA were an honest attempt to clarify HCFA's instructions and get the
entire process back on track. However, ASGE must ask this Subcommittee
to act again on the practice expense issue. It is time to recognize the
limitations of data and methodology that undermine confidence in the
physician fee schedule and to place reasonable limits on the changes
that will result from this exercise. Given the lack of data, no
practice expense relative value should be reduced by more than 20
percent from its 1997 level, the last year before the practice expense
transition began. For the same reasons, no practice expense relative
value should increase more than 200% over its 1997 level. This upper
boundary still allows for significant adjustments in payments for
evaluation and management codes, but eliminates some of the more
inexplicable changes (like a more than 400% increase in the practice
expense values for ear wax removal) that have been produced by this
effort.
Even with these limits, the values would still be more resource
based than their predecessors would because HCFA has used the American
Medical Association's survey data on physician practice costs as the
starting point for its work. The policy of increasing payment for
evaluation and management codes that were regarded as undervalued by
many physicians would also be achieved.
However, setting these limits would protect against unpredictable
and undesirable shifts in physician and hospital behavior that could
result from the dramatic reductions in payments for services provided
in hospitals and other settings outside the physician office.
Payments in the Hospital Outpatient Department and the Ambulatory
Surgery Center
Congress directed HCFA to develop a prospective payment system for
the hospital outpatient department. A mechanism has been proposed, but
it has raised substantial concerns among hospitals and physicians
because of the reductions in payment that would result from its
implementation. MedPAC has recommended that HCFA proceed with caution
and evaluate alternative systems.
As this process has been under development, HCFA has also announced
a new payment methodology and rates for ambulatory surgery centers
(ASCs). Using data from 1993 HCFA has proposed major revisions and
reductions from current payment levels. We estimate that payments for
centers that specialize in GI endoscopy would decline by 14%.
Almost all complex GI endoscopic services are provided in either
the hospital outpatient department or the ambulatory surgery center.
ASGE is very concerned that the payment proposals now under review will
significantly affect the ability of these facilities to provide the
kinds of staff and technological support that are needed to assure the
best outcome for the patient. We are particularly troubled that HCFA's
data supporting the action on the ASCs are so flawed. Not only is it
old, it is very incomplete. HCFA had to extrapolate more than half the
payment rates because of inadequacies in the database.
HCFA is now finalizing the 1999 ASC cost survey. ASGE has reviewed
the document and finds it much improved over the earlier survey form.
We believe that HCFA should delay action on the ASC proposed rule until
the new data are available. Since there is no statutory mandate or
deadline for action on ASC payments, there should be no reason not to
delay the rule in order to get superior data.
We urge this Subcommittee to direct HCFA to delay the ASC rule
until the data from the 1999 cost survey are collected and analyzed.
Conclusion
ASGE is encouraged by the Subcommittee's review of the Medicare
provisions in the BBA '97. It is timely and appropriate. We urge
careful consideration of our recommended changes as the Subcommittee
continues its efforts.
Statement of Association of American Medical Colleges
The Association of American Medical Colleges (AAMC) is
pleased to submit for the record testimony to the House Ways
and Means Health Subcommittee on the need to provide teaching
hospitals relief from further Balanced Budget Act of 1997 (BBA)
Medicare reductions. The AAMC represents more than 300 of the
nation's major teaching hospitals and health systems
participating in the Medicare and Medicaid programs, including
70 Department of Veterans Affairs medical centers; the nation's
125 U.S. accredited allopathic medical schools; 16 accredited
Canadian medical schools; nearly 90 academic and professional
societies representing 75,000 faculty members; and the nation's
medical students and residents.
The Role of Teaching Hospitals in America's Health Care System
Teaching hospitals have a unique role in our nation's health care
system. In addition to providing basic health services to their
communities, such as primary and secondary patient care, teaching
hospitals have the additional societal responsibilities of providing:
education for all types of health care professionals; an environment in
which clinical research can flourish; and highly specialized tertiary
patient care such as burn care, trauma and cardiac care, and transplant
services. Teaching hospitals also provide a significant amount of
indigent care. Because of their education and research missions,
teaching hospitals offer the newest and most advanced services and
equipment, and with residents and supervising physicians available
around-the-clock, teaching hospitals care for the nation's sickest
patients. (Attachments 1 and 2 provide detailed information on the
special characteristics of teaching hospitals.)
The Balanced Budget Act of 1997
The BBA made significant changes to the Medicare program, including
major reductions in Medicare payments to hospitals. The BBA contains
some of the most significant changes for teaching hospitals since the
beginning of Medicare. Chief among the BBA's changes are Medicare
reductions in special payments to teaching hospitals, known as the
Indirect Medical Education (IME) adjustment and the Disproportionate
Share Hospital (DSH) payment. DSH payments reimburse hospitals for
caring and preserving access for low-income Medicare beneficiaries and
indigent populations. While the IME payment carries a ``medical
education'' label and reimburses teaching hospitals for the higher
costs associated with physician training, the purpose of the IME
payments is much broader:
This adjustment is provided in light of doubts . . . about the
ability of the DRG case classification system to account fully for
factors such as severity of illness of patients requiring the
specialized services and treatment programs provided by teaching
institutions and the additional costs associated with the teaching of
residents . . . The adjustment for indirect medical education costs is
only a proxy to account for a number of factors which may legitimately
increase costs in teaching hospitals (House Ways and Means Committee
Rept, No. 98-25, March 4, 1983 and Senate Finance Committee Rept, No.
98-23, March 11, 1983).
In addition, the BBA makes significant changes to the outpatient
payment system which will also significantly affect Medicare's support
of teaching hospitals. The BBA's cuts to these three Medicare payment
areas--IME, DSH, and outpatient--contribute to the disproportionate
impact of the BBA on teaching hospitals (Attachment 3).
Medicare Indirect Medical Education Payments
The BBA reduces the Medicare Indirect Medical Education
(IME) adjustment by 29 percent over four years. Specifically,
the BBA reduced the IME adjustment from 7.7 percent to 7.0
percent in Fiscal Year (FY) 1998 and from 7.0 percent to 6.5
percent for FY 1999, and will lower the adjustment further to
6.0 percent in FY 2000 and 5.5 percent in FY 2001. This
reduction represents an absolute cut in Medicare support rather
than a reduction in the rate of growth. On average, the IME is
the second largest inpatient payment loss for teaching
hospitals. Only losses associated with the inflation update
payment rates are higher. (Attachment 6). However, for many
teaching hospitals, the IME represents the largest loss of
dollars as a result of BBA reductions.
Medicare Disproportionate Share Payments
The BBA also disproportionately affects teaching hospitals
through Medicare's reduction in DSH payments because two-thirds
of Medicare DSH payments are paid to teaching hospitals. The
BBA reduces Medicare's DSH payments by five percent over five
years (one percent increment per year). Thus far, a two percent
reduction has been implemented.
Medicare Outpatient Prospective Payment System
The Health Care Financing Administration (HCFA) estimates
that the BBA's authorization of an outpatient prospective
payment system (PPS) will reduce per year outpatient payments
to teaching hospitals by 10.6 percent compared to current
payment levels. Such reductions will be more than double the
estimated per year losses for non-teaching hospitals. This new
system will further worsen the gap between costs and payments
for hospital outpatient services to Medicare beneficiaries. The
Medicare Payment Advisory Commission (MedPAC) estimates that
outpatient payments for major teaching hospitals will fall to
less than 70 percent of costs when the outpatient PPS goes into
effect.
The BBA's Impact on Teaching Hospitals
The AAMC has major concerns about the ability of teaching hospitals
to support their education, patient care, and research missions in
light of their current financial uncertainty. As the health care
marketplace is becoming more price competitive, all payers--including
private payers, Medicare and Medicaid--are reducing their payments to
teaching hospitals. Teaching hospitals are no longer able to bill at
rates that reflect the extra costs of their special missions and
responsibilities. Such reduced rates have put the long-term viability
of teaching hospitals and their special missions in jeopardy. Only two
years into its five-year implementation, the BBA's damaging impact,
coupled with current market place phenomenon, is causing an immediate
financial crisis at many teaching hospitals across the country.
Assuming the same inpatient volume and case mix of Medicare patients,
the vast majority of AAMC-member teaching hospitals will receive less
money from Medicare in FY 2000 than they did in FY 1997.
Total margin is an important financial performance measure that
reflects total hospital revenues and costs associated with all
inpatient, outpatient and non-patient care activities.
The AAMC has conducted an analysis of the BBA's current and
projected financial impact on its members, known as the Council of
Teaching Hospitals and Health Systems (COTH). The AAMC found that
Medicare reductions resulting from the BBA could result in the median
total margin for a typical major teaching hospital (defined as those
that have 25 or more residents for every 100 beds) falling to zero by
2002. In 1997, the median total margin for a typical major teaching
hospital was 2.9 percent compared to margins of 5.4 and 6.1 percent for
other teaching and non-teaching hospitals respectively. In 2002, the
median total margin is projected to drop to zero (Attachment 5). Half
of all major teaching hospitals could face negative total margins by
2002 (Attachment 6).
Moreover, AAMC's analysis found that by 2002, a typical major
teaching hospital will cumulatively lose $41.1 million in Medicare
payments (Attachment 4). However, many AAMC members across the country
are slated to lose much more.
The Lewin Group's analysis of total Medicare margins project
similar, but sharper trends--a declining teaching hospital margin from
1.1 percent in 1998 to -8.0 percent in 2002 (Attachment 7).
As reported in newspapers across the country, many teaching
hospitals have already reduced their work forces due to their dire
financial circumstances. Left unchecked, the BBA's Medicare cuts to
teaching hospitals could force some of the nation's teaching hospitals
to reduce the scope of their special and unique community services.
Teaching hospitals in every region of the nation are now considering
scaling back such key community services as poison control centers,
hospital services for the uninsured, clinical research activities and
education and training for medical students and residents.
Legislative Solutions Providing BBA Relief to Teaching Hospitals
Because the future of these special missions is in jeopardy, the
AAMC is asking Congress to provide financial relief from the BBA to
teaching hospitals by changing the BBA's implementation of Medicare IME
and DSH payment reductions and reforming the outpatient payment
prospective system. Several bills granting BBA relief to teaching
hospitals have been introduced in Congress. Specifically, the AAMC
supports the following recommendations to provide financial relief to
teaching hospitals:
(1) Halt the Implementation of IME and DSH Cuts
Freeze the BBA's reductions in Medicare IME and
DSH payments at current levels.
(2) Reform the proposed Medicare Outpatient PPS:
Eliminate the 5.7 percent overall reduction due to
the beneficiary co-insurance calculation. 252 Representatives
and 77 Senators have written to HCFA Administrator Nancy-Ann
Min deParle suggesting that HCFA's proposed rule is
inconsistent with Congressional intent.
Establish a payment floor to limit losses for
hospitals that incur large payment reductions under the new
PPS.
Address other associated policy changes, such as
establishing outpatient IME and DSH adjustments.
(3) Pay Teaching Hospitals 100 Percent of Special Payments
Associated with Medicare Plus Choice Enrollees
Currently, DSH hospitals do not receive these
important payments when they care for Medicare managed care
enrollees because the payment is included in the calculation of
the payment to the managed care plan and managed care plans are
not required to pass this special payment along to hospitals.
The BBA's gradual phase-in payment of both Direct
Graduate Medical Education (DGME) and IME payments to teaching
hospitals when they care for Medicare+ Choice (Medicare managed
care) enrollees should be accelerated to 100 percent starting
in FY 2000. Currently, the phase-in schedule for these payments
over five years pays teaching hospitals amounts equal to 60
percent in FY 2000, 80 percent in FY 2001, and 100 percent in
FY 2002.
The AAMC would be pleased to work with the committee to
ensure the future viability of teaching hospitals and their
patient care, education and research missions.
Major Teaching Hospital Characteristics
[Short-Term General, Non-Federal Hospitals, 1997]
------------------------------------------------------------------------
% of
Major % of All
Teaching Hospitals
------------------------------------------------------------------------
AIDS Inpatient or Outpatient Care................. 88 38
Cardiac Cath Lab.................................. 94 36
Open Heart Surgery................................ 82 21
MRI............................................... 85 49
Trauma Center..................................... 75 23
Psych Outpatient.................................. 77 28
Organ Transplant.................................. 65 9
------------------------------------------------------------------------
SOURCE: AAMC analysis of AHA Annual Survey of Hospitals, 1997 data.
NOTE: Major Teaching Hospitals are 277 members of the Council of
Teaching Hospitals and Health Systems (COTH).
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Statement of Association of Community Cancer Centers, Rockville, MD
New Studies Show All Hospital Outpatient Cancer Programs Will Face
Losses of 32 to 51 Percent Under APCs--APC Methodology Causes Perverse
Incentives to Use Older Drugs
ROCKVILLE, MD--Two new studies released by the Association of
Community Cancer Centers (ACCC) demonstrate that university and
community hospital cancer programs will encounter huge losses under the
Health Care Financing Administration's (HCFA) proposed Ambulatory
Payment Classifications (APC) system. The studies show that if APCs
were enacted as proposed, the loss to hospital cancer programs would be
$202 million in 1998, or 51 percent of the actual cost of chemotherapy
and supportive care drugs.
The studies performed by The Lewin Group, ELM Services, Inc., and
ACCC simulated the HCFA database that was used by the agency to produce
the APC categories, then tracked the drugs in the database to see how
reimbursement changed between 1996 (the year that HCFA used as its base
year for calculations) and 1998 (the most recent year for which actual
sales data to hospitals was available). A paper co-authored by members
of the Lewin team and ACCC concludes that ``the APC system will not
work for oncology drugs and rapid innovations.'' The authors noted that
keeping oncology under APCs would ``threaten the quality of cancer care
available to Medicare beneficiaries.''
The studies also showed that the implementation of the Balanced
Budget Act (BBA) would harm outpatient radiation oncology at U.S.
hospitals, where 65 percent of all radiation oncology is currently
conducted. Because of the structure of the formula-driven overpayment
(FDO) implementation, radiation oncology is now reimbursed at $197
million below its Medicare-allowed costs, a 32.7 percent loss.
Outpatient cancer care services are delivered in community and
university hospitals throughout the U.S. Community hospital-based
cancer programs and centers treat 85 percent of all U.S. cancer
patients. The top ten cancer centers see roughly 5 percent of all
cancer patients, while other university cancer centers see another 10
percent. The authors note, ``In the real world of hospital decision
making, the inability to be directly compensated for this expensive
group of drugs could quickly label the oncology area as a `loser.' ''
``The combined impact of losses for chemotherapy, supportive care
drugs, radiation oncology, and chemotherapy administration is
sufficient for many hospital administrators to question whether they
can afford to suffer these levels of losses,'' said Dr. Lee E.
Mortenson, ACCC's executive director and lead author on the paper.
``APCs as proposed will mean that most university cancer centers will
close their outpatient areas, many, if not all tertiary care community
facilities will close, and many rural hospital cancer clinics will
close. The implications are vast for both treatment and cancer
research.''
APC Methodology Causes Perverse Incentives to Use Older Drugs
The study notes that because the APC methodology lumps
inexpensive drugs in with expensive drugs, ``older drugs are
overcompensated and newer drugs, presumably more costly yet
more effective, are undercompensated.'' The APCs put all
chemotherapy drugs into four categories and reimburse them for
an average cost of their 1996 values. This practice leads to
some older drugs receiving compensation at 1,500 percent of
their price, while most drugs approved since 1995 are
compensated at just 58 percent of their cost.
The Lewin-ACCC analysis notes that, ``These wide variations
imply that HCFA's APC categories are not cost homogeneous and
likely do not reflect comparable clinical meaning.'' The
authors go on to conclude that, ``the economic incentives are
strong and unbalanced. Payment systems should be incentive
neutral across clinical options, and this is clearly not the
case. This lack of balance can lead to perverse outcomes.''
The analysis points out that while the four APC buckets
HCFA devised for chemotherapeutic drugs were relatively
balanced in 1996, by 1998 they are significantly unbalanced,
causing hospitals to be reimbursed far below costs. This rapid
change is central to the problem since older and less costly
drugs saw utilization increase by 41 percent, while newer
drugs, which were financial ``losers,'' increased in use by 311
percent. One ACCC study shows that innovation in oncology drug
use is extremely high: More than 40 new drugs have been
introduced since 1992. These drugs have more than 220 new
indications as documented in the peer-reviewed literature and/
or by the two national reference compendia, which Congress
requires Medicare and Medicaid to use for reimbursement of
patient care.
APC Methods Miss Supportive Care Drugs And Will Always Lag
Behind
To simplify its analysis, HCFA eliminated all bills with
more than one procedure, lowering its original sample size to
one-quarter of all 1996 claims. In oncology, however, this
methodology had several perverse effects. Most oncology drug
and radiation oncology treatments are given as a series and
billed the same way, as a ``batch.'' In addition, most
chemotherapy regimens are multi-drug regimens that have been
found to be more effective than single drug regimens for many
forms of the disease. But in this case, HCFA's methodology
leads to the number of cancer claims being reduced to only one-
eighth of their original size. HCFA edits, which eliminated all
claims with units of more than 50, reduced the sample size to
just 6 percent. The authors note that, ``Most likely the bills
remaining after excluding multiple procedure claims would be
error correction bills, or an occasional drug not given as part
of the more common multi-drug chemotherapeutic combinations.''
Loss of the multiple procedure drugs might also explain the
disappearance of another significant portion of cancer drug
payments. HCFA could find just $2.8 million in supportive care
drug payments for all Medicare patients in 1996! Because this
number was insignificant, HCFA chose to ``bundle-in'' or not
reimburse supportive care drugs.
Using information from IMS Health, a national research firm
that tracks direct sales to hospitals and hospital outpatient
departments, the ACCC team was able to calculate that Medicare
patients actually received $89 million in supportive care drugs
in 1996. HCFA found just 3 percent of that number. Given the
size of the missing pool of supportive care drug reimbursement,
the researchers conclude, ``that the majority of supportive
care cost claims were unaccounted for in the payment
calculations because of the elimination of bills with multiple
procedures.''
The authors also note that ``since HCFA by necessity must
continue to use data that are several years old to develop its
APC relative prices, HCFA's approach to drug reimbursement will
continually lag far behind the innovation curve.''
Researchers Conclude APCs Cannot Manage Innovation
The authors note that APCs are unlike Diagnosis Related
Groups (DRGs), the successful hospital inpatient prospective
payment system. That system gives hospitals ``a payment for a
clinically cohesive set of treatments that affect a patient
with a specific diagnosis.'' While the authors note that DRGs
give hospitals ``wide latitude'' and have encouraged the use of
new treatment approaches, especially if these lowered other
costs, they find that the APC system does not provide this
latitude and is likely only ``to encourage the use of low-cost
care.''
The researchers conclude, ``Unlike the DRG system, the OPPS
(outpatient prospective payment system) has little room for
altering the pattern of care by using a high cost technology
that lowers the overall cost of care. If the HCFA database
cannot be altered to capture appropriate information, such as
supportive care drugs, and if its methodologies cannot be
altered to accommodate the wide variability of drug pricing,
efficacy and use, there will be significant problems going
forward for oncology drug delivery and other high technology
areas.''
Stating that recalculation of the existing APC payment
system is not a workable solution given the 300 new drugs in
the current research pipeline and other rapid innovations in
oncology, the authors note that ``HCFA's data will always lag
behind reality in significant ways.'' In the meantime, they
suggest, ``Congress may have to take action to assure that
Medicare patients receive adequate care in hospital outpatient
settings. Certainly in a time of budget surpluses, this is no
time to cut benefits to Medicare patients in critical areas
such as oncology.''
ACCC institutional and group practice members include more
than 575 medical centers, hospitals, oncology practices, and
cancer programs. This group of institutions now sees almost 40
percent of all new cancer patients seen in the U.S. each year.
The Association provides a national forum for addressing
issues that affect community cancer programs, such as
regulatory and legislative issues, measurements of the quality
of care, and clinical research. Its unique membership includes
all members of the cancer care team: medical and radiation
oncologists, surgeons, cancer program administrators and
medical directors, oncology nurses, radiation therapists,
oncology social workers, and cancer program data managers.
Statement of Center for Patient Advocacy, McLean, VA
The Center for Patient Advocacy is pleased to submit
written testimony to the Subcommittee on Health as it examines
changes made to the Medicare program by the Balanced Budget Act
of 1997 (BBA). We commend the Subcommittee for conducting this
hearing and for its commitment to ensuring that our nation's
seniors continue to have access to the quality health care the
Medicare program was created to deliver.
Founded in 1995, the Center for Patient Advocacy is a
private, non-profit, grassroots organization representing the
interests of patients nationwide and dedicated to ensuring that
patients have timely access to quality health care. With a
grassroots coalition of more than 60,000 ``citizen lobbyists''
across the country, the Center has brought the patient's
perspective to several critical issues that have come before
Congress in recent years, including managed care reform, FDA
modernization and biomaterials reform. We have also launched a
new division of the Center this year, the Access to Cancer Care
Alliance (ACCA), which is actively addressing access and
quality care issues for cancer patients. In all of our
endeavors, our goal has been and continues to be to ensure that
health care policymakers recognize the needs and concerns of
patients and work to address them.
As you know, the BBA made significant changes to the
Medicare program, some of which may have unintended
consequences. Of particular concern to the Center and ACCA is
the Health Care Financing Administration's (HCFA) proposed rule
to implement a prospective payment system (PPS) for hospital
outpatient departments. We are very alarmed that, if
implemented in its current form, the rule would severely limit
patient access to needed cancer treatments and threaten the
continued research and development of state-of-the-art cancer
drugs and therapies.
Under the current Medicare payment system, hospital
outpatient departments are reimbursed for their services on a
cost basis, providing physicians the ability to select the
treatments they believe will most benefit their patients. This
helps to ensure that cancer patients, more than half of whom
are enrolled in the Medicare program, will receive the latest,
most effective treatments. However, if HCFA's rule is
finalized, this will no longer be the case.
HCFA has proposed to lump all cancer treatments, including
chemotherapy and radiation, into a small number of Ambulatory
Payment Classifications (APCs), bundling the costs of drugs,
biologics and supportive care services into a single payment.
Such a payment system will create incentives for hospitals and
health care providers to place financial considerations above
the medical needs of cancer patients. In fact, the Medicare
Payment Advisory Commission (MedPAC) raised this very concern
in its June 1998 report to Congress stating that ``payment
systems for ambulatory services should not engender financial
incentives that could inappropriately influence clinical
decisionmaking.'' However, this is exactly what the APC
regulation would do.
Due to the vast differences in the cost of certain cancer
treatments and the reimbursement levels HCFA has proposed,
patients inevitably will be denied access to many cancer
treatments. This is especially of concern when it comes to the
latest advancements in cancer care, which usually are more
expensive. Under HCFA's proposal, treatments introduced later
than 1996 are reimbursed at the lowest level--less than $60.00.
As a result, outpatient centers will be forced to either stop
providing cancer treatments, or incur significant financial
losses for providing such care. Moreover, incentives would be
created that would encourage providers to select only older,
less effective cancer treatments for their patients. The impact
on patients, particularly those is rural areas, is devastating,
as patients would no longer have ready access to needed state-
of-the-art treatments.
Also of significant concern is the issue of supportive care
drugs. Supportive care drugs are used as part of comprehensive
cancer treatment with the majority of patients with cancer and
help them tolerate and survive their treatment. Without
supportive care drugs, optimal cancer care is severely
compromised. However, it appears that HCFA does not believe the
use of supportive care drugs is common and therefore has
proposed not to provide specific payments for them. Instead,
the costs of supportive care drugs are ``bundled'' into the
overall APC payment. As a result, patients will either be
forced to endure cancer treatments without the benefit of
needed supportive care services, or be denied access to cancer
treatments altogether.
Finally we are concerned that HCFA's APC proposal poses a
significant threat to cancer care research and development. As
new technologies increasingly become unavailable due to
inadequate reimbursement, research and development could be
discouraged or delayed, denying the patients of today and those
of future generations access to more effective treatments.
The Center for Patient Advocacy and our Access to Cancer
Care Alliance believe that in order to preserve patient access
to needed cancer services, including chemotherapy, radiation
and supportive care drugs, such cancer services should be
excluded from the proposed payment system. And we strongly
support the Medicare Full Access to Cancer Treatment Act (H.R.
1090), legislation introduced by Congressman Gene Green (D-TX),
that would provide a ``carve-out'' for cancer care under the
PPS.
It is our understanding that one option being explored to
address this issue is a limited carve-out, excluding the 10
free-standing NCI designated cancer centers from the outpatient
PPS. While we certainly agree that such a provision would
benefit some cancer patients, much more needs to be done. The
10 NCI designated centers represent only a small percentage,
approximately 5%, of cancer patients affected by the outpatient
PPS. Therefore, such a limited carve-out would not adequately
address the underlying problems facing the 95% of cancer
patients who would continue to be subjected to significant
restrictions on their ability to access quality cancer care.
The Center for Patient Advocacy agrees with Members of
Congress that the Medicare program needs to be reformed to
ensure that it will continue to benefit the nation's seniors as
we move into the 21st century. But, we do not believe that HCFA
should provide financial incentives that encourage providers
and hospitals not to deliver quality patient care. This is
especially troubling when we talk about Medicare patients who
represent more than half of all cancer diagnoses and more than
60% of all cancer deaths. And if we are to continue our efforts
to find a cure and develop new treatments for cancer, it is
critical that patients have access to the latest treatments the
medical community has to offer.
While the Center continues to work with HCFA, Members of
Congress and other advocacy organizations to address this
issue, we strongly believe that a legislative fix is needed to
guarantee that Medicare patients with cancer will continue to
have access to the quality care the Medicare program was
created to help deliver.
On behalf of cancer patients and their families nationwide,
we appreciate your consideration of our concerns and look
forward to working with the Subcommittee on this very important
issue.
Statement of Social HMO Demonstration Sites: Elderplan, Brooklyn, NY,
SCAN, Long Beach, CA, Sierra Health Services/Health Plan of Nevada, Las
Vegas, NV
Elderplan, SCAN and Sierra Health Services/Health Plan of
Nevada are Social HMO demonstration sites located in Brooklyn,
NY, Long Beach, CA and Las Vegas, NV, respectively. We
appreciate the opportunity to submit written testimony for this
hearing focusing on refinements to the Balanced Budget Act of
1997 (BBA).
The Social HMO demonstration originally was established
under the Deficit Reduction Act of 1984 to test innovative
models for integrating acute and long-term care services for
Medicare beneficiaries. The demonstration was expanded to
include several additional ``second generation'' sites under
the Omnibus Budget Reconciliation Act of 1990. Waiver authority
for the first generation Social HMO sites was extended in 1987
and 1990 and authority for first and second-generation sites
was extended in 1993 and 1997 by Congress. Waiver authority
currently is scheduled to expire December 31, 2000. The Social
HMO demonstration emerged out of a recognition that the
supportive care required by the frail elderly and disabled is
not adequately covered by Medicare or Medicaid, leaving the
burden of such care to fall most often on family members. In
contrast to acute conditions, which can be effectively treated
in clinic or inpatient hospital settings, chronic illnesses and
severe disabilities require a ``systems'' approach to care. A
central role of the Social HMO model--and one that
distinguishes it from traditional M+C plans--is to provide and
coordinate additional services as an extension of benefits
covered by Medicare and Medicaid. These services go beyond the
type of supplemental benefits often offered by traditional M+C
plans and include prescription drugs, eyeglasses, hearing aids,
dentures, foot care, mental health, nutritional services, care
management and a wide range of home and community-based
services. Coverage of additional chronic care services enables
many frail elderly to live safely in their own homes and avoid
or delay nursing home placement. Importantly, these additional
services are provided in a budget neutral fashion; i.e., at a
cost no greater than the equivalent of what Medicare would have
paid for like beneficiaries receiving services under the
original Medicare program.
Elderplan, SCAN and Sierra seek the subcommittee's
consideration of technical amendments to the Balanced Budget
Act of 1997 (BBA) to extend our current legislative authority
and to implement the recommendations made by MedPAC regarding
M+C risk adjusted payments for the frail elderly. Below is a
brief description and rationale for our proposed amendments.
More detailed documentation is included in Attachment A.
Extension of Social HMO Waiver Authority
The BBA extended Social HMO waiver authority through December 31,
2000. It also directed the Secretary to:
submit to Congress, by not later than January 1, 1999, a
plan for the integration of health plans offered by social health
maintenance organizations (including Social HMO I and II sites) and
similar plans as an option under the Medicare+Choice program;
include in the plan a transition for social health
maintenance organizations operating under demonstration project
authority;
include in the plan recommendations on appropriate payment
levels for plans offered by such organizations, including an analysis
of the application of risk adjustment factors appropriate to the
population served by such organizations.
HCFA has been unable to meet the specified timetable for submitting
recommendations on permanency legislation. We understand that HCFA's
Report is unlikely to be submitted to Congress before March 2000.
Therefore, we seek Congressional support for a technical amendment to
the BBA to extend our waiver authority until such time as Congress acts
on legislation to make the Social HMO demonstration a permanent benefit
option under the M+C program. Since the delay in HCFA's recommendations
on permanency will prevent Congress from acting on legislation prior to
2000, a technical amendment extending our waiver authority is needed to
prevent disruption of services to the approximately 80,000
beneficiaries served by Social HMOs until our program is made
permanent. Keeping in mind that Social HMO waiver authority expires at
the end of 2000, there are several reasons to take action this year:
1. Since Congress appears poised to act on BBA refinements in 1999,
the enactment of additional BBA amendments (including an extension of
Social HMO waiver authority) during an election year could be difficult
to achieve.
2. Since it probably is unrealistic for Congress to enact major
Medicare reforms during an election year, Social HMO permanency
legislation is unlikely to be enacted before 2001.
3. Since the Social HMOs are required to begin phasing down
operations and notifying beneficiaries of the potential for closure at
the end of the first quarter of the year in which waiver authority
expires, if Congress does wait until 2000 to act on an extension, such
legislation would need to be enacted by March 31, 2000.
4. The Social HMOs and several other Medicare demonstrations have
been exempted from the M+C risk adjustment through December 31, 2000
while HCFA explores risk adjustment methods more appropriate to the
frail elderly population. It is clear that HCFA will not have
established an alternative payment structure for the frail elderly by
early next year, however, to provide guidance to Congress on the
payment provisions of permanency legislation for the Social HMOs. A
delay in the development of an alternative to the current M+C risk
adjustment methodology could further delay enactment of permanency
legislation.
5. Social HMOs, like other health plans, must submit to HCFA their
ACR filing and proposed benefit packages by July 1 of the year prior to
benefit offering. Absent an extension of waiver authority, the Social
HMOs would be required to submit this data to HCFA without assurance of
operating authority for 2001 and based on the assumption that the
Social HMO payment structure would remain unchanged.
HCFA has informed Congressional staff that the agency has the
authority to extend the Social HMO waiver authority and, therefore,
that Congress does not need to extend the waivers through statute. The
Social HMOs are aware of HCFA's position on this matter but feel
strongly that Congress extend our waiver authority through statute.
First generation sites have never received an administrative waiver and
have relied on Congress to extend our demonstration authority four
times since our inception. While the BBA required HCFA to Report to
Congress with a plan on how to integrate the Social HMOs into the M+C
program as a standard benefit option, HCFA's focus appears to be on
whether to make the Social HMOs a permanent benefit option. Further,
while the States of Florida and Maryland both received planning grants
to develop second generation Social HMO programs for the dually
eligible in 1998, in recent months, HCFA has reminded these states
repeatedly that the Social HMO waiver authority expires at the end of
2000. This suggests that HCFA has doubts about the ability to implement
these demonstrations as proposed by Maryland and Florida. Given the
uncertainty of HCFA's approach toward Social HMO permanency, the Social
HMO sites would feel more confident of our ability to survive the
transition from demonstration status to permanency through an extension
in law.
Alternative M+C Risk Adjustment for Frail Elderly
The Social HMOs urge the Subcommittee's serious consideration of
MedPAC's recommendations to Congress on Medicare payment for the frail
elderly, with some modifications. Attachment A lists several of
MedPAC's recommendations, with our proposed changes and rationale for
such changes. In general, MedPAC recommends that the Secretary study
factors affecting the costs of care for the frail elderly to determine
the need for an alternative to the current risk adjustment methodology.
We strongly support the need for an alternative risk adjustment
mechanism. Like several other Medicare demonstrations cited in MedPAC's
report, the Social HMOs have been paid under a risk adjustment
mechanism that accounts for the impact of functional impairments on
medical costs for the frail elderly. Payment research regarding the
frail elderly population shows that functional impairment status is
among the most significant indicators of higher risk and costs. For
example, several studies show that Medicare costs for frail elderly who
are deemed nursing home certifiable, but who are receiving care in the
community, are over three times higher than average Medicare per capita
costs.
While HCFA has begun to explore alternatives to the standard risk
adjustment methodology, we understand that it has some concerns about
the continued use of certain mechanisms in establishing payment rates
for frail elderly programs such as the use of self-report health status
measures as a risk identification tool and the use of functional
impairment measures as part of a risk adjustment methodology. We
understand that the basis for concern relates to administrative issues
such as data collection. The Social HMOs and other demonstration
programs have been collecting functional data for upwards of fifteen
years through a combination of self-report health status tools that
identify high-risk candidates, follow-up clinical assessments for those
identified as high risk, and third party verification of assessments.
Accordingly, we believe it would be inappropriate to discard these risk
adjustment strategies. These and other issues are addressed by MedPAC's
recommendations.
Enrollment Levels
The Omnibus Reconciliation Act of 1990 codified minimum enrollment
levels for the Social HMO demonstrations, providing that sites could
enroll ``not less than'' 12,000 beneficiaries per site. This level was
increased to 36,000 under the BBA. While the statutory language defines
this enrollment threshold as a floor, HCFA began interpreting this
threshold as a ceiling beginning in 1998. According to HCFA, an
increase in enrollment beyond 36,000 ``would not be prudent until HCFA
determines how it will risk adjustment payments and how Social HMOs
will transition into the M+C environment.'' Treating the enrollment
threshold as an upper limit instead of a floor has created enormous
problems for several of the Social HMOs that are at or close to the
limits. The Health Plan of Nevada (HPN) has reached it's enrollment
limit and has been forced to wait list beneficiaries who wish who join
the Social HMO. Since HPN has a standard M+C contract, it can enroll
new members under their standard plan on an interim basis.
Notwithstanding this advantage, however, the administrative process of
wait listing is enormously burdensome to both the beneficiary and the
plan. SCAN is within a few thousand members of reaching the limit and
has been forced to substantially scale back marketing efforts. Last
year, as SCAN began to approach the enrollment threshold, the company
had to lay off half of its sales staff to slow enrollment growth. Since
SCAN does not have a standard M+C contract, wait listing may not be a
viable option since beneficiaries are likely to simply join another
plan. Elderplan has received approval at the state level for expansion
into three additional counties (Manhattan, Queens and Staten Island)
that will substantially increase the potential pool of beneficiaries.
The enrollment cap could begin to hinder Elderplan's expansion prior to
the enactment of permanency legislation as well. Like SCAN, Elderplan
does not have standard M+C contract as a fall back position.
Elderplan, SCAN and Sierra request the Subcommittee's consideration
of an increase in the enrollment threshold to help maintain plan
viability until permanency legislation is enacted. While the enrollment
cap of 36,000 assumed a transition to permanency by the end of 2000,
the delay in HCFA's report to Congress until sometime next year will
almost certainly delay permanency until 2001 at the earliest. It will
be difficult for these plans to survive until permanency without relief
from the enrollment cap. The enrollment cap makes it extremely
difficult to offer competitive contracts to employees and providers and
creates an environment of uncertainty for prospective enrollees.
Providers are reluctant to contract with plans that provide limited
access to clients while imposing special requirements relative to the
terms and conditions of the demonstration. Opportunities for
professional growth, advancement and compensation for employees also
are limited for plans that are prevented from growing. SCAN lost
several key employees last year when their enrollment growth was put on
hold. Since the BBA scoring in 1997 assumed enrollment of 36,000 at 9
demonstration sites, or a total of up to 324,000 enrollees, an increase
in the enrollment threshold during the transition period should be cost
neutral. There are currently only 4 Social HMOs operational and the
earliest the Florida and Maryland sites could begin enrolling would be
late in 2000 or early 2001.
* * * * *
We appreciate the Subcommittee's serious consideration of the
attached amendments as part of a larger package of refinements to the
BBA.
Social HMO Proposed Medicare Amendments 1999
Summary
Enact a technical amendment to Medicare to extend Social
HMO demonstration authority until such time as Congress enacts
legislation making the Social HMOs a permanent benefit option
under M+C coordinated care plan options.
Consistent with MedPAC's June Report to Congress, and with
modifications proposed by the Social HMOs, direct the Secretary
to examine and develop appropriate payment methodologies for
health plans serving frail Medicare beneficiaries, as follows:
Direct the Secretary to study factors affecting the costs
of care for frail Medicare beneficiaries and develop an
alternative risk adjustment methodology for M+C plans serving
this population that includes functional impairment factors by
January 1, 2001.
Postpone application of the current M+C risk adjustment
methodology to specialized plans until an appropriate payment
methodology is established.
In the long term, the Secretary should set capitation
payments for traditional Medicare benefits for frail
beneficiaries based on their characteristics, not on the type
of plan to which they belong.
Performance measures for programs for frail Medicare
beneficiaries should reflect their health care needs, special
practices of care, and the value of additional benefits
provided under demonstration authority.
Special measures for evaluating and monitoring care for
frail Medicare beneficiaries should be included in the M+C plan
quality measures and reporting requirements.
Medicare demonstrations should have the option of
maintaining continuous open enrollment or complying with
standard M+C enrollment rules.
Enact a technical amendment to Medicare to extend Social
HMO demonstration authority until such times as Congress enacts
legislation making the Social HMOs a permanent benefit option
under M+C coordinated care plan options.
Rationale: The BBA extended the Social HMO waiver authority
through December 31, 2000. It directed the Secretary to report
to Congress by January 1, 1999 regarding a plan for integrating
the Social HMO demonstration into the M+C demonstration into
the M+C program as a permanent benefit option. HCFA currently
anticipates completing its Report to Congress by the end of
1999. Had the report arrived on time, Congress would have had
two full years to consider permanency legislation in the year
waiver authority expires, which is an election year with a
shortened legislative calendar. Further, an important component
of the permanency legislation includes recommendations on an
appropriate payment methodology. Given that HCFA is unlikely to
have developed an alternative to the interim M+C risk
adjustment methodology for the frail elderly by early 2000,
Congress would be forced to develop permanency legislation
without guidance from HCFA regarding an appropriate payment
mechanism. An extension would protect Social HMO beneficiaries
from disruption in services (or being forced to disenroll and
find new coverage), provide HCFA the time needed to explore
alternative risk adjustments, and give Congress time to
evaluate options for permanency legislation.
Modifications to MedPAC Recommendations on Managed Care for
Frail Medicare Beneficiaries: Payment Methods and Program
Standards
MedPAC Recommendations 5A:
The Secretary should study factors affecting the costs of
care of frail beneficiaries and all other Medicare
beneficiaries to determine if changes are needed to improve
Medicare+Choice risk adjustment system.
Proposed Modifications:
The Secretary should study factors affecting the costs of
care for frail beneficiaries and all other Medicare
beneficiaries including, but not limited to functional and
cognitive impairments.
The Secretary should develop a risk adjustment methodology
the incorporates functional status factors, building upon the
M+C claims-based risk adjustment, by January 1, 2001.
This study should identify data needed to support
improvements in the M+C risk adjustment system, including, but
not limited to self-reported health status surveys, assessments
of client health, functional and cognitive status and
utilization data including such services as high risk
screening, care management, home and community-based services
and special interventions that may not be specified in the
Medicare Part A and B benefit package.
Rationale: Research conducted by the Long-Term Care Data
Institute and others shows that the PIP and HCC risk adjustment
methodologies dramatically underpay plans for frail
beneficiaries with functional impairments due, in part, to the
absence of functional impairment factors. The PIP methodology
would result in underpayments of up to approximately 40% for
nursing home certifiable enrollees living in the community.
Therefore, Congress should direct HCFA to include, at a
minimum, risk factors related to functional status factor in
whatever alternative payment model it devises. Additionally,
early indications from HCFA staff suggest that it is interested
in identifying alternative frailty factors due to the costs of
collecting functional data across the Medicare population and
concerns with the validity of current data collection
instruments. Since the Social HMOs and other Medicare
demonstrations have been collecting this type of data
successfully for upwards of 15 years, we do not believe the
functional factors should be eliminated. Further, we are
concerned about the potential impact of an alternative risk
adjustment based on utilization factors such as home health
care, given the dramatic cuts in Medicare fee-for-service
payments under the BBA.
MedPAC Recommendations 5C:
The Secretary should postpone by at least one year the
application of the interim Medicare+Choice risk adjustment
system to specialized plans. Plans should be paid using
existing payment methods until a risk adjustment or other
payment system is developed that adequately pays for care for
frail Medicare beneficiaries.
Proposed Modifications:
The Secretary should postpone by at least one year the
application of the interim Medicare+Choice risk adjustment
system to specialized plans. Specialized plans should be paid
using Their existing payment methods until a risk adjustment or
other payment system is developed that adequately pays for care
for frail Medicare beneficiaries. ``Specialized plans'' shall
include the Social HMO, PACE, EverCare, and Minnesota Senior
Health Options demonstrations and dual eligible demonstrations
operating under waiver authority granted by HCFA prior to or
subsequent to the enactment of this provision.
Rationale:
The inclusion of a one year exemption from the current M+C
payment methodology assumes that an alternative methodology
will be available within this timeframe. The period of the
exemption for specialized plans should be linked to the
availability of a new, more appropriate payment methodology to
avoid the need for future legislative extension of the
exemption.
MedPAC Recommendations 5E:
Performance measures for programs for frail Medicare
beneficiaries should reflect the beneficiaries' health care
needs and special practices for their care.
Performance measures for programs for frail Medicare
beneficiaries should reflect the beneficiaries' health care
needs, and special practices for their care, and the value of
additional benefits provided under Social HMO demonstration
authority.
Rationale:
The Social HMOs believe that it would be helpful to assess
the benefits of additional services provided to beneficiaries
under demonstration programs, such as the long-term care
benefits provided by the Social HMOs.
MedPAC Recommendations 5F:
The Secretary should include special measures for
evaluating and monitoring care for frail Medicare beneficiaries
in the Medicare+Choice plan quality measurement and reporting
requirements.
Proposed Modifications: None.
MedPAC Recommendations 5G:
The Secretary should not now limit enrollment into the
Program of All-Inclusive Care for the Elderly to a particular
time of the year.
Proposed Modifications:
The Secretary should not now limit enrollment into the
Program of all-Inclusive Care for the Elderly or other
specialized plans for frail elderly operating under Medicare
demonstration authority, to a particular time of the year.
Medicare demonstrations should have the option of maintaining
continuous open enrollment or complying with standard M+C
enrollment rules.
Rationale:
The Social HMOs Believe that all of the Medicare
demonstrations serving frail elderly should be accorded the
benefit of greater flexibility in enrollment, due to the
smaller size of our risk pools resulting from enrollment caps,
and the need to maintain minimum enrollment to effectively
manage risk. We also believe that continuous open enrollment
should be permitted on a voluntary basis, since the larger
Social HMOs the have standard M+C contracts in addition to
Social HMO contracts may wish to employ a single approach to
enrollment across all plans.
Statement of Stanley N. Lapidus, President, Exact Laboratories, Inc.,
Maynard, MA
Chairman Thomas, Congressman Stark, and Subcommittee
members, I appreciate the opportunity to discuss the issue of
refinements to the Balanced Budget Act (BBA) as they affect
small biotechnology companies, like Exact Laboratories, which
are working to develop cutting-edge life-saving technologies.
The bottom line of my message is simple: The BBA wisely
added important preventive screening benefits to Medicare,
including screening for colorectal cancer. But because these
technologies are specifically spelled out in the law, they may
limit opportunity for new and improved technologies.
But before I discuss the BBA further, let me first
introduce you to the challenges of colorectal cancer and the
innovative technology Exact Laboratories has developed in the
fight against colorectal cancer.
Colorectal cancer is the second leading cause of death from
cancer in the United States. It appears frequently among both
men and women of all races and is commonly seen in individuals
sixty-five and older. Colorectal cancer is particularly deadly
among African American men, who have approximately a 45 percent
increased mortality rate in comparison to other groups.
Colorectal cancer develops slowly from a pre-cancerous
lesion commonly known as a ``polyp.'' It is curable if it is
identified at its earliest stages when it can be completely
removed, sometimes only with very minor surgery. Therefore,
until there's a cure, the key to reducing mortality from
colorectal cancer is early detection.
There are currently three types of screening tests for
colorectal cancer, each of which is mentioned in the BBA. The
most common method, the stool blood test, only finds cancers
and polyps if they bleed, which is not the case for most early
cancers and polyps. A second test involves the examination of
the left side of the colon by passing a flexible tube (flexible
sigmoidoscope) from the anus through the rectum for a distance
of about two feet. This allows the medical professional to
directly see and remove or biopsy any suspicious areas. Doctors
recommend a fecal blood test annually and the flexible
sigmoidoscopy every five years for individuals with a family
history of colorectal cancer or who are over the age of fifty.
A third test can examine the entire colon by use of a
special x-ray called a double contrast barium enema, which
requires that the colon be completely emptied of stool. Because
African Americans have a greater tendency to develop cancer on
the right side of the colon, out of reach of the flexible
sigmoidoscope, this test is more helpful for that constituency
and was added to the recommended tests listed in the BBA
through the good work of many of you on the committee and your
colleagues who have a particular interest in this issue.
A colonoscopy--which examines the entire colon using a
longer scope than that used in the flexible sigmoidoscopy--is
generally used only for individuals who have a high risk of
developing colon cancer, although there has recently been some
interest among professionals in using this as a screening test
every ten years.
All of these screening methods have their drawbacks. The
stool blood test isn't very accurate; and I probably don't need
to tell many of you on the panel that the flexible
sigmoidoscopy, the double contrast barium enema, and the
colonoscopy involve a great deal of discomfort and
inconvenience. It therefore shouldn't come as a surprise that
there are many compliance problems with each of these tests.
And that means early detection doesn't happen as frequently as
it should--in fact, we estimate that more than 75% of the at-
risk population (those age 50 and above) is non-compliant.
We at Exact Laboratories believe we can change that
problem.
We are a small company based in Massachusetts dedicated to
playing a leading role in the eradication of colorectal cancer
through the development of an innovative, patient-friendly
method for detecting early stage colorectal cancer and its
precursor lesions. Under our system, the patient only needs to
provide a stool sample through non-offensive collection and
transport containers we have developed. The sample is then
processed and examined by our labs for DNA from any
abnormalities which indicate a development of colorectal
cancer. Let me be clear: Because the DNA we examine is from the
tumor or precancerous lesion itself, this is not a so-called
``gene test'' to detect susceptibility to developing colon
cancer.
Our clinical tests at the Mayo Clinic thus far indicate a
very high level of accuracy: Exact testing has found 90 percent
of the cancers; 73 percent of the polyps, and no false positive
results. We will soon embark on further, broader clinical
trials.
Because our test is extremely patient-friendly, we believe
compliance will increase. And, as compliance increases, the
incidence of mortality from colon cancer will decrease. It is
worth repeating: Early detection saves lives.
Mr. Chairman and distinguished Members of the Subcommittee,
as I mentioned at the beginning of my testimony, Congress has
wisely recognized the life-saving and cost-cutting benefits of
screening for cancer by including coverage of these tests under
the BBA. However, the current language in the BBA encompasses
only the current tests described above and ``such other tests
or procedures, and modifications to tests and procedures under
this subsection, with such frequency and payment limits, as the
Secretary deems appropriate, in consultation with appropriate
organizations.'' Although this language does not preclude new
technologies from consideration, we believe it places
unnecessary hurdles before a small company with great promise
like Exact Labs.
We believe the current language of the BBA can be vastly
improved by recognizing new technologies, and would recommend
that Congress consider amending the BBA by changing the
language to something similar to that found in HR 1816, the
Eliminate Colorectal Cancer Act of 1999. That language requires
that private health insurance plans ``shall cover the method
and frequency of colorectal cancer screening deemed appropriate
by a health care provider treating such participant or
beneficiary, in consultation with the participant or
beneficiary.'' In doing so, Congress will be accommodating the
advent of new screening technology and returning the decision
of what method of screening to where it belongs--the doctor, in
consultation with the patient.
Thank you once again, Mr. Chairman and Members of the
Subcommittee, for the opportunity to speak to you today.
Statement of Home Health Services & Staffing Association
Thank you Chairman Thomas and members of the Subcommittee
for holding this important hearing today to review the impact
of the Balanced Budget Act of 1997 (BBA 97) on Medicare
patients and providers. The hearing is extremely timely as
Congress determines the legislative changes needed this year
for Medicare providers.
The Home Health Services & Staffing Association (HHSSA) is
a non-profit association representing over 1,500 free-standing,
proprietary home health companies in 48 states. The Association
is primarily interested in ensuring a sound prospective payment
system (PPS) is implemented on October 1, 2000. Recognizing
that the interim payment system (IPS) is extremely flawed, and
meant to be the reimbursement policy for a short period, we
would strongly urge Congress to focus the debate on the
prospective payment system being developed by the Health Care
Financing Administration (HCFA). A proposed rule on the new
system is scheduled for October of this year, and a final rule
is to be announced in July 2000. At the end of this testimony,
HHSSA has provided recommendations that will contribute to the
success of a cost-effective, Medicare home health benefit for
the growing aging population in the United States.
George Washington University Announces Findings on Impact of BBA 97
On September 14, George Washington University announced the
findings of its study on the impact of BBA 97 on home health patients
and providers. (An Examination of Medicare Home Health Services: A
Descriptive Study of the Effects of the Balanced Budget Act Interim
Payment System on Access to and Quality of Care, Center for Health
Services Research & Policy, George Washington University, September
1999) The study describes the status of the home health industry after
patients and providers were under IPS for one full year. This differs
in comparison to the studies conducted by the General Accounting Office
(GAO) and the Medicare Payment Advisory Commission (MedPAC), which were
completed before all home health agencies were on IPS a full year.
Many of the findings of the George Washington University study are
similar to the findings of GAO and MedPAC. For example, access to home
health services for the sickest, most frail Medicare beneficiaries has
been gravely impacted by the implementation of BBA 97, even though the
eligibility for these services was not changed. The study also
highlights other problems that need to be considered as the Medicare
home health benefit moves to a PPS next year.
Some of the significant findings were:
1. Access to home health services for the sickest patients is being
eliminated. Home health agencies of all auspices are being compelled by
IPS to radically alter their case mixes by eliminating the most costly
patients. Diagnoses being the most severely affected are diabetes,
congestive heart failure, chronic obstructive pulmonary disease (COPD),
and mental or emotional disorders. See Report at 20-21.
2. Access to specialty care is being eliminated even for the
beneficiaries who are still able to obtain services. Clinical staffing
levels have declined 37% since 1994 with the greatest reductions being
in specialty therapists and home health aides. See Report at 24-25.
3. Access to medically necessary services is likely to deteriorate
further because many agencies are subsidizing Medicare services with
charitable and private funds, and HCFA has yet to implement the
``proration'' requirement in BBA 97. See Report at 25-26.
4. An additional reduction in reimbursement by 15%, as is scheduled
for October 1, 2000, will exacerbate these already severe access
problems. See Report at 36.
5. Any PPS based on data generated under the interim payment system
is likely to be flawed and will exclude the sicker patient population.
See Report at 36.
These findings come on the heels of HCFA's recent projection that,
in fiscal year 2000, 93.5% of home health agencies participating in
Medicare will have their cost reimbursement limited by either the per
visit or the per beneficiary limit. (64 Fed. Reg. at 42780, August 5,
1999) This means that in the coming fiscal year nearly 95% of home
health agencies will be reimbursed at less than their actual costs even
before the additional 15% cut.
Statistics/Data Confirm George Washington University Study
The findings of the study are reflected in the dramatic changes in
the home health industry. The following list is not complete, but
highlights the problems associated with the implementation of BBA 97 on
Medicare home health services. This means that home health is not able
to be a vital component to the health care delivery system at a time
when it could be a cost-effective service for the growing elderly
population.
1. According to HCFA's most recent utilization data for home
health, the total number of claims received in fiscal year 1997 was
20,959,349 and the total number of claims received in fiscal year 1998
was 16,880,856--about a 20% decrease in the number of claims received.
(HCFA Contractor Reporting of Workload Data, February 1, 1999)
2. 2,195 Medicare-certified home health agency offices have closed
since January 1998, according to a survey of state health licensure
departments. Hardest hit was Texas, where 352 agencies and another 438
branch offices closed. Other states with large numbers of closures:
Louisiana-250, California-153, Florida-97, Missouri-91, Oklahoma-87,
Tennessee-67, and Indiana-60. (Eli's Home Care Week, Volume VIII,
Number 6, February 8, 1999)
3. Home care stocks dropped 43.8% in 1998 according to an annual
survey by Hilton Head, South Carolina-based HealthCare Markets Group,
Inc. (Eli's Home Care Week, Volume VIII, Number 2, January 11, 1999)
4. Home care stocks dropped 55.8% between April 1, 1998 and March
31, 1999 according to a financial analysis of home care public
companies by Houlihan, Lokey, Howard & Zukin Investment Bankers. (March
31, 1999)
5. Home Health Corporation of America filed for Chapter 11
bankruptcy protection on February 18, citing Medicare cutbacks as one
cause of its mounting debt. HHCA will not go out of business, but will
downsize by releasing 300, or about 10% of its employees. (HomeCare
Monday, February 22, 1999)
6. Employment at free-standing home health agencies declined by
7,000 jobs in January 1999. Since September 1997, free-standing HHAs
have lost 61,000, or 8.5%, according to the Bureau of Labor Statistics.
(Eli's Home Care Week, Volume VIII, Number 7, February 15, 1999)
7. In Home Health Inc. reported a loss of $132,000 on revenue of
$18.6 million in the quarter ended December 31. That compares with net
income of $186,000 on revenue of $27.9 million during the same period
the year before. ( . . . home health line, February 15, 1999)
8. Home care workers received only a .7% wage increase in 1997,
while Americans as a whole saw a 3.4% increase, according to new Labor
Department statistics. (The Washington Times, Eli's Home Care Week,
Volume VIII, Number 6, February 8, 1999)
9. A Visiting Nurses Association branch in Illinois found that
Medicare payments are now so low that it made the painful decision to
abandon 25 patients who needed the most expensive care, rather than
face the possibility of having to go out of business in a few months
and strand some 300 patients. (The Washington Post, A1, May 10, 1999)
10. Medicaid is picking up the slack for Medicare caused by the
BBA, Christine Ferguson, director of Rhode Island's Human Services
Department testified at a May 12 Senate Finance Committee hearing on
Medicare reform. ``There has been a widespread decrease in access to
home care services,'' and increased hospitalizations have resulted, she
said. (Eli's Home Care Week, Volume VIII, May 24, 1999)
11. By 2002, hospital-based HHAs will have seen a payment reduction
of over $5.5 billion--a 22% cut from pre-Balanced Budget Act levels,
says a new study by the Lewin Group. (Eli's Home Care Week, Volume
VIII, May 24, 1999)
12. The Congressional Budget Office (CBO) projected the Medicare
savings from the home health benefit to be $16.1 billion over five
years. The CBO revised baseline in March 1999, showed a 300% higher
savings than projected at $48.8 billion over five years. The rate of
growth for home health services was significantly lower in 1998 than
any other health care provider. (Congressional Budget Office, Revised
Baseline Calculations on BBA 97, March 1999)
Recommendations
HHSSA strongly urges Congress to review the Medicare home
health benefit under the context of the new reimbursement
system to be implemented on October 1, 2000. The Health Care
Financing Administration (HCFA) is developing a PPS for home
health and the proposed rule should be announced this month. As
the aging population increases, HHSSA requests that Congress
determine the role home health services should play and ensure
that the proper reimbursement matches that role.
As the home health industry moves to a PPS, we urge
congressional consideration of the following:
Development of the Prospective Payment System
(PPS):
Please note that a new, untested PPS will go into effect
for all home health agencies on October 1, 2000, without any
phase-in. The PPS rates will be reduced by a mandatory 15% cut
at the same time.
HHSSA urges Congress to ensure the home health PPS: 1)
encompasses all eligible Medicare beneficiaries in an adequate
reimbursement structure, 2) is simple for agencies and HCFA to
administer, and 3) is easily monitored for quality of care
delivered to the Medicare beneficiaries.
If HCFA is unable to provide an adequate PPS, HHSSA would
urge Congress to consider a model similar to the proposal
introduced by Senator Connie Mack (S. 1414), which is based on
data from a Kaiser Family Foundation study.
Elimination of the 15% Cut Scheduled on October 1,
2000:
HHSSA urges Congress to act this session to eliminate the
15% cut scheduled for implementation--regardless of whether PPS
is implemented--on October 1, 2000.
According to Congressional Budget Office projections, home
health services will save the Medicare program 300% more than
was projected at the time BBA 97 was passed. This decline can
also be seen in the plummeting rate of growth for home health
services and the significant decrease in claims submitted to
the Medicare fiscal intermediaries.
Any additional reductions will further increase the
problems eligible Medicare beneficiaries are having gaining
access to the home health benefit.
Enact an Outlier Provision for the Sickest, Most
Frail Medicare Beneficiaries:
IPS severed the sickest, most frail Medicare beneficiaries
from the Medicare home health benefit. Although these
beneficiaries are still eligible to receive Medicare home
health services, home health agencies no longer have the
capacity to care for these patients.
As observed in the George Washington University study,
access to care for many patients has been jeopardized. Patients
with conditions such as complex diabetes, MS, COPD and heart
failure are having difficulty obtaining home health services.
In order to reinstate the reimbursement for these patients,
HHSSA urges Congress to support an outlier that may be used in
the short term under IPS and can also be used under PPS.
An important aspect to remember is that HCFA's PPS is being
developed with post-BBA 97 data. The data obtained after the
implementation of IPS is flawed because it does not include the
sickest patients who are no longer receiving services. HHSSA
urges Congress to ensure that proper data is used in the
development of PPS.
Require HCFA to Provide Home Health Agencies an
Extended Repayment Schedule of Up to Five Years Interest-Free
for IPS-Related Overpayments:
BBA 97 was implemented on October 1, 1997. Many home health
agencies were not informed of their per-beneficiary limit until
long after they had been under the new reimbursement system.
There was little opportunity for the fiscal intermediaries to
provide agencies with their aggregate per-beneficiary limit.
Several HHSSA members were under IPS for over a year before
HCFA provided them with their actual per-beneficiary limit.
This made budgeting difficult for agencies that did not know
their limit in advance.
At the end of 1998 and beginning of 1999, home health
agencies began receiving notices of ``overpayments'' from HCFA.
Many agencies had overwhelming amounts of money to be recouped
from the federal government. In order to assist agencies with
large overpayments, HHSSA urges Congress to support a five-year
interest-free repayment plan. This is particularly important as
the industry is moving to a completely new reimbursement system
on October 1, 2000, and serious cash flow problems related to
the change in reimbursement could occur.
HHSSA would like to thank the Subcommittee on Health for
your efforts in providing relief for home health patients and
providers. If you should need further information or would like
a complete copy of the George Washington University study,
please contact us at (202) 296-3800.
[An attachment is being retained in the Committee files.]
Statement of House Rural Health Care Coalition
As members of the House Rural Health Care Coalition, we
appreciate the opportunity to address the Subcommittee
regarding our concerns for the future of health care in rural
America. The Balanced Budget Act (BBA) has led to many
unintended consequences for health care in rural areas, while
the Health Care Financing Administration's interpretation of
the BBA has exacerbated many of these problems. As a result,
numerous rural health care providers are teetering on the brink
of reducing and eliminating essential services, and a vast
number of citizens face the threat of being shut out from
receiving vital health care.
The House Rural Health Care Coalition urges you to include
the rural specific provisions included in our bill, H.R. 1344--
the Triple-A Rural Health Improvement Act, in any Medicare
reform proposals brought before the U.S. Congress, large or
small. Introduced on March 25, 1999, this bill is designed to
protect the rural health infrastructure, provide targeted BBA
relief, improve access to Medicare health plan options,
increase availability of telemedicine, and create common sense
rural health tax policy.
A summary of the provisions included in H.R. 1344 is
attached. In particular, we would like to highlight the
following key issues which are vital to ensuring access to
health care services for rural Medicare and Medicaid
beneficiaries:
(1) Hospital Outpatient Prospective Payment System--We
support exempting rural hospitals from the outpatient
prospective payment system (PPS). The outpatient PPS is
intended to cut the fat out of Medicare payments. Rural
hospitals have always done more with less and have no fat to
cut. Maintaining the PPS for rural hospitals will prove
devastating to the rural health infrastructure. The outpatient
PPS provision in H.R. 1344 directs HCFA to establish a
methodology that guarantees health care services will continue
to be available to beneficiaries in rural and frontier
communities. This is accomplished by exempting Critical Access
Hospitals, Medicare Dependent Hospitals, and Sole Community
Hospitals from the outpatient PPS.
(2) Hospital Transfer Penalty--We support repealing the
hospital transfer penalty, a provision included in the BBA that
requires hospitals to return a portion of the DRG payment if a
patient is transferred to another care setting before the DRG
payment period has expired. The transfer penalty
disproportionately affects efficient rural providers because
average lengths of stay for patients in rural hospitals are
shorter than average lengths of stay in other hospitals. H.R.
1344 repeals the hospital transfer penalty that is imposed on
hospitals that transfer patients to other care settings before
the DRG payment period has expired.
(3) Critical Access Hospitals--Critical Access Hospitals
(CAH) were established under the BBA to allow rural hospitals
to convert to a limited service hospital status. These
hospitals are given relief from certain Medicare regulations
and are paid based on cost. Under the BBA, a closed or
downsized hospital does not qualify for the program. H.R. 1344
allows a hospital that has closed in the past five years to
qualify for the CAH program. It also permits CAHs to be granted
deemed status in order to gain accreditation by the Joint
Commission of Healthcare Organizations. In addition, the bill
allows any CAH to choose the all-inclusive rate payment option
for its facilities and physician services. This reimbursement
system was used by the Rural Primary Care Hospital program
which was the demonstration project testing the feasibility of
the CAH concept. Changing the reimbursement system has impacted
the way CAHs contract with doctors and made the conversion to
CAHs less appealing.
(4) Medicare Dependent Small Rural Hospitals--Medicare
Dependent Hospitals (MDHs) are hospitals in rural areas with
100 beds or fewer whose patient load is 60% Medicare
beneficiaries. The following changes contained in H.R. 1344
will allow this program to benefit more rural hospitals. It (a)
changes the base year for eligibility to the most recent
hospital fiscal year ending in 1998; (b) lowers the Medicare
patient load from 60% to 50% in order to qualify for the
program; and (c) includes a hold harmless for the MDH rebasing
so that any hospital which would lose this status from changes
would be allowed to keep it.
(5) Rural Impact Statements--We support establishing a
mechanism to ensure that rural concerns are taken into account
in federal health policy making. H.R. 1344 mandates that any
legislative or regulatory proposal to change a federal program
must contain a rural impact statement that--at a minimum--
includes an impact analysis on: (a) rural safety net providers;
(b) rural primary care providers; (c) rural hospitals; (d)
federally-qualified health clinics and rural health clinics;
(e) local rural economies; and (f) where rural residents would
be affected.
In closing, we respectfully request that the Subcommittee
consider these important rural specific provisions, as well as
the other important provisions in H.R. 1344, in the context of
any BBA relief legislation to be brought before Congress. Thank
you for the opportunity to bring these important concerns that
impact the health and well-being of residents living in rural
America before you today.
Sincerely,
The Honorable Jim Nussle, Co-Chair
The Honorable Mike McIntyre, Co-Chair
The Honorable Doug Bereuter, Steering Committee Member
The Honorable Marion Berry, Steering Committee Member
The Honorable Henry Bonilla, Steering Committee Member
The Honorable Larry Combest, Steering Committee Member
The Honorable Peter DeFazio, Steering Committee Member
The Honorable Jo Ann Emerson, Steering Committee Member
The Honorable Rick Hill, Steering Committee Member
The Honorable Ron Kind, Steering Committee Member
The Honorable David Minge, Steering Committee Member
The Honorable Jerry Moran, Steering Committee Member
The Honorable James Oberstar, Steering Committee Member
The Honorable John Peterson, Steering Committee Member
The Honorable Earl Pomeroy, Steering Committee Member
The Honorable Charles Stenholm, Steering Committee Member
The Honorable Bart Stupak, Steering Committee Member
The Honorable Mac Thornberry, Steering Committee Member
Summary of the Triple-A Rural Health Improvement Act (H.R. 1344)
Introduced by Congressmen Jim Nussle and Mike McIntyre
Protecting the Rural Health Infrastructure
Hospital Outpatient Prospective Payment System--Many hospitals in
rural areas will be faced with extreme financial difficulties due to
the new outpatient PPS. This provision of the bill directs HCFA to
establish a methodology that guarantees health care services will
continue to be available to beneficiaries in rural and frontier
communities. This is accomplished by exempting Critical Access
Hospitals, Medicare Dependent Hospitals and Sole Community Hospitals
from the outpatient PPS system.
Hospital Transfer Penalty--The Balanced Budget Act included a
provision that requires hospitals to return a portion of the DRG
payment if a patient is transferred to another care setting before the
DRG payment period has expired. This provision has already created
significant financial challenges for many rural hospitals. This
provision repeals the hospital transfer penalty that is imposed on
hospitals that transfer patients to other care settings before the DRG
payment period has expired.
Sole Community Hospital (SCH) payment update--These hospitals are
considered the only source of inpatient services that are reasonably
available within a geographic area. Many SCHs are effectively losing
money because the Medicare reimbursement for these types of hospitals
has not been updated to keep up with economic factors. This provision
would update the base cost-reporting period from 1982 to the most
recent audit year. This provision was included in the Senate-passed
BBA, but dropped in conference.
Critical Access Hospitals--Critical Access Hospitals (CAHs) were
established under the BBA to allow rural hospitals to convert to a
limited service hospital status. These hospitals are given relief from
certain Medicare regulations and are paid based on cost. Under the BBA,
a closed or downsized hospital does not qualify for the program.
This provision allows a hospital that has closed in the past 5
years to qualify for the CAH program. Additionally the provision allows
Medicaid to reimburse CAHs for services provided to Medicaid
recipients. Finally, the provision allows CAHs to be granted deemed
status to allow them to be accredited by the Joint Commission on
Accreditation of Healthcare Organizations.
A second provision will allow any CAH to choose the all inclusive
rate payment option for their facilities and physician services. This
reimbursement system was used by the Rural Primary Care Hospital
program which was the demonstration project testing the feasibility of
the CAH concept. Changing the reimbursement system has impacted that
way CAHS contract with doctors, and made the conversion to CAHs less
appealing.
Medicare Dependent Small Rural Hospitals--Medicare Dependent
Hospitals are hospitals in rural areas with 100 beds or fewer whose
patient load is 60% Medicare beneficiaries. The following changes
contained in the bill will allow this program to benefit more rural
hospitals. (1) The bill changes the base year for eligibility to the
most recent hospital fiscal year ending in 1998. (2) The bill lowers
the Medicare patient load from 60% to 50% in order to qualify for the
program. Finally, there is a hold harmless for the Medicare Dependent
Hospital rebasing so that any hospital which would lose MDH status from
changes would be allowed to keep it.
DSH Reclassification--This provision permanently extends the
ability of hospitals to apply to the Medicare Geographic Classification
Review Board for DSH payment reclassification. The provision also
requires HCFA to develop new criteria for DSH applications by 1/1/2001.
Medicare Wage Index--The Medicare Wage Index is a portion of the
PPS payment formula. Hospitals that meet certain criteria can apply to
have their wage index reclassified to a higher-paying geographic area.
These provisions make it easier for rural hospitals to apply for wage
index reclassification for the purposes of higher payment.
The provisions also include a Sense of the Congress that the
current Hospital Wage Index should only be used for Hospital inpatient
PPS systems, and not applied to other Medicare payments.
Medicare Wage Index and Geographic Reclassification--Under current
law, hospitals are allowed to apply to the Medicare Geographic
Classification Review Board to be geographically reclassified for
higher inpatient payment rates. This provision deems that all hospitals
that are geographically reclassified for the purposes of inpatient
service wage index should be deemed reclassified for other services
which are geographically adjusted using a wage index. (E.g., SNF, home
health). (Never included for the summary for distribution).
Graduate Medical Education--These provisions make technical changes
to the Balanced Budget Act. The BBA limits the number of medical
residents for which a hospital may be reimbursed to the number of
residents on staff on 12/31/96. This ignores the many residents who
spend time training outside a hospital, in rural health clinics, and
who may have been approved for training, but not yet started their
program by that date. The bill recalculates the cap to include the
number of residents that may not have been in the hospital-proper and
those that had been appointed, but had not yet started their training
on the cut-off date.
Medicare Fee Schedule--Under this provision, physician assistants,
nurse practitioners, and clinical nurse specialists in underserved
rural areas will be reimbursed with direct reimbursement at 100% of the
fee schedule for similar services provided by primary care physicians.
Coverage of Mental Health Services--This bill requires Medicare to
reimburse services provided in a health professional shortage area by
any state-licensed mental health practitioner. Currently, only certain
professions can be reimbursed.
Medicare Waivers for Providers in Rural Areas--This provision
requires HCFA to establish a waiver mechanism that recognizes any
counties defined as rural based on census tract data as rural for the
purposes of Medicare reimbursements for hospitals and providers.
Ambulance Restocking--This provision allows hospitals to restock
ambulances with medical products used while treating patients without
being in violation of the Stark anti-kickback law.
Medicaid Reimbursement for FQHCs and RHCs--This provision repeals
the phase-out of cost-based reimbursement by Medicaid for federally
qualified health clinics and rural health clinics.
Medicaid Reimbursement for Physicians' Assistants and Nurse
Practitioners--This provision requires Medicaid to include Physicians'
Assistants and Nurse Practitioners as covered providers.
Access to Data--This provision requires the National Health Service
Corps, Centers for Disease Control, and Census Bureau to negotiate
inter-agency agreements with agencies and offices within the Department
of Health and Human Services in order to provide access to agencies'
data for research purposes.
Improving Access to Medicare Health Plan Options
Medicare + Choice payment/AAPCC Reform--The AAPCC formula is how
Medicare managed care payment rates are determined. These rates are
determined on a county-by-county basis. The BBA made a number of
changes to this formula in order to give higher payment rates to
managed care plans in rural areas. However, the new formula has not
been fully funded due to smaller than anticipated spending increases
and the budget neutrality provision of the program. This provision
eliminates the budget neutrality provision so that the blended rate
will be fully funded and go into effect.
Medicare Cost-Contracts--Medicare cost-contracts are a type of
managed care in which HCFA reimburses cost-contractors on their costs
as long as the costs meet HCFA standards of reasonableness. Cost-
contractors are required to accept all Part B beneficiaries. The
Balanced Budget Act eliminates Medicare cost-contracts in 2003. These
plans are overwhelmingly located in rural areas, and are the only type
of managed care plans available in many rural areas. Due to the
slowness of many managed care companies to enter the rural market, it
is likely that the ban on the cost-contracting will result in the
elimination of managed care as an option for many rural residents. This
provision exempts all current cost-contractors from the sunset
provision and allows them to continue to offer cost-contracts after
2003.
Medicare + Choice Rural Demonstration Project--Directs the
Secretary to establish to promote the establishment and monitor the
viability of provider sponsored organizations and other rural based
managed care entities serving Medicare beneficiaries in rural and
frontier areas.
Advancing Special Rural Concerns
Rural Impact Statements--This provision mandates that any
legislative or regulatory proposal to change a federal program must
contain a rural impact statement that, at a minimum, includes an impact
analysis on: (a) rural safety net providers; (b) rural primary care
providers; (c) rural hospitals; (d) federally qualified health clinics
and rural health clinics; (e) local rural economies; and (f) where
rural residents would be affected.
Health Professional Shortage Area Recruitment--Current law states
that communities cannot receive federal recruitment assistance until
they lose a provider. This provision allows pending retirements or
resignations to be considered when a community applies for assistance.
Underserved Area Designation by the Office of Personnel
Management--OPM designates underserved areas by state for the purposes
of reimbursement under the FEHBP. This provision requires OPM to use
HHS's designation criteria for underserved areas and designate
underserved areas on a county-by-county basis, not a state-by-state
basis.
Shortage Designations--This provision requires the Bureau of
Primary Care to withdraw its proposed revision of the methodology for
determining Health Professional Shortage Areas and Medically
Underserved Areas. This definition would be detrimental to rural areas.
Instead the Bureau will be required to initiate a negotiated rule-
making process to develop a new methodology that more appropriately
recognizes medically underserved and health professional shortage areas
in rural, frontier and urban areas.
Establishment of an Office of Inactive Reserve for the Public
Health Service Corps--Currently, there is no office to coordinate the
call-up and deployment of inactive members of the PHSC reserve corps.
This provision is a sense of the Congress that the Department of Health
and Human Services should establish such an office. This is endorsed by
the Public Service Corps.
Increasing Availability of Telemedicine Services
The legislation makes a number of changes to way that Telemedicine
services are currently regulated and reimbursed.
(1) Permits any currently covered Medicare service to be
reimbursed. This includes coverage for all types of appropriate
telemedicine interactions between patients and providers who are
qualified to bill for similar types of in-person services. This
provision would also authorize payment for store and forward
telemedicine services in addition to the in-person presentation of
services.
(2) The legislation states that the referring physician need not be
present at the time of the telehealth service, and that any health care
practitioner can present the patient.
(3) Requires HCFA to establish a telemedicine payment methodology
that pays professional fees to both providers, and includes a technical
fee to the facilities to cover the cost. Additionally, HCFA is required
to establish a separate Medicare billing code for telemedicine in order
to monitor the utilization of health services.
(4) Requires HCFA to establish patient protection rules governing
the assessment of the telemedicine copay. Specifically, HCFA must
ensure that patients are informed of the co-pay in advance of the
teleconsult and that patients must actually receive medical treatment
or advice during the consult.
(5) Availability of telemedicine reimbursement is expanded from
only health professional shortage areas to all rural areas.
(6) The legislation requires the Secretary of Health and Human
Services to issue initial and subsequent reports on efforts to ease
cross-state licensure barriers that may arise through the use of
telemedicine services.
(7) The legislation authorizes the development and administration
of a grant/loan program for telemedicine activities in rural areas. It
also authorizes appropriations for the program.
(8) The legislation formally authorizes an existing group of
Cabinet level and private sector members. This group is to focus on
identifying, monitoring, and coordinating federal telehealth projects.
The group will report each year to Congress.
Creating Common Sense Rural Health Tax Policy
100% tax-free scholarships for National Health Service Corps--The
National Health Service Corps provides scholarships to individuals who
commit to providing health care in underserved areas. Historically,
these scholarships have been tax-free. However the IRS has recently
begun taxing the scholarship as income. These scholarships should be
returned to their tax-free status in order to prevent the undermining
of the program.
Emergency Medical Services Prevention Act--Many EMS units,
especially in rural areas, do not have adequate funds to maintain
infrastructure. This provision allows EMS units to issue tax exempt
bonds for revenue purposes.
Bank Deductibility--this provision increases access to tax exempt
financing for small not-for-profit health care facilities through the
States' Health and Education Facilities Authorities. There is a $5
million borrowing cap.
Mayo Foundation
Rochester, Minnesota
Septembet 24, 1999
The Honorable Gil Gutnecht
U.S. House of Representatiaves
Washington, DC 20515-2301
Dear Representative Gutnecht:
The Balanced Budget Act of 1997 was a landmark piece of legislation
that appears to have helped move the federal budget from a pattern of
chronic deficit to one of significant surplus. However, there is
mounting evidence that the Medicare payment reductions included in the
Balanced Budget Act are significantly greater than estimated at the
time of its passage, and the reductions are causing major financial
hardship for many health care providers. Congress is now considering
legislation that may give some partial relief from the effects of BBA,
and Mayo Foundation strongly supports this effort. As the legislative
process moves forward, we want to set out our priorities for
congressional consideration.
The effects of the Balanced Budget Act have been extreme, and some
of the major payments cuts are yet to be implemented. We estimate that
the five-year cumulative impact on Mayo Foundation will be a reduction
of $411.5 million. The largest portion of the reduction is a $177
million reduction in funding for graduate medical education. As a major
integrated healthcare delivery system, we have also felt the effects of
virtually every category of payment reduction: hospital, physician,
home health, skilled nursing, clinical lab, and others.
While we believe many of these payments need to be corrected, we
believe the greatest threat to the overall integrity of the health care
system, and to Mayo Foundation, is the major reduction in the indirect
medical education (IME) payments to teaching hospitals. There is sound
evidence that the infrastructure of many of America' premier medical
centers is already being significantly threatened by the IME reduction,
and the full effect is yet to be felt. The IME reduction is phasing in
over four years, and we are only in year two. Therefore, we strongly
urge you to support, at a minimum, halting the IME reduction at the
1999 level. We believe that IME payments are a critical element in
supporting the education and research missions of Mayo and other
academic health centers.
We also would like to reiterate our position that the long run
viability of Medicare requires more than these BBA ``fixes.'' The
Medicare program needs fundamental restructuring. We have communicated
to you in the past our position that Medicare should be based on
patient choice, competition, and innovation.
We support changing Medicare to a model similar to the Federal
Employees Health Benefits Plan. Without such fundamental restructuring,
the future will be a never ending succession of attempts to keep a
flawed model afloat through bureaucratic micromanagement and price
controls, thus undermining the viability of the entire health care
system.
Thank you for your efforts, and we look forward to working with you
to create a better Medicare program.
Sincerely yours,
Michael B. Wood, M.D.
Statement of Medical Device Manufacturers Association
The Medical Device Manufacturers Association (MDMA)
appreciates this opportunity to submit comments for the record
of the subcommittee's October 1 hearing on Medicare Balanced
Budget Act refinements. MDMA is a national trade association
based in Washington, D.C. that represents nearly 130
independent manufacturers of medical devices, diagnostic
products and health care information systems. As the national
voice for the innovators and entrepreneurs in the medical
device industry, MDMA seeks to improve the quality of patient
care by encouraging the development of new medical technology
and fostering the availability of beneficial innovative
products.
MDMA would like to highlight briefly two important
refinements for your subcommittee to consider as you develop
legislation to refine the Balanced Budget Act of 1997 (BBA).
Prospective Payment System for Hospital Outpatient Departments
MDMA has a number of concerns with the Medicare prospective payment
system (PPS) for hospital outpatient departments set forth by the BBA.
We believe the Health Care Financing Administration's (HCFA's) proposal
for creating the outpatient PPS would hinder the introduction and
adoption of new medical technologies in the Medicare program. Health
professionals should not be prevented from using the latest
technologies on Medicare patients simply because Medicare's payment
system cannot keep pace with medical innovation.
To refine the outpatient PPS and to help Medicare keep up with
technological advances, MDMA is a proud supporter of S. 1626, the
Medicare Patient Access to Technology Act of 1999, introduced by Sen.
Orrin Hatch and a bipartisan group of his colleagues. In addition to
reforming Medicare's systems for coding and paying for medical
technologies, S. 1626 would improve the outpatient PPS in three major
ways:
by restructuring the proposed classification system to
create groups of procedures that are more similar in cost and more
closely related clinically;
by establishing a transition period for new technologies
that will allow for the development of adequate outpatient cost data to
ensure appropriate reimbursement; and
by developing a process for updating classifications and
payments annually to ensure appropriate utilization and reimbursement
of the most appropriate services.
MDMA encourages this subcommittee to include similar provisions in
its package of BBA refinements.
Inherent Reasonableness
MDMA believes that HCFA is attempting to evade the due-process
requirements established in the BBA in cutting Medicare reimbursement
levels for durable medical equipment.
Section 4316 of the BBA gives the Health Care Financing
Administration (HCFA) the authority to increase or decrease grossly
deficient or excessive Medicare payments for durable medical equipment
and other home health equipment. However, the BBA placed limits on
HCFA's use of this so-called ``inherent reasonableness'' authority.
Specifically, the BBA prohibits HCFA from reducing or increasing
payments during any year by more than 15 percent without due process
for suppliers of such equipment.
However, HCFA proposed August 13 to use its ``inherent
reasonableness'' authority to cut Medicare reimbursement for several
categories of durable medical equipment by nearly 50 percent over the
next few years. To MDMA, this action violates the intent and the spirit
of the BBA.
In our opinion, HCFA is clearly evading the law by phasing in these
massive cuts over two- to five-year periods without giving suppliers
their due-process rights as specifically provided by the BBA. While
MDMA supports HCFA's efforts to purchase prudently, we believe HCFA
must be fair to all parties and follow the intent of Congress in doing
so.
To remedy this situation, MDMA is asking Congress to prohibit HCFA
from increasing or decreasing Medicare reimbursement for durable
medical equipment by more than 15 percent in any five-year period
without due process. MDMA is also requesting Congress to prevent HCFA
from implementing such a change more than once in any five-year period.
These changes will provide medical technology manufacturers and
Medicare beneficiaries with adequate protection from capricious and
drastic payment cuts that jeopardize patient access to quality medical
products. These changes would not prevent HCFA from imposing major
reimbursement cuts, but would clarify the intent of Congress that HCFA
provide due process to medical technology manufacturers and other
stakeholders before such cuts are made.
Thank you for this opportunity to bring these two issues to the
subcommittee's attention as you develop a legislative plan to refine
the BBA.
Statement of National Association for Home Care
Introduction
Thank you for the opportunity to submit testimony for the record on
issues relating to the impact of the Balanced Budget Act on the
Medicare home health benefit. The National Association for Home Care
(NAHC) is the largest national home health trade association
representing nearly 6000 member organizations. Among our members are
Medicare-participating home care providers, including non-profit
providers like the visiting nurse associations, for-profit chains,
hospital-based providers and freestanding providers. We also represent
home care aide and hospice organizations.
NAHC is deeply appreciative of the attention the Chairman and
Members of the Subcommittee have shown regarding the problems created
by the home health provisions of the Balanced Budget Act of 1997, P.L.
105-33 (BBA). NAHC offers these comments and recommendations as
proposed refinements to the BBA home care provisions.
There are numerous refinements to BBA, and to the manner in which
the Health Care Financing Administration (HCFA) is interpreting and
implementing it, that the Committee could act upon which would provide
significant relief to home care providers nationwide. Our
recommendations are outlined below, and fall into four separate
categories.
First, legislative modifications to the home health interim payment
system that would provide much-needed relief for the failing home care
program.
Second, clarification of Congressional intent and instruction to
HCFA to correct faulty interpretations of some of the BBA home care
provisions.
Third, implementation of technical changes to the BBA that would
ease financial and operational burdens on home health providers with
little or no costs associated; and
Fourth, implementation of general refinements to provide relief
from financial and operational burdens imposed by HCFA-initiated
regulatory requirements.
I. Legislative Initiatives
A. The most devastating change for home health providers
under the BBA has been the enactment and implementation of IPS.
The payment reductions under IPS, coupled with HCFA's stringent
interpretations, have had severe repercussions for both
providers and beneficiaries. The following data illustrate the
dramatic changes that have occurred to the Medicare home health
program since the passage of BBA.
According to HCFA data from its OSCAR files, as of
August 18, 1999, there have been 2486 home health agency
closures, nearly 25% of all home health agencies in the United
States. Under current policies, this trend shows no leveling
off, and access to care continues to be seriously compromised.
Approximately 550,000 fewer Medicare beneficiaries
received home health services in 1998 than in 1996. The change
represents a 15.2% reduction in number of patients served.
Average home health agency reimbursement has
decreased 29% since 1996.
Medicare home health spending is now projected by
the Congressional Budget Office (CBO) to be reduced by $48
billion over five years (FY 1998-2002), rather than the $16.1
billion initially projected at the time BBA was passed.
In 1997, home health care represented only 9% of
Medicare but was slated for about 14% of the FY 1998-2002
reductions in Medicare spending. Currently, the home health
program comprises less than 7% of the Medicare program and is
now projected to absorb 24% of the Medicare cuts between FY
1998-2002.
NAHC understands the need for Congress to make prudent
decisions with respect to changes in the Medicare program. We
also believe that the highest priority must be to target
resources to ensure that beneficiary access is protected, and
that the vital home care infrastructure be stabilized so that
it is positioned to respond to future needs of the disabled and
elderly. For this reason, we have put a high priority on
legislative relief for the home health program that would:
Eliminate the 15% additional cut scheduled for
October 1, 2000;
Target resources to an outlier provision for high-
cost patients;
Increase the IPS per-visit cost limit; and
Provide relief from financially disabling
overpayments.
1. Eliminate The 15% Payment Cut Scheduled For October 1, 2000
Under the BBA, expenditures under a PPS were to be equal to
an amount that would be reimbursed if the cost limits and per
beneficiary limits were reduced 15%. Even if PPS was not ready
to be implemented on October 1, 1999, the Secretary of Health
and Human Services was required to reduce the cost limits and
per beneficiary limits in effect on September 30, 1999, by 15%.
The Omnibus Consolidated and Emergency Supplemental
Appropriations Act (OCESAA) delayed the 15% reduction for all
home health agencies until October 1, 2000.
NAHC believes that the additional 15% cut to Medicare home
health outlays on October 1, 2000, would close down a
substantial percentage of home health agencies that have so far
survived the IPS. HCFA's August 5 regulation on the FY 2000
home health cost limits estimates that 93.5% of surviving home
health agencies will exceed their per-beneficiary cost limit or
per-visit cost limit. In addition, HCFA conservatively
estimates that the average agency will have to repay 12% of its
Medicare reimbursement.
Home health providers--who have already experienced an
average 29% reduction in reimbursement since the BBA '97 (even
with the passage of OCESAA)--are struggling to keep costs under
the per-visit and per-beneficiary cost limits and repay IPS-
related overpayments. With an additional 15% cut, beneficiaries
in many areas of the country would lose access to home health
services, and for beneficiaries in many rural counties, this
loss would be the loss of their local health care.
Congress included the additional 15% cut because CBO
mistakenly projected it was needed to meet BBA savings goals;
most recent CBO estimates that reductions in home care through
2002 will exceed BBA goals by $32 billion.
2. Target Resources For An Outlier Provision For High-Cost
Patients
In their 1999 reports to Congress, the General Accounting
Office and the Medicare Payment Advisory Commission confirm
that the beneficiaries who are most costly to treat are at risk
of losing access to home health care. While neither report
concluded that access to home care has become a crisis, it must
be noted that the reports are based, for the most part, on data
from the first quarter of calendar year 1998, a time when many
agencies had not yet transitioned to IPS, and no agencies had
been notified of their per-beneficiary limits.
The IPS aggregate per-beneficiary limits, based on 1993-94
data, do not reflect the increased severity of most home health
agencies' case-mix populations. Recent technological advances
have expanded the scope of services provided to Medicare
beneficiaries. Services such as parenteral and enteral
nutrition, chemotherapy and ventilator care can now be provided
in the home. These services require specialized nursing
services as well as prolonged home visits, extensive case
management, and discharge planning that add further to the cost
per visit.
Through an outlier payment, additional resources can be
targeted to those providers that care for the high cost
patient. An expenditure limit on outlier payments would ensure
fiscal soundness.
3. Increase The IPS Per Visit Limit
BBA reduced the per visit cost limits from 112% of the mean
to 105% of the median per visit costs for freestanding
agencies. IPS forces providers to reduce the total number of
visits delivered by patients. However, as the number of visits
decreases, costs per visit increases. Under the 1998 OCESAA,
the per visit limits were raised from 105% to 106% of the
median. This 1% increase was insufficient to help providers who
are operating under cost limits that have been reduced from 14-
22% under BBA. The current cost limits are inadequate to cover
the costs of providing care and to account for the increased
administrative costs of participation in the Medicare program
due to HCFA's regulatory initiatives. Agencies in rural areas
and inner cities have been particularly hard hit by reductions.
Their costs tend to exceed national averages because of longer
travel times between visits and higher wages resulting from the
lingering personnel shortages in rural areas, or the added
costs of security escorts and language translators in the
cities.
4. Provide Overpayment Relief
Nationwide home health agencies are being charged with
Medicare overpayments related to IPS. These overpayments have
resulted from delayed notifications to agencies of their
reimbursement limits under IPS, and in faulty calculation of
the limits by Medicare's fiscal intermediaries. Because the IPS
payment reductions were so deep, and implemented so quickly,
agencies had little time to adjust to the changes. Agencies
continued to serve eligible patients, spending payments for
care that were later deemed ``overpayments.'' HCFA has not
released nationwide statistics on overpayments, but one fiscal
intermediary reports that for 1998, 84% of its $1 billion plus
in overpayments are attributable to IPS. While the
Administration has indicated it is providing three-year
repayment plans to all agencies, with the first year interest
free, this is not occurring. HCFA also has authority to
establish ``compromise'' repayment amounts on overpayments due,
but has refused to utilize this authority.
Congress should, at a minimum, direct HCFA to immediately
issue clarifying standards for repayments that reflect the
Administration's earlier commitment (three years, first year
interest free). Further, Congress should consider legislation
waiving interest on overpayments for three years. Congress
should also direct HCFA to utilize overpayment compromise
authority on an expedited basis in order to resolve inequities
created through implementation of IPS.
II. Faulty Interpretations of BBA By HCFA
B. Congress should clarify its intent regarding certain BBA
provisions that HCFA has interpreted wrongly or too restrictively. As
these are administrative refinements, they should have no impact on
budget scoring.
1. Inflation Rate in Payment Limits. HCFA went beyond the intent of
Congress, further reducing the per beneficiary payment limits by about
6 percent, by excluding the inflation updates for 1995 and 1996 from
its calculation of the limits. This ``recapture'' provision in BBA was
intended to apply only to the per visit limits, but was improperly
applied to the per beneficiary limits as well. There were no savings to
``recapture'' from the per beneficiary limit since it did not exist
during 1995 and 1996.
Recommendation: Congress should direct HCFA to restore the 1995 and
1996 inflation updates for purposes of calculating the per beneficiary
limits.
2. Rate Calculation. To establish IPS payment rates, BBA required
HCFA to calculate on an agency by agency basis the average cost of
services for each Medicare home health beneficiary during federal
fiscal year 1994. However, HCFA failed to take into account that during
1994 there were patients who were served by more than one agency;
therefore, the total number of beneficiaries for 1994 used to calculate
the average annual cost per beneficiary was not an unduplicated count.
As a result, the final average annual cost of services per patient was
artificially lowered. It is estimated by Abt Associates that
approximately 8 percent of all Medicare beneficiaries during the base
period received care from more than one home health agency.
Recommendation: Congress should direct HCFA to recalculate the per
beneficiary limits in a manner which reflects the true average annual
cost per beneficiary for the base year by using an unduplicated
beneficiary count.
3. Exceptions Process for Per-Beneficiary Limit. HCFA has refused
to consider exceptions to the per beneficiary limits based on its
narrow interpretation of the BBA which is silent on the issue of
exceptions or exemptions to the cost limits. However, authorization for
exceptions is found in existing law at Section 1861v(L)(ii) of the
Social Security Act, 42 U.S.C. Sec. 1395x(v)(L)(ii). The amendment
establishing the IPS is an amendment to existing law. The IPS amendment
does not establish a wholly new provision; instead, it establishes a
new clause, which modifies the general provision that Medicare
reimbursement is subject to reasonable cost limits. Therefore, it is
well within HCFA's regulatory authority to extend the process for
requesting and granting exceptions to the cost limits to include per
beneficiary limits.
Recommendation: Congress should direct HCFA to provide agencies the
right to request exceptions to the per beneficiary limit.
III. Technical Changes to BBA
C. Congress should amend the BBA to ease burdens on home health
agencies. These legislative changes would have little or no additional
cost.
1. Periodic Interim Payments. Periodic interim payments (PIP) are
issued to a small number of home health agencies so as to provide a
steady cash flow for services rendered to Medicare beneficiaries. PIP
has provided some measure of relief to home health agencies without
large cash reserves to support delays in payments from HCFA. PIP has
been particularly important to agencies during IPS, as significant
problems have arisen with respect to determinations of per beneficiary
and per visit limits. It is anticipated that cash flow difficulties
will be even more pronounced with implementation of the forthcoming
PPS. Home health costs, like hospital costs, tend to be front-loaded
(the majority of costs are incurred early in the episode). Under a 60-
day episodic payment cycle, agencies are likely to have expended most
of the costs of providing care prior to receiving payment from HCFA.
HCFA was forced to reinstate PIP for PPS demonstration agencies because
they experienced such serious cash flow problems. Currently, PIP is set
to expire on October 1, 2000.
Recommendation: Congress should enact legislation to maintain PIP.
At a minimum, PIP should be extended for at least one year beyond
implementation of home health PPS, to allow for a smoother transition
to the new payment system.
2. Consolidated Billing. BBA required that, under PPS, payment for
all services under the home health plan of care be reimbursed to the
home health agency. This will require home health agencies caring for
patients that are using home medical equipment to bill Medicare for the
equipment and transmit the payment to the medical equipment supplier.
Home health agencies would not be reimbursed any more than the rate
allowed on the fee schedule for the equipment, but would be required to
undertake considerable new responsibilities and liabilities. In
addition, many beneficiaries will be seriously inconvenienced and
deprived of agency choice in the process since they may be required to
change suppliers. Requiring consolidated billing of home medical
equipment results in no savings to the Medicare program.
Recommendation: Congress should repeal the consolidated billing
requirement in BBA related to home medical equipment.
3. 15-Minute Visit Increment Billing. BBA requires that home health
agencies bill for care based on the number of visits provided and on
the number of 15-minute increments per visit. However, agencies are
only reimbursed based on the number of visits provided. The 15-minute
increment information has no particular use under the current, cost-
based system, nor under the forthcoming PPS. It is unclear what benefit
collection of this 15-minute increment information will provide, since
time in the home does not fully reflect the significant amounts of time
agencies invest outside the home in caring for patients, including time
spent communicating with physicians and family members, coordinating
services with other home health personnel and community agencies, care
planning, and clinical documentation. No evidence of a correlation
between in-home time and quality of care has been established. However,
billing of visits in 15-minute increments will require agencies to make
significant systems changes and will impose substantial additional
paperwork burdens on home care nurses and other staff. HCFA is
implementing this requirement September 30, 1999.
Recommendation: Congress should repeal the 15-minute visit
increment billing requirement.
4. Proration. BBA requires that the per beneficiary limit be
prorated among agencies in cases where a patient received services from
more than one agency in the same year. Currently agencies have no way
of determining if a patient has been served by another agency during
the same year. Implementation of the provision will require significant
tracking efforts by home health agencies and by HCFA, and will be made
more difficult by the fact that agencies have different limits and
different fiscal years. Further, proration of the limits discourages
agencies from taking patients that have been served by other agencies
and interferes with a patient's right to choose the agency from which
care will be received. HCFA has not yet implemented the proration
policy.
Recommendation: Congress should amend BBA to require that HCFA only
use the proration provision in cases where an agency has transferred or
prematurely discharged a patient in order to circumvent the payment
limits. Congress should also prohibit retroactive application of the
proration policy.
IV. HCFA Initiated Regulatory Burdens on Home Care Providers
D. Congress should provide relief from a number of regulatory
burdens initiated by HCFA. These changes should have little or no
budgetary impact.
1. Home Health Advance Beneficiary Notice. HCFA recently issued
Transmittal No. A-99-38, which sets out significant new instructions
and requirements regarding home health advance beneficiary notices
(HHABN). These notices must be provided by agencies to beneficiaries
when care is ordered by a physician but determined by the agency to not
be covered by Medicare. HCFA failed to follow legal requirements, such
as the Administrative Procedures Act and the Paperwork Reduction Act,
in issuing this new directive, and now has asked for emergency
clearance by the Office of Management and Budget (OMB) so that the
requirement may be implemented September 30. The timeframe for
implementation of the requirement is inadequate, as the changes require
home health agencies to update computer programs and information
systems and create and reproduce forms, as well as train employees in
the new notice requirement. Language experts have reviewed the notices
and found them to be ambiguous and difficult to comprehend, increasing
the likelihood of beneficiaries' confusion. While the home health
community supports the general purpose of the new notices, the way they
are written and the timeframe for implementation pose serious problems
to beneficiaries and home care providers.
Recommendation: Congress should direct HCFA to withdraw the
transmittal and implement a new beneficiary notice requirement only
after the content of the notices has been reviewed by consumer and
provider groups. Subsequent release and implementation of the HHABN
should occur within a reasonable timeframe enabling agencies to comply.
2. Outcome and Assessment Information Set (OASIS). OASIS data
collection and reporting is important to agency efforts to improve
quality of care and to HCFA efforts to develop and refine the
forthcoming home health PPS. OASIS data collection and reporting adds
substantially to visit time, caregiver responsibilities, and
administrative overhead. Among the problems related to the OASIS
requirements are the following: 1.) HCFA intends to require collection
and reporting on all home health clients, regardless of payer or health
status; and 2.) HCFA has failed to provide adequate reimbursement to
agencies for the significant costs associated with start-up and ongoing
OASIS collection and reporting. The small reimbursement level allowed
by HCFA is $0.13 per visit, and is only available to agencies that have
not exceeded the per-beneficiary limit. As the result, only about 30
percent of agencies will be eligible for any reimbursement. Agencies
have reported that OASIS costs amount to between $1 and $3 per visit.
Recommendation: Congress should direct HCFA to limit OASIS data
collection and reporting to Medicare and Medicaid patients in need of
intermittent skilled care. Additional study should be conducted to
support the uses and usefulness of such data before HCFA considers
mandating collection and transmission of OASIS data for private pay
patients receiving skilled care or for any patients receiving personal
care. Congress and HCFA should provide for reimbursement of the full
costs associated with meeting OASIS requirements. HCFA should be
directed to conduct further study regarding costs of OASIS and adapt
its reimbursement structure to reflect the costs agencies are
incurring. Home health PPS rates should reflect fully the costs of
OASIS.
3. Branch Offices. HCFA's central office has established new
guidelines for regional offices to consider when approving branch
offices. These guidelines include limiting driving time to one hour or
not more than 50 miles from a parent agency which require daily on-site
supervision of the branch office. HCFA's regional offices have been
strictly interpreting and implementing these guidelines. This strict
interpretation has created financial and operational hardship for many
branch agencies, especially rural home care providers. Furthermore,
branch agencies who are more than an hour away from their parent agency
must establish a new subunit with a new Medicare provider number,
undergo new Medicare certification, and hire new supervisory staff.
Branch offices are a cost effective way to provide a home base for
staff closer to the patients served while avoiding duplication of
administrative positions and functions. HCFA's branch office policies
differ from one region to another. These guidelines do not recognize
home health staffing shortages or the use of modern methods of
communication, including fax, telephone, pagers, and other
telecommunications.
Recommendation: Congress should direct HCFA to institute a new
rulemaking procedure to establish a single set of national criteria for
defining ``branch office'' under the Medicare home health program.
4. Statistical Sampling Methodology for Post-Payment Review. HCFA's
fiscal intermediaries review a small sample of agencies' claims for a
period of time for medical necessity, then project the number of denied
claims to the entire universe of an agency's claims. The intermediary
then charges the agency to either return payments for the claims
presumed to be denied, or submit to a 100% review of claims for the
specified period. Agencies are required to repay the amount before
having the opportunity to pursue legal appeal rights, despite the fact
that reversals of claim denials on appeal have routinely exceeded 80%.
Some of HCFA's own staff have protested the use of statistical sampling
as invalid and irresponsible.
Recommendation: Congress should direct HCFA to suspend fiscal
intermediaries' use of statistical sampling for home health claims
until appropriate modifications are made in policy.
5. Medical Claims Review. Home health agencies are being subjected
to increasing inappropriate and excessive random and focused medical
reviews, medical review inconsistencies, and technical denials. As the
result, thousands of Medicare claims are currently in dispute or on
appeal, creating severe cash flow problems for many providers.
Recommendation: Congress should direct HCFA to: establish minimum
standards and training requirements for medical review staff; implement
a systematic yet fair process for review of a minimum sampling of
records and appropriately targeting problem agencies for in-depth
review; allow for return of claims that fail review on technical
grounds so that a provider may correct the claim, rather than outright
rejection of the claim; initiate performance reviews of all
intermediaries on an ongoing basis; evaluate local medical review
policies on an ongoing basis; and assess medical review workloads of
the intermediaries and their effect on consistency and quality.
Conclusion
Thank you, Mr. Chairman, and Members of the Subcommittee, for the
opportunity to present our views. We urge you, on behalf of home health
patients and providers nationwide, to pass legislation this year
eliminating the 15% payment reduction. Other BBA refinements, as
outlined in our written testimony, will go far in alleviating the
financial and operational burdens confronting home health providers.
You and the Subcommittee have our thanks for bringing home health
issues to this level of consideration. We look forward to working
closely with you as you move toward refining some aspects of the
Medicare home care provisions of BBA.
Statement of National Association of Psychiatric Health Systems
The National Association of Psychiatric Health Systems
(NAPHS) is pleased to submit a statement for the hearing record
addressing Medicare Balanced Budget Act refinements. NAPHS
represents behavioral healthcare systems that are committed to
the delivery of responsive, accountable, and clinically
effective treatment and prevention programs for people with
mental and substance abuse disorders. Its members are
behavioral healthcare provider organizations, including 400
specialty hospitals, general hospital psychiatric and addiction
treatment units, residential treatment centers, youth services
organizations, partial hospital services, behavioral group
practices, and other providers of care.
We urge the subcommittee to include in its Medicare package
this year the provisions in H.R. 1006, the Medicare Psychiatric
Hospital Prospective Payment System Act of 1999 introduced by
Reps. Jim McCrery (R-LA) and Ben Cardin (D-MD). H.R. 1006
proposes to improve Medicare inpatient psychiatric care by
reforming how Medicare pays for services provided in free-
standing psychiatric hospitals and distinct-part psychiatric
units of general hospitals. Specifically, H.R. 1006 would move
reimbursement for psychiatric facilities to a prospective
payment system (PPS) within two years, while phasing in payment
cuts required in the Balanced Budget Act of 1997 (BBA) over the
same period.
Passage of the McCrery-Cardin PPS legislation would bring
reimbursement for this specialty group in line with
reimbursement systems for other TEFRA providers and would help
to ensure that the sudden and severe cuts imposed by the BBA on
psychiatric providers do not compromise patient care.
As a result of the BBA, 84% of psychiatric facilities that
are exempted from Medicare's prospective payment system
suffered actual payment reductions in 1998 compared to 1997,
not merely reductions in their growth rate or annual update.
These reductions compound their already negative Medicare
margins. The mean average profit margin declined from -3.0% in
1995 to -8.7% under the BBA. In addition, 6% of facilities
experienced cuts of over 20%.\1\ Moreover, the impact does not
include the first-year effect of a 15% reduction in capital
payments and a 25% reduction in bad debt payments, also enacted
as part of the BBA.
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\1\ These and other data were the findings of a March 1998 study
conducted by Health Economics Research for the National Association of
Psychiatric Health Systems on the impact of the BBA changes on
psychiatric facilities.
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H.R. 1006 would phase-in cuts required in the BBA, to be
paid back within a prospective payment system. The purpose of
H.R. 1006 is to ensure that those psychiatric facilities
hardest hit by the BBA cuts are given a reasonable time period
to adjust financially to the payment limits of the BBA while
contributing to the BBA's Medicare savings goals.
H.R. 1006 is budget neutral over four years. Whatever
Medicare savings are foregone (as estimated by the
Congressional Budget Office) as a result of the short-term
payment relief will be re-captured in the first two years of
the PPS, through an adjustment to the PPS rates.
NAPHS believes it is time for psychiatric facilities to
join other providers in the Medicare program that are paid on a
prospective basis, but patient care in the interim should not
be put at risk.
Thank you for the opportunity to present our views. Again,
we ask the Subcommittee to include H.R. 1006 in a larger
Medicare bill aimed at addressing BBA issues. It is a fair and
reasonable proposal that deserves full Congressional support.
Statement of National Rural Health Association
A real and imminent crisis is occurring in our country that
threatens to shutout a vast number of our citizens from
receiving health care as many rural and frontier providers are
teetering on the brink of reducing and eliminating essential
services. In that light, the National Rural Health Association
(NRHA) would like to share its support for the rural targeted
Balanced Budget Act of 1997 (BBA) relief priorities identified
by our diverse, grassroots membership. We believe that
collectively these priorities will secure access to vital
health care services for rural Medicare and Medicaid
beneficiaries and their families.
A report authored by the non-partisan Rural Policy Research
Institute states, ``Given low enrollment into managed care and
limited use of any Medicare risk plans in rural areas for the
foreseeable future, the impact of changes in traditional
Medicare are of vital concern for the welfare of rural
beneficiaries.'' Without rural targeted BBA reforms, the NRHA
is gravely concerned that access to basic health care services
will be jeopardized for those seniors living in rural and
frontier America.
Recognizing the need for rural targeted BBA relief, both
the House Rural Health Care Coalition and the Senate Rural
Health Caucus introduced omnibus rural health care bills
earlier this year, H.R. 1344 and S. 980, which include a number
of important BBA relief provisions. Currently 95 members of the
House of Representatives and 31 members of the Senate have
cosponsored these rural health bills--a clear indication of the
bipartisan support for rural targeted BBA relief. The NRHA's
BBA relief priorities were taken directly from provisions
included in both H.R. 1344 and S. 980, and are supported by
both the House Rural Health Care Coalition and the Senate Rural
Health Caucus.
In a recent letter to the Congress, thirty-nine of our
nation's state office of rural health directors shared, ``Over
the past 10 years state and federal programs have encouraged
our rural health providers to integrate their services. For
many rural communities, it is the hospital that provides not
only inpatient and outpatient care, but also services such as
skilled nursing, home health and ambulatory care. Because the
BBA reduces payments in each of these areas, rural hospitals
are being financially punished for having done exactly what
state and federal governments asked them to do--integrate
services. As a result, these hospitals are reducing and
eliminating services that rural beneficiaries and their
families depend on daily.''
If the BBA is fully implemented and rural hospitals,
clinics and health centers are forced to reduce services or in
some instances, close their doors, hard-to-recruit physicians
and other health care providers will leave these communities.
To reopen a rural health clinic or to recruit a primary care
practitioner back into a rural or frontier community is an
almost impossible task. That is why the Ways and Means Health
Subcommittee and the Congress must be proactive in ensuring
access to health care is not jeopardized for rural Americans.
Data from the Medicare Payment Advisory Commission
illustrates that a greater percentage of rural hospitals
experienced negative total Medicare operating margins in fiscal
year 1995 than urban hospitals -15.9 percent vs. 9.8 percent.
Of concern to the NRHA is that these numbers reflect the
financial condition of small, rural hospitals before any
portion of the payment reductions in the BBA had been enacted
and implemented.
The fact is rural hospitals and other providers depend more
on Medicare reimbursement than their urban counterparts and are
more vulnerable to payment reforms and reductions under the
BBA, because rural America has a disproportionately higher
percentage of Medicare beneficiaries. BBA relief targeted
toward rural health care providers must be enacted this year so
these providers can continue to ensure access to quality health
care for the millions of Medicare and Medicaid beneficiaries
living in rural and frontier America.
Of equal concern is the Congressional Budget Office has
projected that Medicare spending for fiscal year 1999 will be
$88.5 billion less than was anticipated when the BBA was
enacted. The result is our nation's rural hospitals, community
health centers, rural health clinics and other providers are
being asked to provide rural Medicare and Medicaid
beneficiaries with a greater number of health care services and
higher quality of care while their Medicare and Medicaid
payments are being drastically reduced beyond what the Congress
originally intended.
Because of the cumulative negative impact that reforms
contained in the BBA are beginning to have on the rural health
care delivery system, it is imperative that the rural targeted
priorities outlined below be included in any BBA relief measure
considered by your Subcommittee and the Congress this year. The
NRHA stands ready to assist and support the Ways and Means
Health Subcommittee and the Congress in guaranteeing access to
health care services for rural and frontier Americans. If you
have questions about the NRHA's BBA relief priorities or if the
association and its membership can be of further assistance to
you, please contact Darin E. Johnson, Vice President for Policy
and Public Affairs, at (202) 232-6200.
The National Rural Health Association's Rural Targeted BBA
Relief Priorities
1. Medicare Hospital Outpatient Prospective Payment System
Exempt Medicare Dependent Small Rural Hospitals and Sole
Community Hospitals from the proposed Medicare hospital
outpatient PPS system or at a minimum, establish a stop loss
measure to protect low-volume, rural providers from the
disproportionate effects of the PPS system.
The NRHA is deeply concerned with the Health Care Financing
Administration's (HCFA) proposed rule implementing a Medicare
prospective payment system (PPS) for hospital outpatient
services as defined by the BBA New estimates prepared by HCFA
demonstrate the grave impact the proposed PPS system will have
on low-volume, rural hospitals.
The NRHA understands Congress may be considering, as part
of a larger BBA relief measure, a phase-in of the proposed PPS
payment methodology as a means of protecting small, rural
hospitals from the severe impact of the proposed PPS system.
The NRHA strongly opposes a phase-in because the impact on
rural hospitals will ultimately be the same--small, rural
hospitals will be placed in a financially vulnerable situation.
A phase-in of the PPS system for hospital outpatient services
would be nothing more than a band-aid fix to a very serious
problem which merits a more viable and long-term solution.
HCFA's latest analysis on the impact of the proposed PPS
system shows that Medicare payments for hospital outpatient
services for small, rural hospitals with fewer than 50 beds
would be reduced by 13.8 percent compared to 5.7 percent for
all hospitals. In addition, total Medicare payments on average
for rural hospitals would be reduced almost twice as much as
for all hospitals (1.1 to 0.6 percent). The harsh reality is
that access to care for Medicare beneficiaries in rural areas
will be jeopardized as a result of this proposed PPS
methodology, especially when combined with other payment
reductions included in the BBA.
For some rural hospitals (25-100 beds), outpatient services
total 45 percent of total revenue compared to less than 33
percent for their urban counterparts. Many of these hospitals
already are experiencing negative operating margins, making
them extremely vulnerable to the effects of outpatient payment
reform. It appears the effect is greater on government owned
hospitals and hospitals with less than 50 beds. It is these
hospitals that are providing services to the most remote areas
of our nation, and also generally serve communities with high
Medicare populations.
2. Medicaid Reimbursement to Community Health Centers and Rural
Health Clinics
Repeal the phase-out of Medicaid cost-based reimbursement
to Federally Qualified Health Centers (FQHCs) and Rural Health
Clinics (RHCs) or as an alternative, implement a prospective
payment system that guarantees rural centers and clinics
receive equitable reimbursement.
Beginning October 1, 1999 the BBA permits state Medicaid
agencies to pay FQHCs and RHCs less than it actually costs the
rural health care provider to care for their Medicaid patients.
Moreover, the phase-out methodology used by the BBA is flawed
in that it automatically reduces reimbursement below the cost
of providing services no matter how reasonable they may be.
Such a drastic move will threaten the existence of these safety
net providers and the role they play in ensuring access to
quality health care for rural Medicaid and Medicare
beneficiaries and the uninsured.
FQHCs and RHCs provide primary care services to our
nation's most vulnerable and underserved rural populations. As
a result, these providers are extremely dependent upon Medicaid
payments to cover the cost of these services. The BBA forces
community health centers to face revenue losses that are
impossible to avoid or overcome through greater efficiencies or
cost-cutting. In the year 2000 alone, these revenue losses will
equal $100 million nationally.
According to the HCFA's own analysis, the Medicaid per
beneficiary cost is much lower in a RHC than in other provider
settings by an average of $500 per beneficiary. Such a
reduction in Medicaid reimbursement penalizes RHCs for their
efficiency in providing primary care services to rural Medicaid
beneficiaries.
The House Rural Health Care Coalition's Triple-A Rural
Health Improvement Act of 1999 (H.R. 1344) repeals the BBA's
provision phasing-out reasonable cost reimbursement to FQHCs
and RHCs. The Senate Rural Health Caucus' Promoting Health in
Rural Areas Act of 1999 (S. 980) and two free-standing bills
(S. 1277 and H.R. 2341) create an alternative Medicaid PPS
system for FQHCs and RHCs.
The PPS system provides Medicaid payments in fiscal year
2000 that are equal to 100 percent of the per visit costs of
furnishing services in 1999. Subsequent to 2000, the amount per
visit would be increased by the percentage increase in the
Medical Economic Index and adjusted for changes in scope of
services. The Senate provision would also allow states to pay
for services at rates above those provided by the Medicaid PPS
system. The NRHA would support an alternative Medicaid PPS
system if it is modified to reward cost efficient FQHCs and
RHCs and contains a federal enhanced match to encourage states
to continue paying cost-based reimbursement to these essential
providers.
3. Health Professional Shortage Area and Medically Underserved
Area Designations
Legislate the following as the Bureau of Primary Health
Care (BPHC) considers changes to the methodologies used to
define Health Professional Shortage Areas (HPSAs) and Medically
Underserved Areas (MUAs):
Require consideration of pending physician
retirements or resignations in designating HPSAs;
Require revised standards for HPSA designation
through expedited negotiated rule-making process;
Require DHHS to consider the needs of medically
underserved populations and individuals and the percentage of
the population over age 65 in developing such standards; and
Prohibit new methodology for HPSA designation if
the methodology is detrimental to rural or frontier communities
in that it results in the provision of fewer services.
Given the dramatic impact the BPHC's proposed rule to
establish a new designation methodology for Medically
Underserved Populations (MUPs) and HPSAs would have had on
federal and state programs to serve rural and frontier
underserved populations, the BPHC was recently forced to
withdraw its proposed revision to the methodology for
designating these areas.
While the current law establishing MUAs and HPSAs applies
specifically to the National Health Service Corps and Federally
Qualified Health Centers programs, a number of other important
programs impacting underserved populations are affected by
these designations. Federal programs impacted by changes in the
designation methodology include eligibility for cost-based
reimbursement to Rural Health Clinics, allocation of Health
Professions Education and Training Grant programs (Titles VII
and VIII) funding, Indian Health Professions Scholarship Grant
program, Medicare bonus payments to physicians in underserved
areas and eligibility for Medicare telehealth reimbursement. It
is critically important to take into consideration the
implication of any change in the MUA and HPSA methodologies on
these programs, as well as state sponsored programs. The
smallest change in these methodologies could put in jeopardy a
number of federal and state programs and resources providing
access to primary care services.
The BPHC's proposed methodology did not give considerable
weight to the additional needs of the nation's elderly and
Medicare population, a disproportionate number of whom reside
in rural and frontier communities. While the proposed rule
included a method for age-adjusting, several states reported
that under the proposed methodology areas with higher
percentages of elderly residents actually were disadvantaged.
Any final underserved area designation must give separate
consideration to the elderly population.
Additionally, the proposed designation did not take into
account the special needs and characteristics of our nation's
frontier population. It was likely that a number of frontier
areas would not have met the requirements to be designated as a
MUP, and therefore would not have been designated as a HPSA
even though their population to primary care practitioner ratio
was greater than 3000 to 1. The NRHA recommended in its formal
comments to the BPHC that a separate frontier area designation
process be established to take into account population density,
distance in miles to the nearest service market and time in
minutes to the nearest service market.
Given the many barriers to health care services the
proposed MUA and HPSA designation methodology may have caused
rural and frontier underserved areas, the Congress must direct
the BPHC to initiate a negotiated rule-making process to
facilitate the design of a new underserved designation that
more appropriately and effectively recognizes medically
underserved and health professional shortages areas in rural,
frontier and urban areas.
4. Critical Access Hospital Reforms
Strengthen the Medicare Rural Hospital Flexibility Program
by making the following important reforms to this program which
is maintaining essential access to basic hospital and emergency
room services for rural and frontier Americans:
Allow hospitals that closed or downsized to a
clinic within three years of enactment of this law to reopen as
or convert to a Critical Access Hospital (CAH);
Allow CAHs to choose between two options for
payment for outpatient services: (1) reasonable costs for
facility services, or (2) an all-inclusive rate which combines
facility and professional services;
Require Medicaid programs to reimburse for
services in CAHs;
Change the 96 hour length of stay limit to a 96
hour average;
Exempt CAH swing beds from PPS for skilled nursing
facilities; and
Grant CAHs deemed status that will allow for
accreditation.
The NRHA urges the Congress to adopt reforms to the
Medicare Rural Hospital Flexibility program that will further
strengthen our nation's rural health care delivery system. This
program, established by the BBA, creates an important
alternative for small, rural hospitals by providing regulatory
relief and more equitable financing options by assisting states
in proactively responding to market changes, removing
restrictive regulatory standards, and supporting network
development and regional approaches to health care. It is
vitally important the Subcommittee include the NRHA's CAH
reforms in its BBA relief legislation so this program is able
to reach its full potential.
To date, 36 state rural health plans have been approved by
HCFA, and approximately half of the estimated 1,100 eligible
small, rural hospitals nation-wide have indicated an interest
in being designated a CAH.
Extremely crucial to encouraging maximum participation in
the program is allowing CAHs to choose between two options for
payment for outpatient services: (1) reasonable costs for
facility services, or (2) an all-inclusive rate which combines
facility and professional services. The all-inclusive payment
allows hospitals to bundle physician payments into their CAH
cost-based reimbursement, which is a key financial incentive to
recruiting physicians to practice in CAHs. This option was an
important component of the successful demonstration projects
that this program is based upon--the Montana Medical Assistance
Facility program and the Essential Access Critical Hospitals/
Rural Primary Care Hospital program.
Permitting hospitals that have recently closed or downsized
to reopen or convert to a CAH is also vital to the ultimate
success of the program. This provision would allow those
facilities that have already succumbed to the overwhelming
financial pressures created by decreasing Medicare and Medicaid
reimbursement payments to continue providing essential primary
and emergency care services to their communities. Changing the
current 96 hour length of stay limitation to a 96 hour average
will also provide CAHs flexibility in caring for their
patients. In addition, it will save money from unnecessary and
costly patient transfers when only an additional day or two of
inpatient care is needed.
5. National Health Service Corps Scholarships
Exempt the National Health Service Corps (NHSC)
scholarships from federal taxation in any tax measure that
moves through the Congress this year.
This tax provision was included in the tax measure recently
approved by the Congress, but subsequently vetoed by the
President. It was also part of a broader education bill passed
last year that was again vetoed by the President because of
unrelated provisions. As demonstrated by its passage by the
Congress on two occasions, wide bipartisan and bicameral
support for this issue exists--which is vital to the NHSC's
mission of providing quality health care services to our
nation's most vulnerable populations.
In testimony submitted earlier this year to the House Ways
and Means Committee, a NHSC scholar and second year medical
student spoke of how she was forced to take out two loans--one
to cover a portion of her living expenses and the other to pay
her federal taxes--because each month more than half of her
stipend is withheld by the Internal Revenue Service (IRS) for
tax purposes.
The NHSC program plays a critical role in providing primary
health care services to rural and urban underserved
populations. The scholarship program is one of the few
incentives the NHSC has to recruit new clinicians to rural and
inner-city communities. Currently 2,400 NHSC clinicians,
including physicians, dentists, nurse practitioners, physician
assistants, nurse midwives, and mental and behavioral
professionals, provide primary care services to over 4.6
million Americans who would otherwise lack access to quality
health care.
6. Rural Impact Statements
Require the Department of Health and Human Services (DHHS),
when promulgating or proposing a regulation related to a health
care program, to include an analysis of the impact of
implementation of the regulation on rural areas, including its
impact on: (1) rural safety net providers; (2) rural primary
care providers; (3) rural hospitals; (4) FQHCs and RHCs; (5)
the economies in rural areas; and (6) rural residents.
While the NRHA recognizes the enormous burden that has been
placed upon the DHHS, specifically HCFA, as it implements the
Medicare and Medicaid reforms contained in the BBA, the
association remains extremely concerned that the Department
continues to consider, draft and implement policies that will
put access to health care in jeopardy for rural beneficiaries.
Recent regulations proposed and implemented by HCFA have not
recognized the unique needs of our nation's rural health care
delivery system.
On several occasions the BBA and members of the Senate
Finance Committee and the House Ways and Means Committee were
explicit in their intent to give special considerations to
rural providers when implementing portions of the BBA. For
example, the BBA gave specific instructions to the Secretary of
HHS to give ``special considerations'' to rural residency
programs when apply the BBA's Graduate Medical Education
reforms. These special considerations were not included in the
Department's final rule. On another occasion, members of the
Senate Finance Committee responsible for drafting the
telehealth portion of the BBA communicated that it was their
intent that ``store and forward'' telemedicine be reimbursed by
Medicare--yet the Department refused to follow these
instructions. Most recently HCFA's own analysis shows that its
proposed PPS system for Medicare hospital outpatient services
will have a disproportionate impact on low-volume rural
hospitals. However, the Administration recently proposed in its
fiscal year 2000 budget to move forward with applying the PPS
system to small, rural hospitals with a transition period.
Given these reoccurring examples of how the interests of
rural health care providers and beneficiaries are not being
taken into consideration by the DHHS as important policies are
developed, it is critical that Congress mandate that the
implication of policies and rules on the rural health care
delivery system be analyzed and receive the serious
consideration they deserve by the Department.
7. Graduate Medical Education Reforms
Legislate the following rural Graduate Medical Education
reforms to promote residency opportunities in rural and
frontier communities:
Require the Department of Health and Human
Services to provide special consideration in apply the BBA
provisions that reduced IME payments to providers and placed a
ceiling on the number of Medicare funded residencies to rural
residency programs, as well as facilities that are not located
in an underserved rural area but have established separately
accredited rural training tracks;
Increase indirect GME payments to some hospitals
by changing the way interns and residents are counted, from
including those who were in the hospital during the most recent
cost reporting period ending on or before December 31, 1996, to
those who were appointed by the hospital's medical residency
training programs for the same time period; and
Allow a hospital that sponsors only one residency
program to count one additional intern/resident for each
calendar year up to a maximum of three more than the limit
otherwise determined under this provision.
The BBA contained several Medicare GME provisions that were
intended to promote residency opportunities in rural hospitals
and ambulatory settings. The provisions were included by
Congress because studies show that GME programs located in
rural areas help to counteract persisting rural physician
shortages by attracting medical residents and physicians to
rural communities. Unfortunately, these rural specific GME
provisions were not implemented by the Secretary of HHS in her
final rule implementing the BBA.
The BBA called for the gradual reduction of IME payments to
facilities training residents, and a ceiling to be phased-in on
the number of residents for which a GME program will receive
Medicare funding. For the purpose of determining both IME and
DME payments, existing programs may not exceed the number of
resident FTEs reported in their teaching hospital on or before
December 31, 1996.
Understanding the cap on the number of residents would
restrict new and expanded residency programs in general, the
BBA recognized the importance of graduate medical training in
rural areas by instructing the Secretary of HHS to ``give
special consideration to facilities that meet the needs of
underserved rural areas.'' In addition, the Secretary was also
given discretion to modify the ceiling for new GME programs
(those established on or after January 1, 1995). Despite the
Congress' explicit guidance, the Secretary did not make any
special considerations for facilities providing rural and
frontier residency opportunities in her final rule implementing
the GME provisions.
8. Wage Indices for Skilled Nursing Facilities and Home Health
Agencies
Require that area wage adjustments for the skilled nursing
and home health care PPS systems be based on wage levels at
Skilled Nursing Facilities and Home Health Agencies.
As part of the current Medicare hospital inpatient PPS
system, HCFA uses a complex formula to determine the amount it
reimburses hospitals for providing inpatient services to
Medicare beneficiaries. About three-quarters of that payment is
increased or decreased by applying a hospital wage index which
is intended to adjust for the fact that market wage rates for
nurses and other hospital employees vary somewhat across the
country.
The current index actually goes well beyond its original
intent in that it not only makes adjustments for differences in
local wage rates, but it also rewards hospitals in areas,
mostly urban, where a greater than average number of employees
are hired. As a result of this methodology, the wage index
varies greatly between urban and rural hospitals--the primary
reason Medicare reimbursement to rural hospitals is lower and
their resulting Medicare inpatient margins are less than half
of urban hospitals (4.4 versus 9.7 percent in 1995).
The BBA mandated that HCFA develop new PPS systems for
hospital outpatient services, skilled nursing and home health
care. HCFA has signaled that it plans to apply the currently
flawed wage index, which was created specifically for the
hospital inpatient PPS system, to the payment systems for
hospital outpatient services, home health care, and skilled
nursing. The NRHA believes only wage rates relevant to the
specific services providing in these settings should be used.
In addition, the hospital wage index, as well as the wage
indices used by the new PPS systems for hospital outpatient
services, home health care and skilled nursing, should be
changed to reflect only legitimate differences in area wage
rates, not average per employee expenditures that are biased
toward facilities in urban areas.
9. Medicare Rural Waiver
For purposes of Medicare payments, establish a waiver
process to allow rural providers located in Metropolitan
Statistical Areas (MSAs) to be classified as ``rural'' if they
are located: (1) in a rural area as defined by the Goldsmith
Modification published in the Federal Register on February 27,
1992; (2) outside of an urbanized area as defined by the U.S.
Census Bureau; or (3) in an area designated by a State as
rural.
The definition of a rural area currently used by HCFA for
purposes of Medicare reimbursement does not recognize certain
hospitals and other providers that are indeed located in rural
and frontier areas. Because the federal definition of rural is
based solely on whole-county urban or rural classification,
some rural hospitals, community health centers and rural health
clinics cannot participate in Medicare programs designed to
help preserve access to care for rural Medicare beneficiaries
and their families. These important programs include the
Medicare Rural Hospital Flexibility/Critical Access Hospital
program, the Medicare Dependent Hospital and Sole Community
Hospital programs and the Rural Health Clinics program. The
supplemental payments made to rural providers by these programs
are frequently the primary reason for their continued viability
and existence.
As defined by law, the Medicare program currently defines
``rural'' as any area that is outside of a Metropolitan
Statistical Area (MSA) as defined by the Office of Management
and Budget. MSAs are defined along county lines and may include
one or more counties. This definition ignores such important
factors as geography, demography, transportation, and economics
in defining rural and urban areas.
For purposes of determining eligibility for federal grant
programs, the Federal Office of Rural Health Policy uses the
Census Bureau's rural census tracts which recognize rural areas
within MSA counties. In addition, both the Department of
Agriculture and the Federal Communications Commission have
adopted this rural definition for their rural-focused programs.
Rural hospitals, health centers and clinics that are currently
located in MSA counties do not have the ability to obtain
reclassification from urban to rural status.
Statement of Organizations of Academic Family Medicine
Dear Mr. Chairman: The Organizations of Academic Family
Medicine, on behalf of faculty, researchers, program directors,
and chairs of departments of family medicine, appreciate the
opportunity to provide input to this Committee in its current
deliberations over the Balanced Budget Act (BBA) of 1997. You
have heard from some major sectors of the provider community
regarding problems or untoward effects of the BBA. We would
like to address a small, but critically important piece of the
BBA that has had an unintended consequence of
disproportionately harming training of one specialty in
particular, family practice.
The Balanced Budget Act of 1997 (BBA) was intended, in
part, to remove statutory impediments to ambulatory, non-
hospital based training. Although we support the intent of the
provisions of the BBA, the reality of how they function has
been detrimental to ambulatory training, particularly family
medicine residencies, the very ones that historically have
conducted ambulatory training. Implementation of the BBA also
does not support production of rural physicians in a way that
would be in keeping with the intent of the statute.
Changes in the BBA Disproportionately Harm Production of
Family Physicians
Although ostensibly the BBA is supposed to have leveled the playing
field and removed disincentives to ambulatory training, we find it to
be just the opposite for family medicine graduate training. Many
believe that the recent changes to Medicare graduate medical education
funding (as passed in the Balanced Budget Act (BBA) of 1997), such as
the capping of residency slots, will help reduce the nation's total
production of physicians, while protecting the production of physicians
who serve in rural areas. Unfortunately, this is not the case.
While we wholeheartedly support the intent of the statutory
changes, their implementation has had two unintended consequences: (1)
penalizing family practice programs that have historically sent
residents for training in non-hospital settings, including rural site
rotations, while promoting such training for other specialties, and (2)
restricting the growth of family practice programs, when 21 percent of
family physicians serve in rural areas. Moreover, implementation of the
BBA has prohibited payment of graduate medical education funds in the
future to newly established, separately accredited rural training
tracks. These programs, which of necessity are sponsored by non-rural
institutions, have proven track records of producing graduates to serve
in rural areas. These consequences are especially troubling since
Congress intended support for production of rural physicians.
BBA Causes Reductions in Both Programs and Residents in Family Practice
The Association of Family Practice Residency Directors (AFPRD)
surveyed family practice residencies earlier this year. The evidence
that family practice programs have been hurt by the BBA is compelling.
Overall, 10 percent of programs have been told by their sponsoring
institutions to decrease their number of residents (45 programs).
Twenty-three percent have been told that it would be likely that they
would be asked to reduce their number of residents in the future.
Eleven percent have plans to increase the number of residents. In
addition, the ACGME reports eleven programs have begun the process of
closing down (since August, 1997), and two more have just announced
their closure. Three of the thirteen programs that have closed or are
closing are rural tracks. These figures do not include those closing
due to mergers.
It is important to note that this is the first year that programs
have reduced their number of residents. There had been a net increase
of 11 to 12 programs per year, between '90 and '97. Family practice
residencies expanded by approximately 18-22\1/2\ percent during that
time, from 380 programs to 470. Typically, 1 to 2 programs close each
year. Thirteen programs closing in the three years since the BBA was
passed is unusually high.
Rural Programs Harmed, in Spite of Unqualified Success
The impact is especially telling when one looks at rural training
tracks. Not only have 20 percent of rural tracks stated that they plan
to decrease their number of residents, but the BBA does not allow
payment of GME funds to newly established training tracks.
Among the 474 family medicine residency programs in this country,
29 have made special provision to train family physicians for rural
practice. They have established separately accredited rural training
tracks. Our organizations recently collected information from these
programs regarding the practice location of each program's graduates.
(Data was unavailable from 7 programs--1 had closed, 5 were too new to
have had any graduates yet, and 1 did not respond to our request for
information.)
These programs are a true success story. Over half of the programs
had a 100 percent retention of graduates in rural (non-MSA) areas.
Overall, 76.0 percent (136 of 179) of the graduated residents were
serving rural communities, the majority of those in the state of
residency training. Even more impressive, new programs had an even
higher rate of success. Of programs begun within the last 10 years, 88
percent (94 of 107) of graduates provided care in a rural, non-MSA
county.
This compelling data is even more striking when compared with the
performance of other types of residency programs. According to the AAFP
Center for Research in Family Practice and Primary Care, nationally,
among all non-Federal allopathic family physicians actively providing
patient care in 1997, 21.0 percent practiced in rural, non-MSA
counties. For the other 2 primary care specialties, general internal
medicine and pediatrics, the figures were much lower--just 8.0 percent
and 7.4 percent in rural practice respectively.
What Can Be Done?
There is legislation on hand that would correct these problems with
minimal cost to the Medicare program. In the House, H.R. 1222,
introduced by Rep. Baldacci, and a companion bill, S. 541, in the
Senate, (introduced by Senators Collins (ME) and Murkowski (AK))
address these concerns. Moreover, the content of these bills has been
incorporated into both the House and Senate omnibus rural health bills
(H.R. 1344 and S. 980)
These bills include technical legislative changes to alleviate some
untoward effects of the Balanced Budget Act of 1997 that are beginning
to have grave consequences for family medicine residency programs. As
you know, the statute put in place hospital-specific caps on the
numbers of full time equivalent residents Medicare would pay for under
GME. It also finally allowed for the counting of residents who spend
time training out of the hospital in ambulatory settings for the
purposes of reimbursement by Medicare. The bill also directs the
Secretary to give special consideration to facilities that meet the
needs of underserved rural areas. These are all changes academic family
medicine supports wholeheartedly.
Unfortunately the language used in the BBA to carry out these GME
changes has created disproportionate harmful effects on family practice
residencies. The bills would solve these problems by:
1. Recalculating the IME and DME caps based on the number of
interns and residents who were appointed by the approved medical
residency training programs for FY 1996, whether they were being
trained in the hospital or in the community. Currently only programs
prospectively introducing ambulatory training will be allowed to have
those positions supported by Medicare.
The impact has been disproportionately harmful to family practice
programs because the hospitals in which they were located were not
allowed to count the residents they had serving in community settings
in the cap. Only family practice residents are trained extensively out
of the hospital and only family practice residencies were significantly
harmed by this provision in the BBA.
2. Changing the cut-off date for adjusting the DME funding cap to
September 30, 1999. Approximately 10 family medicine programs were ``in
the pipeline'' for ACGME accreditation at the time of passage of the
BBA. We believe that very few programs other than these would also fall
into this window, since family medicine was one of very few specialties
that were in a growth cycle.
3. Expanding the exception to the funding caps to include programs
with separately accredited rural training tracks even if the sponsoring
hospital is not located in a rural area, and for residency programs
which are the only one offered in a given hospital.
The inability to initiate rural training tracks affects only family
practice residencies. While these rural tracks require separate
accreditation, they are sponsored by an existing, non-rural program and
not allowed to expand because of the resident caps. This inhibits the
ability to respond to the need for family practitioners in rural areas.
The average rural training track has four residents, two in each of the
2nd and 3rd years of training. Based on this, the number of residents
that would be added with additional rural training tracks would be
modest.
The ACGME has indicated that only approximately 300 programs exist
nationally as single programs within hospitals. Of this number 191 are
family practice programs. The rest are exceptions across specialties,
and most are extremely small. All other programs of any specialty would
be able to grow to meet community needs based on a diminution of other
specialty slots within the 1996 cap on FTE's. The cost of the exclusion
from the cap of the hospitals that sponsor only one family practice
residency should be minimal. Most of the family practice programs are
located in small community hospitals. The programs are smaller than the
national average, and we believe they cannot expand a great deal
because the infrastructure needed to support larger programs is not
available. For example, nationally, the average size of a family
practice program is 27 residents; the average size of those family
practice programs that are the sole program in its hospital is just
under 21 residents.
In conclusion, we are asking that as this committee puts together a
package of ``fixes'' to the BBA of 1997, that you keep in mind the
concerns we have raised in this statement. Changes in the BBA, which
purportedly support training in the ambulatory setting, have had a
negative effect on family medicine training programs, the very ones
that historically have conducted ambulatory training. Implementation of
the BBA also does not support production of rural physicians in a way
that would be in keeping with the intent of the statute. We hope that
the committee will choose to incorporate H.R. 1222, the GME technical
amendments of 1999, into the ``BBA fix'' vehicle that will be passed,
to correct these problems.
We appreciate the opportunity to provide input and hope that you
can support this legislation as you deliberate.
Congress of the United States
House of Representatives
September 30, 1999
The Honorable William M. Thomas
Chairman, Health Subcommittee
1136 Longworth HOB
Washington, DC 20515
Dear Mr. Chairman:
As you and the Health Subcommittee deliberate over possible
Medicare refinement language to Balance Budget Act of 1997, I urge you
to consider a proposal that will have an immediate and positive impact
upon Medicare beneficiaries. This proposal will help ensure that
seniors are not charged excessive coinsurance payments for hospital
outpatient services provided under Medicare Part B.
The BBA strengthened Medicare for our nation's seniors in many
ways. One of these improvements was to ensure that beneficiaries pay a
true 20% coinsurance payment for hospital outpatient services. However,
beneficiaries are being charged 20% of the hospitals submitted charges,
rather than 20% of the Medicare reimbursement rate which is a lower
dollar amount. As a result, beneficiaries are paying as much as 50% of
the total payment for services.
As you are aware, Section 4523 of the BBA intended to correct this
problem through a gradual reduction in Medicare beneficiaries'
outpatient coinsurance payments. Unfortunately, the Medicare Payment
Advisory Commission has estimated that this phase-in period may take as
long as 40 years. I do not believe Congress intended that it take 40
years to implement this policy to achieve fairness for our nation's
Medicare beneficiaries. Our nation's Seniors should not have to
continue to bear higher Medicare costs through high coinsurance
payments and potential increases in Medigap insurance premiums.
I have enclosed a proposal for your consideration, the Senior
Citizens' Hospital Outpatient Coinsurance Relief Act, which will ensure
that Congress fulfills its promise of fairer, more equitable
coinsurance for Medicare hospital outpatient services. This proposal
will phase in the true 20% coinsurance over a four-year period.
I believe it is very important that we include this measure in any
Medicare reform or BBA correction this year. I urge you to consider
this proposal--we ow it to our senior citizens! Thank you for your
consideration of this important issue.
Sincerely,
Bob Riley
Member of Congress
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[GRAPHIC] [TIFF OMITTED] T5699.012
The Honorable William Thomas
Chairman, Subcommittee on Health
House Ways & Means Committee
U.S. House of Representatiaves
Washington, DC 20515
Dear Mr. Chairman:
We are writing to express our concern with an issue of utmost
importance to senior Medicare beneficiaries. This is the problem of
excessive overcharges of hospital outpatient beneficiary co-payments.
When it comes to most hospital outpatient services, Medicare
beneficiaries pay significantly more than the usual 20% co-insurance
that they assume they are being charged. In fact, in its March 1999
report to Congress, the Medicare Payment Advisory Commission (MEDPAC)
reported that ``beneficiaries are liable for nearly 50% of the total
payment to hospitals for these services, compared with 20% for most
other Medicare covered services.''
The MEDPAC report also states that this disproportionate
beneficiary share for hospital out-patient services stems from
calculating coinsurance as 20% of the hospitals' charges, while the
Medicare program share is calculated as the lesser of costs or charges
net of the beneficiary co-payment. Since hospitals' charges are
generally much higher than their costs, beneficiaries are responsible
for a larger share for the total payment.
This is unfair public deception and an abuse of senior
beneficiaries! This problem needs to be fixed immediately. Medicare
beneficiaries are being unduly charged these excessive co-payment
amounts. Even if beneficiaries have supplemental insurance, they are
feeling the effects of rising double-digit rate increases as a result
of these excessive charges. We are very concerned about this trend.
Congress has already acknowledged the inequity of this problem and
attempted to correct it in the Balanced Budget Act of 1997 (BBA). That
act includes a provision that, over time, would reduce the beneficiary
co-payment by adjusting the shares of payment under the outpatient
Prospective Payment System. However, the problem today is that this
reduction of the co-payment amount to a true 20% could take decades to
phase in completely. In some cases, it has been estimated that it will
take 20 to 40 years to fully phase in. This is unacceptable. This co-
insurance reduction should occur at a much faster rate than currently
established under the BBA. In its report to Congress, MEDPAC agrees
with this.
Attached is a draft bill that would have the effect of reducing the
beneficiaries' co-payment to a true 20% over a four-year period. The
bill would indeed provide faster relief to our senior Medicare
beneficiaries. This bill is consistent with the original intent of
Medicare in that beneficiaries would only share to the extent of 20% of
the Medicare approved charges. It is also consistent with the intent of
BBA '97 because it would reduce the co-payment share within a
reasonable time.
We ask that you include this bill in any Medicare legislation that
is advanced in Congress this year, and specifically request that you
include this proposal in the Finance Committee package. This is a fair
solution to all interested parties. It merely provides a permanent
solution to a problem that Congress has long recognized.
Sincerely,
John J. Powell
Vice President for Government Relations
Seniors Coalition
Nona Bear Wegner
President
Council for Affordable Health Insurance
Robert C. Conover
President
Christian Senior Alliance
Jim Martin
President
60-Plus
Major General Richard D. Murray
USA (Ret.), President
National Association for Uniformed Services
Mike Zabco
Executive Director
TREA Senior Citizens League
Beau Boulter
Legislative Counsel
United Seniors Association
Kermit N. Richardson
National President
The National Grange
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